To state the obvious, the price action yesterday in media stocks was atrocious, with both Disney (DIS) and Time Warner (TWX) closing down about 9%. What’s troubling about a one day moves of that magnitude was clearly that they were from all time highs, after massive out-performance, with both stocks closing the session very near their lows… on huge volume. Both stocks found support where they should have, DIS at $110 and TWX at $80 but let’s see if they can hold these important technical levels in the days to come.
Yesterday in this space we discussed (Escalator Up, Elevator Down) what can be the doubled edged sword of the loss of market leaders like Apple (AAPL) and DIS, some times it can mark a sentiment shift, while other times it can merely be a sign that the rally is broadening out as investors look to reallocate towards laggards from crowded much loved trades. The jury is still out, but it is hard to ignore what seems like every day another massive stock decline where it appears that investors shot first and asked questions later. Today’s example is Tesla (TSLA) down 8% in the pre-market. The 15% one day gaps from Amazon (AMZN), Google (GOOGL) and Netflix (NFLX) all the way back in July following better than expected results seems like a distant memory, and very much like they were outliers.
The data is going to suggest that the beat rate for Q2 results was ok, but it is important to remember that Q2 earnings estimates by analysts got clobbered during the quarter, after expecting a modest Q2 increase on April 1st, by June 30th consensus called for a 4.6% decline for S&P 500 earnings (per FactSet).
One bright-spot on the sector side throughout the first half of 2015 had been Consumer Discretionary stocks, and even after yesterday’s bloodbath in media stocks, the XLY (consumer discretionary etf of which DIS is the 2nd largest, CMCSA 4th largest and TWX 9th largest holdings) is still up 11% on the year. If media stocks can’t find their footing, the XLY could be an attractive short back to the low end of the consolidation range since February:
The thinking here would be that if four media stocks (DIS, CMCSA, TWX & FOXA), that make up about 20% of the weight of the etf are out for the count, and the crowded trades like AMZN, PCLN, NFLX, SBUX, NKE and HD are near as good as it gets territory, then we could be on to something here. Stay tuned.