It has been a while since we have seen a sell-off like we had today. Momentum stocks that had already been beaten up to start October, took a more painful turn - stocks like $SHOP which opened the month near $167, closed at $130. SaaS and cloud computing companies, which had been high fliers into the summer with many names up over 100%, took a beating as well. $RHT, $CRM, $AYX, $MDB, $NOW, and others were taken to the woodshed. There was no analyst note. No sector catalyst. No POTUS tweet. There were just more sellers than buyers. Take a look for yourself and make sure the kids are in the other room:
Painful action. A great point to todays sell-off was that many traders have not seen something like this before. Tech stocks endured their worst session since 2011, a nice read here : https://medium.com/@scheplick/i-survived-the-great-bear-market-of-10-10-5714f95dae8b
'Buy the dip' has been the mantra for many traders the past few years and it has worked. Like a lawnmower, it works until it doesn't. I posted on Twitter last week around AMZN to help put things in perspective:
People forget $AMZN was a $980 stock exactly one year ago… since then it is up 93.66% or nearly $450 billion in market cap … they certainly did not create that value in 1 year, folks are still just catching on
— Option Millionaires (@OMillionaires) October 5, 2018
And then I posted another tweet today in reference to some of the big moves:
Captain obvious here but just remember that just because a stock is off 20%, or $90 from its highs doesn’t mean it can’t keep going lower…
Market has conditioned many like lab rats to buy the dip, YTD gains amassed over months can disappear in a few days
— Option Millionaires (@OMillionaires) October 10, 2018
Maybe buy the dip' works tomorrow. Maybe not. But my concern is the amount of messages I received from folks in longer dated calls who are accustomed to stocks going back to normal: 'Should I stay in my AMZN Jan $2200 calls I am down 33%?" , ' I have NFLX March $450 calls, they are down 40% should I sell?'. Maybe NFLX breaks back over $400 when they report earnings next week. Maybe AMZN is back over $2000 after their report. But there is certainly a risk, with both stocks up over 65% on a year-over-year basis, that they come back down without any catalyst. I remember the days where I would have to debate with someone to rationalize my bullish case on NFLX at $40, now its hard to find anyone who is bearish the name. Same with AMZN in the $100s and $200s.
Anyone who traded back in 2007/2008 saw some crazy stuff. Even during the Euro crisis in 2011, one could leave for a week vacation and find some of your favorite momentum stocks chopped in half when you returned. I am not saying that happens here, just think so many are trained to think it can't in this current market, that it will at some point.
This market has climbed the wall of worry for so long. There are so many catalyst that bears had cited for the stocks to collapse over the years I forget them all. UPB wrote about some of them here:
This move today has no true name or catalyst. Folks will say it is rising Yields but are we that much further along then we were in May?
Sell-offs with no catalyst are the ones that scare me the most.
Last, but not least about today's sell-off, was the lack of a bounce. If folks thought stocks were on sale there would be some bid support. There was none. Selling volume actually picked up into the close. I think there is more downside coming and the S&P has a date with the 200dma:
Will have an update tomorrow after the close. Happy & Cautious trading all!