On the surface with SPX down ~1 pt, the broad market held up very well, hanging onto rally gains. It’s also pretty impressive considering the underlying story in which the momentum/ M&A tech trade underwent liquidation reminiscent of years past.
First the boring stuff, the rotation we touched on this weekend continued, BKX (financials) is now the best group in October, commodities and linked stocks performed well against the USD backdrop (USD -Euro-QEII helped by weak ADP number). Tech was again the exit point, but the big wigs AAPL,CSCO,ORCL etc played 'safe haven'.
In the previous Journal, we touched on 'not' holding into earning because if the report is not up to snuff, the stock will be pummelled. Unfortunately, little did we know the the collateral damage would hit the sector in question as it did today with the 'Cloud' and than anything closely related to a slight miss. The culprits for getting the peer liquidation started, EQIX (data center) and AU.London (software) only guided for a slight revenue cuts (2-3%), EQIX even raised EBITDA. Competition-pricing, risks listed in all company disclosures were the overwhelming factors that shorts exercised in their favor. The only ones to getaway today were NZ PAR ARST , which have been gobbled up. Everything from application delivery ( FFIV RVBD ), virtualization (VMW RHT ), software (CRM (uses cloud), CTXS ) , rumoured M&A targets ISLN RDWR CVLT FTNT TDC all sustained big losses, some in the 10% range. Selling pressure of this magnitude usually doesn't last 1 day, so it will be interesting tomorrow if there is more fight in the shorts, who finally found something to press positions in. The way shorts act in the broader market lately, they will give up fast once they feel the trade is not working any longer and will be squeezed.
To put this 'cloudy' day into perspective, ask one question. Do shorts or the acquiring executives at IBM, HPQ DELL, CSCO know better???. Easy answer, cloud is the only growth shift going on, besides anything smartphone related. One good report, one acquisition and it will be sunny and not cloudy days in the forecast.