Friday Four Play: The “Under Pressure” Edition
Pressure, pushing down on me. Pressing down on you. No trader asked for.
Under pressure that burns a market down, splits a portfolio in two … puts bears on streets.
(Um ba ba be. Um ba ba be. Dow down 3%. Tech down 5%. That’s OK!)
It’s the terror of knowing what this market’s about. Watching some good stocks scream: “Let me out!”
Pray tomorrow gets Wall Street higher. Pressure on investors. Bears on streets.
One day of stocks under pressure. That’s all it took. The financial media is already calling yesterday a “bloodbath.”
Back in my day, bloodbaths were reserved for much bigger sell-offs … and we walked uphill both ways to trade in person on the New York Stock Exchange. None of this fancy-schmancy computer trading. No sir!
Let’s put yesterday’s bloodbath in perspective. Heading into the September 3 drop, the S&P 500 Index had rallied some 63% from its March lows, the Dow 60% and the Nasdaq a whopping 82%.
Furthermore, in the prior 10 trading days, both the S&P 500 and the Nasdaq closed higher nine times.
Nine times?
Nine. Times.
This is a bloodbath?
If a 3% to 5% decline amid this monster rally is a bloodbath, I hate to think what sensational superlatives the financial media will pull out of their repertoire when a real correction happens.
Which could be … now?
The market attempted to turn higher following a better-than-expected August jobs report. The U.S. economy added 1.37 million jobs and the unemployment rate unexpectedly fell to 8.4%.
But that wasn’t enough to stem the selling, as stocks ended lower heading into the three-day Labor Day weekend. Three days with no Robinhood? How will we survive?
Still, I’m not willing to call this week’s selling a bloodbath. I wouldn’t even call a 10% decline a bloodbath. I’d call that a normal reaction to Wall Street’s irrational exuberance. Call me when we’re down 15% to 20% from all-time highs, then we’ll talk.
But, Mr. Great Stuff, can’t we give the market one more chance?
Why can’t we give bulls that one more chance?
Don’t worry, dear reader … this isn’t the market’s last dance.
This is Wall Street … under pressure.
And who knows more about things under pressure than our own rocket surgeon turned volatility expert, Michael Carr.
Here with Mike Carr, you’ll feel safest of all. You can lock all your doors, it’s the only way to trade volatility.
You’ve got one shot. One Trade. Make it!
And now for something completely different … it’s time for your Friday Four Play.
No. 1: Far From the Tree
Yesterday’s so-called bloodbath mainly centered around tech stocks. And no tech stock is raining blood more than Apple Inc. (Nasdaq: AAPL).
Apple shares plunged more than 8% on the day. We’ve seen worse slides for other stocks this year — March, anyone? — so an 8% drop doesn’t really sound all that bad. However, the decline cost Apple $180 billion in market capitalization. That’s roughly the valuation of the 37 smallest companies in the S&P 500 combined.
According to Barron’s, that’s the biggest single-day loss for any company … ever.
The previous single-day record — a 44% decline that resulted in $153 billion in lost value — was held by Volkswagen AG (OTC: VWAGY).
AAPL is now down roughly 15% from its split-adjusted high of $137.98 on Wednesday.
Honestly, investors shouldn’t be too surprised. With AAPL up more than 160% off its March lows, profit-taking was bound to happen sooner or later. But investors shouldn’t be too worried. Price support should emerge near $115, with a solid buying opportunity emerging near $100.
I’d be very surprised to see AAPL fall below $100 in the current market environment. Barring a major market event, the $100-to-$115 range looks like a buying opportunity.
No. 2: Docu … What?
Think Apple’s 8% drop was bad? Let me introduce you to DocuSign Inc. (Nasdaq: DOCU).
After plunging 9% during Thursday’s tech terror, DOCU shares fell another 11.5% today. What heinous crime did the cloud-based e-signature and security company commit to deserve this treatment?
Why, it had the audacity to report strong second-quarter earnings and lift its full-year outlook.
- Earnings: A loss of $0.17 per share versus expectations for a loss of $0.08 per share.
- Revenue: $342.2 million versus expectations for $320 million.
Sales were up 45% from last year, so you know these aren’t lowered expectation numbers. Furthermore, billings rose 61% year over year.
And if that wasn’t enough, DocuSign lifted its full-year revenue target to $1.38 billion, well ahead of prior guidance for $1.31 billion and Wall Street’s target.
As you can tell from today’s reaction, DocuSign is a victim of irrational enthusiasm in tech stocks — especially those that benefited from the stay-at-home market. This two-day selling spree could be a massive buying opportunity for DOCU bulls.
No. 3: Let’s Go, Nio! Let’s Go, Nio!
Did someone say tech enthusiasm?!
As if summoned by the tech turbulence, Nio Inc. (NYSE: NIO) stormed into the fray today with its best news since … well, it’s been a while, but I swore it had good news at some point.
Other than the electric vehicle (EV) maker’s monstrous 738% rally from its March lows, that is.
Nio put out record-breaking results in its earnings report — enough that even this Tesla bull nearly shed a tear.
I always believed in you, Nio. I mean, I didn’t, but it would’ve been nice to.
August deliveries jumped 104.1% year over year, hitting 3,965 vehicles shipped last month.
The notably sealed-lip CEO William Li was overjoyed at the news, saying: “In August, we achieved our best-ever monthly performance on both deliveries and order growth.”
Fresh with new funding in hand, Nio targeted the moon for next quarter, predicting 11,000 to 11,500 vehicles delivered in the third quarter. You know what that means! Another record-breaking blowout to meet the goal.
The real meat of the Nio matter was Li’s talk of an assembly line overhaul, letting the EV maker churn out up to 5,000 vehicles a month. Just like Tesla Inc. (Nasdaq: TSLA) was once, Nio is at the crossroads of deliveries and expectations.
The Tesla comparisons end there, and we’re not in the neat-and-tidy Silicon Valley game anymore. This is China, baby! And China’s backing behind NIO is a wild card bet in the shuffling poker match between Nio and Tesla.
What do you think? (Yes, you!) Is Nio little more than the mosquito around Tesla’s neck? Or will it be big trouble in China for the Musk man? Let us know at GreatStuffToday@banyanhill.com.
No. 4: Bank It
Not everything is awash in red this week. Banking stocks actually gained ground in the market turmoil.
In particular, both J.P. Morgan Chase & Co. (NYSE: JPM) and Bank of America Corp. (NYSE: BAC) bucked the downtrend.
The reason? Sweet, sweet undervaluation, says Deutsche Bank Analyst Matt O’Connor.
O’Conner lifted both BAC and JPM from “hold” to “buy,” with JPM getting an extra boost with a price target increase from $105 to $115. In a note to clients O’Conner said:
But while the overall market has rallied, bank stocks have continued to lag — we believe mostly due to revenue growth concerns (prolonged low rates and weak loan growth) as well as an uncertain credit outlook.
Weak loan growth, uncertain credit outlook and revenue growth all seem like pretty good reasons to me for underperformance. But, to O’Connor, they’re mere sideshows to JPM and BAC’s weak price action since the March bottom.
Personally, I believe that banking stocks like JPM and BAC are fairly valued right now. They didn’t experience the insane bullish run-ups that tech stocks have. Furthermore, the recent tech bloodbath may, in fact, be a sign that Wall Street is rotating out of high-flying tech and into more stable, less irrational stocks.
Banking stocks have long been that bastion of sanity.
Well, outside of the 2008 financial crisis, that is.
Great Stuff: Who’s Thinking About ‘08 Anyway?
So that’s this bloodbath covered … I sincerely hope you’re staying well out there, reader!
If this week took you by surprise, well, it really shouldn’t have if you’ve kept up with the Great Stuff gang these last few months. We’ve been craving realism since the early steamy days of summer. Granted, not much has changed, but we’re getting there.
Want to write to us? (Yes, yes you do!) Do your part to give us an earful with whatever’s on your mighty mind, stock news or otherwise! GreatStuffToday@banyanhill.com is the place; now’s the time.
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff