Blindsided by strength! Traditionally when you have a day like Monday it leads to a modest bounce back that allows shorts to remount new positions that they covered into the depths of despair, and longs sell positions just to incur small losses or to break even. But that was the market prior to 2009. Since the QE regime began and as high frequency trading programs have increasingly dominated the markets, traditional human emotions/reactions have faded. For those who have been trading the past few years the "V-shaped" recovery is a commonly used term. That is a market that turns on a dime and just blasts upward in continuous fashion leaving underinvested longs and bears awed in its tracks. Today was one of those days. For no particular reason at all, stocks rallied very strongly with the S&P 500 up 1.27% and the NASDAQ 1.04%. Buying was widespread and across the board.
The rebound in the S&P 500 was so strong it took the index back to the low end of the ascending channel although a small sell program in the closing moments of the day - the only real selling on Wednesday - pushed it slightly below at the close.
The NASDAQ recaptured those spring 2012 highs and remains in this range it has been for weeks.
Our NYSE McClellan Oscillator has regained about 50 points in 2 sessions - a massive move.
Lately we mentioned the weak cyclicals; there was a comment yesterday asking to explain a bit. In a strengthening economy we want to see pro cyclical groups leading the market - areas such as financials, semiconductors, energy, industrials and materials. This would indicate the markets are rallying due to economic expansion rather than say multiple expansion or "Ben Bernanke is forcing the market up with a flood of liquidity." That had been missing lately as all the strength was focused on consumers staples and utilities, etc. Here is a good index to follow if you use stockcharts.com for how cyclicals are doing - you can see they broadly beat the market today by a 2:1 ratio.
One star of the day was LinkedIn (LNKD) which surged on two upgrades and has been one of the trio of new go to momentum leaders along with Google (GOOG) and Netflix (NFLX).
Evercore’s Ken Sena raised his price estimate to $200 from $160 and wrote in a research report today that LinkedIn could reach $280 within five years. Blake Harper at Wunderlich initiated coverage with a buy rating and a $195 target price. “While LinkedIn has a large consumer-facing audience component, its businesses are increasingly akin to software enterprise providers,” Sena wrote. Those companies have“sticky subscription revenue streams, vast addressable markets” and high margins, he said.
On the not so bright side, Groupon (GRPN) reported after the bell and was creamed in the after hours sessions to the tune of a 26% loss. If the print in the $4.40s holds tomorrow it will have lost 3 months worth of gains.
Groupon Inc lost a quarter of its market value on Wednesday after the company began to take a smaller cut of revenue on daily deals, sacrificing revenue and profits to attract and keep merchants. "This raises questions about how these guys are going to be able to scale the business," said Tom White, an analyst at Macquarie. "The forecast is underwhelming."