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Dave & Donald Moenning

Mr. David Moenning is a full-time professional money manager and is the President and Chief Investment Officer for his Chicago-based Registered Investment Advisory firm, Heritage Capital Management (...

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Product Performance

Friday's Downside: The Fun Didn't Last Long

The timing of Friday's dance to the downside, which seemingly came out of nowhere, was a bit eerie.

No sooner had we penned a piece talking about the need to have a plan of action the next time the bears come to call than our furry friends seemed to suddenly awaken.

As is usually the case on the first Friday of each month, the majority of market watchers were focused on the Jobs data. The Bureau of Labor Statistics reported that Nonfarm Payrolls, which is one of the most closely followed gauges regarding the state of the economy, increased by 192K in the month of March.

The number of new jobs was slightly below the consensus estimates for an increase of 197K and in line with February’s revised 197K. However, the revisions to the prior two months reports were significant as February’s totals were upped by 22K to 197K while January’s job total was revised higher by 15K to 144K.

Stock futures improved after the report was released and it looked like Friday was setting up to be a bullish event. The S&P (NYSE: SPY) opened at a new all-time high and both DJIA (NYSE: DIA) and Midcap (NYSE: MDY) indices joined in on the new high fun.

However, the joyride to the upside didn't last long. 

The Real Key To Friday Was Simple

The bottom line here is simple. Don't listen to the popular press. Friday's decline had NOTHING to do with the Jobs report. Or the Fed. Or China (NYSE: FXI). Or Russia (NYSE: RSX). Or the economy...

See also: Biotechs Struggling To Find A Bottom

No, the almost instantaneous reversal from new all-time highs and the ensuing shellacking of the indices was all about "the trade." And right now, "the trade" that the big boys are playing is to sell the heck out of the former momentum leaders in the areas of Biotechnology (NYSE: XBI), Social Media (NASDAQ: SOCL), and Internet (NYSE: FDN).

Mo-Mo Stocks Under Attack

In case you haven't been paying close attention, the mo-mo names (aka the momentum oriented trades that tend to get overdone to the upside) have fallen out of favor lately.

For example, Amazon.com (NASDAQ: AMZN) is down -20.6 percent from its January high.

Yelp (NASDAQ: YELP) has crashed -32.9 percent in just over a month.

And Twitter (NASDAQ: TWTR), which had seen shares spike from the November IPO price of $44.50 to $73.31 (a gain of 65 percent) in a month and a half, has been beaten unmercifully for a loss of -38 percent since mid-December.

Biotech has been no picnic either as the SPDR S&P Biotech ETF (NYSE: XBI) has fallen -21.8 percent since the end of February.

Now compare the charts above to that of the venerable S&P 500 index and note the striking divergence seen over the last couple of months between the "mo-mo" crowd and the broad market.

A Bad Day or Problems Coming Home To Roost?

As the chart of the S&P 500 clearly illustrates, the overall market has largely ignored the fact that the mo-mo names have been taken out back behind the woodshed recently. But up until Friday morning, this was a "trade" that the hedgies had been playing and only the "fast money" geniuses worried about.

However, with the Dow and S&P popping their heads up into fresh all-time high territory, it appears that the powers-that-be decided it was time to shake things up and try a trade to the downside.

Maybe the fact that it was Friday was the reason buyers simply stood aside as wave after wave of sell programs hit the market. Maybe it was the fact that valuations have gotten a little rich lately. Maybe it was the fact that May is coming - and the bottom line here is that just about everybody on the planet is looking for a solid "Sell in May and go away" trade this year. Or, as the bears contend, maybe the market's "issues" are finally coming home to roost.

Mo-Mo Had Gotten out of Hand

To be sure, the momentum names had gotten a bit out of hand lately. And as anybody who has ever tried to "buy high and sell higher" will attest, the game usually ends badly when stocks become the darlings of the mo-mo crowd and wind up "going parabolic."

Friday's action sure smacked of panic selling. Thus, the question of the day is if the problems in mo-mo-land will wind up causing investors of all sizes to start dumping stocks en masse.

However, it was pretty obvious that Friday's action was driven by sell algos - from 9:31 am eastern until 4:00 pm. And given that the "fast money" types have the attention span of a gnat, it will be interesting to see if any real fear was created - or if this was simply a day when the sellers had their way.

So, if you are interested in such things, now would be the time to watch closely how the next day or two unfolds. The intraday action could tell us an awful lot about whether or not the bears have gained the upper hand.

Unless of course, the sky starts to fall before then!

Positions in stocks mentioned: SPY, MDY

Tags: Burear of Labor Statistics March

Posted in: Economics Markets Trading Ideas Reviews