Daily Market Update – May 7, 2014 (8:30 AM)
Yesterday was just an absolutely brutal day for the market and it continued into the after-hours trading.
Some stocks, like YELP, which reported nice earnings last week and went higher, despite being among those ultra-high beta momentum stocks just plunged yesterday, for no reason of its own, going down about 14%.
YELP was one of the personal trades that I made recently that wasn’t part of the recommended list of trades because the risk seemed a little inappropriate, but that worked out for a very quick gain.
In hindsight I often think that such trades should have been included as part of the Trading Alerts.
But YELP’s subsequent drop That actually paled in comparison to Twitter, which didn’t likely set off the bad day, but was bad enough to distort most everything, as it went down about 18% on incredible volume.
Then again, trades like Twitter make me glad, in hindsight, that some trades aren’t part of the recommended list of trades.
Twitter was joined by the likes of GNC (down 11.3%), FireEye (down 16.5%), Zuillily (down 20.5%) and Whole Foods, which went down 13.8% and appears to be headed even lower in the pre-open.
Among the names above, not all are high beta, yet they were also horribly punished.
In the case of Whole Foods, it’s a little hard to understand. Months ago I write about the drop Whole Foods had taken as it announced some lower same store sales that were caused by bad weather. At that time I wrote that I hoped that it wouldn’t be doubly punished when earnings were released.
This morning, after yesterday’s terrible all around showing, which was made even more intolerable because it came on a Tuesday and we had grown accustomed to strong market performances on Tuesdays, appears to be headed mildly higher.
But we’ll see.
The action is Twitter was bad from the beginning and I was surprised. I really hadn’t expected so much selling and so much price pressure, particularly since shares had already fallen quite a bit and insiders said they wouldn’t be selling. It reminded of Facebook when it faced its own lock-up expiration. The scenario was identical. Shares had fallen from their $38 IPO to $21 right before the expiration date. They eventually fell to about $18, but the selling was fairly muted and not on explosive volume. Lots of Facebook insiders likely believed that shares were valued too cheaply and they may have known that there were some good initiatives and news to come.
Twitter, on the other hand, may be populated by insiders who don’t have the same confidence.
But the real blow came when Mark Mahaney, a respected analyst, who was fired from Citigroup a few years ago for sharing non-public information and who came to a settlement with Massachusetts regulators, suggested that perhaps Twitter insiders who said they wouldn’t sell shares at the expiration did actually sell shares.
He wasn’t questioned on that comment and offered no additional information.
But shares accelerated their decline after those comments.
Even if I hadn’t added to my short put positions I would have thought that to have been a reckless thing to say, unless there was personal gain to be had.
Today is likely to be a slow day on the personal front and spent hoping to see some strength re-developing in the market and in individual positions that may have been treated far too harshly.