|Dow|| +187.81 to 17,005.75
|S&P 500|| +23.42 to 1,985.05
|Nasdaq||+78.36 to 4,564.29|
|10-YR Yield||+0.027 to 2.284%|
|Gold||-$0.90 to $1,228.40|
|Crude Oil||+$0.29 to $81.29|
My “Alibaba” indicator is going berserk!
No, I’m not talking about the story Ali Baba and the Forty Thieves (though there are plenty of the latter on Wall Street looking to take your money). I’m talking about the trading action in Alibaba Group Holding Ltd (BABA, Weiss Ratings: Unrated).
You’re probably familiar with Alibaba, which some consider to be the Amazon.com (AMZN, Weiss Ratings: D+) of China. The online retailer and content company went public in late September. Its $25 billion IPO was the biggest of any company in history, pretty impressive for a firm that didn’t even exist prior to 1999.
But you know what happened on Sept. 19, the day of the offering? The stock surged intraday to almost $100 from its $68 IPO price. Then it fell and fell and fell — to just below $83 in mid-October. That’s a drop of around 17 percent in only a few weeks!
|BABA is testing its IPO high.|
What did that mean for the broad market? Well, guess what day the Dow Industrials topped out on. That’s right — Sept. 19! And what day did they bottom on? Oct. 15 — the same day as Alibaba!
All of that makes this an interesting exercise in market sentiment and Wall Street behavior. Insiders and Wall Street banks dumped the biggest IPO on the market ever. Then shortly thereafter, stocks suffered one of the sharpest corrections in the past couple of years.
But by mid-October, investors apparently decided there was some value after all in BABA. So they started dog-piling back into the stock, and as of today, it’s testing its IPO-day high as you can see in this chart:
|Click chart for larger version.|
You can see why I say this indicator is going insane then, right? We’re talking about swings of 15 percent-20 percent in just a few weeks — and not in some small-capitalization name, but in the biggest IPO in world history. BABA’s market capitalization is $246 billion, some $37 billion more than Facebook (FB, Weiss Ratings: B-) and $110 billion more than Amazon.com.
If you’re a safety-loving investor like me, then this kind of volatility is a tough pill to swallow. It shows a market that’s undergoing tremendous indecision — hating stocks one week, then falling head-over-heels for them a few weeks later.
I still believe there are stocks worth owning — the highest-rated names, with great company-specific fundamentals, in strong sectors (or undervalued ones like energy). But I’ve also been paring back my exposure in light of this increased volatility (banking some nice gains in Safe Money Report. Caution might not be such a bad idea in your own portfolio!
So what do you think?
|“Is my ‘Alibaba Indicator’ a warning sign for stocks?”|
Is my “Alibaba Indicator” a warning sign for stocks? Does this crazy volatility even in large cap techs make you less eager to invest? Or would you invest more money in stocks now that companies like Alibaba have rallied back from their October lows? Our comment section is the best place to share your views, so make sure you do when you have a minute!
|Our Readers Speak|
Speaking of the markets, it looks like there’s a pretty even split among readers when it comes to views on what’s next.
Reader Tom said: “Personally, I think the market is headed up for three reasons:
1. Success of GOP candidates in the upcoming elections
2. Strong retail holiday sales
3. Rising consumer sentiment
“So, in spite of the many issues and concerns you rightfully point out, I think the market will finish strong this year. Don’t be surprised to see the Dow finish the year around 18,000. Meanwhile, gold and bonds will languish.”
Reader George is also looking for a strong finish to the year, but based more on money printing than other fundamentals. His take:
“New highs (or close) just before Election Day. Then another contrived longer term ‘V’ in November. And then the big shopping season ‘Santa Rally’ for bonuses and to maximize consumer spending. Up, up, and away on the 45 degree angle (long term ‘trend’) QE balloon.”
But Reader Cami isn’t so eager to jump on board. The comments: “I for one am in the same boat as you and I am not willing to now jump over board and invest my savings at the top of an unsupported market.
“Patience is the watch word and I think in the end you will win out. Too late to be guided by yesterday, let’s let tomorrow be our goal. Best of luck to you.”
Again, my take is that lightening up into this rally makes more sense than chasing, Cami. But we will see what happens with the last two months of 2014. And to everyone else reading these musings, please do add your own thoughts here.
|Other Developments of the Day|
The midterm elections are only a few days away. Hopes are running high among the Republicans that dissatisfaction with President Obama and the country’s overall direction will lead to more seats in Congress going to the GOP. This Washington Post story summarizes the findings of a recent poll, if you’re interested in learning more about current trends in voter sentiment.
A key consumer confidence index from the Conference Board rose to 94.5 in October from 89 in September. That was the highest in seven years, and well above the average economist forecast of 87.
Surveys about how consumers and businesses feel are one thing. But actual data on spending and investing is another. On that front, the latest report on durable goods orders was disappointing. Orders for large, long-lasting goods fell 1.3 percent in September instead of rising 0.5 percent as forecast.
While the debate about proper quarantine procedures continues here in the U.S., Australia announced plans to dramatically crack down on travel and immigration from West African countries that are battling the Ebola virus.
$10-a-barrel oil? That’s what one CNBC commentator, Dennis Gartman, suggested yesterday that we could see down the road.
My take? These are the kinds of ridiculous predictions we see near the end of a decline rather than the beginning. So I sure wouldn’t be selling crude based on that call!
Until next time,
P.S. Make sure to check out Martin’s Ultimate Portfolio. There are many things you receive when you join, but to list a few: He will send his trading instructions and market update to you every Friday after the market closes in New York at 4:00 PM Eastern Time. When it’s time to buy, he will tell you how much to allocate to each stock or ETF, what to pay for them, how to put in your orders and more. When it’s time to sell one of them, he will tell you when to do it and the price you should expect. Click here to get more information on all the perks you get with this service!