Morning Market Thoughts
Good morning. Just a few comments about stocks that are in the news.Forget what I said about Chinese Internet stocks last night. Among others, I covered Sina (SINA) and Weibo (WB). I noted that Sina had rebounded from an oversold condition last week, running from $85 up to around $92 bucks in just 5 trading days. It looked like it had just a bit more room to run. I also noted that Weibo was in a $70-$80 range, and that the best buy point would be on a breakout above $80.
Chinese regulators have altered that analysis. Overnight, regulators shut down Weibo’s video and audio services, ostensibly because of Weibo’s failure to crack down on “negative” user posts. The stock is down about $7 bucks in pre-market trading. So much for the $80 breakout buy. Sina owns a majority interest in Weibo, so those shares are back down to $85.
This may turn into an opportunity to buy some Weibo stock, though we need to watch how it trades this morning. Think about it — something that gets turned off can also get turned back on. So if (IF) Weibo can satisfy the regulators by cleaning up the negative comments (China doesn’t have a First Amendment to protect free speech, things can get back to normal. Technically, the stock is back to the 50-day moving average. It’s not broken; it’s just fallen out of the bottom of a channel and landed on the next level of support. This action by Chinese regulators is a big deal, so don’t get lulled into thinking that this is an easy trade. It’s not. I’m just mentioning it because it might be an opportunity. But since none of us has any inside dope on what Chinese regulators intend to do, it’s best to follow the price action and see if the stock holds above $65. If it does, then you’ve got a low risk entry. If it doesn’t, then you can move on. If a trade doesn’t present itself, don’t make the trade that you were hoping for. It’s the wrong trade.
Also, don’t forget about the biotech sector. There is certainly a rotation of money into biotech, though this breakout really started on Monday. The SPDR S&P Biotech ETF ($XBI) is up nearly 10% from Friday’s close, so it goes without saying that any new buyers are late. “Late” doesn’t necessarily mean too “too late”, but it does mean that any new entry is a high maintenance position — it must be watched for signs that the momentum is waning and a reversal is at hand. But if you zoom out and look at the XBI in a weekly bar chart going back a few years, you’ll see that this base has been building and trending upward since early 2016, and just now picking up momentum. The all time high for this ETF is at $91, set nearly 2 years ago. Given the dramatic rotation of money into biotech, and the dearth of alternatives, I can make a case for a test of the all-time high.
Oracle ($ORCL) reported impressive earnings this morning and is up about 11% from yesterday’s close. It’s always a big risk to buy a stock that gaps up this much, and ORCL is no exception. Often, this type of gap, irrespective of the catalyst, will prompt profit taking that drops the stock back down. Caveat emptor.
We’re still essentially rangebound with an upward bias. The “Sell in May and Go Away” crowd has been left behind by 2.5% in the S&P. So far, so good. But respect the falling advance/decline line. Ultimately, it matters. It just doesn’t seem to matter quite yet.
–Dan
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