Google (GOOG) Crashes but Will the Market Follow?
The market leisurely rose again yesterday, notching its third gain in as many days. Technology and financial stocks once again held leadership roles, which boded well for the continuation of the bullish trend. The indices have made a resilient climb higher over the past month despite grim economic data.
A rally in the face of negative press is bullish. The reason it's bullish is because the investors in the market are saying, "We don't care about Europe, a Chinese slowdown or U.S. unemployment - stocks are cheap." The optimism could be short lived, but the bullish momentum remains despite gloomy news reports.
As mentioned yesterday, and the week before that and the month before that, I'm bullish. But my optimistic sentiment did not prevent me from initiating another bearish trade yesterday.
The initial coverage of QID, along with SMN before it, broke a golden rule of trading: the trend is your friend. While your potential upside decreases when you invest alongside the trend, your probability of success increases three fold. Generally speaking, three out of four stocks follow the direction of the market.
Yesterday, I broke the golden rule of trading and fought the trend with the new position of ProShares Ultra Short QQQ (NYSE: QID). The trade by no means puts me in with the bears. With no signs of a major top, I am not bearish. I took the trade because I saw limited upside in the next week for the indices.
Unless there is a major catalyst such as a European resolution or easing in China, the market needs to take a breather after its relentless rally higher over the past four weeks. Yesterday's bearish trade attempts to find a top to the rally and profit from either a new bearish trend or consolidation.
I tend to favor consolidation. If that's the case I will be looking to add longs during the pullback.
But there is always a chance that the market could top. And if it's a top the decline will be fast and furious. The decline will likely start with a gap down too, which means you will be unable to catch the initial price movement during normal market hours.
The QID trade will allow us to profit from any decline that comes to the market. If it's a big decline, we will reap a good gain. If it's consolidation, our bearish exposure from QID will provide the TradeMaster Daily Stock Alerts portfolio with diversification while long trades get added.
Big technology earnings were released last night. The notable loser from the evening was none other than my favorite company (second favorite F5), Google (Nasdaq: GOOG). Google missed analysts' estimates and provided no guidance. Neither of those are good things, but the combination is far worse than the sum of their parts, and GOOG shares headed over 8% lower this morning.
Despite the poor news from Google, earnings from the other three tech behemoths - IBM (NYSE: IBM), Microsoft (Nasdaq: MSFT) and Intel (Nasdaq: INTC) - were much more upbeat. Without going into the gritty numeric details, all business segments are on fire. And where guidance was provided, it exceeded expectations.
IBM, Microsoft and Intel management also indicated they would increase spending. The increase in spending is music to the ears of other technology companies since IBM, MSFT and INTC have $85 billion combined on the balance sheet to spend.
