Blog Posts by Matt Nesto

Two weeks into June and the "sell in May" trade is still very much alive, with the S&P 500 now down more than 7% from its 52-week high of 1370 on May 2. Meanwhile, seats for the tour to 1250 (on the S&P 500) are going fast and are almost sold out, as virtually everyone is already on board.

So far, this rolling correction has been nothing short of orderly, but it is also modest by historical comparison. In fact, versus what we saw in the market a year ago, this sell-off has shed less than half of the 17% haircut handed out then. So now what? Will we get a bounce? Probably a little, but who knows.

Should you buy on weakness? Only if you are a full-time, active investor. Otherwise, there's no clear sign that this slump has bottomed yet.

Is it too late to take a little money off the table? Not according to my cohort Jeff Macke. That's right, as long as you have some sort of sell discipline or sell target that has been hit -- or is about to be hit -- the ability to say you were wrong about a stock and sell it is critical to long-term success.

To bolster his point and flatten the learning curve for any would-be traders out there, Macke flopped out the latest offering from his handmade portfolio of wisdom -- The Timeframe Decision Tree. The cornerstone of this future masterpiece is the question, "Are You Warren Buffett?" The point being, if you are not infallible or immortal, than you had better be of the mindset to trade. Of course, Macke's thinking is in direct conflict with the buy and hold edict that looms large in many investment circles, but it comes from experience and is rooted in protecting capital and limiting losses.

To apply that to the current environment, you only need to look at the fact that nearly 20% of S&P 500 stocks are currently in a bear market, meaning the stocks have already fallen at least 20% from their 52-week highs. In some cases they're down 30%, 40% or even 50%.

The term Flash Crash didn't exist until May 6, 2010 when the spontaneous, inexplicable and dramatic 1,000-point plunge and subsequent rebound of the stock market left an indelible scar on investor psyche. There have been a few small but well-contained instances since then, but for the most part, the Flash Crash was a one day event.

Speaking for myself, and an unscientific survey of friends and contacts in the business, no one believes that it won't happen again. In fact, at least one expert thinks it not only could happen again, he thinks it will happen again and will be so large and interconnected with other asset classes and exchanges, that he's coined the term "Splash Crash" to reflect the predicted spillover effect.

"Our concern is, with extreme correlation between different asset classes - equities, futures, commodities, energy and foreign exchange - a flash crash in one asset class could spill over... this could lead to an even bigger crash" says John Bates, the Chief Technology Officer of Progress Software and consultant to the Commodity Futures Trading Commission.

To be fair, the original Flash Crash spawned a six-month probe led by the Securities and Exchange Commission that resulted in a series of new trading limits or collars that halt trading when irregularities occur. So far, it has largely worked for the stock market, but experts like Bates think a lot more needs to be done in a lot more places.

OK, armchair quarterbacks, here's a real buy, sell or hold scenario for you: A well-known, large-cap company is down over 20% year to date and has slumped to an 18-month low, vastly underperforming its benchmark, which is essentially unchanged. What would you do?

If you were portfolio manager John Carey with Pioneer Investments, a self-proclaimed value and contrarian investor, and the stock in question was Target (TGT), you'd be all over it. He says he's "not deterred that it (Target) has not performed well ... from my point of view that's where you want to be looking."

Target clearly has lost its way. Whether that was due to efforts aimed at reaching down to consumers during hard times, a recent Wall Street Journal article suggested the retailer has lost its cachet and thus its unique ability to "mix mass with class" by focusing too much on food. But "time will tell ... I have confidence in their strategy and think it will work longer term," Carey argues.

Next on the docket is Ford (F). The stock rallied hard out of the March 2009 lows, rising from $2 to $20 a share. But so far this year, Ford has seen a lot of selling and is down 17%. In this situation, Carey says he's "mainly impressed with management and the company's improving book value." Not only is he undaunted by Ford's just-announced expansion plans for China, Carey thinks the automaker has great prospects in Europe and improving market share in the United States.

Apologies up front to the tech geeks out there if this is old news, but for me, your average unsavvy computer user, it is awesome!

Chances are you have at least heard of the term megabyte and gigabyte as it relates to your computer's memory space. Generally speaking, the bigger the number, the bigger the "brain" a particular device has. Now here's where it gets crazy. After gigabytes (1 billion bytes) come terabytes (1 trillion bytes), then petabytes , exabytes, zettabytes and yottabytes. Each level adds 3 more zeros to the previous level, rising it by a multiple of 1,000.

For context, a new iPad comes with anywhere from 16 to 64 gigabytes of storage. It would take more than 6,250 base model iPads to get to one petabyte of storage space.

While the data deluge is hardly a new trend, Breakout guest Josh Brown of TheReformedBroker.com and vice president of investments at Fusion Analytics explains that there's "exponential growth that is mind blowing" and offers different angles to play it as an investment. "In 2008, in terms of all digital data output, we're talking 180 exabytes. An exabyte is one billion gigabytes. There are estimates out there that by 2020 we could be talking about 35,000 exabytes," says Brown.

So where do companies store all of this information, how do they format it, analyze it and so on?

It must be the Meredith Vieira effect, because I can't help applying her Today Show send-off tune Don't Stop Believing, to the optimistic outlook of Jim Paulsen, Wells Capital Management's chief investment strategist.

Rome is burning, baby, and Macke and I are loath to step in front of it. But Paulsen, in all his scruffy Minnesotan glory, continues to have his feet planted firmly on the soft patch and is looking forward to rising estimates and up to 4% GDP growth in the second half of 2011.

Right now, Paulsen says he's "looking at the cyclicals. The stuff that's really getting beat up." And even though he says the market could stay sloppy all summer or take off next week, his line of sight arcs six months into the future -- a future he predicts will bring economic improvement, positive earnings revisions and people running to get back into cyclicals.

If you're not quite ready to wrestle a bear market to the ground, then Paulsen's other strategy might suit you well. "My favorite is the emerging markets (EEM) right now," he says, adding that they've just begun to thaw from their longest post-recovery slump. He adds that emerging market central banks have been tightening for a year to keep their economies from overheating and "they've succeeded in creating a soft-landing ... and the market is already picking up on this." As they announce that their tightening is done, he thinks "emerging markets will lead again."

For a brief moment about three weeks ago, when shares of LinkedIn (LNKD) rallied above $122, the professional networking and resume-swap website was worth more than $10 billion. To put that into perspective, that valued each of LinkedIn's 100 million registered users at about $100 each and put the company on par with ConAgra (CAG), ITT Corp. (ITT), Gap (GPS) and Boston Scientific (BSX). For the record, LinkedIn is currently worth about $7 billion.

So how will other, non-social media companies on the IPO docket fair?

Breakout spoke with IPO analyst Stephanie Chang of Renaissance Capital, who says today's debut by Fusion-io (FIO) garners high investor interest. She describes the company as "a storage memory provider (yawn), that does half of its revenue from Facebook." May I repeat, HALF OF ITS REVENUE FROM FACEBOOK! I don't know about you, but that caught my attention.

LinkedIn (LNKD) may have been the first social media company to go public, but it's sure not going to be the last.

Using LinkedIn as the benchmark for the social media IPO fervor, it is safe to say the only thing holding back copycats nowadays is a lousy market environment.

"There have been 69 completed IPOs this year. That's up more than 30% from this time a year ago," says Stephanie Chang, a research analyst at Renaissance Capital, which tracks new offerings. "We're not quite back to 2007 levels yet, but we're definitely seeing improvement from '08 and '09."

In total, Chang says there's up to $37 billion dollars worth of deals in the pipeline of companies that have filed their paperwork, hired bankers and announced their plans to go public. While social media companies are generating the most buzz and seeing the strongest investor demand, Chang says a diverse range of businesses are in line to hit the market. They include tech, financial services, energy and foreign companies from China and Russia. "Fast-growing, small-cap growth stories are what investors are most excited about," she says.

Merriam-Webster dictionary defines hangover as the "disagreeable physical effects following heavy consumption..." and "a letdown following great excitement or excess."

Breakout guest Burt White, the chief investment officer of LPL Financial, says we had a pretty good party in the stock market and now we're experiencing a hangover of equal proportions. We're now five weeks in and  5 percent down on the major indexes, making this hangover modest but also not over.

"The booze for this party [market] has been QE2. That's the fuel," White says. But fear about the end of Fed support and a handful of other areas of concern will eventually go away and that should support the S&P 500 in the 1,250 area, which would be about an 8 percent drop from the May top. However, if that level fails, White says things could get ugly and easily drop another 5 percent. He doesn't think that is going to happen, but if it does, it would set up a much sharper sell-off, more in the neighborhood of 15 percent.