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Tech signs of life seen after dismal start of week for stocks

Jeff Macke
Breakout

Stocks fighting to stay above water in early trading after getting swamped on Monday. Just 2 days after hitting all-time highs the Dow (^DJI) and S&P 500 (^GSPC) are now in the red for 2014. In the attached clip Peter Kenny of the Clearpool Group thinks the infection is spreading but it’s not as bad it seems.

“It feels dreadful, particularly if you’ve committed any money to the momentum trade,” says Kenny. “You’ll see money go back into those names but it’s going to take some time. The damage that has been done is pretty dramatic.”

Kenny thinks earnings will stanch some of the bleeding, if only because they will distract traders from obsessing over the brutal selloff in the momentum stocks. For the better part of a month Wall Street has been staring blankly into the void of plunging tech names as the Nasdaq (^IXIC) got trimmed 7% and consumer-based companies lined up to warn because of the terrible weather.

The next buyers for the techs will be value guys in Kenny’s view. The good thing about that is that value investors tend to be more stable than the momentum traders. The bad news is we’re still a a long ways away from levels at which a stock like Netflix (NFLX) becomes compelling on a discounted cash-flow basis.

Corrections are a function of time and price. The last three weeks proved yet again that momentum stocks take the escalator up and the elevator down. That means we could be 15% above the bottom but we’ll be getting there soon.

“In the meantime we’ll see a focus on earnings, fundamental strength and transparency,” says Kenny, waxing nostalgic for the days when the “good old fashioned balance sheet” meant something.

As tech tries to stage a turnaround Tuesday bounce it’s probably a good idea to step back and take a deep breath. There are an important few days in our immediate future.

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