Breakout

Trader outlook: Watch sentiment, Goldman, and Google this week

Jeff Macke
Breakout

Selloffs come in phases. As we’ve been tracking ad nauseum, the slow-building group-effort to the give this stock market the official correction America’s long-dormant sense of propriety demands is only about 5 trading days old. Remember, a week ago last Friday the Dow Jones Industrial Average (^DJI) was at a record high that might have broken out with some vigor had not every private equity group on earth, with tech stocks already down 10%, deciding that last week would be a great time to stuff several IPOs into the market.

Out came La Quinta (LQ) and Ally (ALLY), IPOs so unloved they each priced at the very bottom of their original ranges and found almost no organic buying as they opened for trading. The most troubling thing about the deal as far Wall Street pros were concerned wasn’t the fact that suckers got stuck with bad shares. That’s business as usual. What was frightening was how casual Blackstone and the other underwriters were about breaking the range.

A bunch of 20-year old app designers becoming billionaires is one thing, but when the smart money is willing to stick all their underwriters with a huge IPO tab it can only mean the see something they don’t like in the economy, the market or both.

That’s a very bad sign.

Here’s what you have to watch this week as the market tries to regain its mojo:

Barron’s Sentiment Smack Talk!

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Were at the point in the selloff where magazines like Baron’s have no compunction about claiming to have made a “prescient” call to sell tech stocks last November. “We were a little early with the bubble call but since then many inflated techs have come down.”

Here’s a chart of the S&P500 (^GSPC) vs the Nasdaq (^IXIC) over the last 6 months:

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Perma-bears are fond of insisting they're never wrong, just early but seldom do we see a major publication make a prediction that immediately proves wrong for nearly half a year only to declare a false victory in a cover story.

It’s been a tough year for every one, but Baron’s at least could have waited for the Nasdaq to go negative before issuing a national “I told you so.”

Look at the S&P 500 chart breakout down:

Goldman Sachs (GS):

If we learned anything from JPMorgan (JPM) last week it’s that the big banks see this whole HFT scandal as a nice way to get out of the trading side of their business looking like the good guys. JPMorgan said it was more or less dumping trading and facing a tough mortgage market. Goldman will get more love from M&A but that’s not going to be enough to keep them from fretting over the unfairness of this whole banking backlash thing.

Look for mediocre numbers for Goldman but never forget that what major banks report from quarter to quarter means absolutely nothing.

Google (GOOG):

Finally an earnings call where we can learn something. Specifically we get to find out how the Google kids are doing in their competition with Facebook (FB) and the NSA to know every single thing about every man woman and child in the United States.

Google regularly jumps between 5 and and much as 15% after reporting earnings. Now that the company has split its stock it’s almost impossible to tell how to trade this thing but that doesn’t mean you can ignore the report.

Google is must-review every quarter for two reasons: First, they are simply one of the best companies in the world. Where Google goes the rest of tech will follow. Second, the reaction to GOOG shares on Thursday will give us a good update as to Wall Street’s level of trust towards tech names.

If Google gets clocked on earnings this could end up being a very long week.

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