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Is This the Twitter Top? Social Networking IPO Soars, Dow Slumps

Hot Stock Minute

By Phil Pearlman

Twitter soared in its debut Wednesday, but the bears won the day – handily.

The Dow lost 153 points or nearly 1% and the S&P 500 fell 1.32% to close at 1,747. The small-cap Russell 2000 was worse, falling 1.7% to 1,080 and the Nasdaq Composite was worse still, falling 1.9% to 3,857.

It’s been a month since the S&P 500 fell 1% or more and the seemingly endless steady grind higher appears to have begun dulling the claws of even the most permanent of grizzlies.

For a few weeks now, sentiment measures have been indicating increasing bullishness among investors. This morning’s American Association of Individual Investors’ Sentiment Survey was little changed from last week ,with a bullish reading of 45.5%, a bearish reading of 21.8% and a difference between the two of 23.7%. While these readings firmly depict bullishness, they are not yet considered extreme by the AAII.

Some recent high flyers got pummeled, hinting that the momentum trade, which has been a good one, may finally be unwinding. Yelp (YELP) closed off another 7% to $61.81. It has shed $13 from the October 18 all-time closing high and has fallen 17% in 14 trading days.

Tesla (TSLA) also continues its sputter, dropping 7.5% fresh off yesterday’s rout; that’s 21% in two days after reporting quarterly results and what Kimble Charting Solutions’ Chris Kimble calls the ugly right side descent of the notorious Eiffel Tower chart pattern.

Whole Foods (WFM), Qualcomm (QCOM) and Wendy’s (WEN) were among other notable losers on the day.

Selling was broad based, with all sectors closing 1% or more lower. Basic Materials and Services were especially hard hit, dropping 1.7%, while health care held up best, losing 0.9%.

To be sure, Twitter (TWTR) was one of the very few bright spots. As you are likely well aware, it began trading today and got off to a great start – closing at $44.91, a full 73% above the $26 offering price.

Despite today’s sell off, the S&P 500 is still only 1.35% from the October 29 all-time high close of 1,771.95, hardly a correction. Bears will argue, though, that breadth has been deteriorating and continues to do so with measures such as the McLellan Oscillator firmly negative for the third-consecutive day.

Whether Twitter's rise and the broad market's fall were linked or coincidental remains unknown. But it’s funny how these things sometimes transpire – when the relief of a highly anticipated and joyous event precedes or accompanies a broader and more significant market turn. This is a variation of the "sell the news"phenomenon, when good news is anticipated while the less-emotional smart money is only too happy to sell into it.

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