Big bad bears take Mr Market to the Wall Street woodshed Tuesday
WASHINGTON – Newtonian physics asserts that for every action, there is an equal and opposite reaction. That observation neatly applies to Tuesday morning’s stock market gyrations on Wall Street. After igniting a big, impressively bullish Monday to begin the week, Mr Market cowered behind the woodshed Tuesday morning, as the street’s big bad bears administered a seemingly nonstop beating.
What the big bad bears have wrought thus far
As we near the 10:30 a.m. ET mark, the Dow is off an unpleasant 240+ points, a nearly 0.70% loss on the day thus far. The broader based S&P 500 listing of America’s 500 biggest companies is doing even worse on a percentage basis. That average is down nearly 38 points thus far approaching a 1% smackdown right now. But worst of all: the tech-heavy NASDAQ finds itself hiding in a nondescript New York bomb shelter, having already suffered a 250 point decline (-1.8%) with most of Tuesday’s trading hours yet remaining.
All in all, an ugly picture.
Let’s go to the charts
In the first place, markets still look too toppy and too complacent. We see this illustrated in the VIX volatility index chart we ran near Monday’s market close.
But Tuesday’s VIX chart, just updated, shows a big uptick in the VIX (pale yellow shading, lower right corner), indicating that this sentiment indicator may be about to change. For the worse. Meaning that day traders and option traders should get excited, while bulls may want to take a few more profits Tuesday like everyone else seems intent on doing. (Both charts courtesy Stockcharts.com, a subscription service this writer subscribes to.)
Apple and Microsoft: Partially to blame for Tuesday’s outsized headline risk
What’s the problem today? Aside from the market’s toppiness, the continuing weakness in the NASDAQ, particularly in the big tech stocks, was injected with steroids today. That average had to deal with body blows to two of its biggest champs (and also members of the Dow), namely Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). Neither company delivered anything resembling bad news or bad earnings today. In fact, both companies reported superior earnings earlier for their recently ended quarters. But headline risk rose for both.
Apple, for its part, now finds itself in the midst of a major lawsuit contesting the big cut vendors are supposed to take if they sell their apps through the App Store. (Google’s Android operation is also in the crosshairs.) That’s scary stuff for Apple investors, as this world-beating company continues to base its future on peddling music and pushing software sales through its popular platforms.
Microsoft, on the other hand, likely finds itself lodged behind the investor woodshed for something that has, essentially, nothing to do with the stock. Or pretty much the company. The big deal Tuesday? News that Mighty Bill Gates is heading to divorce court as his nearly 30-year marriage to Melinda is about to be terminated.
So what’s next for
global warming climate change Bill?
The Billmeister, master of all things Covid as well as having
global warming climate change well in hand, is already in the process of stepping down from the Microsoft board so he can better allocate his time to his “charitable” activities. So the existing behemoth he built will continue to run quite well without him. But on a day like today, that was enough of an excuse for the bears to overwhelm the tech bulls and massacre the stock.
As of 11 a.m. ET, Apple shares stand at $128.15 or thereabouts, off a bit over 3% thus far. Likewise, Microsoft’s higher-priced shares continue to plummet, down 1.42% at the moment. They’ve already dropped nearly $3.78 on the day.
When the Big Boys tank, the big bad bears often follow. At least for a day or two…
When heavy hitters like this pair decide to tank, even modestly, they tend to clobber the averages. So the perceived bad news in both stocks has had a ripple effect across all markets. It might not prove lasting, often the case with stock moves based on headline risk and speculation. But sometimes, action like this can prove a catalyst in other sectors. And that can be dangerous right now, for no other reason that it’s another “sell in May” day if you believe in that often (but not always) true adage.
We sort of do, so we dumped a few of our weaker positions, notably Next Era Energy (NYSE:NEE) and our spec-of-the-month, Discovery K shares (NASDAQ:DISCK), which continue to deflate like a slowly leaking balloon. Slight losses here, but better safe than sorry.
Cleveland Cliffs (NYSE: CLF) gets frisky, bucking Tuesday’s market trend
On the other hand, our current favorite spec in the Materials sector, Cleveland Cliffs (NYSE:CLF), after a low-level battering Monday, seems to be on a tear today. It’s currently up an impressive 6.86% (+$1.33), standing at $19.55 per share as we type this.
Having acquired all or part of two steel companies, this iron ore / taconite producer has slowly come back from the dead after the beating the company and its shares took during the Great Recession. Today, cleared of its massive debt overhang, it’s a good cyclical bet if your portfolio plans on enjoying this year’s likely vigorous economic revival.
Plus, the company has sentimental value for me. I sailed for part of a summer on one of its iron ore freighters, earning money for my college tuition back in the day. Not sure if they still have a fleet. But they’re definitely hauling an increasing amount of tonnage. Plus, they’re starting to make $$ from their brand new hot-briquette plant recently completed in the Toledo, Ohio area. So Cliffs is now a vertically integrated steel maker with a low-cost kicker, namely, that new processing plant.
The average investor seems unaware that Cleveland Cliffs is not just an iron ore / taconite company any more
I suspect that most investors haven’t paid attention to these developments and still regard CLF strictly as a coal and iron ore mining company that’s embarked on the Road to Oblivion. Wrong answer. But the 8.5% short position in this company’s shares indicate that the big bad bears have a different idea.
Again, however, Cliffs sold the coal part long ago. Today, this once beleaguered company’s new acquisitions promise a spectacular future, at least near term. There could be a 3-5 point additional ride in these shares. So we plan to stay around long enough to enjoy it.
If Cleveland Cliffs re-institutes its dividend this year, which it might, this could add yet another kicker, finally igniting the short squeeze we’d love to see in these shares.
Wrapping it up…
Meanwhile, we should all remind ourselves to be careful out there. Mr Market shows signs of becoming bi-polar in May. And if so, we may all want to get cash-y. That way we can wait for better opportunities once any selling tsunami begins to appear on the horizon. Given this year’s continued bullishness, a legion of big bad bears may be massing for revenge.