WASHINGTON, April 30, 2015 – Sloppy, light-volume trading dominates the boards Thursday morning as all major averages continue to sink under the dual weights of too little action and too much information to digest. For at least the third day this week, still overpriced tech and biotech stocks are taking a shellacking, but nearly everything else looks pretty anemic as well.
Yesterday’s miserable trading environment wasn’t helped a lot by a “fat finger” goof-up over at NASDAQ late Tuesday that caused a massive and merciless creaming of Twitter (TWTR) shares, as noted here via Slashdot:
Someone mistakenly published earnings information on a Nasdaq-run investor relations page for Twitter before the company officially released the news and it sent the stock into a tailspin. Initially the earnings statement went unnoticed, but soon a Tweet with the results got a lot of attention. The stock lost more than $8 billion at one point as news spread. “We asked the New York Stock Exchange to halt trading once we discovered our Q1 numbers were out, and we published our results as soon as possible thereafter,” said Twitter’s senior director for investor relations, Krista Bessinger. “Selerity, who provided the initial tweets with our results, informed us that earnings release was available on our Investor Relations site before the close of market. Nasdaq hosts and manages our IR website, and we explicitly instructed them not to release our results until after the market close and only upon our specific instructions, which is consistent with prior quarters. We are continuing to investigate with them exactly what occurred.”
Too late. Twitter’s current earnings report, such as it was, was disappointing to say the least. But the fat finger error ramped up more violent selling than is usually the case even in a tech earnings miss, and the stock is continuing to get pancaked Thursday as the avalanche of sell orders continues.
(UPDATE: Twitter is finally finding a few buyers Thursday afternoon.)
The Fed’s tepid report Wednesday, coupled with the dollar’s sudden and impressive sinking spell—you could buy a euro for about $1.07 last week while today it’ll cost you close to $1.12—has also been wreaking havoc with bonds both here and abroad, finally dropping prices a bit, which means effectively higher yields.
Clearly, the Fed is now likely to hold off those dreaded interest rate increases until at least September now, given the anemic growth numbers, and they might even wait until Christmas. Yep, they’re just as confused about everything right now as the Maven, and maybe more so. That’s a comforting thought, isn’t it?
The story of an IPO
We mentioned in yesterday’s late article that about the only thing we might take a chance on was the IPO of a small, profitless biotech—in this case, Blueprint Medicines, Corp. (symbol: BPMC). Unsure as to the wisdom of this move, given the hammering overpriced healthcare and biotech stocks have been getting this week, we only put in for 100 shares and only after the offer priced last night at $18, a buck above its expected range.
These days, when an offer prices above range, whether a little or a lot, that usually means it’s oversubscribed, meaning buyers will get a pop in the opening bid-ask when the new company opens for trading, usually between 10:30 and 11:30 a.m. eastern time.
Flippers love these free gifts of free money, and so do regular investors. Unfortunately, in a long-standing Wall Street tradition, the flippers, dominated by those crafty one-percenters, get the majority of shares that institutions don’t gobble up. Little guys like the Maven tend not to get any, and that was the case this morning. Those dreaded words: “Not allocated” appeared in the allocation request window. Game over for the Maven.
Of course, BPMC popped from $18 to nearly $24 in a heartbeat, settling back to about $21.59 as we write this (around 11:30 a.m. EDT). That means the initial pop was something like 30+ percent as we figure it, and current holders are still looking at a 20 percent gain if they sell right now.
Oh, well. Fortunately, the Maven and the little guys don’t get stiffed every time, although the really hot IPOs always go to the rich in this business. But some of the less obvious IPOs can make you money, too. The added problem for the Maven and other little guys investing with Schwab (and likely other discount firms as well) is that we pretty much have to hold these puppies for a month after issue before dumping them. That means that we usually don’t get as much when we sell as those original wealthy, flipping cowboys do.
That said, the Maven wins on these more than he loses, which is why he keeps on playing. For example, the Maven’s latest IPO buy, retailer Party City (PRTY) priced slightly above range at $17 per share, popping very nicely when it opened for trading on April 17. There’s been some selling (and some buying) since then, but shares are still trading at over $20 apiece, roughly a 22.5 percent gain as of nearly noon Thursday.
With two more weeks to go before the Maven can sell, who knows what will happen, or how many remaining IPO buyers will start dumping shares before the end of that 30-day hold? That noted, we’re not complaining. (Too much.) Taking 30 days (sometimes more) to pocket a remaining profit that averages between 5-25 percent still ain’t a bad deal in this sloppy market, so we’ll take it and try again when something looks good.
Today’s trading tip: Buying reasonably priced ETFs
Aside from today’s aborted IPO, all the Maven is doing in his portfolios is adding little tiny bits here and there to certain ETFs, particularly those investing in international stocks, like Schwab’s SCHE (developing markets), SCHC (small caps in developing markets).
Another pick is FNDE, a “fundamental” ETF covering developing markets that tracks not only an index of select companies, but also the fiscal performance of those companies. It follows a somewhat more managed approach than just plain indexing and tends to be a bit less volatile.
The Schwab funds have generally done pretty well even in 2015’s stinker of a market. Plus, Schwab customers can trade them without commissions, part of their attraction for the Maven, who, as regular readers know, has long been a customer of this San Francisco-based firm.
But not to worry, we’re not selling anything here, and we get no remuneration for mentioning their products. (Don’t we wish.) Other discount houses like Fidelity offer similar investor deals on their own ETFs. Check them out.
The rule of thumb for any mutual fund or ETF is that the lower the management fees and commissions, the more of your money is working for you. That’s something that’s nice to know in our current kleptocrat-dominated century.
Breaks for the small investor these days are few and far between, but low-management fee/no commission ETFs are a good, relatively conservative way to play in the marketplace in such a way as to limit the volatility you get trading individual stocks while not getting your percentages killed by all those fees and commissions.
But again, given current market conditions, be stingy with your cash position when considering establishing any positions currently. “Sell-in-May” is already underway, so it’s probably a good idea to let the sellers and short sellers play their little games with their own money—not ours—until they’re all done doing what it is that they do.