Friday’s employment numbers came in under expectations and were the lowest net gains we’ve seen in six months. In addition, this was the second consecutive month employment came in under expectations and the situation was ripe for a sell-off.
But while the results were disappointing and the market sold-off, volume was relatively constrained and the indexes have not retreated to new lows. This shows waves of panic selling didn’t hit the market and the decline was relatively orderly. Some might suggest this is a positive revelation, but ironically I find the lack of concern by market participant a concern. Panic sell-offs rebound quickly, but orderly sell-offs have legitimacy and are far less prone to bouncing. No doubt markets overdo things, but they usually overdo them in dramatic fashion and we have yet to see that drama, so I expect we could have more room on the downside before we see a bounce.
IBD moved the Market Outlook into Market In Correction, so that means we need to see four days of constructive price-action before we get the green light for new purchases. And given the sentiment of other traders, that seems to be the prudent move at the moment. It makes sense to lighten up on existing positions showing any weakness and is a good excuse to weed-out under performing stocks.
As for individual stocks, INVN blew up in spectacular fashion, plunging 25% as they reported disappointing 250% growth. Hard to fault management for that performance, but the market can be a brutally judge, jury, and executioner as they set far higher standards. This is a painful reminder of how volatile small-cap growth stocks can be and why often it is prudent to lock in gains when you can. No doubt INVN was a trading vehicle and fundamentals took a backseat to gambling-like speculation. The interesting thing was to see the far more modest 5% loss in Thursday’s after-hour and Friday’s premarket trading, yet when the stock opened for trading it plunged beyond belief. No doubt much of that anomaly was structural in nature as the decline triggered countless autopilot stop-loss orders and it was all downhill from there. This was a dramatic flush out and it has the potential to clean the slate for INVN as it drove of most of the speculators. It will be an interesting stock to keep on the radar given its impressive earnings growth and the fact that the reduced guidance was due to external factors. No doubt is is far from a buy candidate in its present form, but I’m not convinced INVN’s run is over.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.