Limited sell off

The markets behaved as expected. Sell the news was the predominant theme in technology sector. The sector had risen since July and number of stocks had gone up in anticipation of good earnings. Now that actual earnings have started coming in, the chips are being cashed in. The sell off was contained and restricted to tech stocks and small caps. S&P and Dow Jones barely budged. Stocks leading lower were the stocks leading the rally.

Leading stocks going down:

AAPL,Apple Inc (Google  Yahoo  Earnings BW  Chart) 
CAI,Caci International Inc (Google  Yahoo  Earnings BW  Chart) 
GOOG,Google (Google  Yahoo  Earnings BW  Chart) 
LRCX,Lam Research Corp (Google  Yahoo  Earnings BW  Chart) 
LVS,Las Vegas Sands (Google  Yahoo  Earnings BW  Chart) 
MA,MasterCard Inc (Google  Yahoo  Earnings BW  Chart) 
NVEC,Nve Corp (Google  Yahoo  Earnings BW  Chart) 
NYX,NYSE Group Inc (Google  Yahoo  Earnings BW  Chart) 
RIMM,Research In Motion Ltd (Google  Yahoo  Earnings BW  Chart) 
VSEA,Varian Semiconductor Equipment Associates Inc (Google  Yahoo  Earnings BW  Chart) 


Bubble Burst:
There is another bubble bursting at the same time. The oil bubble. Now everyday they find new oil supply or inventory and today the Wall Street Journal explains :

Oil consumption fell in the developed world last year for the first time in more than 20 years, possibly portending an end to the multiyear rise in crude prices.

The oil sector is a classic case study in how a sector moves and tops out but hope does not recede. In fact the oil stocks will bounce now that everyone has realised the oil story is over. Those following earning strategy should study the oil sector and look at individual stocks earning and price reaction to get good grip on how the earning lead breakout work and why following it gives you early indication of sector moves.

Earnings and sector trends:

If you study the sector over last 4 years you will also find out, the best performers in that sector were unknown or new stocks like GMXR, ARD, ATPG etc. which were discovered by market after good earnings.Several oil stocks made 300% moves in last 3 years after being discovered post earnings. If you go through oil sector stock earnings you will find several with triple digit earning and sales growth quarter after quarter. Ultimately the most important thing which moves stocks is earning. Anyone who tells you otherwise is clueless about the market or has a newsletter to sell.


Sector Rotation:

Sector rotation is still alive and active. Drugs, health care, railways,and retail continues to attract investors. So let us watch if the sell off spreads to other sectors. It is very critical to keep a close eye on sector rotation at such junction where leadership is changing. You need to be alert to sector rotation much faster before it becomes apparent. If you can identify sector trends very early, you can ride a long ride.

Waiting for market to set up:

Coming in to this earning season , I had low expectations as market had rallied in to earning season. This sell off is good as it sets us up for next earning season. The earning and the IBD 200 and the momentum strategies work best when expectations are low. So I am excited about long opportunities once this sell off or correction plays itself out. Earning lead breakout on individual stocks will continue to work , PRXI is already up 20% plus after earning, CCF is up and has pulled back and is likely headed higher, USAP broke out yesterday on earnings , like these 2--25 plays will still work in earning season giving 10 to 100% plus returns in few weeks as long as the losses on those that do not work are kept contained.

Market will again set up for rally soon and then long strategies work and compensate for staying out of the correction phase.

A short opportunity:
STX,Seagate Tech Hldgs (Google  Yahoo  Earnings BW  Chart)