Wednesday, January 19, 2011


Last Thursday, a number of market players were contemplating whether INTC's earnings report would trigger a "sell the news reaction." That didn't happen at all, and many of the bears were served up as short squeeze fodder once again.

Today the bears finally got their long anticipated "sell the news" reaction, but the catalyst was the Big Kahuna: AAPL. There was nothing wrong with the Apple earnings report at all. It even surpassed some of the most optimistic predictions, but the sellers hit the gap-up on the news and have been selling all day.

When one of the primarily leaders in the market sells off on a very good earnings report, it isn't too hard to imagine how other stocks might react. If they don't want to buy Apple on that great news, why would anyone want to buy hundreds of other technology stocks that aren't even in the same class as Apple?

The selling today shouldn't be a huge surprise to anyone. It was going to happen sooner or later -- the market just needed a good excuse. The poor reaction to Apple's good earnings was the excuse.

Despite the very misleading Dow Jones Industrial Average, this was the worst day of selling for the market since August. What really surprised me was that there was absolutely no bounce at all. It was a straight trend down all day long with no respite in the selling. Breadth was better than 4-to-1 negative by the close. The good news is that volume wasn't too heavy. It wasn't a massive day of distribution with big institutions dumping shares, but it sure was some pretty aggressive profit-taking.

The thing we have to watch very closely for now is a failed bounce and some downside follow-through. What really makes corrections painful isn't the initial pullback (although that can hurt), it is being sucked back in and loading up for a failed bounce. One should not dismiss today's action as an aberration.

F5 Networks just reported earnings, and it is getting smoked on a slight beat and in-line guidance. That isn't going to help the technology group tomorrow.

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