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Baa Baa Black Sheep


I wrote last week about how the stock market reacted to the Facebook IPO and we were musing about whether something similar would happen with the Alibaba (Ticker = BABA) IPO.

In the chart above, you can see the performance of the BABA stock (in red) and the S&P 500 (in blue). BABA is now well below where the IPO opened (around $92 per share) and significantly below the high (at $98+ per share BABA is now 11% below its high). The S&P 500 has fallen along with BABA, down a couple of percentage points – not a huge issue right now, but it also belies what is really happening in the market.

These statistics are from Peter Bokvar via Doug Kass’ blog: “On the record high close in the S&P 500 on September 18th, only 57% of NYSE stocks closed above its 200 day moving average vs 74% that did on December 31st 2013 and vs 82% at the peak in May 2013. The Russell 2000 is down on the year. The average mid cap stock is down more than 11% from its 52 week high.”

The S&P 500 is really not telling you the whole story of the stock market at the present time: a lot of stocks (some really good growth stocks that I am eager to buy when they bottom) are down significantly. Take a look at Tesla, arguably the car/tech company of the next decade:


Tesla is down from $291 per share to $250, or a 14% loss in just under three weeks. And it is not alone – many of the high growth companies that trade at rich P/E multiples which can be rationalized based upon their earnings growth rates have been pummeled.

You will recall that I wrote about our raising upwards of 5% cash in most client accounts (unless we were directed not to do so). We will be putting that cash to work purchasing great companies that have been pummeled by the BABA top.

When will this selloff end? No way to know for sure, but it looks like we have a few more percentage points down on the S&P 500 before we get oversold on a short-term basis. It won’t be straight down as I’d expect some buy-the-dippers to step in to pick up some bargains, but we have to shake out the weak hands before we can move higher again.