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Freaky Friday Potpourri: Baidu Downgrade Takes the Markets Lower

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After an endless array of upside hurray, Boo threw the bulls a slider yesterday in the form of a nasty, massive downside reversal.

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"Love is the only thing that can save this poor creature, and I am going to convince him that he is loved even at the cost of my own life. No matter what you hear in there, no matter how cruelly I beg you, no matter how terribly I may scream, do not open this door or you will undo everything I have worked for. Do you understand? Do not open this door!"
--Dr. Frederick Frankenstein


And so it begins, the final fifth of our freaky week. After an endless array of upside hurray, Boo threw the bulls a slider yesterday in the form of a nasty, massive downside reversal. OK, maybe it wasn't as much of a monster move as we've seen in bubbles of yore but relative to the steady swell, it was a wild one.

The culprit, as we eyed on the Buzz, was a double-decker Chinese checker named Baidu (BIDU). In the middle of the afternoon and in the midst of yet another green stream, JP Morgan (JPM) trimmed numbers for the triple-digit high flier. The stock, which was up 123% from the August lows when the news hit, quickly dipped almost 60 points (16%) and punched near-term sentiment in the gut.

Whether that was a mere slip or the beginning of a bigger stumble remains to be seen but one thing is for certain. Psychology, as we've been discussing, was lopsided, long and due to be wrong. Today's fray is important as it'll either reward or punish the dip buyers which, in turn, will shape the collective mentality as we segue into next week's expiration (volatility exacerbation).

While the day-to-day is tough to play-and I'm still very respectful of that the last leg of the denial-migration-panic trifecta is the most vicious and unforgiving-I continue to sense that we'll see a harsh shake-out before the bubbly pours into the new year. Will that be today's business? Join us over on the Buzz as we figure it out in real-time!

Random Thoughts

  • Note the 15% spike in volatility yesterday as traders began to reach for protection. The VXO, after holding the 200-day, may actually be old enough to drink for the weekend! For purposes of perspective, we're still 50% below levels seen a few short months ago.

  • Was that really only two months ago?

  • I saw Young Frankenstein on Broadway last night and it was awesome. I'll tell ya, this balance thing doesn't come easy. Trainer in the ayem, theater at night and a whole lotta juggle struggling in between. Hey, we're never too old to learn, right?

  • Will the Moody's downgrade of $33.4 billion of sub-prime backed securities yesterday "matter?" I would venture to say "eventually."

  • We're not doing panels and keynotes this year. We're doing an intimate gathering of our Circle of Trust (MV professors and partners) and opening the doors on the remaining seats to ye faithful in the interest of Children's Education. We've found, in Minyanville, that the residual grist of conversation is where the best financial insight is found. Plus, it's gonna be a heckuva lotta fun! Have you locked in your ticket yet?

  • One of my favorite tricks of the trade when I ran a desk was to play the periphery. Case in point yesterday. When BIDU popped, I would have laid into Google (GOOG), Apple (AAPL), Amazon (AMZN) and Research in Motion (RIMM) with reckless abandon. It's not as easy when you don't have a trading staff but the style still applies.

  • Wanna hear something weird? When I say BIDU go down, the first thing I thought of was Microstrategy (MSTR). I know, I know - it's a totally different set of circumstances (time, price, purpose) but that was the first thought to cross my mind.

  • My bullish brethren note two reasons why "we could be at new highs by the end of the month." The first is many mutual funds have their year-ends at the end of this month (and they're not gonna give up the Mott's now). The second is that they feel alotta folks missed this move and they'll use any dip to buy exposure. Hey, we always wanna see both sides, right?

  • Self-confessed Minyan addict Fernando notes that there are more than $400 trillion in derivatives vs. total global GDP of $48 trillion. I would note.


Answers I Really Wanna Know…

  • Did the dry Citigroup action yesterday scream that Chuck is a goner?

  • Will the fact that he's still there (coupled with the Deutsche Bank downgrade) punish those front-runners?

  • BIDU is all the way back to... where it was October 4th?

  • Isn't a broken clock right twice a day?

  • Seeing the "other side" (always), won't Hoofy offer that the sharpest corrections occur in the context of a bull market?

  • While Boo argues that we've seen the '07 highs?

  • Where's your brain?

  • Did you see the relative traction in the homies yesterday?

  • Is Boo waiting at HGX 185 to unleash his hounds?

  • If that wasn't glue, what the heck was it?

  • If this was "it" on the downside, wouldn't the commodities be taking it on the chin too?


R.P.

No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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