The Futures Were Way Lower Last Night
They've been improving all morning. I believe that the market cannot ignore that we found support at the much-heralded level of 2,750. I think that if you are a fast money trader, as I said yesterday, you can probably buy this morning and create alpha by closing out your positions tomorrow or Wednesday. However, Cash is more important than profits right now. If a quick trade is not your style, better to not try it today. Since I have been talking about an 8% slide for months and trying to get you to prepare for it, it would not be intellectually honest to now NOT beginning to get you to go long since we are already down like 7% right now. It is time to start buying; if you usually just buy 100% of your position, you are already doing it wrong, but if you do it today, you are egregiously wrong. PLEASE break your purchase into at least five tranches. I would even advise more, but I understand that some of you just don't have the time. Let me define the bounce, I would say the S&P could reach 2,810 to 2,830. However, I am not super certain that we finish the week above where we are starting. I am most concerned about the 10-Year (again); if we see a 1% handle on the bond, all bets are off for any kind of substantial bounce. In fact, I am certain it would take us lower.
Further Consolidation in the Chip Sector
Last week NXP Semiconductors (NASDAQ:NXPI) bought Marvell's (NASDAQ:MRVL) wireless chip line, and there is a steady drum-beat of consolidation news week after week. Infineon (OTCQX:IFNNY) and Cypress (NASDAQ:CY) - The German chipmaker Infineon is buying the U.S. chipmaker Cypress Semiconductor at a valuation of $9 billion. Infineon CEO Reinhard Ploss: "This will open up additional growth potential in the automotive, industrial and Internet of Things sectors." Infineon is best known for industrial chips, same as NXPI, and no coincidence to my eye that it is announcing this acquisition the week after NXPI announced last week. I like this sector now; start with SMH and buy the names we have been touting the last few weeks.
Earnings That Are Interesting
Please don't go into earnings with a long position, or at least reduce your positions going in. An earnings report is a binary event, and that is just gambling. The general trend is that stocks sell off after they report. Therefore, unless you have some special knowledge that a stock will beat expectations and be well accepted by the market, heed this warning. Reporting this week: Salesforce.com (NYSE:CRM), Tiffany (NYSE:TIF) on June 4; Stitch Fix (NASDAQ:SFIX), Cloudera (NYSE:CLDR), MongoDB (NASDAQ:MDB) and American Eagle Outfitters (NYSE:AEO) on June 5; DocuSign (NASDAQ:DOCU), and Beyond Meat (NASDAQ:BYND) on June 6. I have a near-morbid curiosity on how BYND fares. I want to understand the consumer, so while I don't recommend retailers right now, I have been working on a position in reference to the consumer. TIF and AEO are at opposite ends of the spectrum, and so I really would like to hear about their progress. The other names on this list are extremely interesting. I hope the market decides to sell CRM, SFIX, CLDR, and MDB off hard so that we can buy them. We may still buy them depending on where the market is.
To Sum Up
Repeating this because it's important. We started this whole long exercise in preparing for a sell-off with modeling an 8% dive in the S&P. Now that we are nearly there, we should not move the goal posts even though plenty of commentators are doing that. They even might be right! Maybe we go as low as down 10-12%, but when are you going to buy? You can sit there and keep saying it's going lower and end up with nothing. So you all know what you should be buying, START BUYING NOW.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.