A Very Unusual Day For The Markets: June 21, 2012

by: portfoliV

In this article I will summarize some trading attributes that happened on June 21, 2012, that were very unusual in my opinion. These unusual characteristics might be beneficial in analyzing what might be expected for the rest of June.

Morgan Stanley (NYSE:MS) used to be one of the high-beta stocks during the latest Eurozone crisis. Yet it has stood up very well in the selloff, down less than 1.5%. Normally in a down market day of 2%, MS would be down close to 6%. This might indicate, panic in the market is not as high as the selloff in the market might suggest.

Oil was especially hit hard. Although oil has been in a very strong downward trend since early May 2012, $80 was pretty much an established bottom for oil. It broke that level with this selloff though. In fact the commodity stocks were among the hardest hit in the market. Even stable oil companies like Schlumberger (NYSE:SLB) sold off heavily.

Another severe downward correction came in silver. The euro had recovered some ground recently and Eurozone wasn't the cause of the selloff on June 21st' 2012, so it is surprising silver would lose almost 5% in such a day.

The popular mREITs Annaly (NYSE:NLY) and American Capital Agency (NASDAQ:AGNC) did not selloff either. These mREITs are usually very exposed to market sentiment and liquidity conditions. The fact that they did not selloff is another indicator this was not a panic selloff.

Despite many high-beta stocks not selling off as much as expected, one high-beta stock that was very hard hit was Green Mountain Coffee Roasters (NASDAQ:GMCR). The stock has rapidly moved into the value stock category and it might be wise to accumulate long positions around $19.80.

In my opinion, given these unusual characteristics stated above, the selloff on June 21st was the result of a major investor reducing stock and commodity exposure. It wasn't a result of a change in underlying fundamentals. It was just a result of a major investor just being uncomfortable with the uncertainty and initiating a major sell order to reduce exposure.

It was also nice that the selloff, although it was large, wasn't chaotic.

Investors should also consider the risk of further short positions, in case of a major positive development out of the Eurozone. Such a development would easily cause a severe short squeeze.

My suggestions would be to go long GMCR and MS to take advantage of the selloff. Also, some cloud companies, which sold-off in the selloff, can be accumulated to take advantage of a quick increase in the market back to its short-term rising trend. I would suggest F5 Networks (NASDAQ:FFIV), Salesforce (NYSE:CRM) and NetSuite (NYSE:N) for such a short-term trade.

Disclosure: I am long MS, CRM, N, SLV, USO.