Breifing-"It was a nightmare session for the shorts..."
Updated: 17-May-01
General Commentary
It was a nightmare of a session for the shorts... After leaning on stocks for the past week in anticipation of a sell-the-news reaction to the FOMC, shorts are being reminded that fundamentals aren't the only drivers of stocks... The one metric that the bulls did appear to pay attention to today was growth. View seems to be that rapidly expanding companies will eventually grow into their valuations. Also, there is a sense that multiples are being overstated by earnings estimates that now reflect the worst case scenario... As technology spending begins to pick up again, investors will look for companies to resume trend of exceeding estimates and issuing upside guidance.
Find it unlikely that the market ramp today will carry much weight in convincing short-sellers to migrate back to the long side of the market. In fact, failure by the large-cap bellwethers to provide leadership could convince shorts to dig in even deeper, on belief that today was a soulless move... It is this sort of conviction that eventually provides markets with the fuel to break through the tops of trading ranges, as sustained uptrend leads to capitulation covering on the part of shorts.
The bullish leaning is likely to extend through the end of May, with investors/traders beginning to reduce exposure as earnings warning season approaches. This window will allow market participants the opportunity to take a few more risks with their capital, such as swing trading momentum stocks, or buying names that gap down (on analyst comments, earnings guidance, supply-chain fallout)... Areas of interest from a valuation perspective include storage, biotech, telecom equipment. Momentum players are likely to find opportunities in the enterprise software and internet spaces.
Damon Southward |
