“Buy the rumor, sell the news.” Is the famous market adage unfolding in this year’s top sector?
The proverb teaches that stocks rally into scheduled events and then get sold after the catalyst passes. Traders had a major opportunity to do that in technology heavyweight Apple (NASDAQ: AAPL) on Tuesday as CEO Tim Cook unveiled a slew of new products, including this decade’s first major revamp of its flagship iPhone.
AAPL advanced during the presentation, and at one point was less than $1 from its recent all-time peak. But then sellers drove it into the red. Chart watchers noticed something else: The session featured both a higher high versus Monday and a lower low. Known to traders as an “outside day”, that kind of price action is often interpreted as a reversal pattern—especially on heavy volume.1
Longer-term investors quipped back that tech deserves a break, for crying out loud. It’s carried the water for most of this year’s monster rally, and is still the top sector with a 22 percent gain since Auld Lang Syne echoed down Wall Street. So where’s money going now? No time to comment, we’re too busy rotating into health care and energy.
Source: OptionsHouse by E*TRADE
Currency markets have also buzzed as the U.S. dollar ripped back from its lowest level since early 2015. Some traders wondered if the mirror image of “buy the rumor” didn’t apply. After all, the greenback has plunged this year on a sense that domestic growth would lag places like Europe and China. That was “selling the rumor.” But now that economists have cut their numbers, the hurricanes have passed, and the Europeans are getting scared,2 is it time to “buy the news?”
Speaking of news, some headline watchers have noticed an increasingly positive flow of stories in the energy space: International supply is falling at the very same time global demand is rising. Gasoline has been in the ascent. Crude production has also risen on the home front as U.S. producers reap the rewards of OPEC’s newfound unity.3
And then there’s bitcoin. The cyber-currency helped juice the tech rally by increasing demand for semiconductors made by sector leaders like Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD). But now it’s become a whipping boy of regulators, hackers, and bankers the world over.4 Could a cyber-currency correction be another strike against Silicon Valley?
Bottom line: Technology has lead the market all year, but some traders are finding reasons to be cautious.
1. Investopedia: Outside Days
2. Business Insider: Hurricanes Irma and Harvey cause Goldman Sachs to slash its outlook for the US economy. 9/12/17. Bloomberg: ECB's Coeure Warns Persistent Euro Gains May Weigh on Inflation. 9/11/17.
3. Marketwatch: EIA reports smaller-than-expected rise in U.S. crude supplies, output climbs. 9/13/17. Bloomberg: IEA Sees Strongest Global Oil-Demand Growth in Two Years. 9/13/17. CNBC: OPEC oil production falls for the first time since March. 9/12/17. CNBC: Oil jumps as Russia and Saudi Arabia discuss extending output cut deal. 9/5/17.
4. Business Insider: Bitcoin's insane value makes it an attractive hacking target for cash-strapped North Korea. 9/12/17. CNBC: Bitcoin price drops $200 after new ruling from Chinese regulators. 9/4/17. Bitcoin's price tanks after report China may shut down exchanges. 9/8/17. Bitcoin is the 'most crowded' investment in the world right now. 9/12/17. JPMorgan CEO Jamie Dimon says bitcoin is a 'fraud' that will eventually blow up. 9/12/17. TheStreet.com: Will the Plunge in Bitcoin Crush AMD and Nvidia? 9/13/17.