Cloud Computing Stocks Selloff Hard As Market Pulls Back

The market is pulling back further today, which should not be surprising to anyone who has been reading our concerns about the market being overbought and extended, and sentiment becoming too complacent.

Last night, F5 Networks (FFIV) reported earnings that were pretty solid, but guidance was only in-line. When you have a high-flying growth stock, the company has to consistently raise earnings guidance to keep the momentum going. Any in-line guidance is not going to be greeted well by investors, and today's action demonstrates that. FFIV is down -20% today, and dragging down all cloud computing related stocks with it. It is basically tainting anything network related.

EBAY was a bright spot in earnings, but its not enough to help today. Morgan Stanely (MS) also reported solid earnings, and that is helping boost a few financial stocks.

Asian markets were hit hard overnight, led down by China. Q4 GDP in China grew +9.8%, an acceleration from last quarter. This has caused increased concern that tighter monetary policy will be implemented to cool the overheating economy. China finished down nearly -3% last night.

There were some better than expected economic reports today. Existing home sales for December increased 12.3%, and jobless claims fell from the prior week. But investors are in profit taking mode today, and that is overshadowing any positive news.

Commodities are also getting hit, with gold prices down to $1345, and oil prices falling back to $89.25.

The 10-year yield is higher at 3.41%; and the volatility index (VIX) is spiking 7% to 18.50, and testing its overhead 50-day resistance.

Trading comment: I was early in calling for a correction, but timing market tops is probably the most difficult part of investing. That said, this looks to me like it could be the start of a much needed correction. It's okay to pick at things on the way down, but all corrections take time to complete themselves. So let stocks consolidate and form new bases. When stocks begin to breakout from those consolidations to new highs, that will be the sign to get more aggressive. Patience.

long FFIV, VIX calls