Cybersecurity stocks fell considerably Thursday. CyberArc (CYBR) was down 9%, FireEye (FEYE) was down 7% today and Palo Alto (PANW) was down 6%. Curious, I trawled the headlines and message boards looking for a logical reason for why the sector was taking a hit, and I could not find a damn thing - then it hit me - portfolio managers are taking profits and headed to the sidelines. This is what I speculate.
Goldman or one of the Morgan's has a downgrade coming or smart managers in the space realize that since Ashley Madison did NOT create buying in the sector that the only direction for these stock to go is down. Now these two lines of thinking are classic beat you to the punch Wall Street moves where there is absolutely zero warning.
The White Angel of Death
I need to tell an old S&P Futures pit story, which taught me valuable lessons in why to pay attention, and it had to do with the Goldman Sachs (GS) house broker who we called the "White Angel of Death". We called her that because she was on the other side of your trade for any size you were in trouble. What she would do was quietly get an order and start picking off local market makers in front of some news the Goldman prop desk was about to unleash - and if you were not paying attention - she would shove those trades so far up your ass that you would need to extract them with a pair of pliers. I would know; I experienced the pliers.
But it taught me to hone my skills and develop a network so I did not get caught sleeping, which was simple in the days of an octagon-shaped trading pit with open outcry transparency. But in the online world of today, the only two signals you have are volume and volatility, and the cybersecurity stocks have tripped the lever in both for me to the downside.
The Ashley Madison Top
I see profit taking coming and you can call it the Ashley Madison Top. Understand that it is a short-term top - because cybersecurity stocks will follow the same pattern that cloud stocks did, and the same that CRM stocks like Salesforce (CRM) did before that. They will shake out the weak.
What you can expect is a basic Fibonacci-type pullback across the board where the entire sector pulls back 23% - 38% from the highs so these stocks can shake out the weak holders and give the shorts some satisfaction so they come back to the table. In the case of CyberArc that means down another $11 to $46, and in Fireye it is about $33 or another $7 lower than here.
Chalk it up as another casualty of the recent Ashley Madison purge, but few expected this result, and by my compass the beneficiaries of this sell-off will be the suitors IBM (IBM) and Cisco (CSCO) - which makes me wonder- where is the White Angel of Death and what is she doing.
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