Momentum Stocks Are Falling; Is This A Correction Or Something More?

2013 was a banner year for the stock market. Alongside record-breaking advances for the S&P 500, big name technology stocks booked monumental gains. Driven largely by heavy investor interest and sizable expectations for future performance, the stock prices for companies such as Facebook, Yahoo, Netflix and Tesla were propelled to new heights. Despite improving financials for a number of these big names, many of the price movements were the result of expanding multiples and not fundamental improvements.

So far in 2014 however, momentum names have hardly continued their ascent up the charts. Over the past week high-profile technology stocks have seen substantial price declines, spurring discussions of bubble like behaviors. At the close of the trading week ending Friday the 4th, LinkedIn shareholders had seen their shares decline 13%, while Twitter and Facebook had fallen 8.8% and 5.4% respectively. This rough recent run has ended with prices for shares of Facebook, Netflix and Yelp all falling over 20% off of recent highs.

Analysts seem to fall into two categories on the issue. While many suggest that the irrational valuations of momentum names are finally beginning their descent back to earth, others, including Oppenheimer Analyst Jason Helfstein views this recent sell off as an opportunity to buy in. Helfstein upgraded Yelp and Netflix to Outperform on Monday citing unchanged near term fundamentals and upside potential.

So where do we go from here? The week of April 7th will be a busy one for market news and may provide some indication of what is to come. In addition to the Wednesday release of Fed minutes, IMF and World Bank meetings, along with the beginning of earnings season will give traders some new signals on interest rates, earnings and the overall strength of the markets.

What do you think? Is the momentum melt down creating strong entry points or is it best to stay away? Is the current IPO boom a sign of a frothy market? Will the coming end of QE keep the S&P headed downward? Let us know what you think in the comment section below.