Weekly Review 30.4-4.5.2018

This coming week promises to be jam-packed with activity for Wall Street investors and traders alike, with a slew of earnings reports, first and foremost, Apple (AAPL). Likewise, the Federal Reserve’s interest rate announcement and the April employment report will be on the front-burner. Each and every one of the above could be enough to rattle the market.

Stocks ended last week with a negative tendency, the S&P 500 ending almost unchanged, the Dow shedding 0.6% – and the NASDAQ retreating 0.4%.

For ever so long the market seemed invulnerable to any onslaught of bad news. From the beginning of 2017 until the end of 2018 – and well into January – there was nothing that could repress the upward price movement. If there was the slightest price correction against the backdrop of a development like renewed fear that North Korea would launch an intercontinental ballistic missile carrying a nuclear warhead, in no time buyers would jump in to buy any stock they could get their hands on at the first sign of weakness.

Towards the end of January, things reversed course. Over the last few months, not only did bad news start having an impact again – but even the good news precipitated selling. Take Friday for example. Amazon (AMZN), which got off to a running start after its stellar report, was soon fodder for selling as opportunism kicked in. This phenomenon repeated itself with Intel (INTC) and Microsoft (MSFT). What’s surprising is that the expectations from these companies were not so high. And even so, after the numbers came out much stronger than expected investors and traders dumped merchandise after the gap up at the opening.

Besides good news seeing selling pressure, bad news has of course seen the same fate. Almost every Apple (AAPL) provider until now has noted weak demand to one extent or another, the behaviour of Apple’s stock responding in kind with sharp losses. On Friday, the stock even closed beneath its 200-period EMA, a technical event that last played out at the end of January. Essentially, this proves itself a real reason for the negative sentiment in the tech sector, even though we’ve seen good news in other sectors.

Until now, the earnings season has been far from stellar. Fundamentally, the numbers are good, but the price movement can only evoke commiseration given all the pain stocks have been undergoing.

Over 130 companies will be reporting this coming week, but Apple will be the one commanding the most attention. Apple will be reporting this coming Tuesday, after closing, which should finally put a close to the pressure caused by concern about weak smartphone demand. With that said, there’s no reason that traders should jump in head first and buy up the company’s stock before it reports its results, which could see its guidance slashed. In the meantime, the stock is off over 4% since the beginning of the year, and 10% from its historic high achieved a little over a month ago in mid-March.

On our trading screens, there’s no end to the stocks which have seen horrendous price movement. No positive momentum has succeeded in lasting, meaning that there’s no reason for investors to go overboard and put too much money to work. We’re seeing stocks with a persuasive narrative, solid numbers and good potential, but these stock don’t offer attractive entry points at the present time.

The month of May begins on Tuesday, and it would seem that there’s a chance out and about that we’ll see a tough summer, which would place investors in a caution stance. The dour reaction to solid earnings numbers only causes there to be more liquid funds side-lined, lying in wait. We can summarize by saying that the current market is not a healthy one. The index charts are weak, the reaction to positive earnings reports has been weak overall, and there’s no sector or subgroup of stocks that’s taken the lead, and with the negative seasonality – as May kicks off – we seem to have strong headwinds ahead. Everybody remembers the time-honored tradition, “Sell in May and Run Away.” Keep your finger on the pulse and exercise caution!

Have a great trading week!