Last traded week started strongly after the release of solid financial reports from Netflix (NFLX) on Monday, which pushed the S&P 500 higher and outside of its prior trading range. NFLX closed above its 50-period EMA for the first time in over a month.
Hopes were high that the resounding success of NFLX signaled a beautiful earnings season to come, but then the bombshell came; I.B.M. (IBM), Goldman Sachs (GS) and American Express (AXP) failed to rouse buyers’ interests. But when all was said and done and despite Friday’s losses, the S&P 500 succeeded in eking out weekly gains of 0.5%, recording its second straight trading week!
There still is hope that Google (GOOGL) can reverse the dour mood and make it positive again when it reports on Monday after closing – but when push came to shove, it was no other than Taiwan Semiconductor (TSM) which really ruined the environment on Wall Street last week. The company reported weak demand for its smartphone chips, pulling the rug from the entire semiconductor sector along with other large tech players. Investors punished stocks with full force. For a case in point, the largest stock on the market, Apple (AAPL) submitting to selling pressure with sharp losses of 6.7% in but 2-days. AAPL is now struggling to stay afloat of its 200-period EMA. The biggest question is whether this apparent downtick in demand will continue to affect the rest of the earnings season this coming week. Investors, anxious, lashed out, the chip sector (SMH) – which scaled to a high in mid-March, now tumbling towards its 200-period EMA.
In the event the negative tone continues in the chip sector, the chance of “selling the news” in tech stocks will be high.
Apple and the semiconductor sector were not the only worrisome matters this past week. A surge in the price of crude, which is heading past $70 a barrel, along with a rise in commodity prices have raised concerns about a breakout in inflation. OPEC has finally succeed in pushing crude prices higher after years in which it’s failed to do so. And President Trump even tweeted on Friday that he sees the levels crude prices have reached as unacceptable.
The inflow of news got ugly last week and the improved technical conditions that we saw after the reports of NFLX quickly dissipated. Even though we’re still seeing support on the charts, the market needs a positive response to the earnings reports companies are releasing to get back on track. Otherwise, another retest of the bottom from the beginning of April is likely to be the market’s next move.
The market needs a news story or other hot-button topics that can serve as catalyst to create an uptrend. There’s substantial technical resistance looming above the market, the narrative becoming more and more bearish. We still, though, haven’t seen technical damage in the marketplace, but the technical pattern is not strong. You can rest on your laurels that very soon we’re going to see Wall Street’s wise men vocalizing the time-honored recommendation, “Sell in May and run away!”
Have a great trading day!