Stocks fell hard last week as earnings season officially began. It was a volatile and important week because the Nasdaq 100 hit a fresh record high on Monday, then sellers showed up and sent stocks lower for the rest of the week. On Monday, the Nasdaq 100 jumped to a fresh record high as the Dow Industrial Average and the S&P 500 rallied into resistance (their respective 50 DMA lines). Then, stocks immediately sold off causing the Nasdaq 100 to negate its breakout within a few hours.
Stocks fell hard on Tuesday, were quiet on Wednesday, then fell hard on Thursday causing the Dow & S&P 500 to slice below important support (September’s low) that we have highlighted for you in recent weeks. Shortly after Thursday’s open, buyers showed up and defended support by the close. This time, the breakdown was negated within a few hours and stocks rallied into the close.
Stocks were quiet on Friday but closed the week in the lower to middle half of the range, which is not a bullish sign. Looking forward, important support is Thursday’s low for the major indices and then the longer term 200 day moving average. If the market can rally from here then we should expect resistance to be the 50 DMA line for the Dow & S&P 500 and then their respective 2016 high. Earnings season is now front and center and it is of the utmost important to see how the market, and individual stocks, react to earnings. Suffice it to say, the action is not healthy.
A Closer Look at What Happened Last Week…
Stocks rallied on Monday as investors wait for earnings season to begin in earnest. Oil prices surged more than 3% after Russia said it was open to curbing production to support oil prices. Russian President Vladimir Putin said Russia is open to join a proposed cap on oil output by OPEC members. Investors also digested the second presidential debate as we enter the last few weeks ahead of the election. Banks and the bond market were closed on Monday in observance of the Columbus Day holiday, but the stock market was open.
Stocks fell hard on Tuesday after Alcoa ($AA) officially kicked off earnings season on a sour note. Alcoa, plunged nearly 11%, their worst day in five years, after the aluminum giant said quarterly revenue and earnings missed the market’s expectation. Elsewhere, shares of Apple ($AAPL) rallied to a 10-month high after Samsung said it would stop selling its Galaxy Note 7 smartphone due to safety concerns. Finally, shares of Illumina ($ILMN) got smacked and lost a quarter of its value after the company cut third-quarter revenue forecast for the second consecutive time.
Stocks were relatively quiet on Wednesday as investors digested Tuesday’s large sell-off and the minutes of the Fed’s latest meeting. The minutes showed the Fed remains split and wants to wait for more data but is ready to raise rates ‘relatively soon.’ In economic news, mortgage applications slid -6% last week as mortgage rates continued to edge higher. A separate report showed the number of job openings fell to 5.4 million in August. Finally, Reuters reported that the European Central Bank may discuss extending its QE program past March 2017 at future meetings. Any sign of “more” easy money is designed to help stocks.
Thur & Fri Action:
Stocks opened sharply lower on Thursday after China said exports plunged 10% overnight. China is a major exporter so the fact that exports are down 10% leads many people to question the health of the already fragile global economy. Right after the open, the Dow & S&P 500 briefly undercut important support (September’s low) before buyers showed up and helped defend that important level by the close.
Stocks opened higher on Friday but closed mixed after JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) all reported stronger-than-expected quarterly results. Sellers showed up shortly after the open and the market spent the rest of the day drifting lower.
Janet Yellen gave a speech and said easy money is prudent whenever the economy gets in trouble. Next week, over 80 S&P stocks are scheduled to report earnings, including Bank of America, Netflix, BlackRock, Goldman Sachs, United Continental, just to name a few. For the week, stocks fell hard and are flirting with important support (Sep’s low).
Market Outlook: Tape Is Getting Weaker
The tape remains very split but weakened considerably last week. The fundamental driver continues to be easy money from global central banks but the law of diminishing returns may be setting in. Economic and earnings data remain mixed at best which means easy money is here to stay. As always, keep your losses small and never argue with the tape.