The U.S. stock market proved its resilience once again. SPY bounced near its 50-day moving average and it is back at new all-time highs. Granted, the latest new highs came with a weak market breadth but negative momentum divergences can be resolved through a sideways consolidation.
Another big week of earnings report is on the horizon. Will Shopify (SHOP) and AYX (Alteryx) continue their ascent or they will pull back like many other software names did last week? It is a big trend to watch. If there’s a rotation from momentum to value, software stocks might have a sizable pullback in the next few months just like they did in September/October of last year.
In the meantime, the mega-caps continue to advance. AMZN is close to breaking out from a 3-year long base. GOOGL is consolidating new its all-time highs.
We also talked about TSLA, AAXN, RETA, UBER, SMH, TCEHY in the show.
The market finally blinked and pulled back after it became clear that the coronavirus will have a significant impact on China’s and therefore, the world’s Q1 GDP growth. Starbucks said that half of their stores in China are closed while the rest are operating at reduced hours. Apple confirmed that one of their stores is close. Crude oil cannot find a proper bid. Copper is in a free fall. The semiconductor and biotech ETF which led the market higher late last year are already 9-10% below their 52-week highs. There are some stocks are showing clear relative strength and trying to break out even in this weak tape. The odds are that they will remain in a range if the market continues to discount a potential negative impact from the coronavirus. We covered: NFLX, PTON, ZM, TNDM, RETA, AAXN, TSLA, AAPL, among others.
The new earnings season coupled with the coronavirus fearmongering is certainly contributing to a choppier tape. As a result, gold and U.S. Treasuries have been rallying. Both can be a good hedge. When the volatility genie escapes the bottle, it is hard to get him back in. A rise in volatility typically begets more volatility, at least in a short-term perspective.
Everyone is looking at the price action of the indexes for a clue if a correction is coming. The problem with this approach is that the indexes are lagging indicators.
The biotech ETF which was among the first ones to break out and lead this rally in October is now among the first ones to break below its 50-day moving average. 89-90 is a huge level for XBI and if it doesn’t hold, we might be in for a lot more volatility.
Of course, this might be just another sector rotation. On Friday, we saw enterprise software stocks showing clear relative strength. MDB, TWLO, EVBG, PLAN, and others were green in an ocean of red. It can be due to the strong earnings report from Atlassian (TEAM) or it can be because of a bigger industry-wide reason. We will know soon enough.