Most momentum stocks lost 20% in the past couple of weeks. Big Tech reported another set of impressive earnings and yet, it didn’t matter this time. Each of them except Google went down.
The list of European countries applying stricter COVID measures continues to get bigger. The Europe 50 index broke below its September lows early last week and it has been in a free-fall ever since. Does the same destiny await the U.S. Market? So far, the S&P 500 and the Nasdaq 100 have managed to hold above their September lows. If those levels are lost, we might see a quick 5-7% drop. Everyone knows that there will be a new stimulus at some point in November. And yet, the market is starting to panic because of the renewed lockdowns and the delay of working vaccines. When there’s panic, there’s no rationality. We can even see stocks like AMZN which are benefiting from stricter COVID measures and just reported a record quarter, under heavy pressure.
The U.S. Presidential elections should supposedly end on Tuesday and bring a little bit more clarity about the government’s priorities in fiscal spending. This has the potential to calm markets down a bit as people can allocate their capital with more confidence.
One earnings report can drastically change the price trajectory of a stock and its industry. Take Snapchat for example. SNAP had a big earnings surprise (over 100% above estimates) and reported a notable acceleration in revenue. It gapped to new all-time highs and had the strongest week in its history, gaining 50% on record volume. Snapchat also projected a significant improvement in digital advertising conditions which boosted the stocks of FB, TWTR, PINS, GOOGL, SPOT.
Small caps outperforming and setting up for a potential breakout with a potential pivot at 164.25. It is not only about the new stimulus. We saw a big spike in interest rates which pushed banks and basic material stocks higher while it pressured homebuilders.
The market is acting as if the new $2 Trillion stimulus (it hasn’t been approved yet) will only help the worst-hit by COVID sectors. The amount of money is significant. It’ll eventually trickle down to the balance sheets of the most profitable companies in Big Tech. This is why I think the dips in AMZN, AAPL, FB, GOOGL, MSFT will continue to get bought. QQQ is setting up for a potential bounce just before the biggest earnings week this season.
There are still plenty of stocks that are holding well and building new bases in various sectors and market caps. In the meantime, the 30% drop last week in a momentum flagship like Fastly is likely to act as a wake-up call for many. This might lead to profit-taking in other momentum high flyers which have been on a hot run most recently – PTON, TTD, Z, etc. No one wants to get caught in a big post-earnings drop. Add to the mix the constant gyrations due to new stimulus package stimulations, the typical pre-election volatility, the rise in COVID cases, and you have a range-bounce market that might not be very easy to trade.