First off, a quick look at price action from this week. In one word: bearish 🐻
The red line represented a significant support level (will explain why some other time, just trust me for now). As this got broken on Wed, it acted as support during both Wed and Thu mini-rallies. The price also remained below 50 and 200 period MAs (the red and blue lines; on all levels, 15-min, 30-min, one hour, etc.). The trend is clear: lower lows, lower highs. All these factors combined just confirmed the overall bearish trend.
Then on Thursday night, as Israel attacked Iran, ES futures went down 1.5%, only to completely recover by Friday open. That event aside (markets quickly shrugged off the probability of a war, or WW3 which was again trending on Twitter/X), a more important signal was looking at price action following earnings this week.
Let’s start with NFLX, which came out on Thursday after close. An earnings beat, and a good one, no doubt, however the price traded -4.6% after hours, and closed at -9% on the day. The reason? Negative forward guidance, and a red flag in them deciding not to report quarterly user numbers as of next year. The significance of the move? An objectively good earnings report was followed by a sharp sell-off. That is typically a bearish sign.
Other earnings this week were actually decent. Goldman, Morgan Stanley, PNC beat and rallied, Bank of America missed and sold, UnitedHealth beat and rallied, J&J met but sold off, ASML missed on revenues and sold heavily.
In a nutshell, we got good or decent earnings, not big misses, but this failed to break the short-term bearish trend.
Coming into Q2, recall what we were writing about; as long as GDP growth is pretty good (now at 2.9% for Q1!), firms will deliver decent earnings. Which they did. But if the market is positioned differently, this doesn’t mean much. We would need really strong Big Tech earnings coming up next week to break the bearish trend. And given that expectations are set pretty high, this is becoming a big hurdle given current market conditions.
With that in mind, have a look at this (courtesy of Tier1 Alpha):
The whole move down on Friday was driven by a handful of Big Tech stocks (all Mag7). 68% of all S&P500 stocks were positive on Friday, but we still got a sharp sell off. NVDA ended the day at -10%! That’s one of their worst ever declines. This puts additional pressure coming into Mag7 earnings.
Today, we’ll look at these earnings expectations for Mag7 coming over the next two weeks (plus NVDA at the end of May), and the broader sentiment on markets right now.
All this, however, is just a nice set-up for what we have in store for May 1st, when we get the FOMC and the new QRA. Next week, I’ll deliver a playbook with a set of scenarios of what we expect might happen.