MW What tech's choppy action means for stocks this week, according to this 20-year analysis
By Jamie Chisholm
Critical information for the U.S. traded day
Early equity futures action on Monday suggests Wall Street will extend last week's strong rally.
It's certainly been choppy, as worries about higher bond yields have done battle with hopes for strong corporate earnings, particularly from big tech.
Indeed, after dropping a little more than 5% in the week beginning April 15, the Nasdaq 100, chock full of those large technology company names, rebounded about 4% last week. It was the best week for the broader market since early November.
Such bouncebackability (yes, it's a thing) should be a good sign for a market. It suggests that investors can absorb, rationalize and discount setbacks, and are eager to buy the dip.
But short term traders should be wary. Bespoke Investment Group has run the numbers on such recoveries and found it does not augur well for this week's action.
Since the mid-1980s, there have been 40 two-week periods where the Nasdaq 100 fell four percent or more in one week only to rise four percent or more the next. The table below shows the 16 times it has happened over the last 20 years, not including last week.
"It's worth pointing out that the week after these two-week 'drops then pops' of 4% has not been great historically," says Bespoke.
"As shown, the Nasdaq 100 has actually averaged a one-week drop of 1.38% in week three with declines each of the last eight times this has happened since late 2018." Bespoke adds.
Why, might the market drop back again? Well, it could be argued that instead of a quick bounce being a sign of strength, investors may consider such volatility an indicator of weakness. After all, is it really comforting to see a $2 trillion company like Nvidia shed nearly 14% one week and climb more than 15% the next?
Indeed, moving to the S&P 500 index, Jonathan Krinsky, technical strategist at BTIG, notes that the barometer now faces a tough time around the 5,120-5,130 range. which is the confluence of the 20- and 50-day moving averages, and the recent downtrend.
"We suspect it fails there and turns lower, but should it close above that bulls would have to be respected," Krinsky adds.
Still, Krinky's often bearish, so let's finish with a bullish take on recent market action. Tom Lee, head of research at Fundstrat says that the latest rally is a sign that the "buy the dip regime remains in effect."
"As we exit April, the rally of the past week has bolstered our confidence that the worst of the selling is done, and thus, we believe probabilities favor stocks to stage further gains in May," says Lee. His colleague Mark Newton thinks a move to S&P 500 5,212 is underway, which if achieved puts 5,400 in bulls' sights.
Markets
U.S. stock-index futures (ES00) (YM00) (NQ00) were inching higher early Monday as benchmark Treasury yields BX:TMUBMUSD10Y dipped. The dollar index DXY was lower, while oil prices (CL.1) slipped and gold (GC00) was trading around $2,340 an ounce.
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The buzz
There's no top drawer U.S. economic data due Monday, nor Federal Reserve speakers as the central bank refrains from media events ahead of its two-day policy meeting starting Tuesday.
That allows for greater focus on the quarterly U.S. Treasury financing estimates, which will be released at 3 p.m. Eastern.
Meanwhile, the earnings reporting season moves on, with SoFi Technologies $(SOFI)$ and Domino's Pizza $(DPZ)$ reporting before the opening bell on Wall Street on Monday, followed after the close by Paramount Global (PARA), NXP Semiconductors $(NXPI)$ and Logitech International $(LOGI)$
Tesla shares $(TSLA)$ were jumping 6% in premarket action after reports Elon Musk's trip to China has coincided with the EV-maker passing a regulatory bar for its new driver assistance technology, and partnering with one of the country's biggest technology names, Baidu.
Shares of Royal Philips NV (NL:PHIA) $(PHG)$ soared 40%, after the Dutch health-technology group announced a much lower-than-expected U.S. settlement over its Respironics ventilators.
The Japanese yen $(USDJPY.FOREX)$ fell to a fresh 34-year low above 160 to the dollar but then rallied sharply amid chatter that the Japanese authorities had intervened in the market.
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The chart
Small cap stocks are about as cheap as they get versus large caps, says Callum Thomas at Topdown Charts, who provides the image below. "All those stories and narratives about Large Growth are already in the price, and then some. Longer-term contrarian minded investors should take note," says Thomas.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name TSLA Tesla NVDA Nvidia NIO Nio AMZN Amazon.com AAPL Apple META Meta Platforms GME GameStop AMC AMC Entertainment SMCI Super Micro Computer SOFI SoFi Technologies
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-Jamie Chisholm
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April 29, 2024 06:24 ET (10:24 GMT)
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