NASDAQ Composite (.IXIC) firms heading into earnings season
Companies in the Nasdaq 100 are headed into earnings season with momentum that approaches the unprecedented, their value up by more than US$1 trillion since October.
Now the world finds out if the rally made any sense.
Twenty-six constituents are due to report quarterly results next week, including three of the four biggest US companies, over one blistering 48-hour stretch starting tomorrow. With trillion-dollar-plus market capitalisations and a doubling in Apple Inc since 2018 to account for, it’s possible investors will be in a less-forgiving mood than usual.
As things stand now, Nasdaq stocks are perched at the highest forward valuation since 2007 and investors are getting progressively less patient with failure. Already this reporting season, companies in the broader market whose sales and earnings trailed analyst estimates have seen their shares pummeled the next day by the most in five quarters.
A four-day week before the landing of big tech earnings saw the Nasdaq 100 slip 0.4% as stocks wavered amid concern over the spread of a virus that started in China.
Seven straight weeks of gains have pushed the index to 23 times its forecast earnings, about 30% higher than its 10-year average. That valuations are stretched doesn’t mean stocks can’t rally further. It does raise the drama headed into earnings season.
Despite the recent quarterly hiccups, combined net income of five largest tech companies Apple, Amazon, Microsoft, Alphabet and Facebook – totalled US$40bil in the third quarter, 38% above the same period two years ago.
The cost of falling short has risen as well. A broader gauge of tech, online retail and Internet services stocks dropped 0.9% the day after reporting a miss on second-quarter sales and earnings per share, data compiled by Credit Suisse show. In the third quarter, the average slump was 6.8%.
Apple will release quarterly figures tomorrow, and analysts are focused on how the firm fared during the holiday season and dealt with uncertainty around tariffs. Microsoft, up 62% since the start of 2019, reports on Wednesday. Investors will see whether the demand for its cloud-computing programmes remains strong. Facebook, which has rallied 66% over that stretch, reports the same day.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 8,951.58.
The projected upper bound is: 9,479.38.
The projected lower bound is: 9,184.47.
The projected closing price is: 9,331.92.
A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 29 white candles and 21 black candles for a net of 8 white candles.
An engulfing bearish line occurred (where a black candle’s real body completely contains the previous white candle’s real body). The engulfing bearish pattern is bearish during an uptrend (which appears to be the case with NASDAQ COMPOSITE). It then signifies that the momentum may be shifting from the bulls to the bears.
If the engulfing bearish pattern occurs during a downtrend, it may be a last engulfing bottom which indicates a bullish reversal. The test to see if this is the case is if the next candle closes above the bottom the current (black) candle’s real body.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 56.3525. This is not an overbought or oversold reading. The last signal was a sell 1 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 67.27. This is not a topping or bottoming area. However, the RSI just crossed below 70 from a topping formation. This is a bearish sign. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 0 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 61. This is not a topping or bottoming area. The last signal was a sell 1 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 0 period(s) ago.
Rex Takasugi – TD Profile
NASDAQ COMPOSITE closed down -87.566 at 9,314.911. Volume was 13% above average (neutral) and Bollinger Bands were 27% wider than normal.
Open High Low Close Volume___
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 9,318.09 8,868.59 8,227.26
Volatility: 11 11 18
Volume: 613,828,672 581,314,880 553,124,352
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
NASDAQ COMPOSITE is currently 13.2% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect moderate flows of volume into .IXIC (mildly bullish). Our trend forecasting oscillators are currently bullish on .IXIC and have had this outlook for the last 67 periods. our momentum oscillator has set a new 14-period low while the security price has not. This is a bearish divergence.
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