As the trading week comes to a close, U.S. equities seem to be in a good news/bad news situation. The S&P 500 bounced back after a modest sell-off on Monday, and is green through the first four days of the week. But yet another effort to hold S&P at 3,000 failed on Thursday morning, and it does seem like stocks should have gained more than 0.3% this week.
After all, the news looks reasonably good so far. Earnings from JPMorgan Chase (NYSE:JPM) and other banks have contributed to a solid start to earnings season. The two big fears facing the market — that this year’s fourth quarter would look like last year’s sell-off, and/or that Q3 earnings would be a negative catalyst for stocks, as they were in the second quarter — seem relatively assuaged at the moment.
But despite a seemingly bullish setup, U.S. equity markets simply can’t put together consistent upside. It remains to be seen whether earnings season will change that. These three big stock charts should give us some clues.
At the moment, the news looks mixed, as do these stock charts. One of the week’s biggest earnings reports shows that investors still are concerned about growth stock valuations. So does another one of our big stock charts, which looks downright ugly. Yet elsewhere, investors are willing to pay for quality — and take on cyclical risk. On the whole, the market hasn’t yet made up its mind.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) stock is showing some strength heading into earnings, to be released after the close on Oct. 29. A 10%-plus bounce in the last few sessions is good news for several reasons:
- Technically, $28 has turned from resistance this spring into support in both early August and this month. Combined with the recent bounce, that sets up a path to re-test resistance in the $34-$35 range, which held earlier this year and in 2018.
- Combined with moves elsewhere in the sector, the chart highlights increasing optimism toward semiconductor earnings. AMD stock is rallying. Nvidia (NASDAQ:NVDA), though it doesn’t report until November, trades at an 11-month high. So-called ‘semi-caps’ Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX) both are at 52-week highs. Those stocks were canaries in the proverbial coal mine ahead of last year’s disastrous fourth quarter for semiconductor stocks.
- AMD, even with 1,400% gains from 2016 lows, has seen significant drawdowns during the gains of the last few years. Trading for the last six months now suggests that value investors are stepping in at higher levels. That means that some of the volatility seen in 2018 might be in the past.
Beyond Meat (BYND)
It doesn’t take an expert to read the chart for Beyond Meat (NASDAQ:BYND) stock. It’s one of the big stock charts right now — and the ugliest.
BYND stock now has dropped by 50% from late July. In retrospect, those gains look an awful lot like a bubble. The question at the moment is how much further BYND has to drop.
- At the moment, there’s little reason to see a bottom forming. A 5% no-news drop on Thursday only adds to the pressure. BYND stock sits below all of its moving averages, and the gap actually has widened in recent sessions. The chart seems to show a rush for the exits.
- Fundamentally, it’s not as if BYND is cheap, even at 50% lower. The stock still trades at over 400x 2020 consensus EPS estimates — and more than 15x next year’s sales.
- That said, I wrote last month that Beyond Meat is a real company — with real value. Whether $117 incorporates that value is unclear. The chart shows there is absolutely no need to rush in. Competition is a legitimate concern. But if and when BYND stock can find a bottom, growth investors should at least take a look.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) stock gained 2.5% on Thursday but it’s likely that shareholders are quite disappointed. The initial reaction to the company’s third quarter report, delivered after the close on Wednesday, was much more positive. NFLX stock rose 8% in after-hours trading. That makes NFLX one of our big stock charts for reasons that matter to Netflix stock — and perhaps the market as a whole:
- For NFLX stock, Thursday’s trading looks problematic. Shares opened the regular session about where they had in the after-hours market. They then faded, rallied, and faded again. A 2.5% gain off a subscriber beat and EPS that came in 42 cents ahead of Street consensus suggests that investors simply weren’t that impressed.
- The fade from $300+ levels suggests that resistance has been re-established modestly above current levels. That in turn suggests that the rally into earnings gobbled up most of the potential upside in NFLX stock. Without a catalyst ahead until 2020, it’s tough to see what leads NFLX to break out.
- The response to the report suggests some caution for the many other growth names that have stumbled of late in this market. That includes recent IPOs like Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), plus SaaS names like Workday (NASDAQ:WDAY) and Splunk (NASDAQ:SPLK). For NFLX at least, investors are seeing the big pullback as a correction, not a buying opportunity. We’ll see if they have the same opinion for other former high-flyers.
As of this writing, Vince Martin has no positions in any securities mentioned.
