All seems well with the market, at least for now. And that would seem to suggest that Thursday’s big stock charts would take an optimistic tone.
After all, the S&P 500 posted back-to-back gains for the first time in six weeks. Incredibly, the Dow Jones Industrial Average re-entered a bull market in two days, if on a somewhat technical basis based on one common definition. (A bull market usually is defined as a market 20% above recent lows: that index rose 20.9% from Monday’s intraday low to Wednesday’s intraday high.)
It does seem like the equity markets have found a bottom. But ‘seem’ is the operative word. Risks abound. Earnings season looms in a couple of weeks. Payroll figures arrive Thursday morning. It would hardly be stunning if these gains reverse.
And so Thursday’s big stock charts focus on three names that suggest a bit of caution. That’s not to say that the bounce of the last two days definitely is going to reverse. Rather, to warn that it might.
3 Big Stock Charts: Seagate Technology (STX)
The first of Thursday’s big stock charts looks concerning. At least from a technical standpoint, the rally in Seagate Technology (NASDAQ:STX) appears likely to reverse:
- For the most part, STX stock did manage to hold support at August lows. But an intraday rally on Wednesday faded: Seagate stock at one point was up over 10% before falling back. The retreat confirms a bearish descending triangle pattern, and keeps the stock from a bullish reversal out of a longer-term descending wedge. A “death cross” only adds to the negative sentiment. It’s difficult to look at the chart and see anything but a proverbial “dead cat bounce.”
- To be sure, the fundamental case seems very different. STX stock trades at just 11.3x trailing twelve-month adjusted earnings per share. Its dividend yields 5.6%. The business admittedly is cyclical, but recent results suggest it’s closer to a trough than a peak.
- But even in the bull market, cheap wasn’t enough. Indeed, Seagate stock is down almost 20% over the past six years; including dividends, investors have eked a roughly 2% annualized return. The intraday fade on Wednesday certainly suggest that investors see value elsewhere, as they did even before markets turned south.
Okta (NASDAQ:OKTA) stock was left out of Wednesday’s rally, declining an even 5%. And as the second of our big stock charts shows, that’s a short-term concern:
- OKTA did establish a multiple bottom a few sessions back. But it looks, at least for now, like that rally has come to an end. The stock failed a test of the 50-day moving average, and dipped back below the 200-day as well. Particularly in the context of a broad market rally, trading Wednesday looks concerning.
- But that trading also isn’t necessarily surprising. As we noted in yesterday’s Big Stock Charts, short-term winners lost during Tuesday’s huge rally. The two biggest decliners among mid-cap or larger stocks were Zoom Video Communications (NASDAQ:ZM) and Vir Biotechnology (NASDAQ:VIR), both of which have rallied through the sell-off. Two other recent winners have sold off: Netflix (NASDAQ:NFLX) and Teladoc Health (NYSE:TDOC) both are on two-session losing streaks.
- OKTA stock, given the potentially higher importance of cybersecurity in this crisis, had mostly held up. And so the decline on Wednesday perhaps isn’t that surprising: investors rotated out of near-term winners into stocks that have seen steeper declines. But that sets up an interesting near-term outlook for the likes of OKTA: it may be that the stock won’t rally unless or until the rest of the market starts weakening again.
Like STX, Pinduoduo (NASDAQ:PDD) stock saw an intraday fade. And like STX, the third of Thursday’s big stock charts suggests some near-term concern:
- The fade confirms a descending triangle pattern which suggests increasing pressure on support that’s held around $31. Trading in PDD stock has been almost textbook the past few months, with a bearish head-and-shoulders pattern leading to a return almost exactly to November lows. If the recent rally reverses, PDD is going to re-test that support and has a good chance of falling through it.
- A reversal wouldn’t be stunning. Even with the recent bounce, this still looks like a “risk-off” market. And a Chinese e-commerce company that was unprofitable in 2019 hardly seems like a low-risk play. Fourth quarter earnings earlier this month were solid, but hardly spectacular. China does seem to be recovering from the coronavirus, but any sign of a renewed epidemic could send PDD stock tumbling.
- And so PDD stock seems like an interesting test for the market. This is a stock that seemed well-suited for the market that existed in the second half of 2019 when the stock roughly doubled. But this simply might be a different market now — and that might mean returns for Pinduoduo stock look very different.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.