Stocks were mostly flat on Wednesday but some shaky earnings after the bell from Meta and IBM may be setting a negative tone for the opening bell today and the relief rally will be put to the test early. The action was fairly flat with the indices closing well off the lows and the highs of the day, and landing somewhere in neutral territory for a pause in the rally. Bonds were down as yields inched higher.
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Tesla did rally big yesterday after reporting earnings, ironically missing estimates, yet Meta (Facebook) was melting down after hours yesterday after a nice beat on estimates. It's all about expectation and guidance.
IBM and ServiceNow were also down after hours after reporting earnings so the relief rally has a headwind to contend with today. After the bell today Microsoft and Alphabet report so it could be a back and forth tennis match if they perform well, or perhaps the death of the rebound in the stock market if they also disappoint.
Again, here is the July / August 2023 pullback / relief rally and subsequent failure. Notice the little shake out in the middle of that bounce off the 100-day average when it reached the 50-day EMA. With two more Mag-7 stocks reporting after the bell today it wouldn't be out of the question that any weakness today could get reversed, similar to the action from 2023 below.
I won't dig too deep today because the Wednesday COB charts may look a lot different if we take into consideration the after hours action as I see the S&P 500 futures are down about 25-points, and the Nasdaq futures are off about 100-points after Wednesday's closing bell.
Stocks did open higher yesterday but spent most of the day in negative territory until bond yields stabilized. The 10-year Treasury Yield was up but it remains in that tight range. It is consolidating as it had gotten a little extended over its 50-day EMA earlier this month.
This longer-term chart shows that it doesn't tend to stray too far away from that average before snapping back.
The Dow Transportation Index - economy sensitive and market leader, fell sharply yesterday and it already tested last week's lows.. The good news, it held at those lows and closed a couple of hundred points above that low. The failure at the 200-day average is not encouraging and obviously last week's lows have to hold or the leader could start a new leg lower.
So, what a difference a day makes. The bulls were rejoicing on Monday and Tuesday, celebrating the end of the pullback. Yesterday there was a tug-o-war between the bulls and the bears, and right now it looks like the bears are going to give it another go with the futures down sharply last night. Is this a shakeout of the weaker bulls or has the relief rally run its course?
All this comes with more Mag-7 earnings after the bell today and the PCE Prices report tomorrow before the opening bell - so Friday is shaping up to become a very big, make or break day, assuming stocks don't completely fall apart today.
The S&P 500 (C-fund) gapped up above the 50-day EMA, which looked fantastic being that it was a potential roadblock, but it it did fail to hold and it closed below the average by 6-points. It also closed well of the lows so I would have called it a possible positive reversal day, but with the futures down sharply last night, it may not be the most bullish indicator. Just a reminder that there is a "stealth" gap open in that red box surrounding 5025.
DWCPF (S-fund) was down on the day as it had trouble negotiating the overhead resistance. The 50-day EMA and the March low are both in the 1995 area. We may need to see a big drop in yields today to get it back above that resistance area.
BND (Bonds / F-fund) has been moving sideways and the bond bulls have been unable to manufacture some kind of meaningful bounce off the lows. Now it looks like a bear flag which, if it breaks down as bear flags tend to do, would mean higher yields and lower bond prices (f-fund) ahead. Help is needed from that PCE report tomorrow.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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