Hey 5-Star Trader,
Technology earnings week, otherwise known as FAANG earnings week (Facebook, Apple, Amazon, Netflix and Google), is historically one of the most volatile weeks of the year. Even in nice, bullish, trending market environments like we once knew and loved, this week could easily send shockwaves throughout the market, ripping it from one direction to another leaving traders with whiplash.
I’ve learned my lesson with earnings, over the years. As a new trader, I had little concept of why the season was critical. But, I soon learned not only the importance of trading the seasonal patterns and learning from insights gleaned in the reports but recognizing the very large impact the season has on the market as a whole.
This is especially true this quarter, due to the precarious situation the indexes sit in right now.
After a rough year thus far, the Nasdaq is clinging to 2022 lows, while demonstrating a head and shoulders pattern on the weekly chart. Earnings have unfortunately not been a strong enough catalyst to carry the index higher into the reports on anticipation, and I find it unlikely that even strong results can correct this downtrend.
Check out the weekly chart of the Nasdaq futures below:
Click on the image to enlarge.
You see, the index is barely holding on to a key psychological value at 13,000, and it’s doing so entering a week with many landmines. Now, the indexes rallied a bit on Monday, likely in anticipation (read, hopeium) that earnings reports from Microsoft and Google after the close today can ‘save the Nasdaq.’
Now, I’ll be the first to tell you – of course, I love these two companies. I also love Tesla, arguably the strongest Nasdaq stock that gapped up 10% on killer earnings last week and proceeded to give back the entire move within 2 days.
Let’s look back to how the next key FAANG names (and yes, I do consider MSFT a FAANG stock, more so than Facebook or Netflix) did last quarter.
Google – Earnings Hot Zone 4.25.22
Click on the image to enlarge.
Alphabet Inc. had a fantastic report last quarter. The stock gapped up almost 10% overnight, to make a new, all-time high! They even reported a stock split that sent traders and investors cheering. But, what happened next? Not only did Google give back those gains, but the stock continued falling for almost two weeks! Talk about air getting let out of a balloon.
Now, I’m never going to tell you I’m bearish Google. Google has crushed it on earnings many quarters in a row, they typically trade higher post-report and actually even continue rallying post-earnings.
This is why the move last quarter was a giant, red, waving flag for all tech stocks, even the best of the best. The fact that Google couldn’t even attempt to trade higher pre-earnings is yet another nasty sign.
Now, I’m not saying to short Google. I certainly will not. But, I just can’t imagine it saves the Nasdaq here. The expected market maker move is currently sitting at $173. Let’s say Google does well and trades higher by that amount. In that instance, it would only make it up to a key resistance zone ~$2600. Let’s say it kills it and trades higher by twice the expected move. In that instance, it would still trade directly into key resistance ~$2800.
So, you can imagine how I would be wary that Google could save the Nasdaq when it would have to move more than twice what is expected on earnings, plus actually stay there, for this trend to reverse.
Now, let’s look at Microsoft.
Microsoft – Earnings Hot Zone 4.25.22
Click on the image to enlarge.
Microsoft is again a solid company. I love it because they are relatively consistent when it comes to earnings. They have beat the last 11/11 quarters, and the majority of the time gap up and trade higher post-earnings.
But, in a similar fashion to Google, not only did they trade lower not just this quarter but last quarter as well, going into the report, last quarter, they crushed it, rallied into resistance, and proceeded to sell off for several weeks.
I love Microsoft. I own shares. I’m not selling them. And, I certainly can’t bring myself to short it. But, I also can’t see a situation in which these two Nasdaq companies can ‘save the Nasdaq.’ If Tesla couldn’t do it, this week is not giving me high hopes.
Don’t even get me started on Thursday, which we will discuss in my next newsletter. These two companies are basically the last shot to hold up the index because everything else on the docket this week is not leaving me hopeful.
Earnings destruction is in full swing, and after this week, it’s not as though we are out of the woods.
“Sell in May and Go Away,” is right around the corner. That, combined with a FAANGover? I can’t imagine the Nasdaq holds 13,000 through all of that.
-Danielle =)
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