Investor Concern Over Tech Stocks Continues
Spread betting markets experienced some increased volatility last week, as a series of corporate earnings releases push markets in opposing directions at different points in the week. Of course, there were some positive stories, as quarterly earnings at Apple, Inc. (AAPL) blew the consensus estimates out of the water. Many have suggested that the earnings beat came mostly as a function of the fact that the initial estimates were probably too low.
But even if this is the case, the overall performance was still impressive, as the company surpassed the projected revenue numbers but roughly $2 billion, which is massive. A large percentage of the publicly traded companies do not even have a market cap that large, so it was not surprising to see the stock rally in the following sessions.
This was not, however, representative of the action seen during the entire week. Tech stocks on the whole posted their worst performance in two weeks, no small feat given the fact that the index has already been beaten up this month. One of the worst stories came from Amazon (AMZN), where overspending and missed revenue estimates sent the stock down nearly 10% in the following session. The tech sector will be a key area to watch in the coming week, as we could start to see some bargain hunting with tech stocks now trading at relatively low levels.
The S&P 500 has posted a relatively strong rally after bouncing off of support in the 1820 region. The pattern that is forming now is highly interesting given the fact that we are now heading into resistance at 1880. If this level holds, we will see a head and shoulders reversal pattern that could send prices much lower if we do not start seeing breaks of resistance. Because of this, S&P investors should expect some increased volatility in the coming sessions.
The FTSE 100 is starting to form a tight range in the middle of a much larger range, so the broader trajectory will be difficult to gauge into next month. This means it makes more sense to avoid the index until we start to see clear breaks of support or resistance and a bigger trend develops. Short term, we will need to see a daily close above the 6700 mark in order to expect a test of longer term resistance at 6850.
The DAX is also at a crossroads, trading at the upper end of its recent range. But the index is also showing a series of lower highs, so a failure here would be really telling and suggest that we could be in for another test of the yearly lows. Bulls will need to see a clear break of resistance at 9700 in order to feel secure on the longer term prospects of the positive trend. Below, support can be found in the 9200 region, and a downside break here would likely build.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.