 Chart Advisor | Focus on the Price
By John Jagerson, CFA, CMT Tuesday, April 30, 2019 1. After-hours selling sinks GOOGL 2. S&P 500 sets another record 3. Margin debt levels highlight cautious traders Major Moves If you want to know why the S&P 500 didn't move even higher than it did today, look no further than Alphabet (GOOGL) – the parent company of Google – which accounts for more than 3% of the index.
The company reported its quarterly earnings on Monday after the closing bell, and the numbers were ugly. GOOGL missed revenue expectations by a full $1.02 billion and earnings expectations by $0.41 per share – coming in at $36.34 billion and $9.50 per share, respectively.
The company did manage to beat its Non-GAAP earnings estimates of $11.90 by $1.74 per share, but traders didn't seem to care. They were too focused on the revenue flop.
Most of GOOGL's revenue – 84.5% to be exact – comes from advertising. Because it is such a crucial part of the company's business, traders watch advertising sales growth like a hawk and tend to get panicky when growth rates slow down, like they did last quarter.
Advertising sales growth has been slowing for the past year, but Q1 2019 saw that fastest decline. Here are the numbers for the past five quarters:
As you can see, Q4 2018 was the first time in a while that growth fell below 20%, and the 15.3% growth rate in Q1 2019 is utterly disappointing compared to what it has been in the past.
As you can see in the 5-minute chart below, traders crushed GOOGL in after-hours trading (the yellow-shaded section) on Monday when they heard the news. It only took the bears 10 minutes from 4pm to 4:10pm EDT to push the stock from an after-hours high of $1,297 to $1,236, and things only got worse from there.
This one-day decline is GOOGL's worst since 2008.  S&P 500 The S&P 500 closed at a new all-time high for the second day in a row today.
Thanks to the disaster that was GOOGL today, the index wasn't able to add much to yesterday's gains, but it was able to climb 0.1% to close at 2,945.83.
Amazingly, GOOGL wasn't the S&P 500's worst performer today. Diamond Offshore Drilling (DO) took home that honor by dropping another 9.42% today in the wake of yesterday's earnings-induced losses. It appears traders are still concerned crude oil prices aren't going to rise high enough to boost earnings in the oil exploration industry.
On the positive side, Seagate Technology (STX), General Electric (GE) and Mohawk Industries (MHK) led all S&P 500 components with gains of 7.52%, 4.52% and 4.36%, respectively. 
Risk Indicators - Margin Debt As the S&P 500 has been climbing back up to a new all-time high, I've been watching margin debt levels to see if the bullish run of 2019 was going to have as much buy in as the bullish run of 2018.
Unfortunately, it doesn't look like it does at the moment.
This doesn't mean the S&P 500 can't, or won't, climb higher. There is obviously bullish momentum in the market. Otherwise, the index wouldn't have reached a new intra-day high 2,949.52 on Monday.
It simply means traders – based on what I'm seeing in the margin debt numbers – don't seem to be as willing to increase the leverage in their portfolios today as they were in 2018.
Traders can increase the leverage in their portfolios by borrowing up to 50% of the purchase price of a stock – according to Regulation T of the Federal Reserve Board.
This means if a stock costs $100, a trader only needs to invest $50 of her own money to purchase the stock. She can borrow the other $50 from her broker.
Borrowing money to buy stocks is referred to as buying on margin, and the amount of money a trader has borrowed to buy stock is called "margin debt."
I like to track the total amount of margin debt being used to buy stocks in the market to get a sense of not only how much demand there is on Wall Street but also how confident traders are.
Confident traders tend to borrow more because they know increased leverage can boost the return on their investment. Nervous traders tend to borrow less because they know increased leverage can also amplify their losses.
Margin debt rose dramatically during the bull run of 2018 – reaching an all-time high of $668,940,000,000 in May 2018 before it started to level off in mid-2018. After bottoming out at 554,285,000,000 in December 2018, margin debt started to rebound for a few months in early-2019.
However, the increase in borrowing didn't hold during March. Margin debt dropped from 581,205,000,000 in February to 574,013,000,000.
Unfortunately, FINRA releases its margin debt data one month after the fact. That's why we are just now seeing the data for March. We'll have to wait until the last week in May to see April's data.
This wasn't a huge drop, and it may end up being a short-term pullback in the middle of a longer-term uptrend, but it is worth noting. Traders are being more cautious in 2019 than they were in 2018.  Bottom Line - Earnings Giveth and Taketh Away This earnings season has been a wild one so far.
We saw Alphabet (GOOGL) disappoint and get clobbered today, but we also saw companies like Mastercard (MA) and Pfizer (PFE) beat expectations and gap higher.
On balance, the positive earnings surprises have been able to lift the broad market indexes, but the big misses have served as a reminder we must be constantly vigilant with the stocks in our portfolios. How can we improve the new Chart Advisor? Tell us at chartadvisor@investopedia.com
Enjoy the Chart Advisor? Copy and share the link below to invite friends to sign up
CONNECT WITH INVESTOPEDIA
Email sent to: mondemand.forex@blogger.com If you wish to update your newsletter preferences or unsubscribe, please click here
114 West 41st St, floor 8 New York NY 10036 © 2019, Investopedia, LLC. All Rights Reserved | Privacy Policy |
Tuesday, April 30, 2019
GOOGL Throws a Wet Blanket on Wall Street
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment