Assets Twist

Despite the upbeat news coming from Bank of America (BAC), which held its earnings call before the market open, the market remained in a tight range and closed mildly lower by the end of the day. The good news is that this tepid response in the opening week of earnings shows that investors may be calming down from September's roller coaster ride.

Chart Advisor | Focus on the Price By Gordon Scott, CMT Thursday, October 17, 2019 1. Stocks Sneak Upwards as Big Tech Still Leads 2019 2. Small Caps Surge in Recent Trading 3. Can Microsoft Break Resistance After Earnings?  Market Moves The S&P 500 index (SPX) and the Nasdaq 100 both closed about one-quarter percent higher as bond prices retreated nearly that same amount. Today marks the third day this week of similar tight-range trading featuring lower-than-average volume on the indexes. This is not an unusual outcome for the first week of earnings season, and it shows that investors are patiently waiting for more news to become available about the current state of profitability in the corporate world.   The chart below depicts various asset classes of stocks, including large cap ETFs that track the S&P 500 (SPY), the Nasdaq 100 (QQQ), the Dow Jones Industrial Average (DIA) as well as large cap growth stocks (SPYG), small cap stocks (IWM) and microcap stocks (IWC).  Through the year 2019 it is no surprise that large technology stocks are leading performers. What is surprising is the twist that has happened in this pattern over the past six weeks.        Small Caps Surge in Recent Trading When small cap stock indexes outperform large cap indexes, it is usually a bullish signal from investors. It implies that they are willing to accept more risk, and therefore will buy stocks at higher and higher prices. The Russell 2000 index and the Russell Microcap Index have spent most of the year underperforming compared to the large-cap indexes, but that may be about to change. The chart below shows how over the past six weeks small cap stocks have surged higher, and that even after their recent pull back they are just edging out the Nasdaq 100.        Read more: What the Future Looks Like for Exchanges and Brokers Netflix Stock on the Mend After Solid Quarter  Microsoft Earnings: What to Look For Can Microsoft Break Resistance After Earnings? Microsoft (MSFT) has had a good year so far, even considering the relatively flat trading pattern the stock has made over the summer. Now with earnings only one week away, it might be worth noting how traders are setting up their expectations for the company's quarterly announcement.    The chart below shows the current price pattern of the stock, how it is in a large trading range for the past three months or so. The cone at the end of the chart shows how options market makers are pricing their options on the stock in the week leading up to earnings. They expect that it is about seventy percent likely that the stock will stay in the range depicted by the cone after the day of earnings. That's a rather small cone considering the way the stock has performed lately.       The Bottom Line Stocks held in a tight range closing slightly higher and showing hesitancy among investor until more earnings reports come through. If earnings reports disappoint investors, the stocks leading the way will fall, and right now, that is small cap stocks. Microsoft traders appear to have low expectations for big moves in Microsoft shares.  How can we improve the Chart Advisor? Tell us at chartadvisor@investopedia.com Enjoy the Chart Advisor?  Copy and share the link below to invite friends to sign up https://link.investopedia.com/join/53o/00-fwd-chartadvisor 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