foxex: Propped up

Chart Advisor | Focus on the Price

Tuesday, February 18, 2020

1. Investors prop up indexes after scary news

2. Energy sector stocks poised for turnaround

3. Microsoft edges Apple in market cap

Market Moves

Investors panicked, then got hold of themselves, then fretted a bit more, then calmed down and decided to invest more, all before the market opened on Tuesday. Throughout the day's trading session, price drifted mostly higher despite scary news from Apple (AAPL) and Walmart (WMT) before trading began today.

Apple executives reported to analysts and investors that the guidance they had issued over the last earnings report would likely not be met because of the impact of Coronavirus on store closures and production in China. Pre-market price action saw shares fall from Friday's close of nearly $325 per share to nearly $315 per share. However the stock closed at nearly $319 per share, with prices rising into the close.

Walmart missed its expectations and offered weaker-than-expected guidance. However, the stock closed 1.5% higher for today. The fact that Walmart's e-commerce growth improved by 35%, keeping it relevant in the competition with Amazon, probably had a lot to do with that outcome. Even so, it is an indicator of the overall attitude of investors that even with such potentially bad news, they are willing to buy more shares of companies they like. Perhaps that is why even though the Volatility Index (VIX) rose today (as the chart below shows) the overall position of the index looks poised to fall further--which in turn means that stocks will likely hit new highs in coming sessions.

Energy Sector Stocks Poised for Turnaround

In the midst of Coronavirus fears, the sector hardest hit by the news has undoubtedly been the energy sector. You can see the effect in the declining price of State Street's Energy Sector index ETF (XLE). The chart below compares the prices of light crude oil futures with the Oil Volatility index (OVX) to highlight how those prices have been trading. As oil prices have found temporary support, it looks as though the implied volatility of oil has broken support and headed for a new low. This index measures oil traders' expectations for increased volatility in the days and weeks ahead. Since those expectations have dropped, it could set the stage for the price of oil to rise and stocks in the energy sector to rise along with it.

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Microsoft Edges Apple in Market Cap

Even though investors have been forgiving towards Apple for that company's news, the drop in AAPL share prices allowed Microsoft (MSFT) to rise and claim the spot of highest market capitalization among all publicly traded stocks. Microsoft's chart (see below) shows an interesting post-earnings price action because it has been getting more volatile after earnings, even though the prices are rising. This is not typical for most stocks which tend to decrease in volatility measures after earnings and especially when those same stocks rise in price. This action over the past two weeks may imply that many nervous investors are likely to begin looking for excuses to take profits in the near future.

The Bottom Line

Though stocks dropped they moved higher during the intraday session. This dynamic implies that investors were able to shrug off fears from bad news and buy more stock anyway. This bullish signal implies a more positive outlook for stocks in the days ahead.