foxex: Four out of Six

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Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Wednesday, April 29, 2020

1. Markets up on COVID-19 treatment hopes

2. What Microsoft's quarterly results told investors

3. What Facebook's quarterly results told investors

Market Moves

Trading in stocks today was punctuated by two significant reports. The second one, scheduled and predictable, was the report following the Federal Open Market Committee (FOMC) and markets fluctuated very little after it, but the first was a different story. The first announcement was not heavily anticipated and featured reports from Gilead Sciences (GILD) saying that their drug for treating COVID-19 is actually doing a decent job.

The chart below compares GILD a depiction of how these announcements influenced futures trading on broader indexes for stocks. All three indexes, the S&P 500 (SPX), the Nasdaq 100 (NDX) and the Russell 2000 (RUT), jumped strongly on the pre-market news from Gilead Sciences, but stalled after the news from the Fed. This is a classic example of the time-honored news trading strategy colloquially referred to as "buy the rumor, sell the news."

What is most notable about today's move is that the market regained the one percent it lost last week when news broke that the trial wasn't going so well. While GILD gained back the six to eight percent it had lost that day also, GILD shares didn't go on to notch new highs like the market did throughout the day. This is yet another sign that investors remain optimistic about an economic recovery.

What Microsoft's Quarterly Results Told Investors
These days there are six stocks that, collectively, determine the fate of the stock market: Netflix (NFLX), Alphabet (GOOG and GOOGL), Microsoft (MSFT), Facebook (FB), Amazon (AMZN) and Apple (AAPL). The first two have already reported, the second two report today, and the remaining two report tomorrow. Chart watchers would do well to closely follow how the market reacts to their news.

The first two companies reported what would be considered disastrous results under normal circumstances. However, since investors seem to be very forgiving in the current environment, this hasn't hurt either of those companies or the markets in general. GOOG shares, for example, were up over $100 on the news that the company is still making good money from advertising.

The chart below shows that, after today's closing bell, Microsoft didn't do so badly either. While option-selling market makers priced in the possibility of a $7 move (either up or down), the news from Microsoft that cloud-computing demand remained strong through the pandemic boosted shares slightly in the first few minutes after their quarterly report.

This matters because these six stocks have more than a 46% influence on how the price of the Nasdaq 100 index is calculated. If these six stocks are seen as a proxy for the larger index, then as the market responds favorably to them, the index is more likely to continue higher over the months to come.

Read more:

Amazon Earnings: What to Look For

Alphabet Earnings: What Happened

The Impact of Interest Rate Changes by the Federal Reserve

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What Facebook's Quarterly Results Told Investors

The news that Facebook (FB) experienced a 10 percent increase in usage and that the company beat its estimates for sales bolstered the stock. Shares were up eight percent after hours.

The chart below shows that option-selling market makers had assumed that the stock would move up as much as $12 a share on positive news, and indeed it did as the company reported a favorable quarter. Only Amazon and Apple remain, but considering that 4 out of 6 were considered favorable so far bodes well for the idea that the markets can recover quickly.

The Bottom Line

Before the market opened, drug-maker Gilead Sciences published unscheduled news that their drug trial for COVID-19 treatments was doing better than previously had been reported. This should help investors feel reassured even as the markets are beginning to rebound. The Fed's announcement didn't hurt the markets at all, and Microsoft and Facebook reported favorable news after hours to keep hopes for a recovery alive in the minds of investors.