foxex: Nervous Jitters

Read in Browser

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Tuesday, July 28, 2020

1. Stocks shed value late in session

2. Just how lucky do investors actually feel right now?

3. One method for measuring if sectors are overvalued

Market Moves

Stocks slid during the last two hours of trading today, implying investors may feel a bit worried about what is coming in the next two days. No one will blame them for feeling that way. Tomorrow during the trading day, the Federal Open Market Committee (FOMC) will deliver a statement on interest rates. While no one expects a rate change, expectations for what the Fed members actually will say are wildly divergent. When market participants feel uncertain, investors tend to sell out of shares. That appears to be what happened today.

If that isn't enough to make investors feel nervous, the four key quarterly earnings reports that are scheduled for Thursday and Friday, and will certainly move the market, have all stalled at resistance levels. The charts below compare how the four companies weathered the last two hours of trading today--featuring almost complete selling. Notice how the first chart of Apple (AAPL) completed a drop after gapping down slightly from the previous days' close. Alphabet (GOOGL), Amazon (AMZN), and Facebook (FB) also show a similar dynamic. This price action squares with how the high-flying stocks have fared over the past several weeks, being unable to move higher beyond resistance.

Just How Lucky do Investors Actually Feel Right Now?
Investors and traders have shown an unusual degree of boldness in the markets so far this year, running the price of some stocks much higher than analysts' expectations. The four stocks in the chart below, as an example, have been surprisingly strong growth stories in 2020: Tesla (TSLA), Twilio (TWLO), Enphase (ENPH) and Amazon (AMZN). What is most interesting about these comparative charts is that over the past month, most of their movement has been sideways. The markets won't keep trudging higher if these stocks continue to stall.

Read more:

Starbucks Earnings: What Happened

Facebook Earnings: What to Look For

Tesla Stock Treads Water as Analysts Call Out Lofty Valuation

SPONSORED BY INVESCO
The Complete Guide to ETFs
ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you.

LEARN MORE >

One Method for Measuring if Sectors are Overvalued

If traders and investors are worried that stocks might not be a good value right now, they can take heart in the possibility that price may soon become better, relatively speaking. Consider the chart below which tracks a 40-day moving average on four State Street sector funds by calculating them as relative-strength measures. The top half features the Consumer Discretionary sector fund (XLY) divided by the Consumer Staples sector fund (XLP), while the lower half divides the Technology sector fund (XLK) by the Utilities sector fund (XLU).

Historical data from the past two decades shows that the 1-year forward returns are markedly better, for both of these pairs, if the moving average is sloping downward. Though that isn't happening right now, the moving average could soon change as prices dip lower over the next two or three days.

The Bottom Line

Investors showed their nervousness today, even though they didn't panic. The FOMC meeting announcement and the earnings reports that will follow tomorrow's session could change that.