foxex: Dog Day Doji

Chart Advisor | Focus on the Price

Friday, August 28, 2020 Headlines

1. Stocks and Gold show signs of exhaustion
2. Will Tesla shares falter after the split?
3. Salesforce may be too high up in the clouds

Market Moves

The end of August could bring a very significant change in stocks. The price action today and yesterday suggests that investors need to be cautious about what September will bring. The Nasdaq 100 index (NDX) closed .67% higher today. That price action combined with yesterday's doji-like close on the S&P 500 index (SPX) implies that buyers may be running out of steam. Could the dog days of summer end with a howling drop in the indexes? It seems unlikely for now, though there are some mild warning signs.

For instance, the chart below shows that Gold gapped higher at the open but traded in a tight range, suggesting very little follow-on from the news that the Fed wants to push inflation to an average range of two percent. The chart compares the price of gold as tracked by State Street's gold trust ETF (GLD) with the CBOE Gold Volatility index (GVZ). Usually a new upward trend in the price of gold coincides with a spike higher in option volatility on gold futures.

This chart shows that didn't occur today, which suggests that investors are not likely to panic and seek gold as a safe-haven investment right now. What is more likely is that gold could enter a significant downtrend precipitated by a rise in the U.S. Dollar (DXY). That kind of movement would not only put pressure on commodities, but on stocks as well.

[NEW READER SURVEY: We are running another two-week survey of our U.S.-based readers to gauge your sentiment and see what moves, if any, you have been making with your money given the market recovery, and current economic conditions. We'll share the results, as always, and we thank you for your time and participation.]

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Will Tesla Shares Falter After the Split?

Another area that could pose some concerns for the market right now is the very visible stock split activity going on with Tesla (TSLA) and Apple (AAPL). As mentioned previously in the Chart Advisor, there is a pattern that typically occurs after a stock split is announced. Though the price will often rise from the announcement to the day of the split, the price usually falls once the split has been executed.

The chart below maps out three tracks that TSLA could take as the split plays out: Bullish, Normal, and Bearish. If TSLA (and AAPL) follow either a Normal or Bearish path, the impact on the rest of the market will likely be negative. If Apple and Tesla drift lower, it will still have an effect on the major indexes and drive them to drift lower into September as well.

Netflix (NFLX) Back in Rally Mode After Brief Correction

Zoom (ZM) P/E Ratio Soars to 1,790 Ahead of Earnings

Salesforce May be Too High Up in the Clouds

Salesforce.com (CRM) is a giant in cloud computing. However, some analysts are wondering if its high-and-growing share price means it will inadvertently become too heavily weighted within the Dow Jones Industrial Average. The chart below shows that the concern is not unwarranted as the stock's Price-to-Sales ratio is higher than it has been in over a decade. If CRM were to enter a correction, the move would only add fuel to any downward trend in the indexes.

The Bottom Line

The S&P 500 and the Nasdaq 100 both rose, but with subtle moves that suggest buyers may be running out of extra money to invest. Tesla and Apple may put pressure on the indexes after they execute their stock splits next week, and CRM may pull back from its unusually strong new high price level. These moves could trigger the indexes lower next week.