Yesterday was a rough day in the stock market, at least for anybody long (including me). An overextended Nasdaq was spooked by Netflix, Tesla, and Taiwan Semiconductor earnings, which made Nasdaq stocks fall. The most annoying part is that the earnings results were not bad; it’s more of a function in which good results were already priced. Sometimes the market is so bullish going into earnings that it simply can’t keep moving higher without exemplary results. This is especially true when everyone is already long, as evidenced by the put/call ratio. It’s also true when the Nasdaq is extended and trading directly into resistance.
The 16,000 zone in the Nasdaq futures is a critical zone of resistance, and while the market did initially push through that area earlier in the week, the lack of upside push from NFLX and TSLA meant that it to stuck at that zone.
I went into earnings with the idea that EPS beats could equal the last push higher in this bullish run, but that was not the case. NFLX and TSLA plunged despite the EPS beats, bringing the rest of the Nasdaq along with them.
Check out a 15-minute chart of Tesla pre and post-earnings below:
The Flavor of the Season
But, each earnings season has a flavor. Is the flavor this season going to be that companies who beat EPS results and note one or two minor issues get crushed? That is what causes that eery feeling. As we know, it’s not like we are dealing with solid macroeconomic conditions.
Of course, there will be issues like shrinking margins or slowing subscriber growth. These are not unknown quantities. The market being spooked by them is not all that inspiring.
The importance of the reaction to Netflix and Tesla earnings cannot be overstated. The way the market moves after these reports substantially impact the overall feeling in the air during the season. It spooks investors, causing them to be more cautious going into the rest of tech.
This can be good or bad. It’s bad because any pre-earnings momentum plays are likely taking a beating (like AMD post-TSM results). But, it can be good because it can provide an opportunity to buy the dip in bullish names or trade upcoming earnings results in a bullish manner.
Now, one down day in a long series of consistent, bullish days may not be enjoyable for the bulls, but it’s also completely normal and important to keep context in mind. The market is not ever going to go straight up! When the market starts falling, the best thing to do is identify support zones to determine if this is a move that’ll keep falling, or look for spots where you can buy.
I stopped by StockchartsTV yesterday on The Final Bar with David Keller to discuss all of this and more. Learn more in the video below!