The S&P500 is in a familiar range, 1,680′s support, and while the price action relative to SPX hasn’t changed (still just a 1,680′s-1,700 channel), some individual stocks have shown signs of cracking recently. I’m not ready to say this market is on the verge of that pullback everyone is waiting for (how many times has that been said this year?) but when leaders start to roll over, you have to take notice. My sense is that a weakening in some key stocks could be preceding an overall weaker market.
Take the tech sector for instance, as the NASDAQ has led this market higher all year but now key tech names are rolling over. GOOG for example, today broke below its earnings day low of $875. AMZN is another one that has fallen below its earnings day low. Both of those stocks, after weak reactions at the open on the day of their reports, actually traded higher. However, since those reports they have both been downtrending.
No tech name has spelled momentum quite like PCLN this year, boasting a 60% year-to-date move and getting within $6 of $1,000 last week, but it too has started to crack. PCLN gapped up on earnings last week but finished near its low of the day that same day and off of its high by 2.5%. PCLN has continued to trend lower and is testing psychological support at $950. PCLN’s pullback, in the context of its greater trend, isn’t concerning, but the fact that immediate term momentum was sold into is. A similar gap up and reversal happened in mid-May, days before the market made a peak.
Facebook, the latest darling of the tech sector just suffered its first 4 day losing streak since June. Like PCLN, a lot more technical damage needs to be done to offset its uptrend, but bottom line is is that the momentum has disappeared. LNKD also gapped up off earnings and initially moved higher but is currently testing its closing price from that day, giving up 3.6% from yesterdays high. GRPN, another high flying social media stock that gapped up recently, closed below its earnings day low yesterday.
The lack of momentum being seen in the aforementioned stocks can also be seen displayed in a market that has failed to register a 2-day winning streak for the longest amount of time since a stretch in May. May, as you know come, comes before June in the calender. June was when the market experienced its biggest pullback of the year. The other side of this argument is that the market has absorbed the waning momentum and is still above key support, so once these stocks find their footing they will help propel the market to new highs.
That’s not an argument I necessarily disagree with. I do, however, feel much more comfortable standing by my belief that no move lower is coming until SPX breaks 1,680 and no move higher is coming until 1,700 breaks to the upside. This week though, on an individual stock basis, I’ve seen more that says the market is likely to break to the downside rather than upside. I’d just rather wait for a 1,680 breakdown before placing my short bets.
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