I am scratching my head this mo
I am scratching my head this morning. I’m a chart that is not sensible. If it says what I believe it says, it’s not excellent news in any respect for the inventory market, and alerts a correction earlier than too lengthy.
The chart is a short-term, 1-minute candle 1-day chart for Micron Applied sciences (MU), and it appears to be like like this:
It reveals MU buying and selling decrease within the wake of its earnings launch after yesterday’s closing bell. Nothing noteworthy there, till you have a look at the substance of that earnings report. Micron beat expectations for Earnings per Share (EPS), recording $1.88 vs. an anticipated $1.62, on larger than forecast income of $7.24 billion. It additionally issued steering for subsequent quarter in extra of Wall Road’s median forecast, giving them the trifecta of beats on necessary metrics. Nevertheless, the inventory dropped.
I can not see a motive for that past market positioning and dynamics. The one doable factor could be if the consensus view of merchants was that the introduced sale of a Utah chip plant to Texas Devices (TXN) was a foul deal for MU. I suppose decreasing capability when continued robust demand is anticipated isn’t nice, however promoting belongings on the time of peak pricing isn’t a foul thought. Doing that and increasing via acquisition when the cyclical chip market dips has been MU’s gameplan for some time, and so they have been remarkably profitable doing it.
If that have been the rationale, although, you’ll anticipate to see a simultaneous pop in TXN. I imply, if MU didn’t get a great deal, then TXN should have, proper? And but, TXN is barely shifting this morning. The very fact is that the long-term discount of capability that the sale represents could be greater than offset by the $1.5 billion price ticket in an surroundings the place merchants have been on the lookout for optimistic indicators, however they aren’t. These which might be keen on MU are already lengthy and on the lookout for a motive to promote, it doesn’t matter what earnings could present and even what the close to future holds.
In a market that’s hovering round document highs, that’s doubtlessly an enormous downside. It suggests that each one the excellent news is priced in, and meaning costs will stall at finest, and extra probably appropriate again quickly.
There have been a number of examples of this throughout an earnings season a few months in the past, however right here we’re with the S&P 500, 4 or 5 p.c larger than when the flood of earnings abated. Clearly there’s a bullish affect or influences offering sufficient help to greater than offset these fears once they come, however what are they?
Properly, the obvious factor, and the factor that I’ve been banging on about for a 12 months or so now, is that each the Fed and Congress are pumping stimulus right into a recovering market. That has an inevitable bullish influence it doesn’t matter what valuations appear like. Then there’s one other issue that appears to be propping issues up, this time technical fairly than basic.
The above is a chart for the S&P since early March with the blue line representing the 50-day easy shifting common (SMA). As you may see, long-term pattern line has acted as a help 5 completely different occasions in that brief interval. It isn’t point-perfect as we’ve got traded beneath the extent on 4 of these 5 events, however every time, the break has been instantly adopted by a bounce. A drop of round 2.5% would take the S&P again to the 50 SMA, however to point a pattern reversal, we might then want to remain beneath the road for at the very least a few days.
Weighing the proof on either side, it appears that evidently we’re in the identical place we’ve got been since November. There’s nervousness amongst merchants and buyers creating short-term wobbles, even whereas fiscal and financial stimulus maintain the bull market going. When you have been to say that may’t go on perpetually, I’d discover it arduous to disagree. Even Congress and the Fed have limits to their largesse in some unspecified time in the future. Nevertheless, till a pattern reversal is confirmed by a sustained break of the 50 SMA, you should see these wobbles, each within the general market and particular person shares, as shopping for alternatives.
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