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Chart Advisor: Tech Topping

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Wednesday, 20th October, 2021

1/ Tech diverges as markets edge higher 

2/ Earnings beat doesn’t translate to higher prices for Netflix

3What will Tesla tell us? 

4/ The bottom line

1/ Tech Diverges as Markets Edge Higher 

Markets continued to edge higher, led by continued bullish sentiment for third-quarter earnings and a new record high for bitcoin. State Street’s Dow Jones Industrial Average ETF (DIA) posted a record high after gaining 0.4%. State Street’s S&P 500 Index ETF (SPY) rose 0.3% and is 0.4% from its own new high. iShares Russell 2000 ETF (IWM) gained 0.4%, while Invesco’s tech-heavy Nasdaq 100 ETF (QQQ) posted a minor loss, falling 0.1%. 

QQQ may have been adversely affected by Netflix (NFLX), as the company fell more than 2% after reporting earnings. Overall, earnings reports continue to have a positive effect on the market, drowning out concerns over supply chain constraints, inflation, and the delta variant of COVID-19.  

Bitcoin surged to a new all-time high, rising as high as nearly $67,000 intraday on Wednesday. The first bitcoin futures ETF, ProShares Bitcoin Strategy ETF (BITO), began trading on Tuesday. In addition to a measure of validation from Wall Street with the new ETF, bitcoin is perhaps being seen as an inflation hedge, adding fuel to the current bull run.  

With overall uptrends appearing to continue, chart watchers should notice the difference between SPY and QQQ. The tech heavy QQQ posted a small pullback today, and with many of the mega-cap tech companies comprising the top weighted holdings of SPY, this divergence could mean that the S&P 500 Index ETF may pull back to be closer in line with QQQ in the near term.  

2/ Earnings Beat Doesn’t Translate to Higher Prices for Netflix 

Investors bid down the share prices of Netflix (NFLX) after the company topped earnings per share (EPS) expectations for the third-quarter. Analysts forecast $2.56 in EPS, NFLX reported $3.19. Revenue met analyst expectations of $7.5 billion. Global paid streaming subscribers, a key metric for NFLX, came in higher than expected—213.6 million vs 212.9 million expected. The company forecasted $0.80 in EPS next quarter, which would be down 32.8% year-over-year.  

NFLX shares slid 2% and is currently sitting just above its 20-day moving average, as illustrated on the chart below. While investors were unimpressed by NFLX earnings, the share price is still 3% away from its 52-week high, as NFLX showed strength during the overall September slump.  

While options are currently priced for a move lower, it’s notable that over 63% of the options volume today was calls. Option pricing had implied a 5.8% move for NFLX stock after earnings. It’s possible that, although NFLX shares fell, the smaller-than-anticipated move could mean that investors see more of an upside than price action illustrates.  

3/ Verizon Results Deliver a Positive Surprise 

Shares of Verizon (VZ) rose 2.5% after the company beat EPS expectations. Analysts expected VZ to report $1.36 in EPS and $33.19 billion in revenue—VZ reported $1.41 in EPS and $32.92 billion in revenue. Despite the revenue miss, the VZ share price rose as the company offered better-than-expected guidance for the fiscal full year.  

Today’s earnings-based share price increase still sees VZ lagging its sector, as illustrated on the chart below, which compares the recent performance of VZ with State Street’s Communications Sector ETF (XLC). While many equities have benefitted from the ongoing economic recovery from the COVID-19 pandemic, VZ shares have fallen nearly 9% year-to-date, compared to a 23% rise for XLC. If today’s earnings results were to kick start VZ into a reversal from its overall recent downward trend, the first indication would be that tomorrow’s prices exceeded today’s highs.  

VZ’s positive earnings will likely influence analysts’ expectations for other stocks in the sector, such as AT&T (T) or T-Mobile (TMUS), to report better-than-expected earnings as well.  

4/ The Bottom Line 

Stock indexes edged higher along with cryptocurrency prices. However, the Nasdaq 100 retreated slightly suggesting that the tech sector might be hitting resistance. 

Originally posted on 20th October, 2021

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