The Bulls May Have An Uphill Fight with Apple, Amazon and Facebook in Congress and Issuing Results

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The next two days have a ton of news on major technology stocks like Apple, Amazon.com and Facebook. There are also important things happening on the price charts.

The S&P 500 and Nasdaq-100 have some big patterns, most of which are potentially bearish. This may create the risk of a turn lower once some of the big events pass. Here’s a timeline of what to watch:

  • 12pm ET today: Executives from AAPL, FB, AMZN and Alphabet (GOOGL) will testify in an antitrust hearing in the House of Representatives. The proceedings will probably feature lots of rhetorical fireworks but have little material news.
  • 2pm ET today: The Federal Reserve issues its interest-rate decision. No change is expected.
  • 2:30 pm ET today: Fed Chairman Jerome Powell holds a press conference. He’s expected to describe the economical in grim terms and then discuss ways the central bank will provide support. It all points to interest rates staying low for a long time.
  • 8:30 AM ET Thursday: The government reports gross domestic product for the second quarter. (A unprecedented drop of more than 30 percent is expected.) Initial jobless claims are also due.
  • After the closing bell tomorrow: AAPL, AMZN and GOOGL report earnings — three of the four trillion dollar companies in the market. FB is also on the list.

Now let’s consider what’s been taking shape on the charts.

Charting the S&P 500

The S&P 500 has risen steadily since early April. It’s now retraced almost the entire coronavirus selloff that began on February 24. The index is also back near breakeven for the year.

The first potential chart pattern is the bearish gap from the first day of the correction. We briefly flirted with it last week by pushing over 3260, but then closed below it. Big price jumps like this can become resistance because investors sometimes sell positions after recovering their losses.

S&P 500, daily chart, with select items marked.
S&P 500, daily chart, with select items marked.

The next chart pattern is July 23’s bearish outside day. The S&P 500 tried to make a higher high early in the session than the but didn’t have the strength to hold. It then rolled over and made a lower low than the previous day. Failures like that can become reversal patterns.

The S&P 500 still managed to inch slightly above its earlier peak from June 8. But its moving average convergence/divergence (MACD) oscillator made a lower high last week. That’s known as “bearish divergence,” which sometimes indicates momentum is slowing.

Charting the Nasdaq-100

The Nasdaq-100 is the only major index that’s broken out to new highs since the coronavirus pandemic began. As most readers probably know, social lockdowns and remote work have fueled huge demand for cloud computing, e-commerce, video games and streaming video. That’s lifted companies like Microsoft (MSFT), AMZN, Netflix (NFLX) and dozens of smaller firms. Think of Zoom Video Communications (ZM), Fastly (FSLY) and Twilio (TWLO).

Everything was going smoothly until Monday, July 13. The Nasdaq opened with a rally to new record highs, but lost its energy after lunch and ended 2 percent lower. The result was another bearish outside day, which the index has yet to overtake. Is it also becoming resistance?

Nasdaq-100, daily chart, with key items marked.
Nasdaq-100, daily chart, with key items marked.

While these patterns might appear negative, traders may not want to jump the gun feeling bearish because there could be good news. Powell and the Fed will likely promise additional monetary help. Earnings could surprise to the upside. Just this morning, for example, Counterpoint Research said AAPL’s iPhone sales rose a massive 225 percent last quarter.

There are also more big events next week: more than 115 members of the S&P 500 and report earnings, plus monthly jobs data.

But the current environment, with unemployment in the double digits and the economy shrinking, is hardly bullish. Summer also has a history of volatility. We’re not trying to predict a crash anytime soon. But with the market up four straight months, the charts could be near a place where the bulls start getting tired.

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