January 28, 2016
Mish's Daily
By Mish Schneider
Can FB save the bulls?
**Tonight’s Commentary was written by Jonathan Griffin Assistant Director of Trading Education and research.
Now that earnings season is back in full swing, we have to be extra careful in our trading as the markets have already been highly volatile this year.
Thursday’s action started with big moves up in the indexes based on earnings reports seen after the close on Wednesday like Facebook, which was able to beat expectations, as well as many instruments reporting before the open.
After the close today…
Amazon dropped and Microsoft popped.
Next week… Alphabet (I still want to call it Google).
How these companies will affect the markets overall depends on whether or not they beat or miss the expectations, and whether traders rekindle the 2015 view that the big cap momentum trades are a safe place to be!
If the institutions decide that the big stocks are worth buying, we’ll have a very different market then if the opposite becomes true!
An instrument’s market cap and correlation to what index it trades in play a big part in how they will affect the market as a whole.
For example, when Facebook beat expectations on earnings per share which resulted in a large spike higher in its price per share. Launching from a closing price of 94.45 to an opening price of 107.20 a move of 12% and thus helping to launch the Nasdaq higher as this is the index that Facebook is part of.
EBay on the other hand which reported in line with expectations yet saw a drop in expectations for Q1 of 2016 saw a down move of 12% from the close Wednesday.
But isn’t EBay also in the NASDAQ? Wouldn’t that have negated Facebook?
Although both EBay and Facebook are both part of the NASDAQ index, this is where market cap comes into play. Facebook has a market cap of 267.5 billion versus EBay has a market cap of 36.62 billion, thus Facebook is worth roughly 7 times more than eBay and thus makes up a larger percentage of the Nasdaq index.
With that in mind we need to keep a close eye on what’s reporting and where the expectations lie for those instruments.
S&P 500 (SPY) Back over the 10 DMA with an inside day, making 187.06 support to hold and 191.56 the place to clear.
Russell 2000 (IWM) Inside day here as well. Want to see this continue to hold 98.80 and clear 102.
Dow (DIA) Broke Wednesday’s low but rallied back and closed over the 10 DMA at 160.03.
Nasdaq (QQQ) Also an inside day here, but with AMZN reporting earnings after the close and now trading lower watch for a gap lower for Friday morning.
Volatility Index (VIX) Still consolidating but now with an inside day.
XLF (Financials) Still sitting just under its JCRL at 21.13 with an inside day.
KRE (Regional Banks) Kept the rally alive for another day and cleared the 10 DMA at 35.82. also cleared and closed over the JCRL at 35.81.
SMH (Semiconductors) Now back under the 10 DMA but still has support at the 47.00 area.
IYT (Transportation) still needs to hold the 120.00 level as well as the JCRL at 117.67.
IBB (Biotechnology) Broke the JCRL on a closing basis. This could spell doom for this to come.
XRT (Retail) 39.81 is still support to hold.
IYR (Real Estate) 70 pivotal at this point.
ITB (US Home Construction) Consolidating.
GLD (Gold Trust) 106.24 is the JCRH to hold as well as support at the 100 DMA at 105.96.
SLV (Silver) Sharp move down but held over the 10 DMA as well as the one month calendar range.
GDX (Gold Miners) Pinned now between the 50 and 100 DMA. Needs to clear 14.20.
USO (US Oil Fund) Nice move up here but how much higher will it go?
XOP (Oil and Gas Exploration) 28.00 is the next big hurdle for this to clear.
UNG (US NatGas Fund) Bullish engulfing day. Resistance at the 50 DMA at 8.29.
TAN (Guggenheim Solar Energy) Had another test of the 25.25 level but could not muster the strength to clear.
TLT (iShares 20+ Year Treasuries) Liked the FED’s inactivity and bounced back over the 10 DMA.
UUP (Dollar Bull) Sitting on the bottom of the channel it has been trading in since mid-December.
RSX (Russia) Fully in gear at this point, as long as it holds 14.09 going forward.
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