Full Swing Stocks: Earnings, trade keep traders guessing

Aug. 17, 2018 – Stocks had big days on Wednesday and Thursday, but the rest of the week was pretty quiet. 

Wednesday’s move to the downside was sparked by, of all things, a big earnings miss from Chinese internet giant Tenecent. That combined with several days worth of declines in industrial metals was enough to cause some concern about the global economy’s continued growth.

Thursday, earnings beats from Cisco and Walmart helped erase some of those fears, as did headlines about the U.S. restarting trade talks with China. 

An interesting divergence emerged Thursday and Friday with the Dow markedly outperforming the other indices. The Nasdaq, which has been the top performer this year lost the most ground on Wednesday, and didn’t make up much on Thursday or Friday, while the Dow made made solid upward moves Thursday and Friday.

Some of that divergence is easy to explain. Tenecent is a tech giant, so it is logical that a negative surprise there would translate to the Nasdaq more than the Dow. Other earnings this week tell a similar story. Cisco is in both the Nasdaq and the Dow, but Dow-component Walmart also turned in a much better-than-expected report. Meanwhile Friday saw weak reports from semiconductor stalwarts Applied Materials (AMAT) and Nvidia (NVDA).

Indices

All told, the S&P 500 gained 0.35% this week. The Dow added 1.15% and the Nasdaq gained 0.6%.

S&P 500

It’s been an up and down week for all the major indices. The SPX opened slightly higher on Monday morning and was showing signs of strength in the first hour. Around 10:30am, it founds itself under heavy pressure and began a rapid decline. It tried to rally back in the afternoon, but that was short lived and sold off into the close. It was discouraging to see the index drop below its 20-day moving average and give back everything it had worked so hard for early in the previous week. Tuesday gave more of a bullish outlook as the index rose again and ended up closing near the 2,840-resistance level. We were hoping to see follow-up strength that would take the index back to where it topped out last week and hopefully go for new highs, but the S&P 500 gapped down on Wednesday morning, placing the index below its 20-day moving average from the open. It was a hard day of selling but found support in the 2,800 level and bounced to make up a large part of what was lost. Luckily, the S&P was able to close out the week by gapping up on Thursday with follow-up strength on Friday. It was hugging its 20-day moving average all week, and it was nice to see that when it dropped below its 20-day moving average, it was able to find the needed strength to rise back above. 

NASDAQ

The NASDAQ opened higher on Monday but sold off with the rest of the indices. It was able to find natural support around 7,800, as well as support at its 20-day moving average and rebounded on Tuesday. As with the other indices, the gap down and sell off Wednesday had it flirting with its 50-day moving average but was also able to bounce and make up some lost ground. The NASDAQ dipped a little further than the other major indices Friday morning but again found support in its 50-day moving average. It continued strength and closed out the week above the 7,800 mark as well as above its 20-day moving average.

Dow Jones

The Dow Jones was the larges mover of the week. After opening on Monday below its 20-day moving average, it was not able to get back above that level even with follow-up strength on Tuesday. It was not looking good on Wednesday when it sank further, dropping below its 50- day moving average. Luckily, the market took a turn for the better and it was able to make up a large portion of the sell off. It showed impressive strength on Thursday, taking it back above its 20-day and following up with additional strength on Friday. This places the Dow Jones at a resistance level that it was unable to break through two weeks ago. It would be nice to see some early week strength get the index through those additional areas of resistance, giving it a chance to shoot for new highs in the near future.

Russell 2000

It was an up-and-down week for the Russell 2000 as well, but unlike the other indices, it was mainly a week of back-to-back reversals. It was looking bearish on Monday and Wednesday, dropping below its 50-day moving average, but with the pattern the Russell 2000 has been developing, it has been able to find natural support and support in its 20 and 50-day moving averages all in the same place. It will be interesting to see how things play out for the Russell 2000 next week. It could very well use those levels of support to finally break out to new highs, which it has been trying to do for quite some time. Should it fall below those levels of support, it could very well drop down to the 1,650 level before finding additional support.

FSS Swing Trading Strategy Update

With the market well into the summer doldrums, and seemingly rangebound to boot, we’re focusing on picking good stocks that we feel comfortable holding for longer than just a few days.

This week’s activity in our positions

We’re carrying four positions into the weekend.

  • SQ -1.9%
  • AAPL 3.4%
  • HCA  3.1%
  • MRK 4.1%

We did not close any trades this week.

Bobby Raines

Bobby Raines

Bobby Raines is the Managing Editor of the Market Intelligence Center. He has degrees in Mass Communications and History from Emory & Henry College. Bobby worked at a mid-sized daily newspaper before making a switch to covering the financial industry full time in the years leading up to the financial crisis. He has been a member of the Fresh Brewed Media team since 2011 and has served as a writer and analyst. You can write to him at braines@marketintelligencecenter.com or follow him on Twitter: @BRatMICenter.

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