Commenting on today’s trading with Chinese coronavirus outbreak and Boeing in focus, Gorilla Trades strategist Ken Berman said:
While Asian and European stocks got hit hard today, domestic equities continued to show impressive resilience. The Dow fell for the first time in six sessions today due to Boeing’s (BA) weakness, and although even the market-leading tech sector edged lower, the losses are minuscule compared to the lofty gains of the past three month.
The major indices all finished lower following a very strong week on Wall Street, as the Chinese coronavirus outbreak caused a global risk-off shift. The Dow was down 152, or 0.5%, to 29,196, the Nasdaq lost 18, or 0.2%, to 9,371 while the S&P 500 fell by 9, or 0.3%, to 3,321. Decliners outnumbered advancing issues by an almost 2-to-1 ratio on the NYSE, where volume was slightly above average.
The lingering fears among global investors that the Chinese coronavirus outbreak could lead to a SARS-like global scare weighed heavily on risk assets today, and the fact that the CDC confirmed a case in the U.S. this afternoon didn’t help sentiment. The eerily similar SARS-outbreak sent stocks lower by double-digits back in 2003, due to its effects on global trade, and it’s possible that a major epidemic could deliver a huge blow to the already struggling Chinese economy. The coming days could be vital in deciding the severity of the situation, so risk assets could remain under pressure this week.
Netflix and Boeing in focus
Firms exposed to the possible global travel-restrictions, such as airlines and oil-related issues declined the most today, and the materials sector was the worst performer by a wide margin. The defensive utilities sector was a clear positive outlier, but tech stocks held firmly, and consumer goods and healthcare also showed stability. Financials, industrials, and services all finished deep in the red as Treasury yields dropped across the curve, so the global risk-off shift heavily influenced U.S. stocks as well.
While analysts were mostly focusing on Netflix’s (NFLX) quarterly report after the closing bell, IBM (IBM) provided an unusual positive surprise, sending its shares significantly higher in after-hours trading. The company beat the consensus both on its top and bottom line, and since its revenues drifted lower throughout 2019, the positive shift could ignite a long-awaited rally in its shares. The streaming giant also posted upbeat numbers, but the initial reaction of the market was less enthusiastic, due to the firm’s disappointing guidance and the lower-than-expected domestic subscriber growth.
We will have another relatively quiet session, with regards to economic releases, but we will get a few housing-market indicators around the opening bell tomorrow. Existing home sales are expected to increase to 5.43 million units despite last month’s disappointing reading, while the Housing Price Index is also forecast to tick higher to 0.3%. As for corporate earnings, the reports of healthcare giant Abbott (ABT) and industrial REIT Prologis (PLD) will highlight the pre-market session, while Texas Instrument’s (TXN) and Kinder Morgan (KMI) will likely steal the show in the afternoon.
Technical Corner. While the major indices failed to continue their winning streak today, they remain in much better technical shape compared to their overseas peers and their key trend indicators are still pointing higher. The benchmarks remain well above their rising 200-day moving averages of 8,206 for the Nasdaq, 2,996 for the S&P 500, and 26,923 for the Dow, and the benchmarks are also clearly above their steeply rising 50-day moving averages of 3,182 for the S&P 500, 8,814 for the Nasdaq, and 28,274 for the Dow.
The crucial long-term technical breakout that started last October with the Nasdaq’s move to a new all-time high has already delivered sizable returns to bulls. The major indices are all trading close to 10% above their pre-breakout highs, and the market-leading Nasdaq is well into double-digits compared its prior record. While stocks are ripe for a deeper correction, which was already the case several weeks ago, most seasoned traders agree that stepping in front of the bullish train during such moves is a dangerous thing. Stay tuned!