Stocks slumped today as the market’s recent minor uptrend was broken. The Dow fell slightly while the S&P and Nasdaq Composite both tumbled.
Twitter (NYSE: TWTR) stole headlines over the weekend after Tesla CEO Elon Musk revealed that he had terminated his offer to buy the company on Friday.
TWTR shares unsurprisingly cratered in response, falling below their lows set prior to Musk’s initial offer back in May.
But it was a rough day for almost all shareholders, not just the folks stuck “bag holding” TWTR.
As we mentioned above, the S&P (as represented by the SPY) got chunked lower, causing it to close below both its minor bearish trend (yellow trendline) and Friday’s low. This was a bad sign for bulls considering that the broader market index seemed to be gearing up for a breakout at resistance at the late June high.
No such breakout arrived, however, and a lower high was set instead.
Again, not ideal for bulls. Bears, on the other hand, could be looking at the start of a bearish continuation. The S&P hasn’t breached the 10-day moving average (10-SMA) yet but the 10-SMA is now pointing lower, joining the 20-SMA and 50-SMA.
When all three moving averages slope downward, the S&P tends to fall. That’s especially true during bear markets and/or when the Fed is raising rates.
Traders may want to prepare themselves mentally for lower market lows as a result, especially with earnings season getting underway this Friday when big banks report. Scores of analysts are looking very nervous in the meantime.
“With recessionary fears weighing on the markets, investors are hyper-focused on corporate earnings for greater clues about the health of corporate America and the broader US economy,” said Greg Bassuk, chief executive officer at AXS Investments.
“A sharper lens will be needed to dissect these earnings reports, as a strong second-quarter might be accompanied by very conservative outlooks. As commodity and other producer costs remain high, companies will be factoring in the extent to which those heightened prices can be passed on to consumers and, likewise, how to keep earnings vigorous amid economic, geopolitical and other key headwinds.”
And while the fundamental analysts wait for earnings to make their moves, technical analysts will be busy raking in profits. Abundantly bearish positions emerged all over the market following today’s trading session, just like this one from NVIDIA Corporation (NASDAQ: NVDA).
NVDA set several lower highs and lower lows over the last few weeks before closing below its minor bullish trend (yellow trendline) this afternoon along with the 10-SMA.
The stochastic indicator also suggests that NVDA is neither overbought nor oversold.
For those reasons, it might make sense to take the stock short with a trade trigger of $148.88, below today’s low, as the general market points lower, too.
