Stocks finished flat today as tech underperformed opposite a rising Dow. The S&P hinted at a selloff today but ultimately avoided one by the close. Overall, the market seemed nervous ahead of a big week that includes a rate hike Wednesday and a Q2 GDP report Thursday.
Both releases are expected to have a profound impact on the market’s short-term trend.
What also could tilt sentiment is Walmart’s (NYSE: WMT) latest profit warning, revealed after the market closed this afternoon. The big box retailer told shareholders that it was forced to cut its profit projections due to rising inflation. In particular, Walmart pointed to poor electronics sales (ie, discretionary items) for the impending profits “miss.”
“Clearly, they have the wrong stuff, and they have to sell it more aggressively to clear that out, which looks like it’s going to take a pretty dramatic hit as a result of that,” said Jeremy Bryan, senior portfolio manager at Gradient Investments.
“The question is, how does this relate to the rest of the discretionary space?”
WMT shares fell as much as 10% in after-hours trading. The company doesn’t report earnings until 8/16, and, with much of the “venom” already drawn out of the stock via the profit warning, WMT has become an intriguing candidate for dip buyers.
But a different kind of trend has emerged across the rest of the market.
The iShares Growth / Value ETF (IWF/IWD) chart above, which shows how growth stocks perform relative to value stocks, is nearing its trendline again. We featured this chart before when IWF/IWD rebounded off its trendline after teasing a downtrend.
Now, IWF/IWD is on thin ice once more. Tech (growth) stocks, in general, seem to be running into issues as well. Several big tech names are in reversal formations ahead of earnings. And, because earnings are approaching for these stocks in a matter of days, that makes them somewhat untradable for anyone interested in avoiding the “dice-roll” that holding a stock through earnings can provide.
“I think that there’s going to be a bifurcated market,” explained VantageRock’s Avery Sheffield.
“I think the bottom might be in certain stocks, but nowhere in others. So this actually could be one of the most dynamic earnings seasons we’ve seen in a long time.”
We may or may not see a broader market correction this week depending on how the rate hike/GDP release goes, but if growth stocks go any lower, a growth selloff could easily result.
That’s bad news for Micron (NASDAQ: MU), which closed below its minor bullish trend (yellow trendline) last week before closing below the 10-day moving average this afternoon.
MU was also rejected by the 50-day moving average whilst loitering at the edge of the upper Bollinger Band. The stochastic indicator suggests MU has plenty of room to fall, too.
For those reasons (including the coming IWF/IWD reversal), it might make sense to take MU short with a trade trigger of $59.10, below today’s low, as the market faces a true “make or break” week.
