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Earnings Season Shakes Up Technology

In this market commentary, we will dive into some tech stocks during this earnings season, discuss sector leadership, and analyze our chart of the week, T-Mobile.  


Thursday was an interesting trading day. Meta reported earnings Wednesday after the market close. On Thursday, it saw its share price decline as much as -16% during the day’s trading session. This negatively impacted several other large technology stocks, but these stocks rallied into the close on Thursday. The table below shows the Magnificent 7 stock percentage declines to their Thursday lows and compares those declines to where they finished the trading Thursday.

Stock

% Decline to Low (4/22/2024)

4/25/2024 Return

Difference

Meta

-16.01%

-10.56%

5.45%

Apple

-0.51%

0.51%

1.03%

Amazon

-5.82%

-1.65%

4.16%

Google

-5.17%

-1.96%

3.22%

Nvidia

-1.82%

3.71%

5.53%

Microsoft

-5.14%

-2.45%

2.69%

Tesla

-2.33%

4.97%

7.29%

Source: table created by Canterbury Investment Management using low/close data from Yahoo Finance


While each of the large technology names declined substantially during the trading day, they all rallied into the close. On Friday, after Google reported earnings, its rose by +9.9%. Amazon was up more than +3% and Nvidia was up 6%. Volatility occurs in both directions. It’s clear that large technology stocks are showing signs of emotion.


Sector Leadership


With technology stocks becoming increasingly volatile, they have slipped in sector rank. According to Canterbury’s proprietary research, Financials, Industrials, and Energy are the top ranked sectors. This is on a risk-adjusted basis, where each sector’s relative strength is adjusted for its volatility. Here are the current sector rankings:

Sector

Risk Adjusted Rank

Financials

1

Industrials

2

Energy

3

Communications

4

Consumer Staples

5

Basic Materials

6

Utilities

7

Information Technology

8

Health Care

9

Consumer Discretionary

10

Real Estate

11

Source: Canterbury Volatility-Weighted-Relative-Strength Ranking


As you can see in the table, Information Technology, which is the largest sector in the S&P 500 by a considerable margin, currently ranks 8th on a risk-adjusted basis. This is primarily due to the weakness of Apple stock in 2024. Additionally, Consumer Discretionary is ranked second-to-last. This sector contains Tesla, which has been one of the worst performing S&P 500 stocks year-to-date. To begin last week, it was down as much as -40% on the year. Remember, volatility goes in both directions. On Monday (April 29th), Tesla was up as much as +18% during the trading day. That is not a rational swing.


Investor Sentiment


According to the AAII Investor Sentiment Survey, there are now a larger number of “bearish” individual investors than “bullish” ones. The latest survey, published Thursday of each week, showed that 32.1% of investors surveyed considered themselves bullish on the markets; 33.9% were neutral; and 33.9% were bearish. A month ago, 50% of investors surveyed were bullish. This marks the first time there have been a larger number of bearish investors than bullish ones since November of last year.


Chart of the Week: TMUS

This week’s Chart of the Week is T-Mobile. Since the beginning of this year, the stock has “been in a crouch.” The question is, is the stock now ready to pounce? The stock chart and corresponding points are below.


Source: Canterbury Investment Management. Chart created using Optuma Technical Analysis software.


1.     This year, TMUS has been in a tight trading range. The difference between the year’s price high and low is only about 5%. The stock has moved sideways and is getting into a “crouch,” positioning itself to move either up or down.


2.     We have discussed the MoneyFlow index with several other charts. In summary, it is a volume indicator that measures “smart money.” MoneyFlow is at a new high, while the stock has moved sideways. This is a positive divergence.


3.     While the market has been shakier lately, T-Mobile’s relative strength has begun to increase. Increasing relative strength is a positive characteristic.


While T-Mobile has trended sideways over the last 4 months, it has had some positive technical developments, such as rising MoneyFlow and rising relative strength. The stock is now in a crouch. It’s only a matter of time before it makes a move, one way or another.


Bottom Line

We continue to monitor for changes in volatility, particularly in the area of technology-related stocks. Technology-related sectors have fallen in ranking, and some stocks are showing signs of weakening. Given tech’s weighting in the markets, whichever way technology moves, the market will tend to follow.


I do find it interesting that negative sentiment has gone up. One month ago, half of all investors surveyed in the AAII sentiment survey held positive outlooks. Now that the markets have paused for a breath, bearish sentiment has surpassed bullish sentiment.

As always, we continue to monitor our portfolio holdings and look for opportunities in the market, while maintaining consistent and low portfolio volatility.

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