Amazon and Snap seek Friday to undo what Meta and…
JJ Kinahan, Chief Market Strategist, TD Ameritrade
(Thursday at market close) Internet Equity Metaplatforms (FB) and Spotify (SPOT) fell on disappointing earnings reports and outlook that sparked a broad sell-off across the broader market. However, after the closing, the results announcements of Amazon (AMZN) and Break (SNAP) are doing their best to help stocks rally on Friday.
Amazon (AMZN) fell 7.81% on the day but immediately reversed course after beating analysts’ earnings estimate on its AWS cloud services up 42%. AMZN rose 18% in after-hours trading in reaction to the news. The company also announced that it would raise the price of its Prime membership from $12.99 per month to $14.99, and investors seem confident the company has the pricing power to pass on the cost. Unfortunately, Amazon had a slightly lower forecast for the first quarter, but currently investors seem willing to look beyond that.
Break (SNAP) shows off its rivals on social media announcing its profitable first quarter and beating analysts’ estimates. The stock jumped 55% in after-hours trading. Snap claims to have found a way to deal Apples (AAPL) privacy changes that hurt Metaplatforms (FB) so much. It also seems to benefit from being more of a communication platform than a social media platform.
pinterest (PINS) is trying to keep pace with Snap by rallying 26% of after-hours trading. The stock had fallen 10.32% on Thursday in sympathy with Meta, but appears to be reversing the trend beating earnings and revenue estimates. PINS saw a 20% increase in ad revenue. However, the company saw a further drop in the number of monthly active users.
Apart from Internet stocks, Ford (F) also reported, but had a big shortfall due to some larger than expected write-offs. Ford had already fallen 3.59% on the day and fell another 4.58% in after-hours trading. The company raised its guidance, predicting that operating profits would increase by up to 25% in 2022.
Throughout the Thursday trading day, Meta (FB) fell more than 26% while Spotify (SPOT) fell almost 17%. Unsurprisingly, the pair has been a drag on the tech sector and the Nasdaq Compound ($COMP), which fell 3.74%. Thursday ended up being the Nasdaq’s worst day since October 2020.
Meta is also a S&P500 (SPX), which fell 2.44% on the day. Despite the influence of these stocks, the sell-off was quite broad with around 80% of New York Stock Exchange companies down on the day. However, the main indices are still positive for the week.
Technology And Manufacturing Company, Honeywell (HON), has been a brake on the Dow Jones Industrial Average ($DJI) after falling 7.62% on forecasts below expectations. The company beat earnings estimates and fell a little short of revenue. But the lower earnings forecast which called for sales of $35.9 billion instead of the $36.7 billion analysts expected. The Dow Jones closed down 1.45% on the day.
The liquidation of the shares prompted the Cboe Market Volatility Index (VIX) to rise a little over 10%, but this move is a little lower than what you might expect for such a wide selloff. Perhaps what we’re seeing is a jittery market that’s a little nervous waiting for tomorrow’s jobs report. Moreover, the shares fell further after crude oil closed for the day. Oil rose above $90 a barrel for the first time since 2014.
There was positive economic news on Thursday, with weekly jobless claims lower than expected, although continuing claims were higher than expected. Additionally, the ISM Non-Manufacturing Purchasing Managers Index rose more than expected in January, which is generally seen as a sign of a stronger economy.
Meta (FB) and the ensuing downfall were tied in part to privacy changes on devices where users access Meta’s platforms, including Facebook and Instagram. Privacy changes by Apple (AAPL) harmed the company’s ability to collect and sell marketing data as well as sell items from Meta’s platforms.
Throughout the day, Meta coached other social media contemporaries with Twitter (TWTR) and pinterest (PINS) down 5.56% and 10.32% respectively. As Friday promises to be a better day, these businesses are struggling in post-pandemic reopening trade. On Thursday, TWTR was down around 58% from its all-time high, while PINS was down around 73%. Break (SNAP) had fallen more than both stocks at 23.6% on the day and was down around 71% from its all-time high.
Earnings beat expectations for a group of stocks that may seem oversold to some investors could benefit from a slight rally.
Outside of social media, Spotify (SPOT) fell more than 16.76% despite reporting better-than-expected earnings and revenue. The problem came from the fact that the company failed to grow its subscribers at the expected rate.
Other well-known internet stocks also traded lower. netflix (NFLX) fell more than 5%. let’s group (GRPN) fell 2%, adding to its 24% three-day slippage. SpaceSquare (SQSP) fell 6.11%. the S&P Internet Select Sector Industry Index fell 5.48% and is down about 40% from its all-time high reached almost a year ago.
As we enter a post-pandemic world, it’s likely that many of these internet companies will continue to struggle as users find themselves reaching for sunlight instead of screen light.
A common frustration that people have with technical analysis is its subjectivity. It is difficult to know where to draw support, resistance and trend lines. One way to approach this, according to my friends at technical analysis, is to think of the line as more of a pencil than a pencil. A thicker line opens up the range of potential U-turns.
However, drawing lines can be even more difficult when dealing with particularly volatile stocks. The line of resistance for the Nasdaq Compound ($COMP) seemed to be clean and well established before the recent rally, but the price climbed well above and back down.
Traders looking to pull support levels from this point could find several opportunities in the other two previous lows dating back to March or May of last year. Or they could use the August and September 2020 highs. At times like this, you can just throw away the pen and pencil and use a giant highlighter. It may not be ideal for people looking for trading opportunities, but it can help investors who are simply trying to identify areas of congestion.
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