As expected, the market reacted well to Janet Yellen’s confirmation testimony yesterday...and the ensuing bounce led to a 50% retracement of last week’s losses in just one day. The rally came on pretty mediocre “internals”...as the volume was nothing special (3.4bn shares on the composite volume)...and the breadth was just 3 to 2 positive on the S&P 500. That said, we could/should see another good day today...as we should get a very hopeful inaugural speech from President Elect Biden. However, we’ll still have to see how the market acts once we get past these feelings of “hope” that always permeate on Inauguration Day.
Since we’ll have to wait a few days to see how the broad market is going to break over the next few weeks, we thought we’d look at the charts of three stocks today. Two of them are bullish...while one of them is a bit concerning. We’ll start with the chart of NFLX. The positive news out of NFLX has it trading up near $570 this morning. If this can hold once the market actually opens, it’s going to be very bullish for the stock. NFLX hit $550 July, September and October, but each time it rolled-over in a significant way and fell about 15%-16%. Therefore, since it looks like its going to finally break that level KEY resistance level in a significant way, it’s going to be very bullish for the stock (assuming it holds well above that level during regular market hours). (First chart below.)
The second chart is Goldman Sachs. Many people were disappointed by yesterday’s action in GS...as it fell over 2% after reporting positive earnings yesterday morning. In other words, people were concerned that it had “a negative reaction to good news.” Yes, this is something that would usually concern us. However, since GS had become incredibly overbought on a short-term basis, yesterday’s action in much, much less concerning. It’s RSI chart had reached 86...which is the second most overbought level since before the financial crisis (and very, very close to the #1 most overbought reading...in 2016)......Therefore, the stock had become very ripe for a pull-back...no matter how good or bad its earnings turned out to be......Don’t get us wrong, the stock could and even should see more net weakness over the next week or two, but that should be something that merely works-off its extremely overbought condition...and not something that means its rally from the March lows has come to and end. (Second chart below.)
As for the bearish chart, the action in UPS continues to be a concern. This is something we mentioned a couple of weeks ago, but we wanted to reiterate our concerns after yesterday’s actions. It was disappointing to see UPS fall more than 1% yesterday. We did not see any negative news...and it was mentioned somewhat positively in Barron’s over the weekend. (It was also reiterated as the “high conviction pick” for Credit Suisse yesterday morning.) Therefore, yesterday’s weakness in the face of a positive broad stock market is definitely something that raises some yellow flags.
Not only was UPS down more than 1%, but it is also down over 10% since December 18th (while the S&P 500 has moved 2.5% higher). This decline in UPS has taken it below its trend-line from the spring...and within shouting distance of its late October lows of 155.75. Therefore, any more significant downside follow-through will follow that recent break of its multi-month trend-line with a key “lower-low”. It would also be coming after a “double-top”...and thus that would be very negative for the stock on a technical basis, if (repeat, IF) it breaks below those October lows in any meaningful way.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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