The recent flurry of earnings reports has led to significant volatility in the stock market, with traders quickly reacting to both positive and negative surprises. According to John Butters at FactSet, companies with negative earnings surprises are experiencing an average stock decline of 2.5%, slightly higher than the usual 2.3% for this time of the earnings season. On the other hand, positive surprises are resulting in smaller moves of about 1%, consistent with their historical performance. While these numbers may appear insignificant on the surface, they have been influencing some of the market’s biggest stocks.
When a company like Meta Platforms sees its stock plummet by 10.6% following a positive earnings report due to weak revenue guidance, or when Alphabet jumps 10.2% after an earnings beat and dividend announcement, it creates what technical experts call “gaps” on the chart. These gaps represent areas where there is no selling pressure, creating a vacuum-like effect that could be crucial for future price movements. Katie Stockton from Fairlead Strategies highlights the importance of these gaps breaking through key resistance levels, such as the 50-day moving average, and the significance of them being sustained over time to confirm a breakout.
Meta’s recent experience serves as a potential case study for analyzing post-earnings moves. After a sharp decline, the stock showed signs of crossing resistance levels and underwent a short-term breakdown. However, the upward trend in the following days suggests a possible rebound, indicating that selling Meta at that point might have been premature. Investors are advised to observe the stock’s behavior and give it more time to bounce back before considering selling.
Although Nvidia’s earnings report is not due until May, its significant 10% drop on April 19 had a ripple effect on the market. Technical analysts and traders have been closely monitoring the stock’s recovery, which saw it gain over 15% in the past week, erasing the earlier decline. The stock’s ability to climb back above its 50-day moving average signals a potential bullish trend. It is worth noting that many stocks tend to halt at the 50-day moving average after a breakdown, making Nvidia’s recovery a notable development.
The erratic movements of tech giants like Meta and Nvidia have the potential to impact index-level trades, creating a challenging environment for investors. Larry Benedict emphasizes how the significant swings in individual stocks can offset each other, leading to a distorted market picture. Despite the single-stock volatility, the S&P 500 managed to end the week with a 2.7% gain, its best performance since November.
The recent earnings surprises have triggered a wave of market volatility, with investors closely monitoring the post-earnings moves of major companies like Meta and Nvidia. Understanding the implications of these moves, as well as the significance of gaps on the chart, can help traders navigate through the uncertainty and capitalize on potential opportunities in the stock market.