Stock Market Shows Its Magic: An Exciting Finish

What a turnaround! Today’s PCE data, which was in line with expectations, initially sent the stock market higher. Then, it experienced a significant selloff, but things changed in the last 30 minutes. Equities pushed higher into the close, revealing that investor optimism isn’t dead. The S&P 500 ($SPX) and Dow Jones Industrial Average ($INDU) closed higher, and the Nasdaq Composite ($COMPQ) was flat.

Today’s stock market behavior shows how it can turn on a dime, and there’s no way to anticipate what it’ll do. The PCE came in as expected, which, realistically, shouldn’t have altered investor sentiment. The expectation of possibly getting one rate cut in 2024 is still in play, so it made sense to see the selloff for most of the trading day. But that big push higher shortly before the close makes it difficult for an investor to be pessimistic.

A Closer Look at the Trading Action

For most of the day, Tech stocks sold off significantly. The weekly chart of the Nasdaq Composite (see below) shows that, if it hadn’t been for the rise at the end of the trading day/week/month, the index could have closed below its first support level (blue dashed line). Instead, it was able to close well above the support level.

Follow the live chart.

Could that mean the index will try hitting a new high next week? It’s something to anticipate, but always be prepared for the market to go either direction.

CHART 1. WEEKLY CHART OF NASDAQ COMPOSITE. The index looked like it would close below its first level, but buying pressure dominated, and the index closed for the week on a relatively optimistic note.Chart source: StockCharts.com. For educational purposes.

Not much has changed. The Nasdaq is trading above its 21-day exponential moving average (EMA), which is trending upward, as is the 50-day simple moving average (SMA).

Follow the live chart.

Like the weekly chart, the daily chart of the Nasdaq Composite also shows some clear lines in the sand. Today’s range was significant and, while it looked like there could have been some short-term technical support breaks, the index ended the week without much to worry about.

CHART 2. DAILY CHART OF NASDAQ COMPOSITE. There are clear lines of sand in the daily chart of the Nasdaq, and there is enough buying interest to keep the index above the initial support levels.Chart source: StockCharts.com. For educational purposes.

Follow the live chart.

You can blame the tech stock selloff on semiconductors. To understand this better, it makes sense to bring up a chart of NVIDIA (NVDA), since the price action of the stock tends to correlate with the price action in the Nasdaq and S&P 500.

The daily chart of NVDA below shows a clear resistance level. From March to May, NVDA’s stock price hit resistance at around $965 and a few times before it gapped higher.

CHART 3. DAILY CHART OF NVDA. Could the stock fall to its previous resistance level?Chart source: StockCharts.com. For educational purposes.

NVDA’s recent earnings saw the stock price surge higher, but the buying seems to have exhausted. The question is whether NVDA’s stock price will retrace back to the $965 level. For a while, it looked like that could happen. We’ll have to wait until next week to see which way investor sentiment leans.

A look at the StockCharts MarketCarpet gives a good visual of today’s market action. You can clearly see that NVDA and Amazon, Inc. (AMZN) experienced the largest losses, but, overall, there was a lot of green. The dark green squares represent the largest percentage gainers, and one that stands out in the Tech sector is Salesforce.com, Inc. (CRM). After falling almost 20% on Thursday after a dismal earnings report, the stock gained 7.5% on Friday.

CHART 4. THE BIG PICTURE. The StockCharts MarketCarpet gives a good overview of how the market performed.Chart source: StockCharts.com.

Follow the live chart.

Interestingly, it wasn’t so green in the Tech and Communications Services sectors. But the other sectors were doing relatively well. Two stocks that should be on your radar are Gap Stores (GPS) and Deckers Outdoor Corp. (DECK).

CHART 5. RETAIL STOCKS SURGE. Gap, Inc. (GPS) and Deckers Outdoors (DECK) are seeing significant strength. These two stocks should be on your radar.Chart source: StockChartsACP. For educational purposes.

GPS rose on strong Q1 earnings and strong guidance. DECK’s shares have been rising on the popularity of their Hoka shoes. The rise in these stocks indicates the retail sector continues to be strong.

The Takeaway

Overall, May ended on a positive note. Maybe the “Sell in May and go away” strategy will have to wait. Next week, there will be some earnings, but the focus will be on macro data. Will the data be enough to move the needle? The jobs number will probably have the largest impact if it comes in hot.

End-of-Week Wrap-Up

S&P 500 closes up 0.80% at 5,277.51, Dow Jones Industrial Average up 1.50% at 38,686.32; Nasdaq Composite down 0.01% at 16,735.02$VIX down 10.71% at 12.92Best performing sector for the week: EnergyWorst performing sector for the week: TechnologyTop 5 Large Cap SCTR stocks: MicroStrategy Inc. (MSTR); Vistra Energy Corp. (VST); NVIDIA (NVDA); Super Micro Computer, Inc. (SMCI); Robinhood Markets (HOOD)

On the Radar Next Week

May Manufacturing PMIMay Services PMIApril JOLTS Job OpeningsMay Non-Farm PayrollsEarnings from CrowdStrike Holdings (CRWD), Hewlett Packard (HP), and Lululemon Athletica (LULU)

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.