Tuesday was a spectacular day for the markets. Wednesday’s big stock charts focus on the worry that it might have been a little too spectacular.
Indeed, the Dow Jones Industrial Average saw its biggest gain on a percentage basis since 1933. The S&P 500 rallied over 9%. Whether due to hopes for a federal stimulus package or simply a market that had become too cheap, buyers rushed in.
But to skeptics, the size and pace of the gain is a concern. For many investors who lived through 2000-2001 or 2008-2009, this doesn’t quite feel like the kind of trading seen at the bottom.
That skepticism does get some support from the nature of trading on Tuesday. It was a day where recent losers won and short-term winners lost.
Airlines and retailers gained. Among stocks with a market capitalization over $2 billion, the two biggest decliners were Zoom Video Communications (NASDAQ:ZM) and Vir Biotechnology (NASDAQ:VIR), both of which have rallied during this sell-off.
From that perspective, Tuesday’s rally potentially looks more like a reversion to the mean rather than a sign that the bottom is firmly in. Wednesday’s big stock charts feature three names that might test that thesis.
Two of the charts highlight big winners looking for a rally. Another features a surprising loser. How an investor views these names, and these big stock charts, might determine how they view the broader market at the moment.
As the first of Wednesday’s big stock charts shows, Netflix (NASDAQ:NFLX) stock seemed headed straight for $380 or above. The question is whether a surprising decline on Tuesday ends, or just pauses, that trajectory:
- Technically, the news is hardly all that concerning. NFLX stock still has established an ascending triangle pattern, which suggests some building momentum toward breaking resistance around $380. The modest decline on Tuesday leaves the stock above the 50-day moving average, which provided support during the rally that began late last year. It’s tough to forecast another reversal yet.
- But the decline is somewhat intriguing. NFLX stock hasn’t exactly been a winner during this sell-off, but it’s significantly outperformed the NASDAQ Composite both since the market reversed and year-to-date. Investors no doubt assume that self-isolating consumers will become customers — or, at the very least, be loath to even consider canceling any time soon. And if Netflix can pick up new customers in what increasingly is a worldwide self-quarantine, many of those customers will stick around once life returns to normal.
- Still, NFLX stock is exceedingly expensive in a market that still is taking a “risk-off” pose. Disney (NYSE:DIS) launched its own streaming service, and offerings from AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA) are on the way. There are risks here. The question is if Tuesday’s trading reflects investor worries about those risks after a snapback rally, or simply shareholders taking profits to re-invest in cheaper stocks elsewhere in the market.
Luckin Coffee (LK)
Like many Chinese stocks, Luckin Coffee (NASDAQ:LK) held up surprisingly well during the first leg of the market’s decline in late February. Support gave way in March, but the second of our big stock charts does suggest a potential return to its winning ways:
- The hope is that LK stock has found a bottom. If so, a (slightly) narrowing descending wedge suggests the stock could post a reversal. A bearish (if imperfect) head-and-shoulders pattern established last month has played out. The technicals here aren’t crystal clear, but an investor can make the case for a rebound. One concern, however: the 200-day moving average acted as resistance on Tuesday and might present a near-term stumbling block.
- There’s a case that the stock should recover along with the business. Luckin Coffee is re-opening its stores; rival Starbucks (NASDAQ:SBUX) is doing the same in China. Sales and profits should get back to normal within months, if not sooner — yet LK stock still is down almost 50% from its highs.
- As with NFLX, the question might be how much risk investors are willing to take. This is an unprofitable company expanding at a breakneck pace in a Communist country with a preference for tea. The risks are self-evident. For LK stock, then, the question might be the same as it is for the market: is the bottom in, or is Tuesday’s jump just a dead cat bounce?
Cybersecurity provider CrowdStrike (NASDAQ:CRWD) began its rally before Tuesday. After another double-digit gain, the third of Wednesday’s big stock charts suggests an inflection point looms:
- Resistance looms in several ways. The trendline of a downtrend from August highs looms, followed by the 200-day moving average and then February highs above $65. CRWD stock certainly has plenty of momentum right now, but it will need more to keep the breakout intact to $70 and beyond.
- The rally from the lows hasn’t come solely from changing investor sentiment. CrowdStrike provided a catalyst with a solid fourth quarter report on Thursday. Most importantly, guidance impressed, which eased fears that revenue growth was going to stall out amid coronavirus-driven shutdowns.
- Put another way, CRWD stock is acting like a normal stock: rallying on good news. That normalcy itself bodes well for U.S. stocks. After all, that’s what investors are looking for right now. The gains in CRWD hopefully,suggest the potential for the rest of the market once some semblance of certainty returns.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.