Apple, Tesla Both Under More Pressure Early As Profit Taking Appears To Surface

For weeks, there’ve been people saying stocks can’t go straight up forever. And today it looks like they’re right. The market actually has a softer tone this morning as caution kicks in ahead of tomorrow’s jobs report and the long weekend.

Crude is especially weak, diving more than 2% back toward $40 a barrel. Worries surfaced about U.S. demand possibly flagging, analysts said. U.S. fuel consumption has flattened, which isn’t great news from an economic perspective. Energy was the only sector in the S&P 500 that fell yesterday, and it’s down more than 40% so far this year.

Meanwhile, the “split brothers,” Apple Inc. AAPL and Tesla Inc TSLA, both fell in pre-market trading after losing ground yesterday. There might be some profit-taking going on after the amazing rallies these two have had. Nothing too surprising there. However, their pre-market losses are weighing heavily on the Nasdaq (COMP). 

The early weakness drew a challenge from weekly initial jobless claims, which fell to a post-pandemic low of 881,000. That was well below analysts’ expectations for 950,000, and down from 1 million the prior week. While claims remain historically high, it’s always good to see fewer people needing to apply for jobless benefits, and major indices started to come back a little in pre-market trading after the data. 

Claims data and early softness aside, the fundamental feeling most of this week has been positive. The buying mood is partly due to speculation about a coronavirus relief package, and also reflects optimism that a vaccine will become available this year. 

There’s all that, along with the fact that people continue to want to buy the stocks that have performed so well. Let’s face it, when you look around for alternatives to put your money in right now, there arguably really aren’t many great places to say ‘This is where I want to have my money.’ Treasury yields continue to wilt, and overseas markets haven’t been as hot as the ones here in the U.S. 

This doesn’t necessarily mean the rally is bound to continue or that stocks are the answer for everyone, of course. A lot depends on the needs of individual investors. Still, if you look at August and early September, many investors seem to be making the choice to focus on equities. The S&P 500 Index (SPX) posted its 22nd record close of the year Wednesday.

Analysts expect tomorrow’s payrolls data to show 1.4 million new jobs created in August, down from nearly 1.8 million in July, according to research firm Briefing.com.

What’s With The VIX?

The weird thing is how volatility keeps moving higher along with stocks. Usually, it’s like a see-saw: if one goes down, the other goes up. Not this time. The Cboe Volatility Index (VIX) climbed about 2% Wednesday and is flirting with the 27 level. It hasn’t been up there since mid-July, and fell to as low as 22 in August. 

If you look out at VIX futures, they continue pointing up in the months ahead, and some analysts say this could reflect nerves on edge ahead of the election two months from today. If VIX stays in this mode, it could mean seeing the long steady upswing in stocks facing a roadblock at some point. 

VIX moving higher along with stocks isn’t the only relationship that’s out of whack. Recently we’ve had days where Treasuries rise—pushing yields lower— but Financial stocks also go up. Normally, lower yields put pressure on Financials. We’ll see what happens with these relationships today, because there’s been some odd behavior the last few days. 

Some of the other “horsemen of risk” went back into the stable Wednesday, with gold taking an especially big hit of around 1.5%. Just a month or two ago, gold had been on an upward tear that didn’t seem to have any brakes. Now it’s pulled back a lot, but remains above $1,900 an ounce—historically high territory. Any move up in gold from here might reflect new concerns about the economic recovery or the faltering dollar.

Still, if there’s worry out there, it’s not getting much daylight. Data continue to look pretty good, and obviously, rates aren’t something people have to worry about as they might have in the past. Yesterday’s Fed Beige Book showed growing activity around the economy and factory orders saw their third-straight monthly increase. 

No Apple In Lunch Bag? Investors Dig Out Other Techs For Dessert

Just because AAPL, TSLA, and Zoom Video Communications Inc ZM take a breather doesn’t mean the rest of Tech can’t have a good day. 

That could be the lesson we learned Wednesday as investors exited some of their positions in those high-flying stocks and instead snapped up shares of some Tech companies that hadn’t been blazing quite as hot lately. They included Microsoft Corporation MSFT, Alphabet Inc GOOGL, Intel Corporation INTC, and some others. Facebook, Inc. FB, which was hot to begin with, stayed that way.

Also, on an interesting note, some of the semiconductor stocks that got ignored by many in the recent long rally over in that sector found mid-week bids (see more below). No day is a trend, but if this continues it might mean we’re seeing investors start to pay more attention to some less-heralded Tech names. 

On another note, cyclical stocks — those that move in response to the health of the U.S. economy — outperformed yesterday. DuPont de Nemours, Inc. DD popped 5%, Verizon Communications Inc. VZ added 2.3% and Alaska Air Group, Inc. ALK climbed 3.3%. Anyone who wants the rally to last was probably happy to see these moves, a sign that investors might be embracing some of the less flashy companies instead of just Tech. However, one day isn’t a trend.

CHART OF THE DAY: CHIPS OUT IN FRONT. The Semis rallied strongly yesterday, with the Philadelphia Semiconductor Index (SOX—candlestick) up about 2.8%, which puts it well above its 20-day moving average (blue line), which has acted as a support level for the past few months. Data source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

Wallets Not Empty Yet: There’s a sense among some analysts that plenty of cash remains on the sidelines and could fuel more buying in stocks, especially if there’s a brief downturn in the market. We haven’t had a pullback in a while, so you can’t rule that possibility out—especially the way VIX continues to climb. The question is how pronounced any kind of pullback would be, seeing how quickly the market recovered earlier this summer on pullback attempts. From a technical view, the S&P 500 Index (SPX) continues to hover well above its 200-day moving average. In the past, this kind of premium has often been followed by a correction of 5% or more, but past isn’t precedent. 

The thing this time that might keep a rebound more muted is the approaching election. This isn’t a political column, but having that huge event sitting on the calendar just about nine weeks away isn’t something investors can ignore. Volatility typically moves higher ahead of a presidential election, and last time out, in 2016, a surging stock market caught a cold in the two weeks leading up to voting. 

Apple Finally Slows: Apple Inc. AAPL shares finally took a powder yesterday after surging post-split. Seeing some profit-taking shouldn’t surprise anyone at this point considering AAPL’s powerful rally last month and basically all of this year. It also wasn’t surprising to see shares move higher the first two days after the split, first of all because it’s become a lot more affordable for people overall, and second given the history. When AAPL split in 2014, volume and demand for shares rose pretty quickly, and the same thing could be happening again. It’s probably not going to be as big a lift as in 2014, however, considering the run-up the stock has already had.

Semis Still Chippin’ Away: We’ve said it before—semiconductors could be a good indication of economic health since they’re the drivers of technology that supports the WFH lifestyle. So it shouldn’t come as too much of a surprise that Intel Corporation INTC, which has been relatively quiet lately, is coming out with a new line of 11th generation laptop processors. According to a report by Barron’s, these chips could offer twice the performance than prior generation for video games. This would allow people to play the more technologically sophisticated games in high definition, something we haven’t really seen before.

This development, along with those of other chip companies, seems to suggest that the “stay at home” trend is likely to be with us for a while. But even if we do go back to work or school, the demand for high-performance laptops isn’t going to go away. Semis saw a strong rally yesterday with the Philadelphia Semiconductor Index (SOX) trading well above its 20-day moving average (see chart above).

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Photo by Zhiyue Xu on Unsplash