The recent earnings season has witnessed significant stock price fluctuations, prompting technical experts to scrutinize the sustainability of these moves. Companies with disappointing earnings surprises have experienced an average decline of 2.5%, slightly exceeding the usual 2.3% drop during this period, according to FactSet. Conversely, positive surprises have resulted in smaller gains of around 1%, aligning with their historical average. While these macro numbers may appear insignificant to daily market observers, the post-earnings movements in prominent stocks have notably impacted the market’s overall trajectory. For instance, Meta Platforms plunged 10.6% on Thursday despite exceeding earnings expectations, primarily due to weak revenue guidance. On the other hand, Alphabet surged 10.2% on Friday after reporting strong earnings and announcing a dividend. These substantial post-earnings movements can create “gaps” on charts, indicating areas of potential future market behavior. “These gaps serve as pockets on the chart where selling pressure is absent, almost like a vacuum,” explained Katie Stockton, founder of Fairlead Strategies. Similar situations can arise when stocks open significantly higher after positive earnings. Gaps become particularly significant if they breach key resistance levels, such as the 50-day moving average, and remain “unfilled” in subsequent trading sessions. Stockton emphasizes the importance of sustaining these gaps to confirm breakouts. Meta Platforms appears to be a potential example of a gap being filled following its sharp decline on Thursday. While the stock initially broke below resistance levels, Stockton suggests that the subsequent upward trend indicates a potential overreaction. She advises investors seeking to sell Meta Platforms to consider waiting for a more favorable selling opportunity. Nvidia’s stock performance, despite not yet reporting earnings, illustrates the concepts being closely watched by analysts. Following a 10% drop on April 19th, Nvidia’s stock has rebounded, erasing the previous decline. Technical analyst Frank Gretz highlights the stock’s recent approach to its 50-day moving average, a key technical indicator. If Nvidia’s stock closes above this average, it would be a significant technical development. The substantial price swings experienced by tech giants can introduce complexities in index-level trading. Larry Benedict, founder of the Opportunistic Trader, observes that significant moves in opposing directions can effectively neutralize each other. “It’s almost like a one-off market,” Benedict said, referring to the impact of large fluctuations in individual stocks on overall market indices like the S&P 500. Despite the volatility in individual stocks, the S&P 500 ended the week with a 2.7% gain, marking its best performance since November.
Technical Analysis: Gaps and Breaks in Focus Amid Stock Volatility
