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U.S. Markets Supported by Dovish Rate Outlook
U.S. markets continue to trade close to record levels and the technology sector has been a primary beneficiary of the market’s enthusiasm. Facebook shares were the early-mover on the trend, even after the company was on the receiving end of negative criticism over how it manages third-party access to user information databases. Reports said political analytics firms collected data on 50 million user profiles without their consent and worked on Facebook ads with President Donald Trump's campaign in 2016.
Recent selling pressure in Facebook shares invalidated market levels that were created during the February 2018 ‘flash’ crashes, and this triggered a break of the neckline in a head and shoulders pattern visible on the yearly charts. That neckline was also the 200-day EMA, and all of this suggests a much deeper retracement in Facebook values. Historical demand is not seen until the low from last September and resistance has moved down to previous price regions.
In the prior declines, Facebook ultimately lost 6.8% (or roughly $40 billion in market value) and the stock’s pre-market drop was largely attributed as setting the tone for the entire trading session. Investors were essentially saying “look out below” as the charts were clearly sending major warning signals. However, the recent recoveries in share prices bode well for the broader NASDAQ Composite Index. Facebook is likely to encounter volatile trading flows for the remainder of the year as long as current trends persist.
Apple, Inc. has seen similar trends, as AAPL completed its best winning streak in nearly nineteen years and the market appears to be convinced that lower interest rates will support the outlook. Apple shares are currently trading at elevated levels long-term - but there is a sideways congestion period nearby that looks vulnerable after the recent break lower. Given the extent of the long-term rally, it is not entirely surprising to see the stock give back some of its gains.
In other financial news, a story in the Wall Street Journal explained that Nike (NKE) is in the process of trying to address and correct a "boys club" culture. With recent earnings missed, its not as if this company didn’t have enough problems, so I tend to view stories like this as a suggestion to sell (given the focus on politics rather than business fundamentals).
In the biotech space, Cidara Therapeutics has been another recent mover in pre-market periods with single-session gains of 14% in one instance (to trade near a 13-month high). The biotech company said its most promising antifungal drug candidate met all of its primary objectives in a phase 2 trial. The results will allow the company to move toward its goals of beginning phase 3 trials in mid-2018. The optimism quickly reversed, however, as selling pressure in the indexes reduced the attraction of small-cap (risky) assets. CDTX eventually closed 24% lower at $6.
Cidara issued its earnings prior earnings results, reporting ($0.69) earnings per share for the quarter, beating the consensus estimate of ($0.74) by $0.05. The stock is threatening to break its all-time lows, and this makes the next round of support levels critically important if a near-term turnaround is going to be seen. Support can currently be seen at 5.60 while resistance levels are now present near 8.80. Traders in biotech stocks may also wish to look at trends in the iShares NASDAQ Biotechnology ETF which lost 2% in recent sessions. The ETF is trading in a consolidation period, and the next break of support or resistance should offer incites in terms of determining the next trend leg. Support levels can now be seen at 102.95, which is the 200-day moving average while resistance levels can now be found at 115.50.
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