And, just like that, we're testing Nasdaq 14,700 again.
It's actually a good thing to test the bounce line from above – it can help give us confidence it will hold and, if it doesn't – back to bearsh very quickly for our portfolios! As we expected, the quick market rally had built a real house of cards in the indexes and it only took a miss from one major company (FB) to knock the whole thing down.
Don't forget we're expecting a weak NFP Report tomorrow morning so we'll see how brave today's dip-buyers are going to be. FB dropped $175Bn in value overnight as the company said it expects growth to slow after the pandemic (duh). Note they haven't said it would decline – which is more likely to happen. Meta cited inflation as a weight on advertiser spending and estimated that ad-tracking changes introduced by Apple Inc. last year would cost Meta some $10 billion this year. They also lost about a Million daily users globally and stagnated in the U.S. and Canada, two of the company’s most profitable markets.
During the call, Zuckerberg and other executives repeatedly emphasized that Meta faces stiff competition from TikTok for users’ time, particularly the younger demographic. Facebook’s business under pressure on a number of fronts at a moment when Zuckerberg is betting the company’s future on VR headsets, AR glasses and virtual worlds, known as the Metaverse, in which users can live and work. On the whole though, the company reported a $10.3 billion profit for the fourth quarter, only slightly below analyst expectations of $10.9 billion but, as I keep saying, these valuations are unsustainable in the face of reality:
Lost in the headlines of Meta's miss is Amazon (AMZN) being hit by labor shortages and supply-chain issues and they will be reporting this evening. God help us all if they disappoint! It is already expected that earnings will be down to $3.63 per share vs $14.09 last year – anything worse than that can give us another huge sell-off. AMZN accounts for 41% of all on-line sales but, of course, people getting out of the house again is not going to help their business, nor is inflation that eats into their retail profits (since they generally don't control the products they ship). That makes them especially vulnerable to rising labor and shipping costs, as it's hard for them to increase the fees they charge their B to B customers. This is also where Prime bites them in the as it includes shipping and it's annual so, even if they raise the price on renewals, it will take 12 months to roll everyone into the new pricing.
Amazon executives said the company would spend roughly $4 billion in the fourth quarter to deal with higher freight and shipping costs, labor shortages and global supply-chain challenges. Amazon has boosted its pay for workers to an average of $18 an hour and offered sign-on bonuses of as much as $3,000 in some areas.
Despite higher pay, the company continues to deal with unionization campaigns. Union organizers have pledged to push Amazon to alter its working standards for hourly warehouse associates in areas such as work-pace requirements and breaks. Amazon has said it is trying to listen to its workers better and has added to benefits and safety training.
Once again, we have a great example of why we don't get excited about these bounce rallies until we clear our chart zones. This morning we have lost two green boxes on the S&P and the Dow is our last hope – holding 35,000 so far but the Dow is a stupid, meaningless index – so not really helping in the big picture:
- Dow 36,000 to 34,200 has bounce lines of 34,560 (weak) and 34,920 (strong)
- S&P 4,700 to 4,465 has bounce lines of 4,512 (weak) and 4,559 (strong)
- Nasdaq 16,500 to 15,675 has bounce lines of 15,840 (weak) and 16,005 (strong)
- Russell 2,400 to 2,080 has bounce lines of 2,144 (weak) and 2,208 (strong)
   
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The S&P is at the inflection point on the weak bounce line and we'll watch that closely. We crossed 14,700 on the Nasdaq in pre-market, which puts our broader bounce chart back in play as we can't count a successful rally unless the market stays above it for two full sessions but we won't count the pre-market dip if the Nasdaq can stay over 14,700 once the volume comes in. Then it will be all up to AMZN this evening.
Thank God for hedges, right?
