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Amazon (AMZN) and Alphabet (GOOGL) are trading at new all-time highs this morning following very strong earnings reports. Analysts are raising price targets and many market players are expressing amazement at how companies of this size and maturity can produce such exceptional growth. (Amazon is part of the Trifecta Stocks portfolio and Alphabet is part of Jim Cramer's Action Alerts PLUS charitable trust; the two companies are the object of Cramer's attention in his opener this morning.)
Early indications are that the Nasdaq 100 ETF (QQQ) , which is mostly comprised of big-cap technology names, will gap up to start the day, but the big question is whether these stellar reports are going to have a sympathetic impact that takes the entire market higher.
Unfortunately, AMZN and GOOGL haven't always been strong leaders, and there are other earnings reports that are tempering enthusiasm. Intel (INTC) , Starbucks (SBUX) and Microsoft (MSFT) all are indicated down in the pre-market. (Starbucks also is part of the Action Alerts PLUS portfolio.)
The issue the market must deal with is that while AMZN and GOOGL are obviously great companies, what is good for them isn't necessary good for the broader market. They are unique and when they do well it doesn't mean that other technology or retail stocks are doing well. Indeed, AMZN has been destroying bricks-and-mortar retail and the numbers last night merely confirm that fact.
After the big market gains on Monday and Tuesday the indices have been consolidating for the last two days. That is a good setup for another leg higher, especially with end-of-the-month window-dressing pressures coming into play.
The Nasdaq 100 has been outperforming lately and the FANG names in particular have done much of the heavy lifting. It is another potential "sell the news" setup for the bears, but as I've discussed all week that trading approach has been a tough play. There was no "sell the news" on the tax policy announcement, and the FANG names have a tendency to stay strong after good reports.
The main focus today is going to be sector rotation. The Dow Jones Industrial Average is indicated down, big-cap technology is indicated up, oil is up, semiconductors are down and small-caps are trying to hold.
The FANG names have been leaders for a while and their earnings news is a good illustration of why. The problem is whether their strength is going to help he remainder of the market. AMZN and GOOGL are great companies and have posted great reports, but are they leaders?
It is an important day for the market. A reversal after a gap-up open on good news is the sort of thing the bears want to see. In the early going market players are rather skeptical about how good this earnings news really is for the overall market.