Selling in China spilled over to U.S. markets Thursday and caused some steady pressure, but the bears were unable to build on the weaker action. Breadth improved during the day and ended about two to one negative as small caps showed some relative strength. The biggest problem area was the Nasdaq 100 (QQQ) and that problem may continue following Netflix's (NFLX) earnings report.
Netflix earned $1.59 per share in the second quarter vs. estimates of $1.81. The company added 10 million new subscribers and expects to be close to break-even cash flow. The market is disappointed and the stock is down around 9%.
This is an interesting development heading into reports for other FAANG names that have been seen as safe havens from the Covid-19 crisis. If the ultimate "stay at home" stock, Netflix, can't deliver then who will?
Under the mixed action in the indexes today, there continues to be very good trading action in small caps. While the timers are worried about the indexes, the traders are still feeling quite positive and are not hesitating to chase select stocks.
Next week earnings season begins in earnest, and we'll see if the reaction to Netflix is a one-off or the start of a theme. Many bears have made the mistake of thinking that the market would produce some "sell the news" reaction to earnings, but the conditions are certainly good for some selling into the news.
For now, it is still a stock picker's market and not even Netflix is likely to change that issue.
Have a good evening. I'll see you tomorrow.