The timing of that late surge of demand across financial markets on Thursday was absolutely extraordinary. In this very column, 24 hours ago, I touched on the fact that the Nasdaq Composite had been put in the position of defending its own 50 day SMA (simple moving average) for a couple days. I went on to illustrate how Cathie Wood's ARK Innovation ETF (ARKK) had similarly spent days feeling around for support at the fund's 200-day SMA. All of this was ahead of Friday morning's expected release of April data for job creation and the entire employment situation.
To press the tech sector and growth names further, Apple (AAPL) app store executive Matt Fischer was put in the position of mounting the firm's defense in an Oakland, California, courtroom in an antitrust case brought by Epic Games. Fischer had to show that Apple's app store, a business estimated to provide in the area of $15 billion to $18 billion in annual sales, was not engaging in anti-competitive behavior. This, after new data released by Sensor Tower earlier this week had shown that the app store's revenue growth had slowed in April from March at Apple, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust.
The Sensor Tower report had provoked Morgan Stanley analyst Katy Huberty to cut her current quarter estimates for both the app store specifically as well as more broadly Apple's entire service sector. Evercore ISI analyst Amit Daryanani also made note of the app store deceleration of growth, citing gaming revenue as the numbers lap 2020's regional economic shutdowns. Key for us to note is that both Huberty and Daryanani are extremely highly rated sell-side analysts who both rate AAPL as (their employer's version of) "buys" and both have lofty (from here) price targets on the shares.
All that said, the shares of Apple flirted with their own 50-day SMA for a third consecutive day, as did the Technology Select Sector SPDR ETF (XLK) . So, to paint this picture: Just as the cavalry arrived, the Nasdaq Composite was actually trading below the 50-day SMA for that index as late as 15:11 ET, and Cathie Wood's ARKK did surrender that 200-day line, but importantly did make a successful defense at the lows of early March.
I do not think the peripheral or casual follower of the financial marketplace understands how close "we" came to a technical breakdown due to some kind of algorithmic avalanche late on Thursday afternoon. This is certainly lost on the financial media who have swung and missed as if they were one, on this market story. I have read nothing, and seen nothing anywhere. Do we thank Fischer? Do we thank the Bureau of Labor Statistics (BLS)? I guess we'll know more in a few hours. Those numbers will provoke an algorithmic reaction of their own, and many economists are projecting more than one million jobs created for April.
I have seen estimates creeping higher all week, and I know of one estimate for more than two million Non-Farm Payrolls. As you can see below, my estimate is for 964,000 new jobs, in part due to the mild disappointment in the ADP (Private) Employment Report on Wednesday, though often the ADP and BLS do not jive from one month to the next. My inner trader cautions that if I am right, and this morning's number does print below a cool 1 million in filled positions, that high-speed algorithms will force an overreaction in equity index futures markets at that time.
What we will not know is whether good news will be good news for markets, or vice versa. What we know already is that these very same algorithms rode to the rescue across the entire tech/growth space late on Thursday. Yes, these are four charts and I know a lot of financial authors rely upon charts to take up space, but I want this to sink in, so please bear with me....
What You Need to See (Thursday's Close Shave)
Apple felt around for support as it has for three days at its-50 day SMA....
While the ARKK ETF gave up the 200-day SMA and had to be pulled away from levels not seen since the lows of this past March.....
More broadly, the XLK Tech Sector SPDR hit the 50-day line for the second time in three days....
...and the Nasdaq Composite not only pierced the thin blue line (50-day SMA) but had to be pulled from the brink for a second time in three days.
Cool story, bro.... Nobody cares, Sarge. Apparently not.
Equity markets, or at least the entire tech/growth side of the marketplace, which punches far above its class in terms of market cap, came within a whisker of an epic algorithmic reaction to a break in the most broadly held single stock, two closely watched 'high-profile" exchange traded funds, and one of the two (there really are only two, almost no professional capital tracks the Dow) major large-cap equity indices.
The fact is that while the S&P 500 closed near enough to all-time highs, the now just slightly disrespected Dow Industrials did set a record. The Nasdaq indices managed to close in the green for a change; however, market breadth was not all that impressive. While winners beat losers at the Big Board and advancing volume beat declining volume on increased aggregate trading volume, new highs are contracting while new lows (still 1/10 of new highs) are expanding. Up at Times Square, despite the misleading green finish, losers beat winners and declining volume beat advancing volume on increased aggregate trading volume. New lows here are picking up steam (very) rapidly as well. In short, if one could not see headline performance but could still see the market's internals, that individual would have sworn that the Nasdaq indices had shaded red for a fifth consecutive session.
In Other News...
1) In the Federal Reserve's semi-annual financial stability report, the central bank warns that "existing measures" of hedge fund leverage "may not be capturing important risk." Ya think? The Fed apparently acknowledges that some asset valuations have reached levels "elevated relative to historical norms." (Not a word, or at least I haven't found anything on the Fed's role in making historical norms completely irrelevant.) On the cheery side, the Fed does note that U.S. "banks remain well capitalized, and leverage at broker-dealer is low." Phew.
2) You may have noticed that the COVID-19 vaccine producers as a whole did find support on Thursday, despite having taken badly the Biden administration's support of the World Trade Organization's proposal for waiving intellectual property protection rights in an effort to get more jabs in more arms more quickly around the emerging and frontier worlds. Both German Chancellor Angela Merkel and Dr. Michelle McMurry-Heath, who is chief executive of the (industry group) Biotechnology Innovation Organization, expressed viewpoints in opposition to the proposal. Both leaders expressed either the complications involved or the time spent building out vaccine production capabilities in less well-funded nations. It may be key to note here that Pfizer's (PFE) collaborative partner in the development of that particular vaccine, BioNTech (BNTX) , is a German operation, and McMurry-Heath is thought to be under consideration by the Biden administration to lead the Food and Drug Administration.
3) Interesting Thursday night for Peloton Interactive (PTON) . Just after the closing bell, PTON reported a smaller loss than expected on massive revenue growth that beat expectations. The stock plummeted. It was not until during the call, when the firm guided full fiscal year revenue to $4 billion, down from $4.075 billion, that traders piled into the stock. Obviously, with the whole recall debacle very much front and center, investors either expected worse or expected to see no guidance at all. The stock not only took back all the after-hours losses but I saw a last sale of $89.48 early Friday morning, up almost $6 from Thursday's close and more than $11 higher than the overnight low.
April Employment Situation (08:30 ET)
Non-Farm Payrolls: Expecting 964K, Last 916K.
Unemployment Rate: Expecting 5.7%, Last 6.0%.
Underemployment Rate: Last 10.7%.
Participation Rate: Expecting 61.8%, Last 61.5%.
Average Hourly Earnings: Expecting 4.2% y/y, Last 4.2% y/y.
Average Weekly Hours: Expecting 34.9, Last 34.9 hours.
Other Economics (All Times Eastern)
10:00 - Wholesale Inventories (Mar): Expecting 1.4% m/m, Last 0.9% m/m.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 342.
15:00 - Consumer Credit (Mar): Last $27.58B.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (ES) (1.09)