Growth vs value – rotation or ultimate breakdown?

Good morning and welcome back after a long holiday weekend,

On Friday we managed to close the week on a positive note as indices and individual started in red but finished strong. This offered us plenty of opportunities for some quick day trades in names such as $AAPL, $MSFT, $FB and $NFLX. At the same time, from a technical perspective, we can consider Friday’s low a higher one compared to the monthly one. If that is the case, we should expect some continuation this week to the upside. With Nasdaq futures down almost 1% at the time of writing, it will be important to see if the $QQQ defend their monthly low at $369.31. If we break below this level, one can consider any attempts we had last week at bouncing off lows as bear traps or oversold bounces.

From a macro perspective, there is a big debate among analysts covering Wall Street with regards to a multi year rotation from growth to value. In the past few years, value has been completely obliterated while the tech and growth sectors had ‘dot-com’ types of expansions. With the FED entering a new phase of tightening, a lot of analysts expect that such names will no longer be appealing to investors as their high P/E will be difficult to justify in this new environment. Following the same logic, if money comes out of tech, value stocks should be the main beneficiaries given their ‘cheap’ fundamentals.

From our perspective, until we can speak of such a rotation, one has to wait for this current earnings season and the subsequent market’s reaction to it. If tech does indeed post lower than expected results and leader stocks start falling below their 200EMA, we can speak of a crisis for this sector after an impressive decade-long bull run.

Our focus today will be on the tech names given the weakness in the Nasdaq futures. We will look at those stocks that posted impressive reversals on Friday, such as $NFLX, $FB and $TSLA. It will be interesting to see if they manage to hold above the monthly lows and start re-building. A break below will add pressure to the entire sector and ultimately broader market given big tech’s footprint.

$NFLX chart

$NFLX has been battered and bruised in the past few weeks as it lost all key momentum. On Friday, together with the broader market it managed to reverse early losses and posted a decent green candle. The company announced an increase in prices for its subscriptions in the US and Canada which investors should welcome. $NFLX is the first big mega tech company reporting this week on Thursday. We are long the stock from Friday and have some lotto calls for earnings. With the stock down 30% from highs, a pre-earnings run is not out of the question should tech not fall apart.

$FB chart

The social media giant had an impressive day on Friday as it managed to recoup early losses and closed very strong. With futures currently down, this may be a good candidate for a red-to-green cashflow trade. We will be interested in buying $FB above $334 where most exponential moving averages are currently sitting at. Keep in mind that for the broader market, $FB is still considered ‘cheap’ compared to its peers when it comes to valuation.

$TSLA chart

$TSLA is one of the few high-flyers on Wall Street which did not breakdown completely yet. Given its elevated P/E, one would have expected $TSLA to fall very fast in this post accommodating environment. However, the EV leader keeps finding buyers when it approaches key support areas. For today, it we are to open lower, $980-$1000 is the first key support area. For a possible new active sequence, a move above $1064 opens the chart above all momentum lines.

The current market conditions make trading rather difficult and frustrating. Staying less invested and keeping just trailers is the correct approach. The earnings season will be an important tell going forward. Focus on Friday’s strong reversals in order to identify possible red-to-green tactical trades. Path of least resistance is still to the downside for now.

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