Dow Jones Outperforms Wall Street Peers as Netflix’s Collapse Drags Tech Shares
US STOCKS OUTLOOK:
- Dow Jones advances, S&P 500 finishes the session mostly flat
- Nasdaq 100 sinks as Netflix catastrophic slump drags the technology sector
- The stay-at-home trade looks increasingly less attractive as people seek high-contact activities amid improving pandemic conditions
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The Dow Jones Industrial Average outperformed the other two major averages on Wednesday, rising 0.72% to 35,160, its best level since late March, supported by a strong advance in shares of Goldman Sachs, Home Depot, and IBM. The S&P 500, for its part, was largely flat, finishing the day at 4,459 points.
Meanwhile, the Nasdaq 100 posted sharp losses, down 1.49% to 13,998, amid widespread weakness in the tech space, after Netflix's historic stock price plunge, triggered by disappointing results, led to a reallocation of portfolios. For context, the streaming service provider (NFLX) plummeted 35% after the company unexpectedly shed a net of 200,000 subscribers during the first three months of the year and said it expects to lose a further 2 million users during the current quarter. The pessimistic guidance reverberated across the technology sector, but hit especially hard other firms in the same or related business, including Disney, Roku and even Meta, Facebook’s parent.
As the healthcare crisis improves, mobility normalizes to pre-COVID19 levels, and people begin to leave their homes more often to engage in high-contact activities, demand for services and products offered by stay-at-home stocks will decline further, substantially reducing their profit growth potential. This is a significant threat for the likes of Netflix, Roku, Peloton, Zoom, etc. in the medium term.
The question now being asked by the retail crowd is whether NFLX's woes will translate into investor aversion to the tech universe and, in turn, the S&P 500 or Nasdaq 100 underperformance. In the grand scheme of things, some of NFLX's problems are idiosyncratic and may not necessarily apply to other companies in the sector. While NFLX has a large weighting in the major Wall Street indices and may skew their behavior from time to time, it is not as important as other heavy hitters such as Apple, Microsoft, Amazon, Tesla, Alphabet and Meta.
To better assess the near-term outlook, traders should focus primarily on the names just mentioned by examining their quarterly results and, more importantly, their profit guidance for the coming quarters. If these firms report positive numbers and offer constructive commentary on the road ahead, the S&P 500 and the Nasdaq 100 could remain on a recovery path in the near-term.
DOW JONES TECHNICAL ANALYSIS
After decent gains on Wednesday, the Dow Jones accomplished a notable feat – it broke above cluster resistance and reclaimed its 200-day moving average. The index, however, fell short of printing a new higher high and overtaking the March peak, a sign that bullish momentum is not yet strong enough. While sentiment appears to be on the mend, bulls need to clear the 35,350 area decisively to convince traders on the fence to jump back in. If we do see a move above this resistance in the coming sessions, buying interest could accelerate, paving the way for a move towards 35,820, followed by 36,550.
On the flip side, if sellers return and regain control of the market, initial support appears at 34,955. If this floor is breached, the index could correct lower and head towards its 50-day SMA. On further weakness, the focus shifts down to the 34,100 zone.
DOW JONES TECHNICAL CHART
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---Written by Diego Colman, Contributor