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Chart Advisor: New Week, New Highs

Posted October 25, 2021 at 8:10 am
Gordon Scott

Friday, 22nd October, 2021

1/ Indexes end the week with gains 

2/ Intel misses on revenue 

3AT&T’s results fail to inspire 

4/ The bottom line

1/ Indexes End the Week with Gains 

Major averages moved slightly lower but remain close to new highs. State Street’s S&P 500 Index ETF (SPY) set a new record high intraday before pulling back for a marginal loss. Invesco’s Nasdaq 100 ETF (QQQ) fell 0.9%, led lower by Facebook (FB), which fell nearly 6%. iShares Russell 2000 ETF (IWM) fell 0.3% while State Street’s Dow Jones Industrial Average ETF (DIA) added 0.2%.  

While third-quarter earnings continue to be positive overall, today offered the first glimpse of what could happen when a large company’s bottom line is affected by ongoing market concerns, namely supply chain constraints and labor shortages. Snapchat’s (SNAP) revenue miss sunk shares by 26% and had a blanket effect on social media companies. This in turn placed downward pressure on the technology sector as a whole.  

As seen on the chart below, today’s results haven’t arrested the current upward trends of major averages. Some profit taking saw investors rotating out of tech and into safer blue-chip stocks, as evident by the pullback of QQQ versus the continued rise of DIA. However, as these two indexes are either small (DIA) or niche (QQQ), it doesn’t paint the entire picture.  

SPY’s performance could be seen as an indicator of investor confidence in the market, while IWM’s resiliency in remaining in the top half of its upward trending channel could be interpreted as a positive outlook toward continued growth going forward.

2/ Intel Misses on Revenue 

Investors sold off shares of Intel (INTC) after missing revenue expectations in its fiscal third-quarter earnings report. Analysts expected the semiconductor company to report $1.11 in earnings per share (EPS) and $18.24 billion in revenue—INTC reported $1.71 in EPS and $18.1 billion in revenue. The company attributed the weaker-than-expected sales to an industry-wide component shortage for its PC chip business, which shrunk 2% during the quarter. As a result, INTC shares slid 12%.

INTC shares are now trading in a range extremely below its 20-day moving average, as illustrated on the chart below. Despite the selloff, option traders continue to trade call options over puts, as the daily option volume favors calls by nearly 40,000. However, the overall option trend appears to be shifting from bullish to bearish, and the number of puts in the open interest is higher than usual when compared to its 52-week average. 

Even with the large share price decrease, call and put pricing remain relatively equal, after accounting for intrinsic value. This could mean that option traders consider the earnings-based selloff an overreaction and are placing bets that the INTC share price could move higher in the future.  

3/ Snapchat Investors Show Their Disappointment 

Revenue woes didn’t stop with Intel. Snapchat (SNAP) faced a more precipitous fall after earnings when it tumbled 26% after reporting lower-than-expected revenue. SNAP announced $0.17 in EPS and $1.1 billion in revenue for the third-quarter, while analysts had forecast $0.08 in EPS and $1.07 billion in revenue for the company.  

SNAP attributed this to disruptions in its advertising business after Apple (AAPL) introduced privacy changes to its flagship operating system, iOS. The company cited global supply chain interruptions and labor shortages as reducing short-term consumer appetite. The company also offered lower-than-expected guidance for fourth-quarter revenue. 

Option traders appear to be positioning for the stock to move higher after earnings, as 68% of the option volume on Friday were calls.  

4/ The Bottom Line 

Stocks hit new highs and closed in positive territory for the week. Even though companies like Intel and Snapchat got punished by investors for turning in mixed results for their quarterly reports, the market remains bullish. 

Originally posted on 22nd October, 2021

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