Another Emotional Week, But Tech Giants Like Apple Try to Hold

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Another Emotional Week, But Tech Giants Like Apple Try to Hold

Stocks crashed again last week, but it could have been a lot worse.

At one point, the S&P 500 was down more than 16 percent because of coronavirus. If the index had remained there, it would have been the second-biggest drop since at least 1950.

But then a combination of short-covering and government response kicked in. Sellers disappeared with the market back to its early-2019 level. The Federal Reserve kept the liquidity flowing as Republicans and Democrats prepared relief measures.

S&P 500 daily chart, with 50- and 200-day moving averages.
S&P 500 daily chart, with 50- and 200-day moving averages.

That triggered a dramatic turn on Friday afternoon as buyers stampeded back into stocks. By the time the dust settled, the S&P 500 ended the week down 8.8 percent. Every major sector declined, although key technology stocks did much better than the rest of the market.

Apple Barely Falls

Apple (AAPL), for example, declined less than 4 percent. Microsoft (MSFT) fell less than 2 percent. Both remained above their 200-day moving averages. The same was true for Advanced Micro Devices (AMD), Nvidia (NVDA) and Tesla (TSLA).

Apple (AAPL) daily chart, with 50- and 200-day moving averages.
Apple (AAPL) daily chart, with 50- and 200-day moving averages.

That shows investors didn’t mass-liquidate the market’s most important technology stocks.

The greatest pain was felt by fossil-fuel companies like Apache (APA), Occidental Petroleum (OXY) and Halliburton (HAL). Each dropped more than 40 percent. They were already hurting from weak global demand. Then coronavirus halted global travel and Saudi Arabia boosted oil production.

Throw in heavy debt loads, and firms across the energy sector are at risk of going under.

Coronavirus: The Ultimate Black Swan

The current market volatility is unlike any other in history because it lacks a financial or economic cause. Most significant selloffs before resulted from recessions, rate hikes or buyer exhaustion.

This drop occurred as economic numbers improved and the Federal Reserve shifted toward lower rates. There were also few signs of buyer exhaustion because the S&P 500 only broke out to new highs in late October.

Coronavirus is a true aberration because it emerged so quickly and has no recent precedent. Governments are improvising painful solutions — like banning travel and gatherings — that make recession a near-certainty.

Investors should realize this is truly an unusual time. Forecasting models are mostly irrelevant because we can’t guess what might happen.

Halliburton (HAL) daily chart, with 50- and 200-day moving averages.
Halliburton (HAL) daily chart, with 50- and 200-day moving averages.

This creates opportunities for short-term traders, especially those using futures. However, longer-term investors should realize how risky and volatile this market is.

The uncertainty won’t last forever. But for now, things might still need to get worse before they get better.

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David Russell is VP of Market Intelligence at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.