Stocks Face Multiple Challenges The Week of June 15
Stocks recovered some on Friday, but face an incredibly challenging week of June 15 with quad witching, and S&P 500 rebalancing.

Stocks Face Multiple Challenges The Week of June 15

June 13, 2020

STOCKS – NFLX, TWLO, HD, AMD, FB

MACRO – SPY

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Apologies for the silent treatment yesterday, it was one of those days, where everything was reshuffled. Regardless, I’m back today, with some thoughts on yesterday. It certainly wasn’t the most impressive rally, given Thursday’s steep decline. 

S&P 500 (SPY)

The index in typical fashion gapped higher by about 2.5% to start the day, only to give it back by mid-morning. The goods news is that the index did test that critical 3,000 level a couple of times throughout the day and held that level for now. A buy imbalance of about $2 billion for the closing cross helped to boost the index into the close and saved the day. 

What I do find kind of interesting is how the S&P 500 managed to retest the uptrend it broke on Thursday and then failed. That could be a sign a further move lower lies ahead. Additionally, the RSI uptrend broke as well, and that is never a good sign. 

S&P 500, spy

Fundamentally, there is nothing to support this market from a valuation perspective. From a liquidity perspective, it seems that QE will continue at a much slower pace then policy outlined in March. That really can spell trouble for an index trading at very high valuation levels.  From a pure PE perspective, assuming a 17 multiple on my 2021 earnings estimates of $157.63, the index may only be worth 2,680. 

Remember, this is not 2019, where we entered the year with a below-average market multiple, and an economy that was growing nicely. This is a market that is trading with a very high earnings multiple, in a very uncertain economy. Even worse, is that there is a tremendous amount of uncertainty around those earnings estimates. 

The S&P 500 enters what could be a wild week, with quadruple witching and the S&P 500 rebalancing. There is a giant gap to fill at 2,860.

S&P 500, spx

Netflix (NFLX)

Netflix does appear to be forming that head and shoulders pattern, which I noted at the end of the week. The stock still needs to fall below $400 to confirm the pattern, but it could open up a more significant move lower towards $360. 

netflix, nflx

Facebook (FB)

Facebook appears to have formed a double top pattern and needs to fall below $218 for confirmation. 

AMD (AMD)

I had thought there was a chance that AMD was forming a cup and handle pattern, and it had seemed the stock broke out on Wednesday. But then it failed at resistance and moved back to support around $52. Now, it could just as easily be forming a descending triangle, and the potential for the shares to fall to $49. 

amd

Twilio (TWLO)

When is this Twilio just going to break already, and move lower? It just keeps hanging around. 

Home Depot (HD)

Home Depot’s pattern broke on Thursday, and the next stop could easily be $220. 

home depot

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