Stocks Trying To Hold On To Thursday’s Surge In Wake Of Disappointing Jobs Report

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Key Takeaways:

  • Stocks Index Futures Slide on the November Employment Situation Report
  • Stocks Battle Back, Snapping a Two-Day Losing Streak
  • Stock Prices Are a Battle of Supply and Demand for Shares

The November Employment Situation Report saw the economy add 210,000 jobs, which was much lower than the forecasted 550,000. Despite the low number, the unemployment rate came in at 4.2%, lower than the forecasted to be 4.5%. The labor force participation rate rose to 67.8% from 61.6%. The S&P 500 index futures fell slightly on the news as it gets harder to tell how the Fed may react to the report when it comes to accelerating their tapering plans.

Before the jobs report, equity index futures were relatively calm and flat despite five cases of the Omicron variant being identified in New York. CNBC reported that the FDA is gearing up to review and approve vaccines that are updated for the Omicron variant at a faster rate.

Looking at individual stocks, chipmaker Nvidia

(NVDA) was looking to buy Arm Holdings but the deal is being blocked by the Federal Trade Commission (FTC). The FTC claims that the acquisition of Arm could distort Arm’s incentives to undermine Nvidia’s rivals. The block wasn’t a complete surprise, which may why Nvidia is down just a little bit before the opening bell.

Troubled real-estate company Zillow

(Z) was rallying more than 10% on news that the company is finding success in unloading its house-flipping inventory at a faster rate than expected.

Elon Musk, the CEO of Tesla

(TSLA), sold another billion dollars’ worth of his company stock. According to The Wall Street Journal, this takes his total Tesla selling spree above $10 billion over the last two months. Mr. Musk said he was planning on selling 10% of his stake in the company, but it’s difficult to tell exactly how he values his ownership, so there could be more selling to come.

On the positive side, the Cboe Market Volatility Index (VIX) is back under 27, which suggests that investors are a little less fearful. What the VIX does on Friday could be a preview for what investors are planning for the next week.

After Thursday’s close, Marvell Technologies (MRVL) and Ulta Beauty (ULTA) announced better-than-expected earnings and revenues. Marvell rallied more than 11% in after-hours trading, and Ulta rallied 5.57%. The announcements came on the heels of a strong up day for stocks.

However, stunning earnings news came from Docusign (DOCU), which dropped nearly 30% in after-hours trading. The company actually beat analysts’ estimates for earnings and sales but fell well short of the company’s own targets. During the earnings call, CEO Don Springer said that the change in business environment is coming quicker than expected. Docusign was a beneficiary of the pandemic lockdown because it allowed contracts to be signed and shared at a safe distance. However, business is returning to normal, and Docusign appears to be feeling it.

The bulls pushed back hard on Thursday in response to Wednesday’s late-day sell-off with the S&P 500 (SPX) rallying 1.42%. An interesting mix of stocks led the rally, starting with grocer Kroger

(KR), which rallied more than 11% after beating earnings estimates. It was followed by travel and leisure stocks Carnival (CCL), Delta (DAL), Caesars (CZR), and Wynn (WYNN). Industrials, energy, and financials were the top-performing sectors in the S&P 500, but food retail, airlines, and casinos and gaming were the top industry groups.

Despite the broad rally, technology and internet icons like Apple

(AAPL), Microsoft

(MSFT), Tesla (TSLA), (AMZN), and Meta (FB) all traded lower. However, fellow icon and FAANG stock Alphabet (GOOGL) did separate from the group to trade higher.

Retailers didn’t rally as much as other stocks, and a few retailers closed lower on the day. Dollar General (DG

) fell 3.24% despite topping earnings and revenue estimates. Rising operating costs cut into the company’s profit margins, which has been a common theme in many retailer earnings reports. Dollar General wasn’t alone; retailers like Walmart

(WMT), Costco (COST), Dillard’s

(DDS), and Signet Jewelers

(SIG) also traded lower on the day.

Drawing Battle Lines

The war of the bulls and the bears has a couple of battle lines that may not be ceded easily. The S&P 500 broke below its August high and its 50-day moving average on Wednesday. However, the bulls pushed back hard and drove the S&P 500 back above these resistance levels. As I’ve said before, I’m not much of technical analyst, but these lines are helpful in identifying where buyers and sellers are. In the last week, sellers have pushed stocks lower, but it appears the sellers have met a broader level of buyers. Now, it depends on how many investors are on each side. If more sellers appear, they could overwhelm the number of buyers and push prices lower. If more buyers appear, they could overtake the sellers and push prices higher.

Because there are so many things that can influence a stock’s price, we sometimes forget that it really comes down basic supply and demand. Additionally, there are many different terms that make discussions confusing. Bulls and buyers are different ways of saying high demand. Bears and sellers are high supply. But a benefit of charts is that they help identify areas where these groups are hanging out, no matter what you call them.

The battle of bulls and bears is what is called price discovery. As the forces of supply and demand wrestle, a price is determined. Tomorrow, will be a new battle.

CHART OF THE DAY: NO MAN’S LAND. The S&P 500 (SPX—candlesticks) has bulls and bears drawing battle … [+] lines across the 4545 level and the 50-day moving average.

Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform.

Subjective Value: Stock analysts use different techniques to try and determine the current and future value of a company. These include models like discounted cash flow, dividend discount, comparable company analysis, and bottom line. Many of the variables can change depending on what the analyst chooses to use as inputs. In the end, most analysts have learned similar models and use similar assumptions. This is one reason why there may be so many buyers or sellers at certain levels. Analysts and money managers are using the same models with similar inputs.

Of course, there are many reasons to buy and sell a stock outside of just valuation formulas. And new information, such as the loss or gain of a major client, could result in a change of valuation. Thus, the value of a stock can be subjective to many investors, which is one reason why you can see buying and selling at various prices and not just at certain valuation prices.

Accumulation & Distribution: Many money managers buy or sell an investment position that could be millions or even billions of dollars. When dealing with positions of this size, managers must be careful on how they buy or sell shares because if they put a lot of buy orders in at one time, the price of the stock will shoot up, and they’ll get various orders filled at prices well above what they had hoped.

So, what these managers do is accumulate or distribute a little at a time, allowing the ebbs and flows of the market to help them get a better price. The savviest value investors will often start buying as a stock nears its downtrend and creates what’s called a basing pattern. This is usually a time when the stock’s price moves in an oscillating sideways pattern. Others buy on the way up, but then stop and allow the stocks to pullback a little before buying more. This is one reason many stocks have that staircase effect during an uptrend.

Thinking about your own trading, this is why we often talk of doing smaller trades at various price points, rather than “all in or all out”.

Clumsy Language: When talking about buyers and sellers, investors can be a bit clumsy with their language. There really aren’t more buyers or more sellers. There’s always the same number of buyers and sellers or the trades can’t take place. What we really mean when we talk like that is there was a rush of demand and the price had to rise in order to find sellers to meet all of the buy orders. Or there was a rush of supply and the price had to drop in order to find enough buyers to fill the sell orders. In other words, more aggressive buyers or more aggressive sellers.

While the language isn’t precise, you can still get what the person is saying. So, if you’re tuning into a financial network or webcast, it’s easier to follow along if you understand the long and the short of what they’re saying.  

TD Ameritrade® commentary for educational purposes only. Member SIPC.