Netflix (NFLX) was the first of the FAANG stocks to report Q4 earnings. The results were roughly in-line with analysts’ forecasts; however the guidance was indigestible for the market! A once beloved stock during the bulk of the coronavirus pandemic is now fading as economies begin opening and people are looking to head outside. The stock lost over 20% as top brass forecasts only 2.5 million new net-subscribers for Q1 vs analysts’ estimates of 5.8 million. Will other large S&P 500 companies, especially the “stay at home” stocks, follow suit when their earnings are released over the next few weeks?
In addition, traders are concerned about the end of bond purchases by the Fed and the impending interest rate hikes. Higher rates discount the value of future cash flows, which would fundamentally lower stock prices and the S&P 500 as a whole. And what about all the supply chain issues? They are still out there, thus traders are concerned about the impact to the bottom line.
All of these issues propelled the S&P 500 to its biggest intraday selloff on January 20th since the beginning of the pandemic. However, the index began moving aggressively lower a few weeks back, after making new all-time highs on January 4th. The S&P 500 is currently off 8% from those all-time highs after breaking through the 61.8% Fibonacci retracement from the lows of October 1st 2021 to the January 4th highs, near 4481.5. Price has recently breached the 200 Day Moving Average at 4439.9 and is at horizontal support near 4431.8. Will a quick breach of these levels allow for a bounce? The next support level on the daily timeframe is near 4377. Notice that the RSI is in oversold territory below 30, an indication that the S&P 500 may be ready for a bounce.
Source: Tradingview, Stone X
On a 240-minute timeframe, as well, the RSI is severely diverging with price. If price is to bounce, resistance is at previous lows near 4492.2 and then the confluence of a downward sloping trendline and the horizontal resistance near 4538. Above there, resistance is at the January 20th highs of 4603.4. However if price continues to fall, as mentioned on the daily timeframe, first support isn’t until 4377. Below there is the 161.8% Fibonacci extension from the low of December 20th, 2021 to the all-time highs, near 4364.2 and then additional horizontal support at 4327.7 and 4272.2.
Source: Tradingview, Stone X
With lowered guidance from Netflix and increased worries about rising interest rates, traders are worried. Was the 8% selloff in 17 days too much, too fast, for the S&P 500? The RSI is indicating the possibility for a bounce. But with the additional earnings and an FOMC meeting next week, there may be more volatility ahead for the large cap index!
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