Investors should follow the action of the major averages and leading stocks. So what did they tell us on Thursday? 1. The dollar is a big market driver, especially for multinationals. 2. Apple (AAPL) and a slew of iPhone-related stocks continue to lag and break key technical levels. 3. Overnight trading is not always confirmed in the next day’s regular-session trades.
S&P 500 index futures rose 0.2% vs. fair value. Nasdaq 100 futures advanced 0.35%.
Dollar Drives Stocks
Stocks opened higher in Thursday’s market trading in part on overnight comments by Treasury Secretary Steven Mnuchin that “a weaker dollar is good” for U.S. trade, sending the greenback to a fresh three-year low. But President Trump told CNBC on Thursday afternoon that Mnuchin’s comments were taken out of context and he sees the dollar strengthening. That sent the dollar higher, closing little changed. The major averages pulled back on Trump, then steadied at the close along with the currency.
A weaker greenback makes U.S. exports more competitive and flatters companies’ overseas profits in dollar terms. So shares of U.S. companies with big exposure to foreign markets tend to do better with a falling dollar.
Apple, iPhone Ecosystem Struggle
Apple’s relative weakness has been a steady theme in the evening Stock Market Today column. A day after falling below a recent flat-base buy point in heavy volume, Apple slid 1.8% to 171.11 on mounting concerns over iPhone X demand. The stock closed modestly below its 50-day moving average. Meanwhile, the relative strength line, which tracks a stock’s performance vs. the S&P 500 index, slumped to its worst level since July. (The RS line is the blue line in the chart below.)
That underperformance is magnified by the action of iPhone-related stocks.
Broadcom (AVGO) fell below its 200-day moving average for the first time in nearly two years, joining fellow iPhone chipmakers Skyworks Solutions (SWKS) and Qorvo (QRVO). All three stocks’ RS lines are at 52-week lows.
Universal Display (OLED), which makes technology used in making OLED screens for high-end phones like the iPhone X and other devices, tumbled 5.7% to 168.25. That’s part of a 19% five-day sell-off, plunging Universal Display below a buy point and its 50-day moving average. That follows another failed OLED-related breakout: laser maker Coherent (COHR).
Extended Trading Isn’t Regular Trading
There’s an old Russian proverb that morning is wiser than the evening. That’s certainly something to keep in mind with after-hours action. In the midst of earnings season you’ll see dozens of stocks soaring or tumbling after the market close or before the opening bell. Sometimes that carries over to the next regular trading session, but sometimes the action is radically different.
There are many reasons why. Extended trading, even when relatively heavy, is thin compared with activity in regular exchange hours. Investors may miss key details initially that are picked up on later. Companies sometimes hold conference calls the next morning or after the opening bell.
In late trading Wednesday, Lam Research (LRCX) and Xilinx (XLNX) rallied on earnings and looked set to at least test buy points. But after opening higher, the chip stocks reversed sharply lower, both closing down about 5%.
Keep that in mind ahead of Friday’s regular session. Several different chip stocks, including industry giant Intel (INTC), rallied in extended trading on their earnings reports. That’s a hopeful sign for Friday’s session, but no guarantee.