A Big Test Awaits This Market — And Landmines Are Likely Lurking

The market gapped higher on Thursday morning due to good news from Taiwan Semiconductor TSM, but the gains did not hold, and the S&P 500 closed flat for the day. There was some rotational action out of the Russell 2000 IWM and into the Nasdaq 100 QQQ and Magnificent Seven (MAGS), but it was fairly mild. Breadth was 4,000 gainers to 5,250 decliners, and there were around 1,000 new highs.

The market looks like it is doing some churning and consolidating as investors prepare for the onslaught of earnings season in the next couple of weeks. The charts remain technically strong, and there are no indications yet of a change in trend.

Netflix NFLX reported earnings after the close, and it is trading about 3% higher. There was some upside to estimates and positive comments about progress in its advertising business. The test for Netflix will come Friday after analysts update estimates and targets. We will see then if there is a sell-the-news inclination.

Next week will be a much tougher test for the market when big-cap technology earnings start to hit. With the indexes hovering near all-time highs, there is not much room for a miss, and even a good report may trigger a negative reaction if expectations are too high. There are very likely to be some landmines lurking.

I continue to look at the way that small-caps are acting, and I’m hoping that some consolidation at this point will provide a foundation for more upside. It will be helpful if the inclination toward rotation continues.

Have a good evening. I’ll see you Friday.

At the time of publication, Rev Shark had no positions in any securities mentioned.