Tesla Improves the Market Mood, But Will It Hold Up?
It's a tricky trading environment with stocks still holding key resistance levels, but limited upside momentum.
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The market mood improved on Thursday morning following a better-than-expected earnings report from Tesla TSLA. Tesla is trading up more than 10% after posting strong EPS and margins. Elon Musk announced that he expects to launch robotaxis in Texas and California next year.
While Tesla is likely a company-specific event that may not indicate strong fundamentals elsewhere, the Magnificent names are all higher after a thumping on Wednesday. The action on Wednesday, which was triggered by worries about interest rates, warned of a possible market rollover.
The major indexes are still holding key technical levels, but they are being tested as the Goldilocks economic narrative loses some of its luster. The primary problem is that the strength of the economy, combined with the growing odds of a Trump victory, is creating an uptick in interest rates and concerns about a rebound in inflationary pressures. There is still a very high likelihood of two more quarter-point rate hikes in 2024, but hopes of an aggressively dovish Fed are receding.
The Tesla report will likely increase expectations for major technology reports next week. So far, earnings season has been fairly strong, but the indexes have not been able to make much progress. The big test will come next week when we start to hear from companies such as Microsoft MSFT and Meta META.
It is a tricky trading environment because stocks are still holding key resistance levels but have limited upside momentum. It has been choppy and sloppy action for a while and has been very tough for position traders with shorter time frames.
The good news is that there are more pockets of speculative trading. The market is no longer driven by narrow strength in the meg-cap technology names. It is a better environment for stock pickers, but it is still necessary to be very selective.
The test Thursday will be whether the indexes can hold on to early gains. I want to stress again that it is the close that is the key. A couple of closes at the lows of the day will completely change market sentiment, but so far, that is not happening.
Watch the morning gap and see how well it holds up after the open.
At the time of publication, Rev Shark had no positions in any securities mentioned.
