The big news last week was the 20% drops for both Facebook and Twitter. The entire tech sector seemed to catch a cold last week. But here’s a little perspective:
Both Facebook and Twitter had been on phenomenal runs for the year (with Twitter nearly doubling). Both companies are reinventing their privacy rules. And both companies are taking on the ‘fake news’ problem.
In short, both companies are modifying their business models — and the impact is significant enough to warrant a re-evaluation by analysts. This appears to be what the markets have done – re-evaluated pricing, and adjusted down for the short-term as these giants figure out how to deal with these new challenges.
Does this contagion spill over to the entire market? A little… particularly because Facebook has grown to a point that it has a material impact on indexes. But does it indicate a systemic problem? Probably not (but we’ll see).
From a technical perspective, the major indexes were still pretty high. The SPX was reaching over-bought territory again heading into its fourth week in a row of gains.
So now what?
It looks like the SPX has backed off from its over-bought status. Now some key levels will be tested, as overnight futures dipped over the weekend before recovering into Monday’s open.
Look for the trading range of 2800 on the low, and 2850 on the high, to be tested this week.
There are a lot of big names to report earnings this week. If the profit numbers are solid, we probably see this market grind higher. It’s still fighting some political headline risk. But the overall backdrop is still stock-favorable.
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