Cloud divergence

01/19/22
  • Snowflake (SNOW) rallied most of Tuesday despite heavy tech selling
  • Stock bounced last week after falling to five-month low
  • Will traders use spike low as risk point?

One thing about days like Tuesday: When the tape is so overwhelmingly red, it makes the spots of green that much easier to see.

Traders often move in for a closer look whenever a stock diverges from a strong move in its industry, sector, or the broad market. Sometimes the reason for the departure is an easily identifiable, isolated event, such as an earnings release or merger. But the absence of an obvious catalyst is potentially more interesting, since it may highlight a sentiment or momentum shift.

Midday yesterday, for example, cloud data platform Snowflake (SNOW) was trading in positive territory, holding above last week’s five-month low of $273.83:

Chart 1: Snowflake (SNOW), 12/30/21–1/18/22. Snowflake (SNOW) price chart. Trading green on a red day.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)


That may seem like a modest bit of bullishness (the stock later dipped into the red), but at the time the S&P 500 (SPX) was down around 1.7% and the Nasdaq 100 (NDX) tech index was down more than 2%, and on its way to its lowest close in three months.

Traders may also have noticed SNOW rebounded on January 10, erasing an -8.6% loss to close higher on the day—the type of intraday pivot that sometimes highlights “flush-out” moves, where sellers bail out of a market and leave bulls in charge, at least temporarily.

A longer-term chart shows SNOW has fallen around 30% from its November record highs above $400 (much more than the NDX), retracing around 60% of its March–November 2021 rally in the process:

Chart 2: Snowflake (SNOW), 4/27/21–1/18/22. Snowflake (SNOW) price chart. Retracing the rally.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)


Five days later SNOW is still above that January 10 low, a level some traders may treat as potential support—i.e., they may see the bulls as having the upper hand as long as prices remain above that level, while a breakdown below it could suggest the retracement hasn’t run its course.

While it’s unrealistic to expect any company to avoid sustained, market-wide selling, when a stock parts ways from its peers, traders tend to take notice.

Market Mover Update: Another stock that bucked yesterday’s trend was Carvana (CVNA), which rallied more than 8% intraday to reverse a three-day slide (see “Hit the gas or pump the brakes”). March WTI crude oil futures (CLH2) pushed above $85/barrel as the market hit its highest levels in two years.

Today’s numbers include (all times ET): Housing Starts and Building Permits (8:30 a.m.).

Today’s earnings include: Procter & Gamble (PG), Fastenal (FAST), Morgan Stanley (MS), U.S. Bancorp (USB), UnitedHealth Group (UNH), Alcoa (AA), United Airlines (UAL).

 

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