Stay-at-home shakeup

11/10/20
  • Many stay-at-home stocks tumbled on Monday’s Pfizer-BioNTech vaccine news
  • ZM and NFLX dropped sharply in early trading
  • Both rebounded off their lows after tagging notable technical levels

A potentially game-changing vaccine announcement, more certainty about the presidency…sounds like just the sort of news that could trigger a huge stock rally.

Of course, that’s precisely what happened yesterday morning as both the S&P 500 (SPX) and Dow Jones Industrial Average (DJIA) jumped to new all-time highs soon after the opening bell, and the small-cap Russell 2000 (RUT) outgained both of them to get into the black for the year for the first time since mid-February.

Conspicuously missing was the index that has led the US stock market for more than a decade: the Nasdaq 100 (NDX), which lagged its fellow benchmarks by a wide margin and repeatedly dipped into negative territory for the day.

The culprit? Big sell-offs in many of the “stay-at-home” tech winners, as some investors apparently second-guessed their ability to sustain massive rallies in light of a potential shift back to pre-pandemic lifestyles.

For example, videoconferencing powerhouse Zoom Video Communications (ZM), which was up more than 640% on the year on October 19, tumbled nearly 20% in early trading:

Chart 1: Zoom Video Communications (ZM), 6/10/20–11/9/20. Zoom Video Communications (ZM) price chart. 50% retracement

Source: Power E*TRADE


By midday, though, ZM had rallied more than 8% off its intraday low.

A similar scenario unfolded in Netflix (NFLX), which has actually been locked in a broad trading range since hitting its mid-July record high. The stock pulled back more than 9% intraday, but had cut that loss roughly in half by 11 a.m. ET:

Chart 2: Netflix (NFLX), 5/6/20–11/9/20. Netflix (NFLX) price chart. Pullback to support.

Source: Power E*TRADE


Not to belabor the point that positive vaccine news—while more than welcome—is different from actually getting the world vaccinated and fully back to work, but there are likely plenty of traders (and investors) who are currently pondering one of the mantras of the pandemic era:

“The virus will eventually be controlled, but many of the changes it forced on our work and home lives will persist.”

Even for traders who may not fully embrace this sentiment, yesterday presented the possibility that the sell-off in stay-at-home stocks was overdone—or, if it wasn’t, it dropped them a lot closer to potentially attractive buy levels than they’ve been in at least several days. That’s not to say that the rally over the past seven months wasn’t itself overdone, especially in certain areas of the market. But every stock represents a unique scenario.

In this case, traders watching ZM and NFLX would have noticed that not only did both stocks bounce well off their early lows yesterday, but that ZM’s low occurred around the 50% retracement level of its August–October rally, and that NFLX’s pullback dropped it to the bottom of its trading range—two targets that may have been on the radar of many technical traders looking for pullback opportunities.

Market Mover Update: Crude oil futures banged out one of their biggest days of the year, rallying more than 11% intraday to a two-week high of $41.33—a 23% gain from last Monday’s low (see “Oil pivot”).

Aaron’s (AAN) 10% surge early yesterday propelled its December $60-$65 bull call spread to 3.35—more than twice as high as it was last Thursday (see “Rent to own options”).

Today’s numbers (all times ET): NFIB Small Business Optimism Index (6 a.m.), JOLTS (10 a.m.).

Today’s earnings include: Advance Auto Parts (AAP), Rockwell Automation (ROK), BioNTech (BNTX), Rocket Companies (RKT), D.R. Horton (DHI), Palomar Holdings (PLMR), LYFT (LYFT).

 

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