Despite ATHs The Market Is In Serious Trouble, AMAT WDAY PANW Earnings

It’s a crazy thing to say but: Despite the S&P and NASDAQ each closing at new ATHs Thursday, the market is in serious trouble. That’s because breadth has fallen off a cliff and the market is being carried by a few mega cap names that are masking this.

For example, the S&P as a whole was +0.34%. But if you look beneath the surface, the gains were all due to the largest stocks in the market. The S&P 100 (OEF) – the 100 largest stocks in the index – was +0.56% while the Equal Weight S&P (RSP) was -0.37%.

The same kind of thing can be seen on the NASDAQ where QQQ was +1.04% – led by AAPL (+2.85%), AMZN (+4.14%) and NVDA (+8.25%) – while the popular Ark Innovation ETF (ARKK) – made up of smaller tech stocks – got crushed -2.48%.

Only 32% of securities on the NYSE + NASDAQ were up on the day.

In other words, the market is now completely dependent on stocks like AAPL, AMZN, MSFT, GOOG/GOOGL, FB, TSLA and NVDA. They are the ones dragging the indexes higher while most stocks beneath the surface are rolling over. This thin of a market can only persist for so long.

The weakness in important but not leading stocks will likely be on evidence Friday in Applied Materials (AMAT), Workday (WDAY) and Palo Alto Networks (PANW), which all reported earnings Thursday afternoon.

There was nothing terribly wrong with $144 billion semiconductor equipment manufacturer AMAT’s report. Revenue was +31% and EPS +55% compared to a year ago. The stock has just had a huge run and is expensive at 23x FY21 EPS. It’s currently (4:30pm PST) -5% in the after hours.

The same can be said about $76 billion enterprise cloud software maker Workday (WDAY). Revenue was +20% and EPS +28% compared to a year ago. But after a huge run and at ~70x 2021 EPS the stock is apparently exhausted. It’s currently -8% in the after hours.

$54 billion cybersecurity software company Palo Alto Networks (PANW) chart and valuation look very similar to WDAY – though it appears set to continue defying gravity tomorrow for the time being. Revenue was +32% but EPS only +1% compared to a year ago. Like WDAY, it’s trading at ~70x its current fiscal year guidance. While currently +2% in the after hours, its high wire act can probably only continue a bit longer.

One by one the soldiers are falling by the wayside. When the generals start to as well it will be seen that the emperor has no clothes.

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