Apple, Microsoft, Nvidia Show Possible Technical Risks as Earnings Approach

After a rough open on Monday, the major indexes fought their way back to a respectable close. The S&P 500 (left chart below) rallied to close higher by 0.16%, while the Nasdaq 100 (right chart) fell by just 0.39%.

The S&P 500 is getting comfortable below its 50-day moving average (blue), having closed underneath it in eight of the past nine sessions. The Nasdaq 100 has closed below that key indicator for two consecutive sessions for the first time since September.

Meanwhile, the Dow Jones industrial average (left chart, below) has formed a head-and-shoulders top (L-H-R). This key index hasn’t closed above its 50-day moving average (blue) in nearly a month.

That same bearish pattern is evident on the chart of the Russell 2000 (right chart, below). The small cap index briefly traded below its 200-day moving average (red) on Monday. 

The indexes are losing traction just as we head into earnings season. By month’s end, we’ll see reports from key names like Apple AAPL, Amazon AMZN, Microsoft MSFT, Meta Platforms META, Netflix NFLX, and other widely-held names.

Now, there are plenty of broken charts already out there. I’m not concerned about those names, because their underperformance is already reflected in the indexes.

I’m concerned about leading stocks that haven’t yet broken down. Here are the three names that could cause the most damage to the indexes if their upcoming earnings reports are below par.

Microsoft's Glitch 

Microsoft shares have provided positive returns in 12 of the past 13 years, but have been uncharacteristically quiet of late. The stock underperformed the major indexes last year, gaining 12.09%.

Microsoft has been rangebound for the past 11 months (shaded yellow), fluctuating between $385 and $470. The stock is trading below its 50-day (blue) and 200-day (red) moving averages. 

If the Redmond-based software giant slides after it reports earnings on Jan. 29, Microsoft could decline to the $385 area before finding significant support.

Apple Softness 

As an Apple shareholder, I’m happy that the stock hit an all-time high on Dec. 26 (red arrow). I’m a bit concerned, however, that shares of the Cupertino-based consumer tech giant have lost about 10% of their value since then. While I have no intention of selling any shares of Apple, I’m concerned about the stock’s first foray beneath its 50-day moving average (blue) in two months. 

All eyes will be on Apple when the company reports earnings on Jan. 30. A negative report could take the stock down to its 200-day moving average, currently located near $215.

Nvidia Check

Over the past month, Nvidia NVDA has spent more time below its 50-day moving average (blue) than above it. On Monday, the AI-focused technology company traded below a bullish trendline (black dotted line) that extends back to August.

If the stock slides from here, Nvidia’s 200-day moving average (red) should provide strong support near $120. The stock hasn’t traded below that indicator in nearly two years. Nvidia is scheduled to report earnings on Feb. 26. 

I’m not suggesting that any of the above names will disappoint investors, but as a risk manager, I have to prepare for a variety of scenarios. I currently see these three names, due to their size, the condition of their charts, and their proximity to event risk, as the potential Achilles' heel of the market.

At the time of publication, Ponsi was long AAPL.