Momentum Cools as Netflix Raises Concerns Danger Is Lurking for Big Tech

The market ran out of steam on Friday as investors decided to take some profits on a hot summer Friday. The selling was not aggressive and breadth wasn’t terrible with 3,900 gainers to 6,000 decliners. Despite the profit-taking, over 900 stocks hit new 12-month highs before more pronounced weakness occurred in the afternoon.

The reaction to Netflix NFLX earnings was disappointing. This is the first big technology name to report and the modest EPS beat and slight increase in guidance just wasn’t good enough to bring in new buyers. Most analysts raised price targets but the price action illustrates the danger that may be lurking for other big-cap technology names that have seen very strong runups into their reports.

The good news is that the economic bears are still having little luck with their arguments. Investors remain unconcerned about inflation and tariff news has had little impact on the market action. That could change, but the attitude appears to be that President Trump is still negotiating and it is mistake to anticipate a trade disaster at this point.

The biggest problem the market faces is overbought technical conditions. The relentless rise has made it very hard to put cash to work and there hasn’t been any meaningful dips to bring in more cautious bulls from the sidelines. The danger of a sell-the-news reaction to earnings and economic news is extreme but it is so obvious that it's trapping some of the overly aggressive bears.

There is a flood of earnings reports next week, but little economic data on the agenda. While there will be more talk about tariffs, the Fed, and inflation, investors just don’t care too much about those things right now.

Have a great weekend. I’ll see you on Monday.

At the time of publication, Rev Shark had no positions in any securities mentioned.