A Migration Downstream

Despite Google/Alphabet turning in solid earnings last evening, the market's reaction this morning suggests buyers are out of gas for now in a major, marquee Nasdaq leader. 

While it is true that cherry-picking a single earnings reaction as prima facie evidence of a major top or change in trend is a bit too dramatic, this morning's nearly 4% selloff in GOOGL is useful evidence for reinforcing the idea that the broad market remains in a range, at a minimum. Whether or not the market is gearing up for a breakdown in May and into the summer months remains to be seen. 

But we do know that when we combine the sell-the-good-news in GOOGL reaction with the recent weakness in most premier semiconductors, it places even more pressure on some of the better-looking software, energy, and retail/consumer plays to pick up a large portion of the slack with no fumbling allowed. Also note that those latter sectors have earnings in their own right coming up imminently, which is even more pressure on bulls. 

Regarding GOOGL, calling a multi-year top is still premature. However, on the weekly chart, updated below, one could easily envision a third leg down into Memorial Day with this morning's weakness, with the prior two down legs highlighted.

If that scenario materializes, it could just as easily be part and parcel of a bull market correction to reset a powerful long-term uptrend as it could be a bull market top. In other words, bulls need not fret over a doomsday scenario.

But even as small caps outperform this morning, it remains difficult to push the envelop on the long side.