Buying spread to small U.S. companies on Tuesday, while chip stocks fell. This time, companies outside technology also helped lift the market. Today I will watch whether that broader participation holds.

During earnings season, a strong profit figure needs to be read alongside the outlook. Netflix’s results are a reminder to separate what a company earned today from the cash it expects to generate over the rest of the year.

Key takeaways

  • Buying in small companies can reduce the rally’s dependence on a few large technology businesses. But these companies also face expensive borrowing; one day of gains does not persuade me that financing conditions have improved.
  • Falling oil prices are welcome for transportation and production costs. Prices need to stay lower to make a lasting contribution to earnings; one session of relief is too little reason to raise expectations for companies’ future profits.
  • Gold and silver do not have to move together. The gold ETF fell while the silver ETF rose; demand for silver, which also has industrial uses, depends on more than interest-rate expectations.

What happened?

  • According to AP, on October 20 the Dow rose 1.0%, the Russell 2000 index of small U.S. companies gained 1.7%, and the S&P 500 added 0.3%; the Nasdaq Composite finished fractionally lower.
  • Netflix reported third-quarter diluted earnings of $0.87 per share. It also lowered its annual free cash flow forecast from $12.5 billion to about $12 billion, mainly because of the timing of a real estate transaction. Free cash flow is calculated by subtracting capital expenditure from operating cash flow. The change should not be read as an equivalent deterioration in the business without examining its cause.
  • Financial analyst Tunç Şatıroğlu (@tuncsatiroglu) expects selling to continue for a while in the short term, followed by a recovery from late October. His scenario combines oversold conditions with less election uncertainty. Approaching the expected date does not mean that prices have already turned.

What changed since yesterday?

  • Yesterday I was looking for buying to spread beyond technology. Small companies and software presented a better picture on Tuesday. This eased my concern about buying being confined to a narrow group; the decline in chips still means that the sector’s own recovery needs to be assessed separately.

Market levels

U.S. indexes and technology

  • SPY ($SPY), which tracks the S&P 500, finished Tuesday at $769.05. The day’s $764.25 low and $772.29 high are nearby support and resistance candidates. Moving above the upper boundary would support continued buying; losing the lower boundary would increase the risk of giving back Tuesday’s gain.
  • QQQ ($QQQ), which tracks the Nasdaq 100, closed at $717.63. The first upside test is clearing the $722.75 resistance candidate, with a support candidate at $710.39 below. Reaching this upper area matters alongside carrying the gain into the close; a positive opening alone will not be enough.
  • IWM ($IWM), which tracks small U.S. companies, closed at $275.78, near the day’s $276.90 high. That high is a resistance candidate, with the $271.29 low a support candidate. Holding the ground gained would strengthen confidence in broader buying; returning to the day’s low would weaken the significance of the strong close.
  • Chip-company ETF SMH ($SMH) ended Tuesday at $546.36. The day’s $536.23 low is a support candidate and its $553.83 high a resistance candidate. Clearing the upper boundary could strengthen buying in the sector; losing the lower boundary would warn of further selling. These are the extremes of the latest session, not long-term price targets.
  • Software-company ETF IGV closed at $106.93. Support and resistance candidates are $105.04 and $107.35. The price is near the upper boundary; clearing it would matter for continued buying in software. Returning to the lower area would weaken this positive divergence within technology.

Metals and crypto

  • Gold ETF GLD ($GLD) closed at $377.65, near Tuesday’s $377.26 low. That low is the first support candidate, while the $380.88 high is a nearby resistance candidate. I first want to see the price recover its intraday losses; breaking the lower boundary could bring renewed pressure.
  • Silver ETF SLV ($SLV) closed at $52.12. Clearing the $52.89 resistance candidate above would help the advance continue. The support candidate below is $51.55; losing Tuesday’s low would warn that the latest daily gain could not be preserved.
  • Bitcoin is around $82,809 this morning. Tuesday’s $81,103 low is a support candidate and the $83,344 high a resistance candidate; the price is closer to the upper boundary. I will watch for a move above that high and then for the gain to hold. Losing the lower area would require reassessing the recovery outlook.

Red flags

  • If oil rises again, producers’ costs could increase and inflation could take longer to slow. In that setting, the distinction between buying in small companies and their ability to refinance debt on better terms becomes more important.
  • A company can beat profit expectations while lowering its cash outlook. Expense timing has a different effect from weak sales or collections; the price reaction after earnings needs to be read with that distinction in mind.

Calendar

  • October 21: Tesla reports third-quarter results after the U.S. session. Operating profit and cash generation matter alongside sales.
  • October 22, 14:00 Turkey time: the CBRT interest-rate decision, the week’s main local event for borrowing costs and the lira’s outlook.
  • October 27-28: the Federal Reserve’s policy meeting (FOMC). The decision and statements could change expectations for corporate financing costs and precious metals.

My analysis

The encouraging development in today’s data is the broader spread of buying. An index gain supported only by large technology companies differs from one in which small companies also participate. Still, I am not automatically extending that positive view to chips; that sector needs to regain its own price boundaries.

I will first watch whether small companies hold their gains, then what new earnings reports say about cash generation. If those two conditions are accompanied by oil staying lower, my confidence in a recovery will increase. If buying narrows to a few stocks again, or companies forecast weaker cash generation, it will be too early to treat today’s encouraging participation as a lasting turn.

Sources

This is not investment advice; it is a research and monitoring note.