This Is What New Leadership Looks Like

On Friday, the S&P 500 ripped another 84 basis points, closing just shy of $7,400.

What's more, the index has now closed higher for 6 consecutive weeks.

It's clear right now that investors are reaching for risk.

But earnings season gives us a more useful message underneath the surface because it tells us where that risk appetite is flowing.

And last week, the answer became harder to ignore.

Software is back!

After several quarters of software stocks getting consistently punished around earnings, the group is on fire this earnings season. 

We talked about this in Friday’s Daily Beat, and Friday’s earnings reactions gave us even more evidence.

The Top Beats sheet was loaded with software and software adjacent strength.

*Click the image to enlarge it

Akamai Technologies $AKAM had the best reaction of the day, rallying more than 26%.

We also saw big pops in Gen Digital $GEN, Corpay $CPAY, and Block $XYZ.

Even Coinbase $COIN, which missed expectations across the board, rallied more than 4%.

There were many positive developments on Friday, but AKAM was easily the biggest piece of new bullish evidence.

Akamai Technologies reported mixed results, with the company beating on earnings but coming in light on revenue. 

And in a weaker tape, that could have easily been punished...

Instead, the stock exploded higher for its best earnings reaction since 2004.

AKAM also closed at its highest level since 2000, putting the finishing touches on a massive multi-year accumulation pattern.

In other words, Friday's earnings reaction was strong enough to change the primary trend picture meaningfully.

From here, the path of least resistance points higher back toward the .com bubble peak around $345.

That leaves roughly 200 points of potential upside if this breakout continues to follow through.

What the market liked most about this report was the company's announcement of a new $1.8 billion, 7-year cloud infrastructure services contract with a leading AI company.

That's by far the largest in company history, and it made it clear to investors that AKAM deserves to be included in the conversation of AI winners. 

Of course, the Bottom Beats sheet told the other side of the story.

*Click the image to enlarge it

Motorola Solutions $MSI got slammed despite reporting better-than-expected headline results. 

Mettler-Toledo $MTD also beat expectations and was punished anyway. 

We also saw some nasty reactions in the healthcare giants Gilead Sciences $GILD and McKesson $MCK.

But the most important beatdown for us was Fidelity National Information Services $FIS.

FIS missed expectations across the board and dropped nearly 8% on the news, pushing the stock to its lowest level since 2013.

Shareholders have now been punished for 4 of the company's last 6 earnings events. 

In other words, the market has been sending a consistent message for more than a year that FIS is nothing but trouble.

Following Friday's beatdown, FIS decisively resolved one of the largest topping patterns in the S&P 500. 

And so long as FIS remains below $47, the path of least resistance is lower for the foreseeable future.

What makes this worse is that Fidelity National Information Services' fundamentals still appear strong on the surface.

During the quarter, revenues surged 30% YoY, and margins increased 87 basis points YoY to 39.6%. 

However, the market has proven over the past 6 quarters that this fundamental story is falling apart. 

And until earnings sentiment improves significantly or FIS reclaims $47, we expect the stock to continue making new lows.

If you want access to our highest conviction technical and fundamental trades, join our growing community at the Premium Beat Report.

Cheers to a new week. 

-The Beat Team

Editor's Note: Steve Strazza is hosting a FREE live training on Monday, May 18, at 4:30 pm ET. 

He's walking through the proprietary indicator that has doubled his money 14 times over the past month.

And Steve will walk through the simple strategy any investor can use to find trades that could 3x, 5x, or even 10x in just a few days. 

Register for FREE today.