The stock market will be rocked lower this week as mega-cap tech firms like Apple, Amazon and Microsoft report earnings, Fairlead Strategies says

• The stock market is setup to be rocked lower this week after mega-cap tech firms report earnings, according to Fairlead Strategies.
• Apple, Amazon, Alphabet, Microsoft, and Meta Platforms are scheduled to report second-quarter earnings this week.
• "We expect these heavyweights to contribute to downside volatility this week, noting their rallies off the June low have faltered or look overextended," Fairlead Strategies said.

Mega-cap tech stocks are poised to drive the stock market lower this week as they report second-quarter earnings, according to a Monday note from Fairlead Strategies.

The technical analysis-focused research firm sees the S&P 500's current rally of almost 10% from its June low to be simply a bear market rally that will ultimately reverse lower.

"The market has benefited from a strong oversold bounce within the context of its year-to-date downtrend. Short term overbought conditions are now widespread, suggesting the bounce will lose hold this week," Fairlead Strategies co-founder Katie Stockton said. 

A big catalyst that will help drive the downside volatility that Fairlead Strategies expects is earnings from Apple, Amazon, Alphabet, Microsoft, and Meta Platforms, all of which report this Tuesday, Wednesday, or Thursday. 

"We expect these heavyweights to contribute to downside volatility this week, noting their rallies off the June low have faltered or look overextended," Fairlead Strategies' Will Tamplin told Insider.

"Apple and Amazon are both short-term overbought and approaching important resistance within their primary downtrends. Meta and Microsoft have already seen downturns in their daily stochastics after failing to clear initial resistance, and Alphabet has lost short-term momentum. This increases risk within their downtrends."

Tamplin highlighted the following support and resistance levels traders should watch heading into mega-cap tech's earnings reports.

But if the mega-tech companies can pull off a surprise move to the upside on better-than-expected earnings results, it could have lasting implications and extend the current rally in stocks.

"We would generally view breakouts/breakdowns as bullish/bearish, likely supporting follow-through in the direction of the move," Tamplin said. 

Collectively, the combined market valuations of these five behemoths represent about 40% of the Nasdaq 100, and about 20% of the S&P 500, so whichever way the majority of these five stocks move, expect the broader stock market to follow.