Daily Market Update for 3/5
Trend lines drawn from the 2/16 ATH (14d), 3/1 (5d) and today 3/5 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
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Friday, March 5, 2021
Facts: +1.55%, Volume lower, Closing range: 96%, Body: 11%
Good: Morning selling turned into afternoon buying, high closing range
Bad: Shrinking volume into afternoon, lower high, lower low
Highs/Lows: Lower high, lower low
Candle: The long lower wick shows the morning selling was bought back for a rally into afternoon
Advance/Decline: About three advancing stocks for every two declining stocks
Indexes: SPX (+1.95%), DJI (+1.85%), RUT (+2.11%), VIX (-13.69%)
Sectors: Energy (XLE +3.74%) and Industrials (XLI +2.37%) were the top sectors. Real Estate (XLRE +1.15%) and Consumer Discretionary (XLY +0.64%) were bottom.
Expectation: Sideways or Higher
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Market Overview
The week ended with some positive market gains to take into the weekend. It's a start, but there are still several tests for the indexes to pass and prove investors are here to stay and rally next week.
The Nasdaq closed the day with a +1.55% on slightly lower volume than the previous day, but higher than average. The closing range was a high 96% with a thin body of 11% that rests above a very long lower wick. There were three advancing stocks for every two declining stocks.
The major indexes all did well with the S&P 500 (SPX) gaining +1.95% and the Dow Jones Industrial average (DJI) gaining +1.85%. The Russell 2000 (RUT) had the best day with a +2.11% as small caps recovered from yesterday's sell-off.
The VIX volatility index retreated -13.69%.
All sectors ended the day with gains. Energy (XLE +3.74%) and Industrials (XLI +2.37%) led the sectors with the biggest gains, driven by a positive outlook for the economic recovery as job numbers came in higher than expected. At the bottom of the list were Real Estate (XLRE +1.15%) and Consumer Discretionary (XLY +0.64%).
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Economic Indicators
The US Dollar (DXY) continues to advance with a +0.38% gain today.
Yields on the US 30y and 10y treasury bonds remained about the same. The 2y yields declined for the day as short term bonds continue to trade with high volatility.
High Yield Corporate Bonds (HYG) prices rose while Investment Grade Corporate Bond (LQD) prices dropped slightly.
Silver (SILVER) declined while Gold (GOLD) advanced, both making small moves. Crude Oil (CRUDEOIL1!) futures made another big advance. Timber (WOOD) advanced. Copper (COPPER1!) and Aluminum (ALI1!) both advanced.
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Investor Sentiment
The put/call ratio rose to 0.816, remaining high compared to the past few months of overly bullish sentiment. The put/call ratio (PCCE) is a contrarian indicator that shows overly bullish or overly bearish investor behavior. The 0.7 level is considered normal. As it approaches 0.60 (overly bullish) and below, watch for a possible pullback in the market.
The CNN Fear & Greed index is neutral.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
All four big mega-caps advanced for the day. Alphabet (GOOGL) had the biggest move with a +3.10%, not needing to content with resistance at moving average lines. Microsoft (MSFT) moved back above its 50d MA with a +2.15% gain. Apple (AAPL) and Amazon (AMZN) also had gains, but are still trading well below their 21d EMA and 50d MA lines.
Most mega-caps gained for the day, with Oracle (ORCL), Taiwan Semiconductor (TSM), Chevron (CVX) and Intel (INTC) leading the list with greater than 4% gains. Tesla (TSLA) did not find its way back into positive territory after the morning selling, closing the day with a -3.78% loss.
Growth stocks were mixed. Paycom software gained +7.70%, likely benefiting from the strong employment data. FUTU Holdings (FUTU) and Dr Horton (DHI) also had big days with over 5% gains. Not all growth stocks recovered from the morning selling. Digital Turbine (APPS) closed with a -6.12% loss after dipping more than 16% in the morning. It was a similar story for CrowdStrike (CRWD), Chewy (CHWY) and MongoDB (MDB).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
There is not much scheduled economic news to kick-off the week on Monday. We might have an update on the stimulus bill over the weekend that could impact markets.
Earnings reports on Monday will include Livongo (LVGO), Niu Tech (NIU), Gohealth (GOCO).
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Trends, Support and Resistance
If today's afternoon rally continues into Monday, the one-day trend line points to a +3.05% gain on Monday that would take the index back to just below the 50d MA.
The trend-line from the 2/16 ATH is pointing to a -1.10% decline for Monday. The five-day trend line points to a -3.98% loss.
The index dipped below the 12,550 support area today before rallying and falling short of 13,000. We could count 12,400 as support which is where the index dipped to today.
This week, we've been keeping an eye on a head and shoulders pattern. This pattern represents an attempt to move back to new highs that was rejected at a previous resistance point. Typically the height of the head is measured to determine the potential move downward that will occur as the price breaks below the neck line. The index is still below the neck line, so the pattern is still worth watching.
I've also been cautioning that the drop would not happen in a straight line. Today's bounce back from the intraday low could be a temporary one.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking Deeper at the Rebound
I want to take a deeper look at today's rally from the morning dip. The timing didn't make much sense as I couldn't find any discernable catalyst to reverse the morning selling. The reverse happened around 11:30, two hours after the positive employment data hit the market. The reversal was also at a very odd round 12,400 for the Nasdaq.
The below chart is the intraday 15m chart and the thing that sticks out is the contrast of volume in the morning selling vs the volume as investors came in to buy the dip. This would indicate that larger institutions were distributing in the morning, but a smaller number of investors were accumulating in the afternoon. In fact, the Volume Weighted Average Price for the day did not regain positive territory.
The response is to not get overly optimistic about the afternoon rally. Keep a cautious eye on what's happening below the surface.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
It's always nice to see a positive gain in the market. But there are still several tests that I'd like to see the index pass before getting more optimistic about a continued rally. First, I want to see higher volume during accumulation than I see during distribution. Second, the index needs to climb back above the 21d EMA to show its moving toward higher prices. Finally, I'd like the see the index make a higher weekly high and a higher weekly low to show a solid uptrend.
Based on the daily chart, I'll set an expectation for sideways or higher on Monday. I think there is reason for caution here, but also don't want to be overly bearish or overly bullish and miss what's going on.
I'll include this quote again from MichaelGLamothe on twitter as its a good reminder to me:
"I think it’s good to have a thesis about which way the market is going to move. The problem comes when we become too attached to it and want to be proven right.
There’s tons of great reasons why the market will collapse & why it’ll blast off.
Be open/ready for anything."
Keep watching how stocks in your watchlist are performing compared to the movements in the market. The ones that have good relative strength are likely to be the ones to rally the most once the market resumes an uptrend.
Stay healthy and trade safe!
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Friday, March 5, 2021
Facts: +1.55%, Volume lower, Closing range: 96%, Body: 11%
Good: Morning selling turned into afternoon buying, high closing range
Bad: Shrinking volume into afternoon, lower high, lower low
Highs/Lows: Lower high, lower low
Candle: The long lower wick shows the morning selling was bought back for a rally into afternoon
Advance/Decline: About three advancing stocks for every two declining stocks
Indexes: SPX (+1.95%), DJI (+1.85%), RUT (+2.11%), VIX (-13.69%)
Sectors: Energy (XLE +3.74%) and Industrials (XLI +2.37%) were the top sectors. Real Estate (XLRE +1.15%) and Consumer Discretionary (XLY +0.64%) were bottom.
Expectation: Sideways or Higher
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
The week ended with some positive market gains to take into the weekend. It's a start, but there are still several tests for the indexes to pass and prove investors are here to stay and rally next week.
The Nasdaq closed the day with a +1.55% on slightly lower volume than the previous day, but higher than average. The closing range was a high 96% with a thin body of 11% that rests above a very long lower wick. There were three advancing stocks for every two declining stocks.
The major indexes all did well with the S&P 500 (SPX) gaining +1.95% and the Dow Jones Industrial average (DJI) gaining +1.85%. The Russell 2000 (RUT) had the best day with a +2.11% as small caps recovered from yesterday's sell-off.
The VIX volatility index retreated -13.69%.
All sectors ended the day with gains. Energy (XLE +3.74%) and Industrials (XLI +2.37%) led the sectors with the biggest gains, driven by a positive outlook for the economic recovery as job numbers came in higher than expected. At the bottom of the list were Real Estate (XLRE +1.15%) and Consumer Discretionary (XLY +0.64%).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) continues to advance with a +0.38% gain today.
Yields on the US 30y and 10y treasury bonds remained about the same. The 2y yields declined for the day as short term bonds continue to trade with high volatility.
High Yield Corporate Bonds (HYG) prices rose while Investment Grade Corporate Bond (LQD) prices dropped slightly.
Silver (SILVER) declined while Gold (GOLD) advanced, both making small moves. Crude Oil (CRUDEOIL1!) futures made another big advance. Timber (WOOD) advanced. Copper (COPPER1!) and Aluminum (ALI1!) both advanced.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio rose to 0.816, remaining high compared to the past few months of overly bullish sentiment. The put/call ratio (PCCE) is a contrarian indicator that shows overly bullish or overly bearish investor behavior. The 0.7 level is considered normal. As it approaches 0.60 (overly bullish) and below, watch for a possible pullback in the market.
The CNN Fear & Greed index is neutral.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
All four big mega-caps advanced for the day. Alphabet (GOOGL) had the biggest move with a +3.10%, not needing to content with resistance at moving average lines. Microsoft (MSFT) moved back above its 50d MA with a +2.15% gain. Apple (AAPL) and Amazon (AMZN) also had gains, but are still trading well below their 21d EMA and 50d MA lines.
Most mega-caps gained for the day, with Oracle (ORCL), Taiwan Semiconductor (TSM), Chevron (CVX) and Intel (INTC) leading the list with greater than 4% gains. Tesla (TSLA) did not find its way back into positive territory after the morning selling, closing the day with a -3.78% loss.
Growth stocks were mixed. Paycom software gained +7.70%, likely benefiting from the strong employment data. FUTU Holdings (FUTU) and Dr Horton (DHI) also had big days with over 5% gains. Not all growth stocks recovered from the morning selling. Digital Turbine (APPS) closed with a -6.12% loss after dipping more than 16% in the morning. It was a similar story for CrowdStrike (CRWD), Chewy (CHWY) and MongoDB (MDB).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
There is not much scheduled economic news to kick-off the week on Monday. We might have an update on the stimulus bill over the weekend that could impact markets.
Earnings reports on Monday will include Livongo (LVGO), Niu Tech (NIU), Gohealth (GOCO).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
If today's afternoon rally continues into Monday, the one-day trend line points to a +3.05% gain on Monday that would take the index back to just below the 50d MA.
The trend-line from the 2/16 ATH is pointing to a -1.10% decline for Monday. The five-day trend line points to a -3.98% loss.
The index dipped below the 12,550 support area today before rallying and falling short of 13,000. We could count 12,400 as support which is where the index dipped to today.
This week, we've been keeping an eye on a head and shoulders pattern. This pattern represents an attempt to move back to new highs that was rejected at a previous resistance point. Typically the height of the head is measured to determine the potential move downward that will occur as the price breaks below the neck line. The index is still below the neck line, so the pattern is still worth watching.
I've also been cautioning that the drop would not happen in a straight line. Today's bounce back from the intraday low could be a temporary one.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking Deeper at the Rebound
I want to take a deeper look at today's rally from the morning dip. The timing didn't make much sense as I couldn't find any discernable catalyst to reverse the morning selling. The reverse happened around 11:30, two hours after the positive employment data hit the market. The reversal was also at a very odd round 12,400 for the Nasdaq.
The below chart is the intraday 15m chart and the thing that sticks out is the contrast of volume in the morning selling vs the volume as investors came in to buy the dip. This would indicate that larger institutions were distributing in the morning, but a smaller number of investors were accumulating in the afternoon. In fact, the Volume Weighted Average Price for the day did not regain positive territory.
The response is to not get overly optimistic about the afternoon rally. Keep a cautious eye on what's happening below the surface.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
It's always nice to see a positive gain in the market. But there are still several tests that I'd like to see the index pass before getting more optimistic about a continued rally. First, I want to see higher volume during accumulation than I see during distribution. Second, the index needs to climb back above the 21d EMA to show its moving toward higher prices. Finally, I'd like the see the index make a higher weekly high and a higher weekly low to show a solid uptrend.
Based on the daily chart, I'll set an expectation for sideways or higher on Monday. I think there is reason for caution here, but also don't want to be overly bearish or overly bullish and miss what's going on.
I'll include this quote again from MichaelGLamothe on twitter as its a good reminder to me:
"I think it’s good to have a thesis about which way the market is going to move. The problem comes when we become too attached to it and want to be proven right.
There’s tons of great reasons why the market will collapse & why it’ll blast off.
Be open/ready for anything."
Keep watching how stocks in your watchlist are performing compared to the movements in the market. The ones that have good relative strength are likely to be the ones to rally the most once the market resumes an uptrend.
Stay healthy and trade safe!
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