Market Week in Review - 4/12/2021 - 4/16/2021
Summary: There are some interesting questions to answer this week. How much of the economic recovery is already priced into the equity markets? Are investors done with the value trade and moving back to growth, or does value still have more gains ahead? Does the market really see inflation as a threat or is it just necessary and transitionary in the current cycle?
Notes
The structure is the following:
If you have been following my daily updates, you can skip down to the “The Meaning of Life”. If not, then this first part is a great play-by-play recap for the week. Click the daily charts for more detail on sectors, indexes and market leaders each day.
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Monday, April 12, 2021
Facts: -0.36%, Volume higher, Closing range: 71%, Body: -5%
Good: Higher low than previous day, high closing range
Bad: Distribution day, lower high, loss on higher volume
Highs/Lows: Lower high, higher low
Candle: Inside day, thin red body in upper half of candle
Advance/Decline: Almost three declining for every advancing stock
Indexes: SPX (-0.02%), DJI (-0.16%), RUT (-0.16%), VIX (+1.32%)
Sectors: Consumer Discretionary (XLY +0.64%) and Real Estate (XLRE +0.59%) were top. Technology (XLK -0.48%) and Energy (XLE -0.79%) were bottom.
Expectation: Sideways or Lower
After several days of big gains, its ok for the markets to take a pause. Morning selling turned into buying as treasury auctions showed little trouble and yields remained under control. But the confidence wasn't enough to hold the indexes near intraday highs as investors turned their attention to inflation data becoming available Tuesday morning.
The Nasdaq closed the session with a -0.36% decline on higher volume, marking a distribution day for the index. The thin red body of 5% represents indecision between the good news on treasury auctions, but the potential for bad news in inflation data. The positive is that the body is in the upper half of the candle with a high closing range of 71%, showing a slightly more bullishness in the market. There were 3 declining stocks for every advancing stock.
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Tuesday, April 13, 2021
Facts: +1.05%, Volume lower, Closing range: 86%, Body: 89% (w/gap)
Good: Higher high, higher low, large green body and high closing range
Bad: Small dip at end of day
Highs/Lows: Higher high, higher low
Candle: Large green body under a small upper wick, no lower wick
Advance/Decline: Three declining stocks for every two advancing stocks
Indexes: SPX (+0.33%), DJI (-0.20%), RUT (-0.22%), VIX (-1.54%)
Sectors: Utilities (+1.19%) and Consumer Discretionary (+1.06%) were top. Consumer Staples (-0.53%) and Finance (-0.33%) were bottom.
Expectation: Sideways or Higher
Bigger than expected inflation didn't hold back the markets from setting new records today. The S&P 500 set another new record close while the Nasdaq inches toward key support levels. The gains were driven mostly by large mega-caps and not shared broadly across the indexes.
The Nasdaq advanced +1.05% for the day and closed just below the 14,000 resistance line. The candle has no lower wick as the intraday low was set at the opening bell. The thick green 86% body led the index to a 89% closing range (including the gap) with the intraday high being set late in the afternoon. The advance was driven by larger cap stocks, as there were more declining stocks than advancing stocks.
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Wednesday, April 14, 2021
Facts: -0.99%, Volume lower, Closing range: 10%, Body: 75%
Good: Higher high, pullback is on lower volume
Bad: Selling almost entire day, couldn't hold above 14,000
Highs/Lows: Higher high, lower low
Candle: Outside day, candle is mostly body with a longer upper wick from a rally at open
Advance/Decline: Slightly more declining stocks than advancing stocks
Indexes: SPX (-0.41%), DJI (+0.16%), RUT (+0.84%), VIX (+2.04%)
Sectors: Energy (+2.78%) and Materials (+0.72%) were top. Communications (-1.03%) and Technology (XLK -1.06%) were bottom.
Expectation: Sideways or Lower
The cyclicals moved back to the top of the sector list as investors were motivated by positive import/export data and crude oil inventories. The data provided a good reason for investors to rotate back into the cyclical sectors after chasing gains in big tech over the past few weeks.
The Nasdaq pulled back from recent gains, closing the day with a -0.99% decline on lower volume. The 75% red body represents a day for the bears that ended in a 10% closing range. The index set a higher high in the morning but ended the day with a lower low, providing an outside bearish candle. There were more declining stocks than advancing stocks.
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Thursday, April 15, 2021
Facts: +1.31%, Volume higher, Closing range: 87%, Body: 71%
Good: Higher high, higher low, close above 14,000
Bad: Nothing
Highs/Lows: Higher high, higher low
Candle: Mostly body with about equal upper and lower wicks
Advance/Decline: More declining stocks than advancing stocks
Indexes: SPX (+1.11%), DJI (+0.90%), RUT (+0.42%), VIX (-2.47%)
Sectors: Real Estate (XLRE +1.90%) and Technology (XLK +1.72%) were top. Financial (XLF -0.09%) and Energy (XLE -0.81%) were bottom.
Expectation: Sideways or Higher
Positive economic data gave a kick in the right direction to equity markets, allowing the S&P 500 and Dow Jones Industrial average to close again at all-time highs. The day was owned by the bulls with just a few pullbacks, but still the gains were not felt by everyone, with more stocks declining than advancing.
The Nasdaq closed the day with a +1.31% gain on higher volume. The candle, made up of mostly a green body, has a closing range of 87% about even upper and lower wicks. A higher high and higher low provides direction to the previous days outside range.
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Friday, April 16, 2021
Facts: +0.10%, Volume higher, Closing range: 88%, Body: 8%
Good: Higher high after early selling turns to late buying
Bad: Red body, morning sell-off, slight dip at end of session
Highs/Lows: Higher high, higher low
Candle: Long lower wick with a thin body at the top of the candle
Advance/Decline: More than three declining stocks for every two advancing stocks
Indexes: SPX (+0.36%), DJI (+0.48%), RUT (+0.25%), VIX (-1.93%)
Sectors: Materials (XLB +1.21%), Utilities (XLU +0.81%) were top. Communications (XLC -0.07%) and Energy (XLE -0.80%) were bottom.
Expectation: Sideways or Higher
The indexes set more records on Friday, with the Dow Jones Industrial and S&P 500 closing at new all-time highs again. That gains initially came at open after positive building data drove the materials sector to the top of the sector list. It was not a straight line. The market dipped in the morning and the indexes needed to climb back to close near intraday highs.
The Nasdaq closed with +0.10%, above yesterday's close but slightly below the opening price. The bears took over shortly after open, bringing the index nearly to yesterday's low. But the bulls fought back and bought it back to make an intraday high before dipping into close. The long lower wick was formed in the morning selling. The thin 8% body is at the top of the candle which has an 88% closing range. There were more than three declining stocks for every two advancing stocks.
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The Meaning of Life (View on the Week)
There are some interesting questions to answer this week. How much of the economic recovery is already priced into the equity markets? Are investors done with the value trade and moving back to growth, or does value still have more gains ahead? Does the market really see inflation as a threat or is it just necessary and transitionary in the current cycle?
Coming into the week, investors showed caution as they waited for two things. Tuesday's consumer price index data would provide a look at how high inflation moved in March. Second would be the earnings reports for big finance, starting on Wednesday. That caution brought an indecisive candle on Monday, a fight between bulls and bears, creating a thin body where the close was just below the mornings open.
The consumer price index data did come in higher than expected on Tuesday. But it seemed the equity markets had already priced in the fear of higher inflation. The numbers had a different consequence. The US Dollar weakened. The weaker US dollar was a boost for multinational mega-caps, amidst the caution in the market. It was interesting to see Utilities top the sector list, signaling caution, while still Consumer Discretionary and Technology came in second and third, helping advance the Nasdaq for the day.
After more than a week of strong gains with the largest mega-caps, we were due a pullback as investors take profits and turn to other opportunities. That happened on Wednesday. The mega-caps all dipped, taking the Nasdaq down for the day. Investors turned back to the cyclicals for new opportunities, especially in the Financial sector after positive reports from big banks in the morning. Import/Export data was good, Crude Oil Inventories good, demand for Chinese exports soared. It all showed economic activity accelerating. Perfect for cyclicals.
Yet, the enthusiasm for cyclicals was short lived. Thursday was back to big tech and growth stocks with the Financial and Energy sector moving back to the bottom of the sector list. And that Growth vs Value is a theme for the week that's worth more exploring.
The sure winner for the week, without much to question, was the Materials sector and the commodities behind it. All data from retail sales, China exports to the huge building permits and housing starts data on Friday, are driving commodity prices higher and boosting the Materials sector.
For big tech and Nasdaq, Friday was another indecisive day while the other major indexes hit all-time highs. But the curious thing for the week was how the Nasdaq put in higher highs all week while never seeing the advance/decline ratio move about 1.0. It hasn't been above 1.0 for the past six trading sessions. What was happening?
You can see what was happening by looking at the top and bottom lists for mega-caps and growth stocks throughout the week. You'll see the same names show up in the top list one day and the bottom list the next. Nvidia (NVDA) is a great example, going back and forth between top and bottom mover. Chinese stocks FUTU Holdings (FUTU) and UP Fintech (TIGR) had the opposite days from Nvidia. So the advancing stocks one day exchanged places with the declining stocks the next day.
That constant rotation within the index kept the advance/decline line below 1.0 while the mega-caps continued to push higher highs though the week. But by the end of the week, the rotations didn't prevent a broad set of stocks moving upward. Looking at the QQQ (weighted) index vs the QQQE (equal weight) index, the gains for the week are a bit more for the weighted index, but not that much higher. So despite rotation, that may have left some investors dazed, eventually the gains were shared broadly on a weekly basis.
Another way to view the rotation within the week is the back and forth between value and growth stocks. The last two weeks, investors moved back into growth stocks, clearly seen in the ratio of gains between growth and value stocks. However this week, the rise of growth relative to value stocks paused and went back and forth as it appeared investors weren't sure which was the right play moving forward.
The Nasdaq advanced +1.09% for the week. The closing range of 96% marks the third week in a row of a closing range above 95%. Volume was higher.
The higher and higher low is also a three week trend. The key level we needed to pass this week was 14,000. The index topped it twice and retreated but then closed above on Thursday. One more test on Friday, confirmed the resistance level turned to a support area and the index closed the week above the line on its way to a new all-time high.
The S&P 500 (SPX) and Dow Jones Industrial (DJI) both set new all-time highs for another week. The S&P 500 gained +1.37% for the week. The Dow Jones Industrial average gained +1.18%. The Russell 2000 (RUT) gained +0.86%, completing a three-weeks tight pattern where the index closes within a tight range each week. Small caps are still searching for their spot in the current rally.
The VIX volatility index continues lower with a -2.64% decline this week.
Utilities ( XLU ) is surprisingly the top sector for the week. Topping the list on Tuesday and nearing the top of the list on Friday the sector had steady gains throughout the week. The sector is usually a defensive move for investors. Perhaps investors nervousness grew as the S&P 500 has been setting new all-time highs.
Less of a surprise is to see Materials ( XLB ) at the top of the weekly list. The sector is benefiting not only from investments on infrastructure being discussed in Washington, but also a strong housing sector and a surge in building permits.
Energy ( XLE ) had a choppy week, taking the lead on Wednesday, but quickly fading to near the bottom of the list for the weekly.
Consumer Discretionary ( XLY ) also had some good days this week, advancing on news of strong retail sales and an advance in consumer credit showing increased spending.
The worst performing sector this week was Communications ( XLC ). There have been some reports of decelerating spending on Internet media and social platforms from retailers. That makes sense as demand is naturally increasing and requires less effort for omnichannel marketing to bring in consumers.
For the US Treasury yields, note the spread shown in the top of the chart. The green line is the difference between the US 10y and 2y yields. It's been flattening since the panic in March where the performance of equities was so tightly attached to the longer term treasury note yields.
The US 30y bond and 10y note yields both declined for the week while the 2y note yields rose, helping narrow the spread between long term and short term yields.
Both the High Yield Corporate Bond (HYG) and Investment Grade Bond (LQD) prices advanced for the week.
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The US Dollar (DXY) retreated -0.70% erasing all the gains during March and giving a boost to multinational companies that can benefit from a weakened US dollar.
All commodities, in the six tracked by this update, rose for the week, showing the high demand while economic activity continues to increase.
Timber (WOOD) is all time highs. COPPER (COPPER1!) is at its highest since at least 2015.
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The Big Four Mega-caps
The four big mega-caps completed a third week of gains, helping drive the index and their respective sectors higher. Microsoft (MSFT) had the biggest weekly gain, advancing +1.91%. Apple (AAPL) advanced +0.88%. Alphabet (GOOGL) gained +0.53%. All of these three have 10w moving average lines above the 40w moving average line. Amazon (AMZN) advanced +0.81% for the week and is trying to keep the 10w MA above the 40w MA.
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The Four Recovery Stocks
I picked four recovery stocks to track against the indexes and other indicators in this weekly report. Exxon Mobil (XOM) was able to finish the week with a +1.41% gain despite the Energy sector not faring well. Marriott (MAR) had a small gain of +0.10% gain. However, Carnival Cruise Lines (CCL) and Delta Airlines (DAL) lost -7.75% and -5.34% for the week as new waves of the pandemic outside of the US brought in new fears of impact to the travel and leisure sectors.
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Investor Sentiment
The put/call ratio (PCCE) closed the week 0.567. A contrarian indicator, when the put/call ratio is below 0.7, it signals overly bullish sentiment and could mean an overbought market.
The CNN Fear & Greed index moved back and forth around neutral but ended the week on the greed side.
The NAAIM exposure index rose to 96.57. Money managers continue to increase exposure in the market.
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The Week Ahead
Economic news on Monday will start off light with just a few short-term treasury bill auctions scheduled. They likely won't have much influence over yield concerns.
Tuesday also will be light. The API weekly crude oil stock update will come at market close.
Wednesday, additional crude oil inventory data will be released in the morning. A 20y treasury bond auction will happen in the afternoon.
Thursday will bring an update to Initial Jobless Claims and Existing Home sales.
On Friday the Manufacturing and Services Purchasing Managers Index data will be released. The data is an indicator for economic activity the respective sectors. New Home Sales data will also be released in the morning.
Coca-Cola (KO) will kick-off the week with a premarket earnings release on Monday. After market close, IBM (IBM), United Airlines (UAL), and Steel Dynamics (STLD) could be important earnings reports to watch.
Johnson & Johnson (JNJ) and Proctor & Gamble (PG) will both release earnings on Tuesday. They will be joined by Netflix (NFLX), Abbot Labs (ABT), Philip Morris (PM) and Lockheed Martin (LMT).
On Wednesday, Roche Holding (RHBY), Verizon (VZ), Chipotle (CMG) will release updates.
Thursday's earnings updates will include Intel (INTC), AT&T (T), Snap (SNAP), and DR Horton (DHI).
Friday will close the week with earnings reports from Honeywell (HON) and American Express (AXP).
Earnings reports for the first quarter of the year are starting to pick up and this isn't meant to be an exhaustive list. Check your own portfolio for earnings dates so you aren't surprised.
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The Bullish Side
The S&P 500 and Dow Jones Industrial continue to set records with all-time high closes. One could see that as the potential for a pullback in the markets, but it could also be time for the tech and small-caps to have their turn and bring the Nasdaq and the Russell 2000 up to all-time highs as well.
Inflation numbers are out in the open and investors didn't run from equity markets. Rather the impact to the US dollar showed there is some silver lining in the higher inflation number, that multinational companies can benefit from a weaker dollar under higher inflation. It also shows investors are taking some heed from the Fed that higher inflation doesn't necessarily mean higher interest rates.
Considering the mixed reaction to inflation, then one must be excited about the accelerating performance of the economy. You would be hard pressed to find a time when the economy grew at pace like it is now and the equity markets didn't advance at some level.
There is much to be positive about, from the flattening yield curve, to good earnings reports over the past week.
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The Bearish Side
Sure, there are positive gains in the market, but the gains are limited to a few players that are over extended or built on thin bases. Although mega-caps have carried the indexes higher, the big companies are now extended and ripe for a pullback. The action for their counterparts in mid-cap growth stocks are all over the place without strong price action to support expectation for further gains. Many popular small-caps seem to be on a downward spiral with no bottom in site.
Big finance earnings reports this past week were strong, thanks to improving yields in long term treasuries that impact results for big banks. Financial institutions have also benefited from the huge rise in investment activity in the first quarter. But how will earnings reports outside of the Financial sector look in the coming weeks. More importantly, what will be the outlook set for big tech and growth stocks as they face the post-pandemic recovery? Those could be in for a shock to investors compared to the tail winds of 2020.
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Key Nasdaq Levels to Watch
This week we will be watching for a new all-time high for the Nasdaq. Will it come this week, or is one more pullback necessary before the milestone?
On the positive side, the levels are:
On the downside, there are a few key levels:
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Wrap-up
There's really one thing I'm watching for next week from a macro perspective. Will the advance/decline ratio rise above 1.0? When will there be a broader rally vs growth limited to the mega-caps while everything else rotates? That broader rally will mean there is enough shake out in equities that now investors are starting to set solid bets in the market vs chasing swings.
As for the individual investor, the most important price action is the one in your portfolio. Looking past the daily charts, how are your stocks performing on a weekly basis? The day-to-day swings don't matter as much as the weekly action that shows whether there is institutional support and growth heading into the economic recovery.
Good luck, stay healthy and trade safe!
Notes
- The Market Week in Review is my weekend homework where I look over what happened in the previous week and what might come in the next week.
- I do occasionally have some errors or typos and will correct them in my blog or in the comments on TradingView. I do not have an editor and do this in my free time.
- If you find this helpful, please let me know in the comments. I am also more than happy to add new perspectives and data points if you have ideas.
The structure is the following:
- A recap of the daily updates that I do here on TradingView.
- The Meaning of Life, a view on the past week
- What's coming in the next week
- The Bullish View, The Bearish View
- Key index levels to watch out for
- Wrap-up
If you have been following my daily updates, you can skip down to the “The Meaning of Life”. If not, then this first part is a great play-by-play recap for the week. Click the daily charts for more detail on sectors, indexes and market leaders each day.
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Monday, April 12, 2021
Facts: -0.36%, Volume higher, Closing range: 71%, Body: -5%
Good: Higher low than previous day, high closing range
Bad: Distribution day, lower high, loss on higher volume
Highs/Lows: Lower high, higher low
Candle: Inside day, thin red body in upper half of candle
Advance/Decline: Almost three declining for every advancing stock
Indexes: SPX (-0.02%), DJI (-0.16%), RUT (-0.16%), VIX (+1.32%)
Sectors: Consumer Discretionary (XLY +0.64%) and Real Estate (XLRE +0.59%) were top. Technology (XLK -0.48%) and Energy (XLE -0.79%) were bottom.
Expectation: Sideways or Lower
After several days of big gains, its ok for the markets to take a pause. Morning selling turned into buying as treasury auctions showed little trouble and yields remained under control. But the confidence wasn't enough to hold the indexes near intraday highs as investors turned their attention to inflation data becoming available Tuesday morning.
The Nasdaq closed the session with a -0.36% decline on higher volume, marking a distribution day for the index. The thin red body of 5% represents indecision between the good news on treasury auctions, but the potential for bad news in inflation data. The positive is that the body is in the upper half of the candle with a high closing range of 71%, showing a slightly more bullishness in the market. There were 3 declining stocks for every advancing stock.
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Tuesday, April 13, 2021
Facts: +1.05%, Volume lower, Closing range: 86%, Body: 89% (w/gap)
Good: Higher high, higher low, large green body and high closing range
Bad: Small dip at end of day
Highs/Lows: Higher high, higher low
Candle: Large green body under a small upper wick, no lower wick
Advance/Decline: Three declining stocks for every two advancing stocks
Indexes: SPX (+0.33%), DJI (-0.20%), RUT (-0.22%), VIX (-1.54%)
Sectors: Utilities (+1.19%) and Consumer Discretionary (+1.06%) were top. Consumer Staples (-0.53%) and Finance (-0.33%) were bottom.
Expectation: Sideways or Higher
Bigger than expected inflation didn't hold back the markets from setting new records today. The S&P 500 set another new record close while the Nasdaq inches toward key support levels. The gains were driven mostly by large mega-caps and not shared broadly across the indexes.
The Nasdaq advanced +1.05% for the day and closed just below the 14,000 resistance line. The candle has no lower wick as the intraday low was set at the opening bell. The thick green 86% body led the index to a 89% closing range (including the gap) with the intraday high being set late in the afternoon. The advance was driven by larger cap stocks, as there were more declining stocks than advancing stocks.
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Wednesday, April 14, 2021
Facts: -0.99%, Volume lower, Closing range: 10%, Body: 75%
Good: Higher high, pullback is on lower volume
Bad: Selling almost entire day, couldn't hold above 14,000
Highs/Lows: Higher high, lower low
Candle: Outside day, candle is mostly body with a longer upper wick from a rally at open
Advance/Decline: Slightly more declining stocks than advancing stocks
Indexes: SPX (-0.41%), DJI (+0.16%), RUT (+0.84%), VIX (+2.04%)
Sectors: Energy (+2.78%) and Materials (+0.72%) were top. Communications (-1.03%) and Technology (XLK -1.06%) were bottom.
Expectation: Sideways or Lower
The cyclicals moved back to the top of the sector list as investors were motivated by positive import/export data and crude oil inventories. The data provided a good reason for investors to rotate back into the cyclical sectors after chasing gains in big tech over the past few weeks.
The Nasdaq pulled back from recent gains, closing the day with a -0.99% decline on lower volume. The 75% red body represents a day for the bears that ended in a 10% closing range. The index set a higher high in the morning but ended the day with a lower low, providing an outside bearish candle. There were more declining stocks than advancing stocks.
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Thursday, April 15, 2021
Facts: +1.31%, Volume higher, Closing range: 87%, Body: 71%
Good: Higher high, higher low, close above 14,000
Bad: Nothing
Highs/Lows: Higher high, higher low
Candle: Mostly body with about equal upper and lower wicks
Advance/Decline: More declining stocks than advancing stocks
Indexes: SPX (+1.11%), DJI (+0.90%), RUT (+0.42%), VIX (-2.47%)
Sectors: Real Estate (XLRE +1.90%) and Technology (XLK +1.72%) were top. Financial (XLF -0.09%) and Energy (XLE -0.81%) were bottom.
Expectation: Sideways or Higher
Positive economic data gave a kick in the right direction to equity markets, allowing the S&P 500 and Dow Jones Industrial average to close again at all-time highs. The day was owned by the bulls with just a few pullbacks, but still the gains were not felt by everyone, with more stocks declining than advancing.
The Nasdaq closed the day with a +1.31% gain on higher volume. The candle, made up of mostly a green body, has a closing range of 87% about even upper and lower wicks. A higher high and higher low provides direction to the previous days outside range.
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Friday, April 16, 2021
Facts: +0.10%, Volume higher, Closing range: 88%, Body: 8%
Good: Higher high after early selling turns to late buying
Bad: Red body, morning sell-off, slight dip at end of session
Highs/Lows: Higher high, higher low
Candle: Long lower wick with a thin body at the top of the candle
Advance/Decline: More than three declining stocks for every two advancing stocks
Indexes: SPX (+0.36%), DJI (+0.48%), RUT (+0.25%), VIX (-1.93%)
Sectors: Materials (XLB +1.21%), Utilities (XLU +0.81%) were top. Communications (XLC -0.07%) and Energy (XLE -0.80%) were bottom.
Expectation: Sideways or Higher
The indexes set more records on Friday, with the Dow Jones Industrial and S&P 500 closing at new all-time highs again. That gains initially came at open after positive building data drove the materials sector to the top of the sector list. It was not a straight line. The market dipped in the morning and the indexes needed to climb back to close near intraday highs.
The Nasdaq closed with +0.10%, above yesterday's close but slightly below the opening price. The bears took over shortly after open, bringing the index nearly to yesterday's low. But the bulls fought back and bought it back to make an intraday high before dipping into close. The long lower wick was formed in the morning selling. The thin 8% body is at the top of the candle which has an 88% closing range. There were more than three declining stocks for every two advancing stocks.
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The Meaning of Life (View on the Week)
There are some interesting questions to answer this week. How much of the economic recovery is already priced into the equity markets? Are investors done with the value trade and moving back to growth, or does value still have more gains ahead? Does the market really see inflation as a threat or is it just necessary and transitionary in the current cycle?
Coming into the week, investors showed caution as they waited for two things. Tuesday's consumer price index data would provide a look at how high inflation moved in March. Second would be the earnings reports for big finance, starting on Wednesday. That caution brought an indecisive candle on Monday, a fight between bulls and bears, creating a thin body where the close was just below the mornings open.
The consumer price index data did come in higher than expected on Tuesday. But it seemed the equity markets had already priced in the fear of higher inflation. The numbers had a different consequence. The US Dollar weakened. The weaker US dollar was a boost for multinational mega-caps, amidst the caution in the market. It was interesting to see Utilities top the sector list, signaling caution, while still Consumer Discretionary and Technology came in second and third, helping advance the Nasdaq for the day.
After more than a week of strong gains with the largest mega-caps, we were due a pullback as investors take profits and turn to other opportunities. That happened on Wednesday. The mega-caps all dipped, taking the Nasdaq down for the day. Investors turned back to the cyclicals for new opportunities, especially in the Financial sector after positive reports from big banks in the morning. Import/Export data was good, Crude Oil Inventories good, demand for Chinese exports soared. It all showed economic activity accelerating. Perfect for cyclicals.
Yet, the enthusiasm for cyclicals was short lived. Thursday was back to big tech and growth stocks with the Financial and Energy sector moving back to the bottom of the sector list. And that Growth vs Value is a theme for the week that's worth more exploring.
The sure winner for the week, without much to question, was the Materials sector and the commodities behind it. All data from retail sales, China exports to the huge building permits and housing starts data on Friday, are driving commodity prices higher and boosting the Materials sector.
For big tech and Nasdaq, Friday was another indecisive day while the other major indexes hit all-time highs. But the curious thing for the week was how the Nasdaq put in higher highs all week while never seeing the advance/decline ratio move about 1.0. It hasn't been above 1.0 for the past six trading sessions. What was happening?
You can see what was happening by looking at the top and bottom lists for mega-caps and growth stocks throughout the week. You'll see the same names show up in the top list one day and the bottom list the next. Nvidia (NVDA) is a great example, going back and forth between top and bottom mover. Chinese stocks FUTU Holdings (FUTU) and UP Fintech (TIGR) had the opposite days from Nvidia. So the advancing stocks one day exchanged places with the declining stocks the next day.
That constant rotation within the index kept the advance/decline line below 1.0 while the mega-caps continued to push higher highs though the week. But by the end of the week, the rotations didn't prevent a broad set of stocks moving upward. Looking at the QQQ (weighted) index vs the QQQE (equal weight) index, the gains for the week are a bit more for the weighted index, but not that much higher. So despite rotation, that may have left some investors dazed, eventually the gains were shared broadly on a weekly basis.
Another way to view the rotation within the week is the back and forth between value and growth stocks. The last two weeks, investors moved back into growth stocks, clearly seen in the ratio of gains between growth and value stocks. However this week, the rise of growth relative to value stocks paused and went back and forth as it appeared investors weren't sure which was the right play moving forward.
The Nasdaq advanced +1.09% for the week. The closing range of 96% marks the third week in a row of a closing range above 95%. Volume was higher.
The higher and higher low is also a three week trend. The key level we needed to pass this week was 14,000. The index topped it twice and retreated but then closed above on Thursday. One more test on Friday, confirmed the resistance level turned to a support area and the index closed the week above the line on its way to a new all-time high.
The S&P 500 (SPX) and Dow Jones Industrial (DJI) both set new all-time highs for another week. The S&P 500 gained +1.37% for the week. The Dow Jones Industrial average gained +1.18%. The Russell 2000 (RUT) gained +0.86%, completing a three-weeks tight pattern where the index closes within a tight range each week. Small caps are still searching for their spot in the current rally.
The VIX volatility index continues lower with a -2.64% decline this week.
Utilities ( XLU ) is surprisingly the top sector for the week. Topping the list on Tuesday and nearing the top of the list on Friday the sector had steady gains throughout the week. The sector is usually a defensive move for investors. Perhaps investors nervousness grew as the S&P 500 has been setting new all-time highs.
Less of a surprise is to see Materials ( XLB ) at the top of the weekly list. The sector is benefiting not only from investments on infrastructure being discussed in Washington, but also a strong housing sector and a surge in building permits.
Energy ( XLE ) had a choppy week, taking the lead on Wednesday, but quickly fading to near the bottom of the list for the weekly.
Consumer Discretionary ( XLY ) also had some good days this week, advancing on news of strong retail sales and an advance in consumer credit showing increased spending.
The worst performing sector this week was Communications ( XLC ). There have been some reports of decelerating spending on Internet media and social platforms from retailers. That makes sense as demand is naturally increasing and requires less effort for omnichannel marketing to bring in consumers.
For the US Treasury yields, note the spread shown in the top of the chart. The green line is the difference between the US 10y and 2y yields. It's been flattening since the panic in March where the performance of equities was so tightly attached to the longer term treasury note yields.
The US 30y bond and 10y note yields both declined for the week while the 2y note yields rose, helping narrow the spread between long term and short term yields.
Both the High Yield Corporate Bond (HYG) and Investment Grade Bond (LQD) prices advanced for the week.
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The US Dollar (DXY) retreated -0.70% erasing all the gains during March and giving a boost to multinational companies that can benefit from a weakened US dollar.
All commodities, in the six tracked by this update, rose for the week, showing the high demand while economic activity continues to increase.
Timber (WOOD) is all time highs. COPPER (COPPER1!) is at its highest since at least 2015.
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The Big Four Mega-caps
The four big mega-caps completed a third week of gains, helping drive the index and their respective sectors higher. Microsoft (MSFT) had the biggest weekly gain, advancing +1.91%. Apple (AAPL) advanced +0.88%. Alphabet (GOOGL) gained +0.53%. All of these three have 10w moving average lines above the 40w moving average line. Amazon (AMZN) advanced +0.81% for the week and is trying to keep the 10w MA above the 40w MA.
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The Four Recovery Stocks
I picked four recovery stocks to track against the indexes and other indicators in this weekly report. Exxon Mobil (XOM) was able to finish the week with a +1.41% gain despite the Energy sector not faring well. Marriott (MAR) had a small gain of +0.10% gain. However, Carnival Cruise Lines (CCL) and Delta Airlines (DAL) lost -7.75% and -5.34% for the week as new waves of the pandemic outside of the US brought in new fears of impact to the travel and leisure sectors.
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Investor Sentiment
The put/call ratio (PCCE) closed the week 0.567. A contrarian indicator, when the put/call ratio is below 0.7, it signals overly bullish sentiment and could mean an overbought market.
The CNN Fear & Greed index moved back and forth around neutral but ended the week on the greed side.
The NAAIM exposure index rose to 96.57. Money managers continue to increase exposure in the market.
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The Week Ahead
Economic news on Monday will start off light with just a few short-term treasury bill auctions scheduled. They likely won't have much influence over yield concerns.
Tuesday also will be light. The API weekly crude oil stock update will come at market close.
Wednesday, additional crude oil inventory data will be released in the morning. A 20y treasury bond auction will happen in the afternoon.
Thursday will bring an update to Initial Jobless Claims and Existing Home sales.
On Friday the Manufacturing and Services Purchasing Managers Index data will be released. The data is an indicator for economic activity the respective sectors. New Home Sales data will also be released in the morning.
Coca-Cola (KO) will kick-off the week with a premarket earnings release on Monday. After market close, IBM (IBM), United Airlines (UAL), and Steel Dynamics (STLD) could be important earnings reports to watch.
Johnson & Johnson (JNJ) and Proctor & Gamble (PG) will both release earnings on Tuesday. They will be joined by Netflix (NFLX), Abbot Labs (ABT), Philip Morris (PM) and Lockheed Martin (LMT).
On Wednesday, Roche Holding (RHBY), Verizon (VZ), Chipotle (CMG) will release updates.
Thursday's earnings updates will include Intel (INTC), AT&T (T), Snap (SNAP), and DR Horton (DHI).
Friday will close the week with earnings reports from Honeywell (HON) and American Express (AXP).
Earnings reports for the first quarter of the year are starting to pick up and this isn't meant to be an exhaustive list. Check your own portfolio for earnings dates so you aren't surprised.
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The Bullish Side
The S&P 500 and Dow Jones Industrial continue to set records with all-time high closes. One could see that as the potential for a pullback in the markets, but it could also be time for the tech and small-caps to have their turn and bring the Nasdaq and the Russell 2000 up to all-time highs as well.
Inflation numbers are out in the open and investors didn't run from equity markets. Rather the impact to the US dollar showed there is some silver lining in the higher inflation number, that multinational companies can benefit from a weaker dollar under higher inflation. It also shows investors are taking some heed from the Fed that higher inflation doesn't necessarily mean higher interest rates.
Considering the mixed reaction to inflation, then one must be excited about the accelerating performance of the economy. You would be hard pressed to find a time when the economy grew at pace like it is now and the equity markets didn't advance at some level.
There is much to be positive about, from the flattening yield curve, to good earnings reports over the past week.
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The Bearish Side
Sure, there are positive gains in the market, but the gains are limited to a few players that are over extended or built on thin bases. Although mega-caps have carried the indexes higher, the big companies are now extended and ripe for a pullback. The action for their counterparts in mid-cap growth stocks are all over the place without strong price action to support expectation for further gains. Many popular small-caps seem to be on a downward spiral with no bottom in site.
Big finance earnings reports this past week were strong, thanks to improving yields in long term treasuries that impact results for big banks. Financial institutions have also benefited from the huge rise in investment activity in the first quarter. But how will earnings reports outside of the Financial sector look in the coming weeks. More importantly, what will be the outlook set for big tech and growth stocks as they face the post-pandemic recovery? Those could be in for a shock to investors compared to the tail winds of 2020.
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Key Nasdaq Levels to Watch
This week we will be watching for a new all-time high for the Nasdaq. Will it come this week, or is one more pullback necessary before the milestone?
On the positive side, the levels are:
- 14,062.50 is the high of this week. That will be the first price to beat this week.
- The all-time high is at 14,175.12.
- 14,564 is the middle line of the channel from the March 2020 bottom. The index has been below the midline for the past eight weeks.
On the downside, there are a few key levels:
- The low of this past week is 13,783.95. Let's get a higher low for next week.
- The 10d MA is at 13,861.74. The index has done well to stay above this line during power trends.
- The 21d exponential moving average is at 13,639.66. The 21d EMA is now above the 50d MA, a good confirmation of an uptrend.
- The 50d moving average is at 13,507.28.
- The lower line of the channel from the March 2020 bottom is around 13,192 for next week.
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Wrap-up
There's really one thing I'm watching for next week from a macro perspective. Will the advance/decline ratio rise above 1.0? When will there be a broader rally vs growth limited to the mega-caps while everything else rotates? That broader rally will mean there is enough shake out in equities that now investors are starting to set solid bets in the market vs chasing swings.
As for the individual investor, the most important price action is the one in your portfolio. Looking past the daily charts, how are your stocks performing on a weekly basis? The day-to-day swings don't matter as much as the weekly action that shows whether there is institutional support and growth heading into the economic recovery.
Good luck, stay healthy and trade safe!
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