Daily Market Update for 12/30Trend lines drawn from the 10/30 bottom (42d), 12/23 (5d) and today 12/30 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or and corrected inline in my blog.
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Wednesday, December 30, 2020
It took me so long getting back to my right mind.
Facts: +0.15%, Volume higher, Closing range: 18%, Body: 54%
Good: Stayed above yesterday's low
Bad: Longer upper wick, closing range near bottom
Highs/Lows: Lower high, higher low
Candle: Outside day, >50% red body, longer upper wick
Advance/Decline: 2.24, more than two advancing stocks for every declining stock
Sectors: Energy (XLE +1.57%) and Materials (XLB +1.38%) are top. Communications (XLC -0.67%) was bottom.
Expectation: Lower
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Market Overview
It's been a third day of rotation in the market as the money that supported a move from smaller-caps to larger-caps on Monday transitioned back to smaller-caps today (small and mid-caps). The result was a larger breadth of stocks advancing, but a bearish looking inside day for the Nasdaq. The index closed up +0.15% on higher volume. That was the good news. The closing range of 18% and 54% red body point to a more bearish view of the day. More than two stocks advanced for every declining stock.
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Indexes and Sectors
All major indexes were up for the day with the Russell 2000 (RUT +1.05%) leading with the biggest gain. The S&P 500 (SPX +0.13%) and the Dow Jones Industrial (DJI +0.24%) also had gains. Each of the indexes had inside days where the low was higher than the previous day's low, but the high is lower than the previous day's high. The RUT is the only index that showed a bullish character in the candle.
Energy (XLE +1.57%) and Materials (XLB +1.38%) were the leading sectors, likely given a boost by the Crude Oil Inventories data, which was lower than expected, revealing a surprising level of demand. Communications (XLC -0.67%) was the bottom sector, a change from the past two days where the sector has done well.
The VIX volatility index declined by -1.34%.
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Market Indicators
Yields declined on US 30y, 10y and 2y treasury bonds. The spread between long term and short term bonds tightened slightly. The bond market has been up and down slightly, but acting fairly consistent the past two weeks.
Corporate bond prices (HYG +0.21%) rose for the day, widening the yield spread with short term bonds (IEI +0.08%).
The US dollar (DXY -0.35%) dropped for the day. It's again testing the support level from early 2018.
Silver (SILVER +1.54%) and Gold (GOLD +0.86%) advanced for the day. Crude Oil futures (CRUDEOIL1! -0.26%) declined, despite the positive inventories data. Timber (WOOD +0.69%) advanced, continuing a week-long uptrend. Copper (COPPER1! -0.39%) declined while Aluminum (ALI1! +0.60%) advanced.
The put/call ratio rose to 0.629. 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.
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Market Leaders
The biggest four mega-caps all declined for the day. Apple (AAPL -0.85%), Microsoft (MSFT -1.1%), Amazon (AMZN -1.09%), and Alphabet (GOOGL -1.22%) dropped back from recent gains. Alphabet closed back below its 21d EMA but remains above its 50d MA.
Several mega-caps did very well. Tesla (TSLA +4.32%) set a new all-time high before falling back just beneath the previous all-time high. Taiwan Semiconductor (TSM +3.16%) and Walt Disney (DIS +2.18%) also had great gains. Mastercard (MA +2.56%) and Visa (V +1.86%) both had very positive days. Facebook (FB -1.77%) and Netflix (NFLX -1.18%) led the Communications sector lower.
Several growth stocks reversed the weeks earlier declines. Digital Turbine (APPS +7.55%), Fiverr (FVRR +3.75%) and Solar Edge (SEDG +3.61%) were among the top gainers. Also NIO (NIO +4.85%) and JD.com (JD +3.92%) are among Chinese stocks that have done well in the past two sessions, perhaps due to trade agreements between the European Union and China.
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Looking ahead
Thursday will be the last trading session of the year. New Years Eve!
New employment data will be released prior to market open on Thursday.
No notable earnings announcements are scheduled for Thursday.
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Trends, Support and Resistance
The long-term trend line from the 10/30 bottom points to a +1.19% gain, while the five-day trend points to a smaller gain of +0.42%.
If the market follows the one-day trend it would be a sideways move that results in a -0.06% loss.
It seems the market is actually holding up well, despite the series of red candles. However, if the index moves down, there seems to be a support level from 12,450 to 12,550 (has not been tested much) where the index can pause during a pullback. The previous support level is around 12,250.
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Wrap-up
The three red candles for the week are a bit tricky to figure out. They look bearish, but keep in mind that the low of this week is above the close of the previous week. The candles are more representative of the heavy rotation among small and large cap segments.
I've set the expectation for Lower the past two days. That is based on the candles and not so much a bearish view of the market.
There is no concerning level of defensive plays within the equity markets or in safe havens such as treasury bonds. In fact, investors are buying up corporate bonds as they see economic recovery coming.
The US dollar is still weakening and that is something to watch for as some weakening is good, but excessive weakening would likely cause corrective actions that would put pressure on equity markets.
I'm looking for the market to confirm my bullish view by breaking the expectation of Lower in today's analysis. At the same time, a Lower move that doesn't breakthrough support levels is certainly acceptable.
Stay healthy and take care!
