IXIC trade ideas
Daily Market Update for 1/20Trend lines drawn from the 10/30 bottom (55d), 1/13 (5d) and today 1/20 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or and corrected inline in my blog.
I'm working to condense this daily update over the next few weeks. I need to reduce it for both brevity and preparation time.
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Wednesday, January 20, 2021
Facts: +1.97%, Volume higher, Closing range: 90%, Body: 73%
Good: Gains the whole day and closing near the top of the range
Bad: Gap up
Highs/Lows: Higher high, higher low
Candle: Mostly green body with a tiny lower wick and more visible upper wick from some selling at close
Advance/Decline: 1.29, more advancing stocks than declining stock.
Indexes: SPX (+1.39%), DJI (+0.83%), RUT (+0.44%), VIX (-7.14%)
Sectors: Communications (XLC +3.14%) and Real Estate (XLRE +2.08%) were top. Financials (XLF -0.42%) was the only losing sector.
Expectation: Sideways or Higher
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Market Overview
If the equity market could talk, I think it would say Happy Inauguration Day. Investors breathed a sigh of relief that maybe some of the turmoil is behind us. That sentiment translated into a gap up at open with steady gains throughout the day.
The Nasdaq closed with a big +1.97% gain on higher volume. The candle has a closing ranging of 82%, but including the gap the actual closing range is even better at 90%. The 73% green body and tiny lower wick shows the nearly constant gains that happened throughout the trading session. There were more advancing stocks than declining stocks, but note that the breadth was not as wide as the previous day.
The Russell 2000 (RUT) gained 0.43%, one of the few times in recent months where it has trailed the other indexes in performance. So there was a shift back towards the larger caps, but not enough to call it a rotation. The S&P 500 (SPX) ended with a +1.39% gain while the Dow Jones Industrial (DJI) gained +0.83%.
Communications (XLC +3.14%) was the leading sector by a large margin. Technology (XLK +1.98%) looked like it would keep up with Communications in the morning, but faded behind Real Estate (XLRE +1.98%) by afternoon. Consumer Discretionary (XLY +1.89%) was the other stand-out sector. These four sectors drove the S&P 500 gains. All other sectors under-performed the major index. Only Financials (XLF -0.42%) declined for the day.
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Economic Indicators
The US Dollar (DXY) declined slightly to -0.03%. US 30y treasury bond yields stayed about even while US 10y and US 2y yields dropped. Corporate Bonds (HYG) prices increased for the day and set a recent high.
Silver (SILVER) and Gold (GOLD) both advanced for the day. Crude Oil (CRUDEOIL1!) futures also rose. Timber (WOOD) and Copper (COPPER1!) advanced while Aluminum (ALI1!) declined. These commodity trends have been consistent the past 4-5 days.
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Investor Sentiment
The put/call ratio rose slightly to 0.560. 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 four biggest mega-caps, Apple (AAPL, Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL) decided they finally wanted to join the market rally. All four turned in huge gains for the day. Alphabet was the biggest gain, advancing +5.36%. All four closed well above the key 21d EMA and 50d MA.
Netflix was the top performing mega-cap after surprising investors with a record number of subscribers and the first time over 200m. The fact they did not meet earnings expectations, did not matter. The subscribers plus the announcement of a potential stock buyback program sent the price soaring.
Most mega-caps had gains for the day. The large banks such as Bank of America (BAC) and JP Morgan Chase (JPM) were the worst performers.
There were a lot of exciting moves among growth stocks as well. FUTU (FUTU) had another big advance with a +10.97% gain. Digital Turbine (APPS) also broke into new all-time highs with a +10.85% gain.
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Looking ahead
Tomorrow will kick-off with real estate data before market open. That will include Building Permits and Housing Starts. Also before market open, there will be an update on Initial Jobless Claims and Manufacturing data for January.
Fifth Third (FITB) and KeyCorp (KEY) are among financial companies reporting earnings before market open. Intel (INTC) will IBM (IBM) announce earnings after market close.
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Trends, Support and Resistance
If today's trend line continues tomorrow, it points to a +1.08% gain tomorrow.
The five-day trend line and long-term trend line from the 10/30 bottom point to a small pullback of -0.44%.
If there is a downside move, 13,000 support seems to be holding up well for the index and that's just above the 21d EMA now. The 21d EMA is around 3.8% below the index which should also offer support at the 13,000 level. The index also held the 12,550 area recently. If it passes that area, the next support area is 12,250.
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Wrap-up
It was a bold statement made by the markets today as the US transitions to a new administration. Lots of great things happened including the big mega-caps joining the current market rally that started in November.
The Financial sector declining on such a big day was one negative point. The sector is declining as more banks are releasing earnings that beat expectations on earnings but are disappointing on revenue. But keep in mind that the higher treasury bond yields, that are expected to drive more revenue in this sector, only came in the first week of January.
Watch out for the gap created today. The index doesn't have to fill the gap, but it often has in the past.
Stay healthy and take care!
Daily Market Update for 1/19Trend lines drawn from the 10/30 bottom (54d), 1/11 (5d) and today 1/19 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or and corrected inline in my blog.
I'm working to condense this daily update over the next few weeks. I need to reduce it for both brevity and preparation time.
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Tuesday, January 19, 2021
Facts: +1.53%, Volume lower, Closing range: 92%, Body: 50%
Good: Solid gains in afternoon after morning low, high closing range
Bad: Nothing
Highs/Lows: Higher high, higher low
Candle: Longer lower wick from morning dip, thick green body from afternoon
Advance/Decline: 2.04, two advancing stocks for every declining stock.
Indexes: SPX (+0.81%), DJI (+0.38%), RUT (+1.32%), VIX (-4.52%)
Sectors: Energy (XLE +2.01%), Communications (XLC +1.81%), and Technology (XLK +1.30%) were top. Real Estate (XLRE -0.66%), Consumer Staples (XLP -0.44%), Utilities (XLU -0.38%) were bottom.
Expectation: Higher
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Market Overview
The market started the trading week on a note of optimism after a long weekend. The end of the last week was marked with defensive moves into lower risk sectors and safe haven assets. Today, the opposite moves were made to begin a week that brings a transition for the US, the inauguration of President Biden.
The Nasdaq closed with a +1.53% gain on lower volume. The closing range of 92% and a thick 50% green body are representative of the confident buying in the afternoon that produced the bullish session. The lows in the morning were just above Friday's open. After testing that low three times in the morning, the index finally turned to the upside for the rest of the session. There were two advancing stocks for every declining stock.
The Russell 2000 (RUT) was just behind the Nasdaq with a +1.32% gain. The S&P 500 (SPX) and Dow Jones Industrial (DJI) followed with a +0.81% and +0.38% gain respectively. The Nasdaq is nearing a new all-time high. The other major indexes are slightly farther from new all-time highs.
The VIX volatility index declined by -4.52%.
Energy (XLE +2.01%), Communications (XLC +1.81%), and Technology (XLK +1.30%) were top sectors for the day. Real Estate (XLRE -0.66%), Utilities (XLU -0.38%), and Consumer Staples (XLP -0.44%) were the only losing sectors. Having Real Estate and Utilities at the bottom is a significant change from the latter part of last week as investors reduced exposure in these defensive plays.
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Economic Indicators
The US Dollar (DXY) dropped -0.29%. US 30y and US 10y treasury bond yields rose while US 2y treasury bonds dropped, widening the spread between longer term and shorter term bonds. Corporate Bonds (HYG) prices increased for the day and are heading back to recent highs.
Silver (SILVER) and Gold (GOLD) both advanced for the day. Crude Oil (CRUDEOIL1!) futures also rose. Timber (WOOD) and Copper (COPPER1!) advanced while Aluminum (ALI1!) declined.
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Investor Sentiment
The put/call ratio dropped back to 0.553. 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 four mega-caps had gains for the day. Alphabet (GOOGL) had the biggest gain at +3.29% and moved above its 21d EMA and 50d MA. Apple (AAPL) remains below its 21d EMA, but well-above the 50d MA. Microsoft (MSFT) and Amazon (AMZN) had gains for the day, but remain below both of these moving average lines.
Taiwan Semiconductor (TSM), ASML Holding (ASML), Facebook (FB) and Alibaba (BABA) were the top four mega-cap performers for the day. Most mega-caps gained for the day, however big retail Walmart (WMT), Home Depot (HD), Procter & Gamble (PG) and Nike (NKE) were at the bottom of the mega-cap list with losses.
There were a lot of big winners in growth stocks. FUTU (FUTU) rose +16.85%. Magnite Inc (MGNI) gained +15.47%. Etsy (ETSY) and Fastly (FSLY) both rose around 8%. At the bottom of the growth stock list was Fiverr (FVRR) which lost -10.05% after an analyst downgraded the stock.
Netflix (NFLX) was up over 12% after hours. Their earnings announcement included a record number of subscriptions, exceeding 200m for the first time, driving record revenue. That was enough to excite investors, despite Netflix missing expectations on earnings. They also are considering share buybacks.
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Looking ahead
Tomorrow is the inauguration of President Joe Biden. His remarks during the day will put more focus on his priorities and impact markets accordingly. Otherwise there is not much economic news for tomorrow.
Earnings announcements tomorrow include United Health (UNH), Proctor & Gamble (PG), ASML Holding (ASML) and Morgan Stanley (MS), all before market open. United Airlines (UAL) will release their earnings announcement after market close.
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Trends, Support and Resistance
The one-day trend line meets up with the long trend line from the 10/30 bottom, and points to a +1.08% gain and a new all-time high.
The five-day trend line points to a -0.44% pullback.
If there is further downside, 13,000 seems to be holding up well for the index. The 21d EMA is just over 2% below the index which should be an area of support if there's a further downside move. The index also held the 12,550 area recently. If it passes that area, the next support area is 12,250.
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Wrap-up
The index started the week on a positive note. The bullish afternoon trading points to more upside for tomorrow. President Biden is likely to give additional clues to his immediate actions in his inauguration speech. Some of those actions may create some rotations, but overall the fed and further stimulus should hold the broader market in a good place.
Keep an eye on investor sentiment as confidence builds this week. The put/call ratio is at a very low level. The CNN Fear & Greed index is not too bad, considering the context. However, the NAAIM Exposure Index is above 100, which often proceeds pull backs. Recently, Aug 26 and Oct 14 were examples of this. However, it was above 100 in November and December with not much impact to the markets.
Remain confident, but also cautious.
Stay healthy and take care!
NASDAQ Waves - Approaching end of Wave 5?In my wave count and fib analysis, it looks like NASDAQ could have hit the end of wave 5 last week or could push a little higher.
Here are my major channels/trend lines since the dot com bubble. Note that last week we just barely topped above the major line from dot com.
Wave chart at different time frames.
Longing NASDAQ CompositeIXIC is still in the green and is growing, and probably at the end of this impulse. We are looking for the Composite to move up further to upper half of 13K to low 14K range of the next few weeks. Currently oversold on the daily with minor momentum drops, so there might be a small pullback before we go even higher up. But do DO you own research before investing in any asset or currency.
Market Week In Review - 1/11/2021 - 1/15/2021The 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. It helps me evaluate my observations, recognize new data points, and create a plan for possible scenarios in the future.
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 original charts for more detail each day.
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Monday, January 11, 2021
Facts: -1.25%, Volume lower, Closing range: 27%, Body: 9%
Good: Lower volume, stayed above 13k
Bad: Morning gains turn to a new intraday low before close
Highs/Lows: Lower high, lower low
Candle: Bearish inside day, thing body at bottom of candle
Advance/Decline: 0.83, more declining than advancing
Indexes: SPX (-0.66%), DJI (-0.29%), RUT (-0.03%), VIX (+11.69%)
Sectors: Energy (XLE +1.57%) and Health Services (XLV +0.47%) were top. Communications (XLC -1.78%) and Consumer Discretionary (XLY -1.87%) were bottom.
Expectation: Sideways or Lower
It was tough to have any expectation coming into today's trading session. Nervousness about what will happen in DC on top of continuing pandemic pressures over the weekend resulted in a low start to the day. Confidence grew as buyers came in but ultimately the bears ruled the day, bringing the index back down to a new intraday low before close.
The index closed with a -1.25% loss on lower volume. The bearish day resulted in a 27% closing range where the close is just under the open. The 9% body and long upper wick show the morning buying turning to afternoon selling. More stocks declined than advanced.
The S&P 500 (SPX) and Dow Jones Industrial (DJI) had similar patterns, but closed the day with smaller losses. The Russell 2000 (RUT) also had a loss but with a more bullish look and the smallest loss of the four indexes. The VIX volatility Index rose +11.69%.
Energy (XLE +1.57%) and Health Services (XLV +0.47%) were the top sectors for the day. Crude Oil prices continuing to rise helped Energy take the top spot after a morning dip. Financials (XLF +0.32%) was the only other sector to gain for the day. Communications (XLC -1.78%) and Consumer Discretionary (XLY -1.87%) were bottom.
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Tuesday, January 12, 2021
Facts: +0.28%, Volume higher, Closing range: 77%, Body: 7%
Good: Close in upper side of range, dipped just briefly below 13,000
Bad: Thin body, second indecisive day, LH/LL
Highs/Lows: Lower high, lower low
Candle: An indecisive candle with close just above open, long lower shadow
Advance/Decline: 2.23, more than two advancing for every declining stock
Indexes: SPX (+0.04%), DJI (+0.19%), RUT (+1.77%), VIX (-3.11%)
Sectors: Energy (XLE +3.49%) and Consumer Discretionary (XLY +1.53%) were top. Communications (XLC -1.61%) and Health Services (XLV -1.09%)
Expectation: Sideways
If you are invested in growth stocks and small caps you are probably delighted, but it may be a bit confusing to look at the indexes. The growth and small cap segments did exceptionally well, but the major indexes show an indecisive day. The Nasdaq dipped mid-day but finished just above its open.
The index closed up +0.28% on higher volume. The closing range of 77% is a positive, but the 7% body displays the indecisiveness. However, the advance/decline number of 2.23 shows a much more bullish picture, raising questions whether the broader market can continue to advance without the bigger players advancing.
Another way to see the power of the small-caps is the Russell 2000 (RUT) index that soared above the other indexes with a +1.77% gain and a fat green candle with no lower wick and a tiny upper wick. The S&P 500 (SPX) and Dow Jones Industrial (DJI) had smaller gains than the Nasdaq, all show indecisive candles.
Energy (XLE +3.49%) and Consumer Discretionary (XLY +1.53%) were the top sectors of the day. Communications (XLC -1.61%) and Health Services (XLV -1.09%) were at the bottom.
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Wednesday, January 13, 2021
Facts: +0.43%, Volume lower, Closing range: 65%, Body: 34%
Good: Never revisited morning low, close in upper half of candle
Bad: Nothing, just not exciting
Highs/Lows: Higher high, Higher low
Candle: Medium to small body with longer upper wick than lower wick
Advance/Decline: 0.85, more declining stocks than advancing stocks
Indexes: SPX (+0.04%), DJI (+0.19%), RUT (+1.77%), VIX (-3.11%)
Sectors: Utilities (XLU +1.95%) and Real Estate (XLRE +1.37%) were top. Industrials (XLI -0.86%) and Materials (XLB -1.02%) were bottom.
Expectation: Sideways
It was not a very exciting session for the Nasdaq today, but there were certainly pockets of excitement in parts of the market. The brief climb in the morning for Nasdaq turned to a sideways movement for the rest of the day. The good news is that the index never went back down towards the morning low. However, the gains for mega-caps and some growth stocks were not broadly shared across the market, keeping the index from closing closer to the intraday highs.
The index closed with a +0.43% gain on lower volume. The closing range was 65% with a green body covering 34% of the candle. More stocks declined than advanced on the Nasdaq. Another way to see the influence of the mega caps today is to look at the cap weighted QQQ (+0.68%) vs the equal weight QQQE (-0.01%).
The S&P 500 (SPX) gained +0.23% while the Dow Jones Industrial lost (DJI) -0.10%. The Russell 2000 (RUT) lost -0.75% as money rotated into larger cap stocks today.
Utilities (XLU +1.95%) and Real Estate (XLRE +1.37%) were the top sectors. Often these sectors are at the top when investors get a bit nervous, but don't want to exit the equities market. The worst performing sectors were Industrials ( XLI -0.86%) and Materials ( XLB -1.02%).
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Thursday, January 14, 2021
Facts: -0.12%, Volume lower, Closing range: 12%, Body: 51%
Good: New all-time high, higher low
Bad: Closing range, sell-off to close after morning all-time high
Highs/Lows: Higher high, Higher low
Candle: Thick red body in lower half of the candle, longer upper wick
Advance/Decline: 2.50, five advancing stocks for every two declining stocks.
Indexes: SPX (-0.38%), DJI (-0.22%), RUT (+2.05%), VIX (+4.68%)
Sectors: Energy (XLE +2.96%) and Real Estate (XLRE +0.62%) were top. Consumer Discretionary (XLY -0.64%) and Technology (XLK -0.88%) were bottom.
Expectation: Sideways
Investors shook off bad employment news in the morning to drive indexes to all-time highs before an afternoon session of selling. There were plenty of gains across a breadth of stocks, but the losses in the mega-caps weighed down the major indexes. The exception was the small-cap Russell 2000 which gained +2.05% in a solidly upwards session.
The Nasdaq closed with a -0.12% loss after setting a new all-time high. The closing range of 12% with a large 51% red body is sign of weakness, but volume was lower so would not count as a distribution day. The losses were focused in the larger caps which is why the overall index is down even though there were far more advancing stocks than declining stocks. As we did yesterday, you can also see the imbalance by looking at the QQQ which is down -0.53% while the equal weight QQQE is up +0.12%.
The S&P 500 (SPX) lost -0.38% while the Dow Jones Industrial average (DJI) lost -0.22%. The VIX Volatility index rose +4.68%.
Energy (XLE +2.96%) was the top sector after OPEC released their monthly report with a mix of messages around oil demand and shale output. Real Estate (XLRE +0.62%) was the second best sector. Consumer Discretionary (XLY -0.64%) and Technology (XLK -0.88%) were the worst performing sectors.
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Friday, January 15, 2021
Facts: -0.87%, Volume lower, Closing range: 26%, Body: 53%
Good: Held lows near 13,000
Bad: Bearish in early morning and afternoon selling, low closing range, thick red body
Highs/Lows: Lower high, lower low
Candle: Thick red body, equal upper and lower wicks
Advance/Decline: 0.45, two declining stocks for every advancing stock.
Indexes: SPX (-0.72%), DJI (+0.30%), RUT (-1.49%), VIX (+4.69%)
Sectors: Real Estate (XLRE +1.54%) and Utilities (XLU +0.98%) were top. Energy (XLE -3.89%) and Financials (XLF -1.65%) were bottom
Expectation: Sideways or Lower
The market took a step back at the end of a week, after moving sideways most of the week. It wasn't a huge move downward, but was certainly a bearish looking day across indexes and market indicators.
The Nasdaq closed with a -0.87% loss on lower volume. The closing range was 26% and a thick red body of 53% that sits in the middle of the candle. The short upper and lower wicks show some effort by the bulls to buy up dips and move the market upwards. But with two declining stocks for every advancing stock, the result is a bearish candle to end the week.
The S&P 500 (SPX) lost -0.72% while the Dow Jones Industrial average (DJI) gained +0.30%. The Dow Jones gains were primarily from a few mega-cap stocks that had positive gains and are heavily weighted within the index. The Russell 2000 (RUT) lost -1.49%. The VIX Volatility index rose +4.69%.
Real Estate (XLRE +1.54%) and Utilities (XLU +0.98%) were top, two sectors used as defensive strategies for investors. Energy (XLE -3.89%) and Financials (XLF -1.65%) were bottom after leading much of the week.
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The Meaning of Life (View on the Week)
This was a good week to pause and realize the benefit of why I spend this time on the weekend to walk back thru the week and look at the bigger picture. The week was a mix of ups and downs depending on what types of investments are the focus in your portfolio. Week over week, the Nasdaq lost -1.54% with a closing range of 18% and a negative body of 18.6%. Those are not great stats. However, when you look at the week as a whole, there are a variety of positive signs both in the charts as well as the market indicators.
The first four days of the week trend upward and set a new all-time high on Thursday. The high of the week is higher than last week's high and the low of the week is higher than last week's low. Energy (XLE) and Financials (XLF) led the sectors for most of the week. These are two sectors that are signals of economic recovery.
So what happened on Friday? There were several catalysts to the end of the week sell-off. Some of it had to do with sector rotation. First, the SEC announced an investigation into Exxon Mobil (XOM) which weighted down the Energy sector. Exxon Mobil makes up 23% of the XLE ETF that I use to track the sector, and as people reduce their exposure to the sector it will impact many of the stocks in that sector. It didn't help that Tesla (TSLA) caused a sell-off of solar energy stocks after they announced they'll produce their own inverter for customers.
It was a similar story for Financials. Before market open, Citigroup (C) and Wells Fargo (WFC) released earnings announcements that showed they beat earnings expectations but fell short on revenue. Investors were not pleased with the revenue and reduced their exposure to the Financials sector.
The third catalyst was investor sentiment heading into a three-day weekend that precedes what could be a tumultuous week for the US. There are a few places you can see that sentiment displayed. For sectors, Utilities (XLU) and Real Estate (XLRE) were gaining on other sectors throughout the week and outperformed on Friday. These sectors are defensive plays. US02Y and US05Y treasury bond yields, as well as longer term bond yields, all dropped for the week as investors moved to the safe haven investments.
Friday was also an expiration day for option contracts. With the put/call ratio being quite low (many more calls than puts) over the past several weeks, and many of the large mega-caps moving sideways, it's very possible that a high number of call contracts expired without meeting the strike price. Market makers may sell the underlying stocks to keep prices lower than the strike and also reduce exposure to the a stock they no longer need to cover for worthless contracts.
All of that to say (as much to myself as to the reader), don't worry about Friday's minor pullback, even if it hit some of your positions more than the market dip.
The Russell 2000 (RUT) continued its leadership among the indexes with a +1.51% gain for the week. The S&P 500 lost -1.48% while the Dow Jones Industrial average lost -0.57% for the week.
You can see the bearish end to the week in the weekly chart with the low closing range and long upper-wick formed after selling from Thursday's high. You can also see that we have a higher high and a higher low than the previous week. That's an uptrend. Looking at the volume is another key characteristic. Note that bullish green bars have higher volume than bearish red bars. Even at the daily level, this past week had higher volume on bullish days than on bearish days.
The sectors had a wild race this week with the backdrop of a up and down market with several rotations between small caps, mid caps and large caps.
Energy ( XLE ) would ultimately be the winner, supported by production cuts in Saudi Arabia, higher than expected demand for oil , and some positive news from OPEC. There was a significant pullback on Friday after SEC announced an investigation into Exxon Mobile ( XOM ) which makes up 23% of the XLE ETF .
Financials ( XLF ) led must of the week as investors expect higher treasury yields boost performance for big banks. That turned upside down on Friday when Citigroup (C) and Wells Fargo ( WFC ) disappointed on revenue despite beating expectations on earnings .
It was Real Estate ( XLRE ) and Utilities ( XLU ) that started to climb on Tuesday and were top performers on Friday. Those two sectors are defensive plays for equity investors. Both are expected to suffer less from market pullbacks.
Materials ( XLB ) and Industrials ( XLI ) were also doing well earlier in the week, but pulled back on Friday. It could be that the nearly $2 trillion of stimulus promised by President-elect Biden is seen as a delay to the expected investments in infrastructure. Just a theory.
Technology ( XLK ) and Communications ( XLC ) were at the bottom. The big tech mega-caps went up and down in price all week as money moved in and out of the segment. Communications, which includes companies like Facebook ( FB ) and Twitter ( TWTR ) suffered the most as investors fear negative impact of recent actions related to Donald Trump.
US Treasury Bond yields dropped for the week as investors moved into the instrument. The purchasing could be a combination of reaction to the Fed continuing bond buying. It can also be due to the sharp increase in value of the US Dollar after hitting recent lows last week. And some of it could be as a viable safe haven from volatility in the stock market.
Prices for high yield corporate bonds (HYG) declined while investment grade (LQD) corporate bonds increased. In addition to the increased prices of short term treasury bonds (IEI), it signals investors moving to less riskier assets.
The US Dollar (DXY) rose +0.70% for the week.
The put/call ratio (PCCE) ended the week at 0.657. The is a much better number than the previous week which was showing too much optimism. A contrarian indicator, when the put/call ratio is below 0.7, it signals overly bullish sentiment which typically proceeds a pullback in the market. The indicator was at 0.458 just before the September correction and it was at 0.489 just before the short October correction.
Silver (SILVER) was down -2.65% and Gold (GOLD) was down -1.13%. Crude Oil futures were up +0.69%.
Timber (WOOD) was down -3.01%. Copper (COPPER!1) dropped -2.76% while Aluminum (ALI1!) was down -2.42%.
A question for me all week has been will the big tech mega-caps continue to weigh on the indexes, or will they start to participate in the market rally that's been ongoing for the past 10-11 weeks. And on the flip side, can the rally continue without them. Looking at the Relative Candle indicator at the bottom of each chart, you can see they have lagged behind the Nasdaq (Alphabet had several weeks of outperforming).
Each of the mega-caps has been forming a consolidation pattern where lows are getting closer to highs while volume is contracting. That’s a classic pattern of reduction in sellers as buyers take the opportunity to increase positions, holding prices up.
Earnings dates approach for these giants later in January. MSFT on 1/26, AAPL on 1/27, AMZN on 1/30 and GOOGL on 2/2. Those dates could be pivotal for the mega-caps to get back in the game. Or they could be a breakdown that pulls the indexes with them.
The above charts show an important pivot that occurred the week of August 3, 2020. The top chart shows the performance of Value stocks in the S&P 500 vs the rest of S&P 500 stocks. You can see that value stocks have underperformed since 2008, but even more so in 2020 prior to August 3.
In the bottom chart, you see the QQQ ETF which is based on the Nasdaq 100, weighted on market cap (more representation for larger cap companies) and the QQQE ETF which is equal weighted across the Nasdaq 100. This shows the rotation of investment from larger caps to a more broad investment across the market which has driven recent gains.
Not included here, but you can do a similar comparison of the Russell 2000 (RUT) small cap vs the S&P 500 and see the same pivot.
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The Week Ahead
Markets are closed on Monday for Martin Luther King Jr. day.
Next week will bring the inauguration of President-elect Biden. The transition on Wednesday will lead to several executive decisions being made over the next week. Those decisions will impact sectors such as Energy, Industrials, Materials and Technology. Some to the positive, some to the negative.
Wednesday will also bring updates on Crude Oil Inventories. Thursday will include Fed Manufacturing data, Employment Data and December data for Building Permits and Housing Starts. On Friday, we'll have more updates on Manufacturing activity, Services activity, and Existing Homes Sales.
Earnings activity will pick up next week and continue for the next several weeks. There will be more earnings announcements from big banks, including Bank of America (BAC), Goldman Sachs (GS) on Tuesday before market open. Netflix (NFLX) will announce earnings after market close on Tuesday. Procter & Gamble (PG), United Health (UNH) and Morgan Stanley (MS) on Wednesday.
Intel (INTC), IBM (IBM) and Citrix Systems (CTXS) kick-off big tech stock earnings on Thursday.
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The Bullish Side
A higher high and a higher low. The index continues to move in an upward trend despite a pause this week with a slight pullback on Friday. The uptrend continues despite turmoil in politics and the worsening pandemic.
The fed has continued its policy of not raising interest rates and continuing to buy back bonds. This is keeping liquidity in the markets while further stimulus will add to economic activity. Many analysts are questioning whether further stimulus is even needed as the economy seems to be getting back on track.
Wednesday will mark the new administration which will bring immediate actions to further support economic recovery. Those will range from increased focus on ending the pandemic as well as stimulus to small businesses and individuals.
Although the big mega-caps have not participated in the rally, and in some cases weighed down the index, they still have plenty of support and could break out of consolidation patterns at any moment.
So the markets continue to rise. The index has closed above the 21d EMA for 50 consecutive days. That's 11 weeks of rally, that hasn't yet shown signs of backing down.
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The Bearish Side
Investors are clearly worried about what is to come in the near future. The defensive plays in Utilities and Real Estate as well as the move from risky investments to safer Treasury Bonds and Investment Grade Corporate Bonds is a clear sign of that nervousness. It may not take much for investors to go further and begin selling off equities in favor of bonds or commodities.
The implementation of Biden's policies in the coming weeks can have both positive and negative impacts. Energy that has been leading the sectors for so many weeks is likely to be impacted, on top of the Exxon Mobil investigation launched last week.
At the same time, policies that require the support of congress may be delayed due to the impeachment trial that will start this week. Those may include delays to further stimulus, infrastructure projects and programs to reduce unemployment.
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Key Nasdaq Levels to Watch
There are several key levels in the Nasdaq to keep an eye out for and respond accordingly. First on the positive side:
13,000 is a support area. The index closed a hair below that point on Friday. Look for it to move above and stay above this area next week.
The high of Thursday at 13,220.16. Can the index continue to make newer highs each week?
The index is pausing about every 300-400 points, so expect some resistance around 13,350 - 13,400 area.
Reach 13,400 would put the index back in the middle of a regression trend from the 10/30 bottom.
On the downside, there are several key levels to raise caution flags:
The low of last week is 12,949.76. Stay above that line to set a higher low next week.
12,860.31 is the 21d EMA. The index stayed clear of the line this past week, even with the dip on Friday.
12,550 is an area of support.
12,425.34 is the 50d moving average. The 50d moving average is key support line that has not been tested since 11/4. The index is closer to the line after this past weeks pause, which is a good gap to close, but not dip below the line.
The support area of 12,250 is the next area. It is nearly 6% below Friday's close and would be a signal of correction if we reached that area.
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Wrap-up
Wednesday's inauguration will hopefully end some of the turmoil in the markets that we've experienced over the last few months. It doesn't guarantee that prices move up, but at least there might be a reduction in the number of surprises that have pivoted investors in various directions since early November.
For now, we are still in an uptrend. There are positive signs that the rally will continue. Follow price. Have a plan for all the stocks in your portfolio depending on your investment style and risk tolerance.
Good luck, stay healthy and trade safe!
Nasdaq CompositeNasdaq Composite - 59% above it’s 200-week moving average. Last week we plotted the index relative to the US10Y-US2Y spread, highlighting periods where a decline in the Nasdaq coincided with a rise in the spread. Today, we add another dimension as we highlight the Nasdaq Composite being extended by 59% versus it's 200-week simple moving average. As per the weekly chart, you will note that before the prior declines, the index traded at +34% (Oct-2018) and +38% (Feb-2020). In addition, the Relative Strength Index has made two lower highs over the 11-month period - a classic negative/bearish divergence.
Daily Market Update for 1/15Trend lines drawn from the 10/30 bottom (53d), 1/11 (5d) and today 1/15 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or and corrected inline in my blog.
I'm working to condense this daily update over the next few weeks. I need to reduce it for both brevity and preparation time.
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Friday, January 15, 2021
Facts: -0.87%, Volume lower, Closing range: 26%, Body: 53%
Good: Held lows near 13,000
Bad: Bearish in early morning and afternoon selling, low closing range, thick red body
Highs/Lows: Lower high, lower low
Candle: Thick red body, equal upper and lower wicks
Advance/Decline: 0.45, two declining stocks for every advancing stock.
Indexes: SPX (-0.72%), DJI (-0.57%), RUT (-1.49%), VIX (+4.69%)
Sectors: Real Estate (XLRE +1.54%) and Utilities (XLU +0.98%) were top. Energy (XLE -3.89%) and Financials (XLF -1.65%) were bottom
Expectation: Sideways or Lower
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Market Overview
The market took a step back at the end of a week, after moving sideways most of the week. It wasn't a huge move downward, but was certainly a bearish looking day across indexes and market indicators.
The Nasdaq closed with a -0.87% loss on lower volume. The closing range was 26% and a thick red body of 53% that sits in the middle of the candle. The short upper and lower wicks show some effort by the bulls to buy up dips and move the market upwards. But with two declining stocks for every advancing stock, the result is a bearish candle to end the week.
The S&P 500 (SPX) lost -0.72% while the Dow Jones Industrial average (DJI) gained -0.57%. The Russell 2000 (RUT) lost -1.49%. The VIX Volatility index rose +4.69%.
Real Estate (XLRE +1.54%) and Utilities (XLU +0.98%) were top, two sectors used as defensive strategies for investors. Energy (XLE -3.89%) and Financials (XLF -1.65%) were bottom after leading much of the week.
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Economic Indicators
The US Dollar (DXY) rose for the day and is trending up since the beginning of the year. US Treasury 30y (US30Y), 10y (US10Y) and 2y (US02Y) bond yields all declined for the day. Corporate Bonds (HYG) prices also declined for the day, but remains near recent highs.
Silver (SILVER) and Gold (GOLD) both declined for the day. Crude Oil (CRUDEOIL1!) futures declined. Timber (WOOD), Copper (COPPER1!), and Aluminum (ALI1!) all declined for the day.
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Investor Sentiment
The put/call ratio took a big dip to 0.647, an extreme level of optimism for investors. 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
All four of the biggest mega-caps lost for the day and are trading below their 21d EMA. Microsoft (MSFT), Amazon (AMZN) and Alphabet (AMZN) are also below their 50d MA. Only Apple (APPL) remains above its 50d MA. The declining days for these stocks are on higher volume than the advancing stocks.
Home Depot (HD), Facebook (FB) and Merck (MRK) were mega-caps that had good advances today. Exxon Mobil (XOM) and ASML Holdings (ASML) were among the biggest losers.
Not many growth stocks advanced today. SNAP (SNAP) rose +2.61% as part of an upside reversal among communication sector stocks. Solar Edge (SEDG) dropped around -16%, along with other solar energy stocks after Tesla (TSLA) announced it will sell its own inverter.
JPMorgan (JPM), Citigroup (C), Wells Fargo (WFC) all were down for the day after earnings results that beat on earnings. Citigroup and Wells Fargo beat earnings, but disappointed on revenue, raising concerns among investors for the Financial sector.
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Looking ahead
Markets will be closed on Monday for Martin Luther King Jr. day.
There is not much economic news scheduled for Tuesday.
Several more financial institutions, including Bank of America (BAC) will announce earnings on Tuesday morning. Netflix (NFLX) will announce earnings after market close.
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Trends, Support and Resistance
The long trend line from the 10/30 bottom point to a +2.80% gain. The five day trend line points to a gain of +1.55%.
The one-day trend line points to a sideways move.
If there is further downside, 13,000 seems to be holding up well for the index. The 21d EMA is nearly 2% below the index which should be an area of support if there's a further downside move. The index also held the 12,550 area recently. If it passes that area, the next support area is 12,250.
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Wrap-up
The week ended with a change of character in the market. Although the losses in the major indexes were not substantial, the underlying characteristics changed more significantly, requiring a further look. After leading the sector list the whole week, Energy and Financials sold off today. Defensive plays of Real Estate and Utilities took the top of the sector list.
Looking at the cause of the sector rotations there are a few things to consider. Energy (XLE)took a hit as the SEC announced an investigation into Exxon Mobil (XOM) asset valuations. Exxon makes up 23% of the XLE ETF I use to track the sector. Renewable Energy stocks also sold off today after Tesla announced a new invertor.
Financials (XLF) dipped after Citigroup and Wells Fargo disappointed investors on revenue. I think this will be temporary as the higher treasury bond yields will eventually help revenues of these banks that base interest rates on those yields.
Utilities (XLU) and Real Estate (XLRE) are bought up heading into a three-day weekend which leads to a potentially volatile week as tensions in US politics are at extreme highs.
Small-caps remain strong on a weekly basis. The four biggest mega-caps are not doing well, but they are all still within a sideways volatility contraction pattern that started in September for Microsoft and Amazon, November for Alphabet. Apple is pausing in an uptrend and support has not broken down.
Stay healthy and take care!
Daily Market Update for 1/14Trend lines drawn from the 10/30 bottom (52d), 1/8 (5d) and today 1/14 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or and corrected inline in my blog.
I'm working to condense this daily update over the next few weeks. I need to reduce it for both brevity and preparation time.
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Thursday, January 14, 2021
Facts: -0.12%, Volume lower, Closing range: 12%, Body: 51%
Good: New all-time high, higher low
Bad: Closing range, sell-off to close after morning all-time high
Highs/Lows: Higher high, Higher low
Candle: Thick red body in lower half of the candle, longer upper wick
Advance/Decline: 2.50, five advancing stocks for every two declining stocks.
Indexes: SPX (-0.38%), DJI (-0.22%), RUT (+2.05%), VIX (+4.68%)
Sectors: Energy (XLE +2.96%) and Real Estate (XLRE +0.62%) were top. Consumer Discretionary (XLY -0.64%) and Technology (XLK -0.88%) were bottom.
Expectation: Sideways
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Market Overview
Investors shook off bad employment news in the morning to drive indexes to all-time highs before an afternoon session of selling. There were plenty of gains across a breadth of stocks, but the losses in the mega-caps weighed down the major indexes. The exception was the small-cap Russell 2000 which gained +2.05% in a solidly upwards session.
The Nasdaq closed with a -0.12% loss after setting a new all-time high. The closing range of 12% with a large 51% red body is sign of weakness, but volume was lower so would not count as a distribution day. The losses were focused in the larger caps which is why the overall index is down even though there were far more advancing stocks than declining stocks. As we did yesterday, you can also see the imbalance by looking at the QQQ which is down -0.53% while the equal weight QQQE is up +0.12%.
The S&P 500 (SPX) lost -0.38% while the Dow Jones Industrial average (DJI) lost -0.22%. The VIX Volatility index rose +4.68%.
Energy (XLE +2.96%) was the top sector after OPEC released their monthly report with a mix of messages around oil demand and shale output. Real Estate (XLRE +0.62%) was the second best sector. Consumer Discretionary (XLY -0.64%) and Technology (XLK -0.88%) were the worst performing sectors.
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Economic Indicators
The US Dollar (DXY) dropped for the day. US Treasury 30y (US30Y), 10y (US10Y) and 2y (US02Y) bond yields all rose for the day as investors expect more stimulus from President-elect Biden. Corporate Bonds (HYG) prices remained about even.
Silver (SILVER) and Gold (GOLD) both gained today and seem to have found an area of support. Crude Oil (CRUDEOIL1!) futures advanced. Timber (WOOD) and Copper (COPPER1!) gained while and Aluminum (ALI1!) all declined for the day.
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Investor Sentiment
The put/call ratio took a big dip to 0.474, an extreme level of optimism for investors. 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 on the greed side, but still within reasonable range.
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Market Leaders
All four of the biggest mega-caps lost for the day. They have been going back and forth between gains and losses the past several days. Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL) area all trading at or below their 50d MA and 21d EMA. Apple (AAPL) is trading just below the 21d EMA. The question remains on whether the mega-caps will join the market rally on new stimulus, or will they continue to weigh down the major indexes.
Taiwan Semiconductor (TSM) gained 6.06% on strong earnings and the increasing demand coming from the automobile industry. ASML Holding (ASML), Intel (INTC) and Exxon Mobil (XON) were other big mega-cap gainers for the day. Mastercard (M) and Visa (V) were at the bottom of the list losing -5.60% and -3.58% respectively.
Beyond Meat (BYND) was a top growth stock for the day, gaining 13.66%. Fiverr (FVRR), FUTU (FUTU) and SUMO Logic (SUMO) were other big gainers for the day. Twitter (TWTR), SNAP (SNAP) and PINS (PINS) joined other communications sector stocks with losses.
Bed Bath & Beyond (BBBY) joined the short-squeeze mania with a +18.77% gain while Gamespot (GME) continued a second day of short-squeeze gains with a 27.10% gain. That's a 100% gain in two days for the brick-and-mortar game store.
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Looking ahead
Producer Price Index data and Retail Sales data will be release before market open on Wednesday. Industrial Production numbers will add to data highlighting current economic activity.
Consumer Sentiment numbers for January will be release just after the market opens.
JP Morgan Chase (JPM), Citigroup (C), Wells Fargo (WFC) and PNC Financial Services (PNC) will report earnings before market opens on Friday.
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Trends, Support and Resistance
The long trend line from the 10/30 bottom point to a +1.23% gain. The five day trend line points to a more modest gain of +0.28%.
The one-day trend line points to a -0.36% loss.
If there is further downside, 13,000 seems to be holding up well for the index. The 21d EMA is nearly 2% below the index which should be an area of support if there's a further downside move. The index also held the 12,550 area recently. If it passes that area, the next support area is 12,250.
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Wrap-up
The last few days makes it seem like investors don't know what they want. Tuesday we saw rotation out of mega-caps. Yesterday, we saw rotation into mega-caps. And today we see rotation out again. Among the rotations, Energy and Financials continue to lead the sector list for the week while Communications has been at the bottom.
Stay healthy and take care!
What are ETFsThe chart below aptly demonstrates the advantage of investing in ETFs. If you're into tech and want to invest in Google, you'd have to learn to live with the gyrations in Google's stock price. You might end up making a lot of money if you held on to the stock (and the company does well), but it's likely that it won't be a smooth ride.
Top 4 Tech ETFsThe Tech sector has led the bull market over the last 10 years. And more recently, against the backdrop of the pandemic, it has outperformed every other sector in the broad index. Though, from a pure valuation standpoint, with the sector trading at XX times it’s 10 yr avg. PE, it might seem expensive to hold tech stocks but if you are chasing growth and can stomach the high-valuations, Tech is where you’d want to invest your money.
Personally for me, FOMO is real. I feel we are at an unprecedented point in human history and I wouldn’t want to not be a part of it. Technology has completely transformed how we live our lives (even more so in the era of pandemic) and the pace of transformations has only picked up (over XX new technologies being launched in 2019 as opposed to XX in 2009).
I'll make the case for investing in Tech ETFs in a future blog post.
For now, here's a list of 5 Tech ETFs I'm monitoring:
Daily Market Update for 1/13Trend lines drawn from the 10/30 bottom (51d), 1/7 (5d) and today 1/13 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or and corrected inline in my blog.
I'm working to condense this daily update over the next few weeks. I need to reduce it for both brevity and preparation time.
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Wednesday, January 13, 2021
Facts: +0.43%, Volume lower, Closing range: 65%, Body: 34%
Good: Never revisited morning low, close in upper half of candle
Bad: Nothing, just not exciting
Highs/Lows: Higher high, Higher low
Candle: Medium to small body with longer upper wick than lower wick
Advance/Decline: 0.85, more declining stocks than advancing stocks
Indexes: SPX (+0.04%), DJI (+0.19%), RUT (+1.77%), VIX (-3.11%)
Sectors: Utilities (XLU +1.95%) and Real Estate (XLRE +1.37%) were top. Industrials (XLI -0.86%) and Materials (XLB -1.02%) were bottom.
Expectation: Sideways
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Market Overview
It was not a very exciting session for the Nasdaq today, but there were certainly pockets of excitement in parts of the market. The brief climb in the morning for Nasdaq turned to a sideways movement for the rest of the day. The good news is that the index never went back down towards the morning low. However, the gains for mega-caps and some growth stocks were not broadly shared across the market, keeping the index from closing closer to the intraday highs.
The index closed with a +0.43% gain on lower volume. The closing range was 65% with a green body covering 34% of the candle. More stocks declined than advanced on the Nasdaq. Another way to see the influence of the mega caps today is to look at the cap weighted QQQ (+0.68%) vs the equal weight QQQE (-0.01%).
The S&P 500 (SPX) gained +0.23% while the Dow Jones Industrial lost (DJI) -0.10%. The Russell 2000 (RUT) lost -0.75% as money rotated into larger cap stocks today.
Utilities (XLU +1.95%) and Real Estate (XLRE +1.37%) were the top sectors. Often these sectors are at the top when investors get a bit nervous, but don't want to exit the equities market. The worst performing sectors were Utilities (XLU +1.95%) and Real Estate (XLRE +1.37%).
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Economic Indicators
The US Dollar (DXY) rose for the day. Likewise, US Treasury 30y (US30Y), 10y (US10Y) bond yields continued to pull back from recent gains. Corporate Bonds (HYG) prices gained for a second day.
Silver (SILVER) and Gold (GOLD) both dropped today, but have seemed to hit a support area after the declines last week. Crude Oil (CRUDEOIL1!) pulled back just a bit. Timber (WOOD), Copper (COPPER1!) and Aluminum (ALI1!) all declined for the day.
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Investor Sentiment
The put/call ratio rose considerably to 0.738, a move toward bearish 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.
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Market Leaders
All four of the biggest mega-caps gained for the day. Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL) area all trading at or below their 50d MA. Apple (AAPL) is trading above both the key moving averages that I track which are 21d EMA and 50d MA. In recent memory, having the mega-caps participate in a sustained rally was critical. Bulls will be looking for these four to continue gains.
Intel (INTC) topped the mega-cap high performers after announcing a new CEO. Alibaba (BABA), PayPal (PYPL) and Netflix (NFLX) round out the top four performing mega-caps for the day. The majority of mega-caps gained for the day.
Many mid-cap Growth stocks did well. Peloton (PTON) gained +7.29% on analyst upgrades. Chewy (CHWY) gained +7.98%. Chewy co-founder Ryan Cohen was among three activist investors added to Gamestop (GME) which gained 57.39% in a massive short-squeeze fueled by the news.
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Looking ahead
Before market opens on Thursday, Export/Import price index data for December will be released. Initial Jobless Claims will also be announced with the expectation that it's slightly lower than previous weeks.
In the early afternoon, Jerome Powell will speak. His comments can impact Treasury Bonds and the value of the US Dollar. In turn, those impacts will be translated into equity market moves.
Taiwan Semiconductor (TSM), Delta Air Lines (DAL), Blackrock (BLK) will announce earnings before market opens. All three will be initial looks into performance of influential stocks in their respective industry groups.
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Trends, Support and Resistance
The long trend line from the 10/30 bottom point to a +0.89% gain.
The five day trend line points to a +0.09% gain, while the one-day trend is in-between the other two pointing to a +0.60% gain.
On the downside, 13,000 seems to be holding up well for the index. The 21d EMA is nearly 2.5% below the index which should be an area of support if there's a further downside move. The index also held the 12,550 area recently. If it passes that area, the next support area is 12,250.
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Wrap-up
A bit of rotation and a bit of nervousness was mixed into today's session. The movement back into mega-caps and mid-cap growth stocks was apparent. But nervousness showed itself with Utilities and Real Estate topping the sector list. Corporate bonds were bought on confidence while Treasury bonds were bought on caution. The Put/Call ratio rose above 0.700 for the first time since early December.
Some caution can be constructive for building a base of support in the market. It does not signal a need to be overly defensive, but certainly offers a chance to double check your plan for multiple possibilities as we head into the last two days of the trading week.
Expect some more caution heading into the three-day weekend before inauguration day.
Stay healthy and take care!
Daily Market Update for 1/12Trend lines drawn from the 10/30 bottom (50d), 1/6 (5d) and today 1/12 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or and corrected inline in my blog.
I'm working to condense this daily update over the next few weeks. I need to reduce it for both brevity and preparation time.
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Tuesday, January 12, 2021
Facts: +0.28%, Volume higher, Closing range: 77%, Body: 7%
Good: Close in upper side of range, dipped just briefly below 13,000
Bad: Thin body, second indecisive day, LH/LL
Highs/Lows: Lower high, lower low
Candle: An indecisive candle with close just above open, long lower shadow
Advance/Decline: 2.23, more than two advancing for every declining stock
Indexes: SPX (+0.04%), DJI (+0.19%), RUT (+1.77%), VIX (-3.11%)
Sectors: Energy (XLE +3.49%) and Consumer Discretionary (XLY +1.53%) were top. Communications (XLC -1.61%) and Health Services (XLV -1.09%)
Expectation: Sideways
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Market Overview
If you are invested in growth stocks and small caps you are probably delighted, but it may be a bit confusing to look at the indexes. The growth and small cap segments did exceptionally well, but the major indexes show an indecisive day. The Nasdaq dipped mid-day but finished just above its open.
The index closed up +0.28% on higher volume. The closing range of 77% is a positive, but the 7% body displays the indecisiveness. However, the advance/decline number of 2.23 shows a much more bullish picture, raising questions whether the broader market can continue to advance without the bigger players advancing.
Another way to see the power of the small-caps is the Russell 2000 (RUT) index that soared above the other indexes with a +1.77% gain and a fat green candle with no lower wick and a tiny upper wick. The S&P 500 (SPX) and Dow Jones Industrial (DJI) had smaller gains than the Nasdaq, all show indecisive candles.
Energy (XLE +3.49%) and Consumer Discretionary (XLY +1.53%) were the top sectors of the day. Communications (XLC -1.61%) and Health Services (XLV -1.09%) were at the bottom.
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Economic Indicators
The US Dollar (DXY) declined for the day after several days of gains. Likewise, US Treasury 30y (US30Y), 10y (US10Y) bond yields pulled back from recent gains. Corporate Bonds (HYG) prices gained slightly for the day.
Silver (SILVER) and Gold (GOLD) both gained today, after their declines since the start of the new year. Crude Oil (CRUDEOIL1!) advanced for another day. Timber (WOOD), Copper (COPPER1!) and Aluminum (ALI1!) all advanced for the day.
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Investor Sentiment
The put/call ratio declined to 0.542 as investor optimism remains very bullish. 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
Of the four biggest mega-caps, only Amazon (AMZN) advanced for the day, but still set a lower high and a lower low. Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL) all declined. Only Apple remains above the 50d MA while the others are below the key 21d EMA and 50d MA. The big question for the big mega-caps is can the broader market rally without them.
Tesla (TSLA) regained some of the previous day's losses. Intel (INTC), Exxon Mobile (XOM) and Home Depot (HD) round out the top four performing mega-caps. But overall, six of the largest 10 mega-caps delivered losses for the day. Very different than the broader market.
Growth stocks were very strong for the day. Top stocks included FUTU Holdings (FUTU +15.27%), Etsy (ETSY +12.08%), Fiverr (FVRR +9.33%) and SUMO Logic (SUMO +9.31%).
Twitter (TWTR -2.24%) and Facebook (FB -2.24%) continue to suffer from the past week's events.
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Looking ahead
Consumer price index data will be released tomorrow, giving a view on inflation. After today's remarks from Esther George on the possibility of surprise inflation, investors will be watching these numbers closely.
Crude Oil inventories will also be updated tomorrow after market open.
No notable earnings reports for this update are scheduled for Wednesday.
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Trends, Support and Resistance
The five-day trend and long trend line from the 10/30 bottom point to a +1.06% gain.
The one-day trend points to a -0.17% loss.
The 21d EMA is about 2% below the index which should be an area of support if there's further downside. The index also held the 12,550 area recently. If it passes that area, the next support area is 12,250.
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Wrap-up
Today the small-caps and growth stocks shined. The major indexes didn't show it as large-cap and mega-caps held back the Nasdaq and S&P 500. The question is whether the Russell 2000 and small-caps can continue to rally without the big players advancing too.
Stay healthy and take care!
Daily Market Update for 1/11Trend lines drawn from the 10/30 bottom (49d), 1/5 (5d) and today 1/11 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or and corrected inline in my blog.
I'm working to condense this daily update over the next few weeks. I need to reduce it for both brevity and preparation time.
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Monday, January 11, 2021
Facts: -1.25%, Volume lower, Closing range: 27%, Body: 9%
Good: Lower volume, stayed above 13k
Bad: Morning gains turn to a new intraday low before close
Highs/Lows: Lower high, lower low
Candle: Bearish inside day, thing body at bottom of candle
Advance/Decline: 0.83, more declining than advancing
Indexes: SPX (-0.66%), DJI (-0.29%), RUT (-0.03%), VIX (+11.69%)
Sectors: Energy (XLE +1.57%) and Health Services (XLV +0.47%) were top. Communications (XLC -1.78%) and Consumer Discretionary (XLY -1.87%) were bottom.
Expectation: Sideways or Lower
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Market Overview
It was tough to have any expectation coming into today's trading session. Nervousness about what will happen in DC on top of continuing pandemic pressures over the weekend resulted in a low start to the day. Confidence grew as buyers came in but ultimately the bears ruled the day, bringing the index back down to a new intraday low before close.
The index closed with a -1.25% loss on lower volume. The bearish day resulted in a 27% closing range where the close is just under the open. The 9% body and long upper wick show the morning buying turning to afternoon selling. More stocks declined than advanced.
The S&P 500 (SPX) and Dow Jones Industrial (DJI) had similar patterns, but closed the day with smaller losses. The Russell 2000 (RUT) also had a loss but with a more bullish look and the smallest loss of the four indexes. The VIX volatility Index rose +11.69%.
Energy (XLE +1.57%) and Health Services (XLV +0.47%) were the top sectors for the day. Crude Oil prices continuing to rise helped Energy take the top spot after a morning dip. Financials (XLF +0.32%) was the only other sector to gain for the day. Communications (XLC -1.78%) and Consumer Discretionary (XLY -1.87%) were bottom.
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Economic Indicators
The US Dollar (DXY) continues to gain at the beginning of this new year. US Treasury 30y (US30Y), 10y (US10Y), and 2y (US02Y) bond yields all gained for the day. Spread on the 10y and 2y is widening while the spread on the 30y and 10y is tightening. Corporate Bonds (HYG) prices dropped for the day, signaling some nervousness from investors.
Silver (SILVER) and Gold (GOLD) both continue to drop. Crude Oil (CRUDEOIL1!) advanced for another day. Timber (WOOD), Copper (COPPER1!) and Aluminum (ALI1!) all dropped for the day.
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Investor Sentiment
The put/call ratio rose to 0.603 as investor optimism remains very bullish. 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) and Alphabet (GOOGL) remain above the key 21d EMA and 50d MA lines. Microsoft (MSFT) closed below the 21d EMA while Amazon (AMZN) is below both lines. The relative strength of these big mega-caps compared to the market is at low levels. The has been a bearish sign in the past, but may just be representative of the focus on small caps in recent months.
Taiwan Semiconductor (TSM) and Nvidia (NVDA) topped the mega-cap list, giving a pop for semiconductor stocks. The majority of mega-caps were down for the day.
Growth stocks had a mix of results. Grow Generation (GRWG) and Lemonade (LMND) led with 13.77% and 14.01% gains respectively. Chinese EV manufacturer NIO (NIO) gained after releasing their new car model over the weekend. Tesla (TSLA) declined for the first time in 12 sessions, losing -7.82%.
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Looking ahead
Economic news tomorrow will include the EIA Short-Term Energy outlook before market open. Several FOMC members will make comments throughout the day. Lots of attention will be paid to the JOLTs Job Openings number to understand how the labor market is doing.
No notable earnings reports for this update are scheduled for Tuesday.
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Trends, Support and Resistance
The five-day trend points to a +1.95% gain.
The long trend line from the 10/30 bottom points to a gain of +1.15%.
The one-day trend points to a -0.22% loss.
The 21d EMA is about 2% below the index which should be an area of support if there's further downside. The index also held the 12,550 area recently. If it passes that area, the next support area is 12,250.
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Wrap-up
It wasn't a particularly decisive day. The expectation from Friday's action was higher for today, so that expectation was broken and we need to watch closely over the next few days to see what the market wants to do.
Investors remain positive on the possibility of more stimulus, resulting in the higher yields in treasury bonds. But the lowered prices on corporate bonds sends the opposite signal. Small caps continue to outperform heading into the new year.
I'll continue to watch the mega-caps as their relative strength to the rest of the market continues to weaken.
Stay healthy and take care!
Market Week In Review - 1/4/2021 - 1/8/2021The 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. It helps me evaluate my observations, recognize new data points, and create a plan for possible scenarios in the future.
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 original charts for more detail each day.
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Monday, January 4, 2021
Lately things, they don't seem the same
Facts: -1.47%, Volume higher, Closing range: 37%, Body: 63%
Good: Held support around 12,550, some recovery off lows
Bad: Thick red body, no upper wick
Highs/Lows: Higher high, lower low
Candle: Bearish engulfing candle with thick body over long lower wick
Expectation: Sideways or Lower
It was not a great start to 2021 with the equity markets selling off significantly throughout the day after making morning highs. The Nasdaq nearly reach its all-time high before selling off sharply in the morning. Recovery in the afternoon was not nearly enough to be seen as a positive. The index closed down -1.45% with a closing range of 37% and a thick red body of 63%. The higher high and lower low than the previous day represents a bearish engulfing candle that can indicate bearish sentiment in the market. There were more declining stocks than advancing stocks.
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Tuesday, January 5, 2021
There must be some kind of way outta here
Facts: +0.95%, Volume higher, Closing range: 94%, Body: 94%
Good: Solid day of gains, no lower wick
Bad: Nothing
Highs/Lows: Lower high, higher low
Candle: Inside day, bullish green body with no lower wick and tiny upper wick
Expectation: Sideways or Higher
The Nasdaq followed yesterday's bearish session with a bullish rebound today. There is still work to do to get back to all-time highs, but the gains were steady throughout the day as the index never revisited the morning low. The index closed the day with a +0.95% gain on higher volume, closing range of 94% and a thick green body of 94%. The lower wick doesn't exist and the upper wick is very tiny. More than two stocks advanced for every declining stock.
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Wednesday, January 6, 2021
Bold as Love
Facts: -0.61%, Volume higher, Closing range: 35%, Body: 29%
Good: Stayed above opening low, held support at around yesterday's low
Bad: Sell-off in late afternoon
Highs/Lows: Higher high, lower low
Candle: Inverted hammer that signals buyers held support despite selling pressure
Expectation: Sideways or Higher
It was a wild day for the markets as unbelievable events unfolded in the US capitol. The Georgia run-off elections resulted in Democrats taking control of the Senate, realizing the blue wave that was original anticipated with the November elections. The Nasdaq shook off the initial rotation and rose to gains by mid-afternoon, but would sell-off as rioters stormed the US Capitol in protest of election outcomes. The index closed -0.61% on higher volume with a closing range of 35% and a body of 29%. More stocks advanced than declined.
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Thursday, January 7, 2021
Ain't no telling, baby
When you will see me again, but I pray
It will be tomorrow
Facts: +2.56%, Volume lower, Closing range: 90%, Body: 90%
Good: Everything, bullish candle following the inverted hammer
Bad: Nothing
Highs/Lows: Higher high, higher low
Candle: No lower wick, very small upper wick, thick green body
Expectation: Higher
Finally, everything is finalized and seems we can put the tumultuous election behind us. On top of that, jobless claims data was better than expected and economic activity represented by the Purchasing Managers Index was very positive. The markets responded with a huge gain and new all-time highs among the indexes.
The Nasdaq closed with a +2.56% on lower volume, and with a very bullish candle. The closing range of 90% was over a 90% body, resulting in zero lower wick as the index never revisited the low from open. There were nearly three advancing stocks for every declining stock. Over 300 Nasdaq stocks made new highs.
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Friday, January 8, 2021
Might even raise a little sand
Facts: +1.03%, Volume higher, Closing range: 96%, Body: 24%
Good: Bulls win the day, despite selling pressure
Bad: Mid-day sell-off
Highs/Lows: Higher high, higher low
Candle: Smallish green body in upper part of candle, long lower wick
Expectation: Higher
It was a wild ride for traders today as a Democratic senator seemed to state he'd block new stimulus and then later say he's still considering his decision. That resulted in a mid-day sell-off and looked like the bears would win, but then the Nasdaq turned and closed at new all-time highs.
The index closed the day with a +1.03% gain on higher volume. The closing range of 96% and 24% green body over a long lower wick represent the mid-day selling pressure that was eventually overcome by the bulls. There were about the same number of advancing stocks as declining stocks. 275 new highs is less than the previous day, but still a very large number.
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The Meaning of Life (View on the Week)
The first week of 2021 for the markets was filled with twists and turns but ended with gains across all the major indexes. The Nasdaq ended the week with a +2.43% gain; not a bad start to the year. Volume was higher as investors came back from the holidays. The index has a weekly closing range of 99% with a green body of 36.7% at the top of the candle.
The Russell 2000 (RUT) was back on top of the major indexes, gaining another +5.91% for the week. The S&P 500 gained +1.83% while the Dow Jones Industrial average gained +1.61%. The VIX closed down -5.23% after spiking at the beginning of the week.
The week started on a bearish note as investors came back from the holidays fearing the worst for the pandemic. The UK had announced new lockdowns to control a more contagious mutant of the COVID-19 virus. The index dropped below the 21d EMA, a key indicator line that can show a break down in support. Things recovered in the afternoon, but not nearly enough to look bullish. The VIX volatility index spiked more than 20% before receding.
Tuesday was a positive expectation breaker. There was positive news in the manufacturing purchase data that shows economic activity is picking up. The indexes had bullish inside days.
Wednesday was the pivotal day of the week. The market aside, the day will be written into American history. Although the day was a loss for markets, it would prove pivotal to the upside for the week. We can hope it will also be pivotal to the upside for United States democracy, and most importantly it's citizens.
For the Nasdaq, the day would start with selling as the Georgia run-off elections resulted in Democrats taking control of the senate and a blue wave government was now confirmed. However, investors quickly shrugged off the news and began to buy back discounted tech stocks. That would halt in the afternoon when a siege on the US Capitol hit the news. As rioters broke thru the capitol doors, causing evacuations of politicians and their staff, markets quickly began selling.
It really looked dismal for stocks, but it was worth taking a step back. It could have been a lot worse, and what you see in the candle is an inverted hammer. An inverted hammer signals the selling pressure, but that buyers came in to hold the index above the day's lows. That candle is a signal, but only confirmed if the following days were bullish. And Thursday and Friday brought us the confirmation.
Thursday would be a big day for markets. Brave members of the US Congress, on both sides of the aisle, reconvened late Wednesday and worked through the night to count and confirm the electoral votes. Friday showed there was still a bit of nervousness when one Democratic senator seemed to oppose the stimulus, causing stocks to briefly sell off. However, he corrected his stance later in the day and markets ended the week at new all-time highs.
The weekly chart shows the continued strong momentum in the Nasdaq, despite the pressures on big tech that may come from a Democratic controlled government. The average closing range over the past 10 weeks is 75% as the index has consistently either a higher high or a higher low, both positive signs of support and growth. Volume on positive weeks is much higher than volume on negative weeks. Accumulation continues to outweigh distribution.
Energy ( XLE ) finds itself back at the top of the sector list for the first week of 2021. It's not something you might expect as the blue wave hit US politics. The democratic clean energy platform doesn't bode well for traditional energy stocks. However, crude oil is over $50 a barrel for the first time since April after Saudi Arabia surprisingly cut output.
The blue wave did have some expected sector impact this week. After the Georgia run-off results showed Democrats would take control of the senate, US Treasury Bond yields took off as investors expect more stimulus that would further impact the US Dollar . That caused Financials ( XLF ), especially big banks, to have big gains on Wednesday and Thursday.
Materials ( XLB ) benefited from the blue wave news, as we can expect big investments in US infrastructure with the new administration.
Industrials ( XLI ) also had a boost on Wednesday, with some benefit from infrastructure spend, but also several segments like airlines likely to benefit from further stimulus. However, Industrials did not continue the rise and ended the week behind the S&P 500 .
Consumer Discretionary ( XLY ) got a boost on Friday, perhaps from higher than expected Consumer credit numbers on top of the promise of new stimulus. Quite a few people had a good Christmas it seems.
At the bottom of the list is Real Estate ( XLRE ) which is likely to suffer in the bottom line from the higher interest rates.
Technology ( XLK ) had the expected negative reaction to the blue wave on Wednesday but regained from losses on Thursday and Friday to end the week just behind Industrials .
Also notable is Utilities ( XLU ) which lost for the week, but had gains on Friday as a defensive move heading into a likely emotion filled weekend for the United States.
US Treasury Bond Yields rose significantly for the week as investors reacted to the Democrats winning the senate. Democrats are likely to pass much more stimulus which will further drive investors out of bonds and into other asset classes. The spread between US 10y and US 2y bond yields widened. This had a positive impact on the Financials sector as big banks will benefit from the higher interest rates driven by treasury bond yields.
Prices for corporate bonds (HYG) rose while the prices for short-term treasury bonds (IEI) dropped. This represents investors' confidence in corporations ability to pay back debt. That is important since many companies incurred larger than normal debt to weather the pandemic. If companies begin to default on loans, you can bet these bonds will sell-off before we know there's a problem.
The US Dollar (DXY) rose +0.19% for the week.
The put/call ratio (PCCE) ended the week at 0.563. That is an overly bullish level, but not as low as we've seen preceding recent pullbacks in the market. A contrarian indicator, when the put/call ratio is below 0.7, it signals overly bullish sentiment which typically proceeds a pullback in the market. The indicator was at 0.458 just before the September correction and it was at 0.489 just before the short October correction.
Silver (SILVER) was down -3.54% and Gold (GOLD) was down -2.61% as investors moved from the safe-haven back into assets that will benefit from new stimulus. Crude Oil futures was up +7.80% after the surprise cut back in output from Saudi Arabia.
Timber (WOOD) was up +3.97%. Copper (COPPER!1) rose +4.59% while Aluminum (ALI1!) rose +1.62%. These increases align with expectations that Democrats will increase spend on infrastructure. It's consistent also with the gains in the Materials and Industrials sectors.
It's important to keep an eye on the four biggest mega-caps and how they react to market changes. Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) all ended the week with losses, but are trading above the 10w moving average lines. Microsoft and Amazon briefly dipped below the line, but found support and closed the week above. Alphabet (GOOGL) ended the week with gains. It also dropped below the 10w MA line, but found support.
The cannabis industry is certain to benefit from legislature that will more easily pass through congress and be signed by the new administration. Stocks (including the MJ ETF) gapped up on Wednesday.
Clean Energy, Electric Vehicles, Financials and Materials were among other stocks that also soared on Wednesday.
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The Week Ahead
Next week will bring several economic updates. JOLT Job Openings (Nov) on Tuesday and updates on Initial Jobless Claims on Thursday will provide more insight into the jobs market. Consumer price index data and Producer price index data will show any impact the weakened US Dollar is having on inflation. Friday will also bring an update on core retail sales data for December.
Traders will closely listen to Jerome Powell who is scheduled to speak on Thursday at 12:30p.
The frequency and relative importance of earnings reports will start to pick up next week. Carnival Corp (CCL) and Delta Airlines (DAL) will be among companies reporting who were impacted by the pandemic. Blackrock (BLK), Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC) will report later in the week.
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The Bullish Side
This week tested the market. We've been watching for a catalyst for the market to lose support and drop below key support areas. The riots on the US capitol could have been that catalyst. But it wasn't. Even as seller pressure increased on Wednesday, buyers came in and showed this market is not yet ready to become bearish. The inverted hammer on Wednesday was an indicator of support holding and was confirmed with the bullish days on Thursday and Friday.
30y and 10y US Treasury Bond yields rose as investors sold off the safe-haven instrument in favor of other asset classes. That was in anticipation of further stimulus coming from a Democratic controlled congress. That anticipation was confirmed when investors were briefly shaken on Friday by a Democratic senator stating he might not approve the stimulus, reversing some of the actions taken earlier in the week. The senator clarified the comment as he was still deciding and that brought investors back to equities.
So the markets continue to rise. The index has closed above the 21d EMA for 45 days. That's 10 weeks of rally, that hasn't yet shown signs of backing down. Certainly there will be pullbacks like we saw on Monday, but we have to follow the market vs worry about an eminent crash that may be months away...
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The Bearish Side
…or it could be tomorrow. Investor sentiment continues to remain overly bullish with NAAIM exposure index heading back to highs. The Put/Call ratio remains below 0.600 The CNN Fear & Greed index is rising again. All of that could be the kind of overly bullish sentiment that precedes a much more severe pullback.
The pandemic continues to worsen even as vaccines are becoming more and more available around the world. New lockdowns seem to be popping up with frequency.
But the biggest worry for the coming weeks is the transition of power between administrations. The riots at the US Capitol have seemed to only fuel more verbal attacks from the right and the left. If those turn into more than verbal attacks, it could be that start of a very dark time in US history. It seems ominous and unbelievable, but I think the point here is that investors will be on nerves and any hint of worsening conditions could be a catalyst.
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Key Nasdaq Levels to Watch
There are several key levels in the Nasdaq to keep an eye out for and respond accordingly. First on the positive side:
The high of Friday at 13.208.09. It's not far above the close, so I think what we want here is for the index to close above that high early in the week and then stay above that close.
The index is pausing about every 300-400 points, so expect some resistance around 13,350 - 13,400 area.
On the downside, there are several key levels to raise caution flags:
12,733.04 is the 21d EMA. The index tested that line twice last week and was able to close above it each time.
12,550 had shown as a support area, helped by the 21d EMA.
The low of last week is 12,543.24 and is just below the 12,550 support area.
The support area of 12,250 is the next area. Hopefully, that area will hold the index above that price level.
The 50d MA is at 12,222.76. That is ~7.4% below Thursday's close. The gap with the 50d MA continues to widen.
November support area is at 12,000 and a round-number point. A drop to that area would be a certainly correction level.
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Wrap-up
It was a rough week. Lots going on. The market survived it and that’s good news for investors. Looking forward, it will be good to remain cautious while not disengaging too much. More rally could be in front of us.
With all the changes, take some time to evaluate your stocks. Look at weekly action vs daily action. Rank the stocks and determine where some additions and some trimming should be based on the changes this week. Most of all, keep in mind your risk plans and update stops as necessary.
Good luck, stay healthy and trade safe!
