Trend lines drawn from the 10/30 bottom (74d), 2/10 (5d) and today 2/17 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
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Wednesday, February 17, 2021
Facts: -0.58%, Volume lower, Closing range: 94%, Body: 31%
Good: Mid-day reversal off lows to close near the day's high at end of session
Bad: Gap-down open and below the 14,000 support line
Highs/Lows: Lower high, lower low
Candle: Green body in upper half of candle with a long lower wick
Advance/Decline: 0.46, two declining stocks for every advancing stock
Indexes: SPX (-0.03%), DJI (+0.29%), RUT (-0.74%), VIX (+0.19%)
Sectors: Energy (XLE +1.49%) and Consumer Discretionary (XLY +0.58%) were top. Industrials (XLI -0.28%) and Technology (XLK -0.88%) were bottom.
Expectation: Sideways or Higher
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Market Overview
Higher than expected Retail Sales data was enough for Amazon, but not enough to excite the overall market in the morning hours of trading. The higher than expected producer price index data forecasts upcoming inflation. That expected rise in inflation brings up the question of whether the Fed will raise interest rates earlier than previously stated. Higher interest rates tend to impact high growth companies and technology companies the most.
The result was a gap-down and morning sell-off of the tech heavy Nasdaq. Fears began to subside with reassurances from FOMC members comments throughout the day and the release of the FOMC meeting minutes in the afternoon. Those minutes stated that the committee unanimously agreed to keep interest rates low for the foreseeable future. That brought the Nasdaq back up to close near the high of the day.
The Nasdaq closed the day with a -0.58% loss on lower volume. The closing range of 94% resulted from a 31% green body that is above a long lower wick. That long lower wick was formed in the morning sell-off. There were two declining stocks for every advancing stock.
The Dow Jones Industrial (DJI) was able to set another new all-time high and close with a +0.29% gain. The S&P 500 (SPX) was about even with a -0.03% loss. The Russell 2000 (RUT) was the worst performing index of the day with a -0.74% decline.
The VIX volatility index rose +0.19%.
Energy (XLE +1.49%) was the top sector again as Crude Oil prices continue to surge, now because of the weather events in the southern US putting a squeeze on oil and gas supplies. The Consumer Discretionary (XLY +0.58%) sector was the second best performer, benefiting from the high retail sales data. The worst performing sectors were Industrials (XLI -0.28%) and Technology (XLK -0.88%).
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Economic Indicators
The US Dollar (DXY) advanced with a +0.49% gain after staying most even for over a week. The US 30y, 10y and 2y yields all dropped for the day. The spread between long term and short term bonds tightened.
High Yield Corporate Bond (HYG) prices declined for the day while Investment Grade (LQD) corporate bond prices increased. The spread between corporate bonds and treasury bonds remained about the same.
Silver (SILVER) advanced slightly while Gold (GOLD) declined. Crude Oil (CRUDEOIL1!) resumed its climb with another advance. Timber (WOOD) declined. Copper (COPPER1!) declined while Aluminum (ALI1!) mad a big advance.
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Investor Sentiment
The put/call ratio declined to 0.525. 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
Apple (AAPL) led much of the market down early in the session as it gapped below its 50d moving average and sank even lower before catching some support and closing just below the key moving average line. The sell-off could have come from the revelation that Warren Buffet sold 9.81 million shares in Q4 of 2020.
The other big four mega-caps all had gains for the day. Microsoft (MSFT) gained +0.21% while Alphabet (GOOGL) gained +0.38%. Amazon (AMZN) had the best day of the four with a +1.21% gain on the retail sales data momentum.
Verizon (VZ) and AT&T (T) led mega-caps with a 5.24% and 2.07% gain. PayPal (PYPL), Taiwan Semiconductor (TSM) and Nvidia (NVDA) were some of the biggest decliners among the mega-caps.
Growth stocks had a challenging day as investors feared the possibility of higher inflation leading to higher interest rates. It wasn't a bad day for all growth stocks. Ehang Holdings (EH) bounced off it's 50d moving average to gain 67.88% after losing 62% in the prior session. The blockchain stock RIOT (RIOT) put in another 30% gain. The stock has risen 230% in the last seven sessions.
Twilio (TWLO) was up over 11% in afterhours trading after releasing an earnings update that crushed expectations.
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Looking ahead
Thursday will start Building Permits and Housing Starts data before market open. Initial Jobless Claims will also get an update. Finally, Manufacturing Index data released before the market will provide a view on the level of economic activity.
After market open, Crude Oil Inventories will be released and are likely to be lower than expectations. That would continue to pump up crude oil futures and the energy sector.
Walmart (WMT) will be an important earnings release to watch for before market open tomorrow. Fiverr (FVRR) is also scheduled to release before the market opens. Roku (ROKU) and Dropbox (DBX) will release after market close. Check the stocks in your portfolio for earnings releases to make sure you are caught by surprise.
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Trends, Support and Resistance
The long-term trend line from the 10/30 bottom points to a +0.72% gain.
The one-day trend line is just below that at a +0.42% advance.
The five-day trend line points to sideways move ending with a +0.07% gain. That would put the index just below the 14,000 support/resistance area.
If there is further downside, the 21d EMA line also offers an area of support and is -2% below Wednesday's close. The 13,000 level also seems to be an area of support. The index 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 an expectation breaker to see the index gap-down below the 14,000 line in the morning. However, it's important to give the market some time to digest economic data and news and then find the direction. In today's case that happened around mid-day and the market started to make gains again after investor worries subsided.
The past week as had the presence of both bears and bulls and today was no different. The past two days have gone to the bears, but there are still indications of confidence and strength among the different market indicators in the daily market update. Still investors seem to be fickle with news and so keeping an eye on position sizes and risk levels is important.
Stay healthy and trade safe!
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wednesday, February 17, 2021
Facts: -0.58%, Volume lower, Closing range: 94%, Body: 31%
Good: Mid-day reversal off lows to close near the day's high at end of session
Bad: Gap-down open and below the 14,000 support line
Highs/Lows: Lower high, lower low
Candle: Green body in upper half of candle with a long lower wick
Advance/Decline: 0.46, two declining stocks for every advancing stock
Indexes: SPX (-0.03%), DJI (+0.29%), RUT (-0.74%), VIX (+0.19%)
Sectors: Energy (XLE +1.49%) and Consumer Discretionary (XLY +0.58%) were top. Industrials (XLI -0.28%) and Technology (XLK -0.88%) were bottom.
Expectation: Sideways or Higher
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
Higher than expected Retail Sales data was enough for Amazon, but not enough to excite the overall market in the morning hours of trading. The higher than expected producer price index data forecasts upcoming inflation. That expected rise in inflation brings up the question of whether the Fed will raise interest rates earlier than previously stated. Higher interest rates tend to impact high growth companies and technology companies the most.
The result was a gap-down and morning sell-off of the tech heavy Nasdaq. Fears began to subside with reassurances from FOMC members comments throughout the day and the release of the FOMC meeting minutes in the afternoon. Those minutes stated that the committee unanimously agreed to keep interest rates low for the foreseeable future. That brought the Nasdaq back up to close near the high of the day.
The Nasdaq closed the day with a -0.58% loss on lower volume. The closing range of 94% resulted from a 31% green body that is above a long lower wick. That long lower wick was formed in the morning sell-off. There were two declining stocks for every advancing stock.
The Dow Jones Industrial (DJI) was able to set another new all-time high and close with a +0.29% gain. The S&P 500 (SPX) was about even with a -0.03% loss. The Russell 2000 (RUT) was the worst performing index of the day with a -0.74% decline.
The VIX volatility index rose +0.19%.
Energy (XLE +1.49%) was the top sector again as Crude Oil prices continue to surge, now because of the weather events in the southern US putting a squeeze on oil and gas supplies. The Consumer Discretionary (XLY +0.58%) sector was the second best performer, benefiting from the high retail sales data. The worst performing sectors were Industrials (XLI -0.28%) and Technology (XLK -0.88%).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) advanced with a +0.49% gain after staying most even for over a week. The US 30y, 10y and 2y yields all dropped for the day. The spread between long term and short term bonds tightened.
High Yield Corporate Bond (HYG) prices declined for the day while Investment Grade (LQD) corporate bond prices increased. The spread between corporate bonds and treasury bonds remained about the same.
Silver (SILVER) advanced slightly while Gold (GOLD) declined. Crude Oil (CRUDEOIL1!) resumed its climb with another advance. Timber (WOOD) declined. Copper (COPPER1!) declined while Aluminum (ALI1!) mad a big advance.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio declined to 0.525. 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.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
Apple (AAPL) led much of the market down early in the session as it gapped below its 50d moving average and sank even lower before catching some support and closing just below the key moving average line. The sell-off could have come from the revelation that Warren Buffet sold 9.81 million shares in Q4 of 2020.
The other big four mega-caps all had gains for the day. Microsoft (MSFT) gained +0.21% while Alphabet (GOOGL) gained +0.38%. Amazon (AMZN) had the best day of the four with a +1.21% gain on the retail sales data momentum.
Verizon (VZ) and AT&T (T) led mega-caps with a 5.24% and 2.07% gain. PayPal (PYPL), Taiwan Semiconductor (TSM) and Nvidia (NVDA) were some of the biggest decliners among the mega-caps.
Growth stocks had a challenging day as investors feared the possibility of higher inflation leading to higher interest rates. It wasn't a bad day for all growth stocks. Ehang Holdings (EH) bounced off it's 50d moving average to gain 67.88% after losing 62% in the prior session. The blockchain stock RIOT (RIOT) put in another 30% gain. The stock has risen 230% in the last seven sessions.
Twilio (TWLO) was up over 11% in afterhours trading after releasing an earnings update that crushed expectations.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
Thursday will start Building Permits and Housing Starts data before market open. Initial Jobless Claims will also get an update. Finally, Manufacturing Index data released before the market will provide a view on the level of economic activity.
After market open, Crude Oil Inventories will be released and are likely to be lower than expectations. That would continue to pump up crude oil futures and the energy sector.
Walmart (WMT) will be an important earnings release to watch for before market open tomorrow. Fiverr (FVRR) is also scheduled to release before the market opens. Roku (ROKU) and Dropbox (DBX) will release after market close. Check the stocks in your portfolio for earnings releases to make sure you are caught by surprise.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
The long-term trend line from the 10/30 bottom points to a +0.72% gain.
The one-day trend line is just below that at a +0.42% advance.
The five-day trend line points to sideways move ending with a +0.07% gain. That would put the index just below the 14,000 support/resistance area.
If there is further downside, the 21d EMA line also offers an area of support and is -2% below Wednesday's close. The 13,000 level also seems to be an area of support. The index held the 12,550 area recently. If it passes that area, the next support area is 12,250.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
It was an expectation breaker to see the index gap-down below the 14,000 line in the morning. However, it's important to give the market some time to digest economic data and news and then find the direction. In today's case that happened around mid-day and the market started to make gains again after investor worries subsided.
The past week as had the presence of both bears and bulls and today was no different. The past two days have gone to the bears, but there are still indications of confidence and strength among the different market indicators in the daily market update. Still investors seem to be fickle with news and so keeping an eye on position sizes and risk levels is important.
Stay healthy and trade safe!
