Trend lines drawn from the 2/16 ATH (13d), 2/26 (5d) and today 3/4 (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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Thursday, March 4, 2021
Facts: -2.11%, Volume higher, Closing range: 33%, Body: 45%
Good: Support at 12,550 area
Bad: Rejected at 13,000, new low for year
Highs/Lows: Lower high, lower low
Candle: Red body in center of candle with upper and lower wicks from choppy session
Advance/Decline: Over seven declining stocks for every advancing stock
Indexes: SPX (-1.34%), DJI (-1.11%), RUT (-2.76%), VIX (+7.12%)
Sectors: Energy (XLE +2.39%) was the only sector with gains. Consumer Discretionary (XLY -2.12%) and Technology (XLK -2.21%) were bottom.
Expectation: Lower
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Market Overview
The sky is not falling. But the market is! It can be confusing to see the news of reopening of economies around the US and world, positive signs of economic recovery, and yet to have the market be correcting at the same time. Thursday continued the market slide, caused by investor's fears that the economy will recover too fast and inflation will take off beyond the desired 2% that the fed targets, impacting negatively the valuations of mega-caps and growth stocks.
The Nasdaq closed down another -2.11% on much more volume than the previous two sessions. The closing range was a little better at 33%, but still not great. The 45% red body sits in the middle of the candle with an upper wick created by a morning rally to 13,000 and a lower wick created by the afternoon dip to 12,550. The support at 12,550 was expected, but may be temporary. There were over seven declining stocks for every advancing stock.
The Russell 2000 (RUT) had the worst day as small cap stocks were sold off heavily. Relative to the other indexes, the small caps had not been impacted as much until today. The reckoning came as investors looked for more places to reduce exposure. The S&P 500 (SPX) and Dow Jones Industrial average (DJI) also ended the day with declines as almost every segment and sector was hit with losses except Energy.
The VIX volatility index continues to rise with a 7.12% gain today.
Energy (XLE +2.39%) was the only sector with gains as OPEC decided to keep production steady, causing crude oil prices to advance. Consumer Discretionary (XLY -2.12%) and Technology (XLK -2.21%) were bottom for another day.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) advanced another +0.75%. That’s the highest level since November and is another factor on the valuations of large multi-national companies that dominate the indexes and are impacted by a stronger dollar. The stronger dollar makes exports more expensive and also devalues foreign subsidiary revenues as it's repatriated for reporting.
Yields spikes again as US 30y and 10y treasury bonds. The 2y are also gained for the day. Comments by Jerome Powell were not enough to convince investors that inflation would remain under control, causing another sell-off in the bond market.
High Yield Corporate Bonds (HYG) and Investment Grade Corporate Bond (LQD) prices both dropped for another day.
Silver (SILVER) and Gold (GOLD) both declined. Crude Oil (CRUDEOIL1!) advanced on news that OPEC would keep production at current levels. Timber (WOOD) declined. Copper (COPPER1!) and Aluminum (ALI1!) both declined.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio rose to 0.803. 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 moved slightly into the fear level.
The NAAIM Exposure Index dropped to 65.37 as money managers reduce positions in the market.
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Market Leaders
Of the four big mega-caps, only Alphabet (GOOGL) ended the day with gains, advancing +1.12% and closing back above the 21d EMA. Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) all declined for the day and are trading below both the 21d EMA and the 50d MA. The decline of these mega-caps will continue to pull the indexes down and influence overall market sentiment.
Exxon Mobile (XOM), Alphabet, Chevron (CVX) and Facebook (FB) were the top performing mega-caps. Tesla (TSLA), Taiwan Semiconductor (TSM), ASML Holding (ASML) and PayPal (PYPL) were at the bottom of the list. The energy stocks had a good day on the OPEC news. It's not clear to me why mega-caps in the Communication sector did well today.
Only a few of the growth stocks tracked by the daily update had gains. Palantir (PLTR) gained 4.83%, possibly driven by retail trading. Moderna (MRNA) and Zoom Video (ZM) also ended the day with gains. Ehang Holdings dropped another -15.22% and is now almost 75% off its high set on 2/12.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
More employment data will be released in the morning. Today's data was slightly on the positive side but did not seem to impress investors.
Big Lots (BIG) will report earnings before the market opens in the morning.
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Trends, Support and Resistance
The trend-line from the 2/16 ATH is pointing to a +1.53% gain for tomorrow. The five-day trend line points to a +0.86% gain.
The last three days have seen a fairly consistent angle of descent in prices. If the one-day trend continues, that will mean a -3.26% decline tomorrow.
The index broke through the 13,000 support area and tested the 12,550 area that also held in an early January dip. If it passes that area, the next support area is 12,250.
Yesterday, I showed the head and shoulders pattern on the Nasdaq chart. This pattern represents an attempt to move back to new highs that was rejected at a previous resistance point. Typically the height of the head is measured to determine the potential move downward that will occur as the price breaks below the neck line. The neck line was broken today and the measured move points to a previous support area around 11,800 - 12,000.
That likely would not happen in a straight line. The reason to watch for it is not to overreact to bounces along the way. For example, it would not be unexpected for tomorrow to have gains in the index and then have a further downward move on Monday. Wait for your market rules to kick in, such as regaining the 21d EMA on higher volume.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
The Nasdaq is in official correction territory now with the close being 10% below the all-time high. The other major indexes have a bit to go for the official mark, but are also reacting to an overwhelming amount of selling pressure. There is a general sense that this is not over and selling could continue into next week or longer.
However, I'll quote @MichaelGLamothe on twitter:
"I think it’s good to have a thesis about which way the market is going to move. The problem comes when we become too attached to it and want to be proven right.
There’s tons of great reasons why the market will collapse & why it’ll blast off.
Be open/ready for anything."
Keep engaged. Work on your watchlist, filling it with stocks that are doing better relative to other stocks, even in a decline. Many of those stocks will be the best opportunities when the market finds a bottom and moves up again.
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=-
Thursday, March 4, 2021
Facts: -2.11%, Volume higher, Closing range: 33%, Body: 45%
Good: Support at 12,550 area
Bad: Rejected at 13,000, new low for year
Highs/Lows: Lower high, lower low
Candle: Red body in center of candle with upper and lower wicks from choppy session
Advance/Decline: Over seven declining stocks for every advancing stock
Indexes: SPX (-1.34%), DJI (-1.11%), RUT (-2.76%), VIX (+7.12%)
Sectors: Energy (XLE +2.39%) was the only sector with gains. Consumer Discretionary (XLY -2.12%) and Technology (XLK -2.21%) were bottom.
Expectation: Lower
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
The sky is not falling. But the market is! It can be confusing to see the news of reopening of economies around the US and world, positive signs of economic recovery, and yet to have the market be correcting at the same time. Thursday continued the market slide, caused by investor's fears that the economy will recover too fast and inflation will take off beyond the desired 2% that the fed targets, impacting negatively the valuations of mega-caps and growth stocks.
The Nasdaq closed down another -2.11% on much more volume than the previous two sessions. The closing range was a little better at 33%, but still not great. The 45% red body sits in the middle of the candle with an upper wick created by a morning rally to 13,000 and a lower wick created by the afternoon dip to 12,550. The support at 12,550 was expected, but may be temporary. There were over seven declining stocks for every advancing stock.
The Russell 2000 (RUT) had the worst day as small cap stocks were sold off heavily. Relative to the other indexes, the small caps had not been impacted as much until today. The reckoning came as investors looked for more places to reduce exposure. The S&P 500 (SPX) and Dow Jones Industrial average (DJI) also ended the day with declines as almost every segment and sector was hit with losses except Energy.
The VIX volatility index continues to rise with a 7.12% gain today.
Energy (XLE +2.39%) was the only sector with gains as OPEC decided to keep production steady, causing crude oil prices to advance. Consumer Discretionary (XLY -2.12%) and Technology (XLK -2.21%) were bottom for another day.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) advanced another +0.75%. That’s the highest level since November and is another factor on the valuations of large multi-national companies that dominate the indexes and are impacted by a stronger dollar. The stronger dollar makes exports more expensive and also devalues foreign subsidiary revenues as it's repatriated for reporting.
Yields spikes again as US 30y and 10y treasury bonds. The 2y are also gained for the day. Comments by Jerome Powell were not enough to convince investors that inflation would remain under control, causing another sell-off in the bond market.
High Yield Corporate Bonds (HYG) and Investment Grade Corporate Bond (LQD) prices both dropped for another day.
Silver (SILVER) and Gold (GOLD) both declined. Crude Oil (CRUDEOIL1!) advanced on news that OPEC would keep production at current levels. Timber (WOOD) declined. Copper (COPPER1!) and Aluminum (ALI1!) both declined.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio rose to 0.803. 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 moved slightly into the fear level.
The NAAIM Exposure Index dropped to 65.37 as money managers reduce positions in the market.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
Of the four big mega-caps, only Alphabet (GOOGL) ended the day with gains, advancing +1.12% and closing back above the 21d EMA. Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) all declined for the day and are trading below both the 21d EMA and the 50d MA. The decline of these mega-caps will continue to pull the indexes down and influence overall market sentiment.
Exxon Mobile (XOM), Alphabet, Chevron (CVX) and Facebook (FB) were the top performing mega-caps. Tesla (TSLA), Taiwan Semiconductor (TSM), ASML Holding (ASML) and PayPal (PYPL) were at the bottom of the list. The energy stocks had a good day on the OPEC news. It's not clear to me why mega-caps in the Communication sector did well today.
Only a few of the growth stocks tracked by the daily update had gains. Palantir (PLTR) gained 4.83%, possibly driven by retail trading. Moderna (MRNA) and Zoom Video (ZM) also ended the day with gains. Ehang Holdings dropped another -15.22% and is now almost 75% off its high set on 2/12.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
More employment data will be released in the morning. Today's data was slightly on the positive side but did not seem to impress investors.
Big Lots (BIG) will report earnings before the market opens in the morning.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
The trend-line from the 2/16 ATH is pointing to a +1.53% gain for tomorrow. The five-day trend line points to a +0.86% gain.
The last three days have seen a fairly consistent angle of descent in prices. If the one-day trend continues, that will mean a -3.26% decline tomorrow.
The index broke through the 13,000 support area and tested the 12,550 area that also held in an early January dip. If it passes that area, the next support area is 12,250.
Yesterday, I showed the head and shoulders pattern on the Nasdaq chart. This pattern represents an attempt to move back to new highs that was rejected at a previous resistance point. Typically the height of the head is measured to determine the potential move downward that will occur as the price breaks below the neck line. The neck line was broken today and the measured move points to a previous support area around 11,800 - 12,000.
That likely would not happen in a straight line. The reason to watch for it is not to overreact to bounces along the way. For example, it would not be unexpected for tomorrow to have gains in the index and then have a further downward move on Monday. Wait for your market rules to kick in, such as regaining the 21d EMA on higher volume.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
The Nasdaq is in official correction territory now with the close being 10% below the all-time high. The other major indexes have a bit to go for the official mark, but are also reacting to an overwhelming amount of selling pressure. There is a general sense that this is not over and selling could continue into next week or longer.
However, I'll quote @MichaelGLamothe on twitter:
"I think it’s good to have a thesis about which way the market is going to move. The problem comes when we become too attached to it and want to be proven right.
There’s tons of great reasons why the market will collapse & why it’ll blast off.
Be open/ready for anything."
Keep engaged. Work on your watchlist, filling it with stocks that are doing better relative to other stocks, even in a decline. Many of those stocks will be the best opportunities when the market finds a bottom and moves up again.
Stay healthy and trade safe!
