Summary: The market sold off sharply at open after comments from Janet Yellen suggested that interest rates might need to increase to keep the economy from overheating. Investors fled sectors more sensitive to interest rate hikes and rotated into the cyclical sectors.
Notes
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=- Monday, May 4, 2021
Facts: -1.88%, Volume higher, Closing range: 37% (w/gap), Body: 45% Good: Bounced off 50d moving average line Bad: Gap down on news, high volume distribution Highs/Lows: Lower high, lower low Candle: Thick red body in upper half of candle, long lower wick Advance/Decline: Almost four declining stocks for every advancing stock Indexes: SPX (-0.67%), DJI (+0.06%), RUT (-1.28%), VIX (+6.39%) Sectors: Materials (+1.09%) and Financials (XLF +0.80%) were top. Consumer Discretionary (XLY -1.04%) and Technology (XLK -1.79%) were bottom. Expectation: Sideways or Lower
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The market sold off sharply at open after comments from Janet Yellen suggested that interest rates might need to increase to keep the economy from overheating. Investors fled sectors more sensitive to interest rate hikes and rotated into the cyclical sectors.
The Nasdaq opened with a gap-down and closed the day with a -1.88% decline on much higher volume. The index continued to decline after open until it hit the 50d moving average and found support through the afternoon. The result is a long lower wick underneath a 45% red body and a 37% closing range, considering the gap as part of the range. There were nearly four declining stocks for every advancing stock.
Only the Dow Jones Industrial average (DJI) was able to recover from the morning sell-off and gain +0.06% for the day. The S&P 500 (SPX) dipped just below its 21d EMA before climbing back to end the day with a -0.67% decline. The Russell 2000 (RUT) declined -1.28%.
The VIX volatility index advanced +6.39% but was up 20% intraday.
The cyclical sectors benefited from the volatile day, with Materials (+1.09%) and Financials (XLF +0.80%) at the top of the list. Consumer Discretionary (XLY -1.04%) and Technology (XLK -1.79%) were bottom, sectors that are exposed to higher interest rates.
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The US Dollar (DXY) advanced +0.35%.
The US 30y treasury bond yield and 10y note yield both declined. The 2y note yield rose.
High Yield Corporate Bond (HYG) prices declined while the Investment Grade Corporate Bond (LQD) prices advanced.
Silver (SILVER) and Gold (GOLD) declined. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) advanced. Copper (COPPER1!) declined while Aluminum (ALI1!) advanced.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=- Investor Sentiment
The put/call ratio rose to 0.741. 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 remains near neutral.
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The big four mega-caps all had big declines. Apple (AAPL) declined -3.54%, finding support at its 50d moving average. Microsoft lost -1.62%. Amazon (AMZN) dropped below its 21d EMA with a -2.20% decline. Alphabet (GOOGL) is the only of the four to remain above the key moving average lines with a -1.55% loss today.
AT&T (T), Oracle (ORCL), Johnson & Johnson (JNJ) and JP Morgan Chase (JPM) were the top mega-caps for the day. ASML Holdings (ASML), Apple (AAPL), PayPal (PYPL) and Nvidia (NVDA) were at the bottom of the list.
Only a few of the growth stocks in the daily update list had gains. Peloton (PTON) and DR Horton (DHI) advanced under 1%. At the bottom of the list was Solar Edge (SEDG) with a 15.95% decline, disappointing investors with its earnings report. Moderna (MRNA), Enphase (ENPH) and SNAP (SNAP) also found themselves at the bottom of the list.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=- Looking ahead
ADP Nonfarm Employment data will be released on Wednesday morning. In addition, the purchasing manager indexes for Services and Non-Manufacturing sectors will be released after the market opens. Crude Oil Inventories will be updated in the morning as well.
PayPal (PYPL), Uber (UBER), Boking (BKNG), General Motors (GM), MercadoLibre (MELI), Twilio (TWLO), Rocket (RKT), Hilton (HLT), Etsy (ETSY), HubSpot (HUBS), 10x Genomics (TXG), Qorvo (QRVO), Zynga (ZNGA), Fastly (FSLY), Redfin (RDFN), Palomar (PLMR) is an abbreviated list of a massive number of earnings reports for Wednesday.
The earnings list is long, so check your portfolio for earnings events so you are not surprised.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=- Trends, Support and Resistance
The index found support at its 50d moving average line today and moved back into the 13,600 - 13,700 area.
The trend line from the 3/5 low points to a +3.84% advance which would require a substantial confidence booster for investors to get that in one day. Nonetheless, it is the mid-point of that longer regression trend channel.
The five-day trend line points to a -0.69% decline.
The one-day trend line points to a -0.94% loss.
If we break below the 50d MA, we'll start a new trend line from the 4/29 all-time high.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=- Wrap-up
We've known how sensitive investors are to inflation and interest rate news. It showed up in last week's cold reception to any positive news, whether positive earnings or good economic numbers. And so it just took a few words from Treasury Secretary Janet Yellen to send investors into a frenzy this morning. Later in the day, she is walking back the comments but the damage to investor confidence is done.
The good news is that in today's after hours market, reactions to positive earnings reports seems to be good. Lyft (LYFT) was trading up 6.10% after an earnings surprise. Zillow (Z) was up almost 5% with its earnings beat. Skillz (SKLZ) was down slightly after volatile aftermarket session as investors reacted to its earnings beat and improved guidance.
Expecting sideways or lower for tomorrow with a hope for a positive expectation breaker.