Summary: Meta killed the rally. Perhaps Amazon can restart it.
Notes
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, February 3, 2022
Facts: -3.74%, Volume lower, Closing Range: 7% (w/gap), Body: 47% Red
Good: Stayed above 13,800. Lower volume despite gap-down at open.
Bad: Failed intraday rally, low closing range
Highs/Lows: Lower high, Lower low
Candle: Gap-down at open, long upper wick over red body
Advance/Decline: 0.32, three declining stocks for every advancing stock
Indexes: SPX (-2.44%), DJI (-1.45%), RUT (-1.90%), VIX (+10.23%)
Sector List: Consumer Staples (XLP +0.03%) and Health (XLV -0.43%) at the top. Consumer Discretionary (XLY -3.06%) and Communications (XLC -6.69%) at the bottom.
Expectation: Lower
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Market Overview
Meta killed the rally. Perhaps Amazon can restart it.
The Nasdaq closed down by -3.74% on Thursday, its worst decline since September 2020. After a gap-down at open, a rally attempt in the morning could close the gap, creating a long upper wick above a 47% red body as the rally turned into more losses. The closing range was 7% with the gap. The only potential positive is the lower volume. There were three declining stocks for every advancing stock.
The S&P 500 (SPX) declined -by 2.44%, led lower by growth sectors. The Dow Jones Industrial Average (DJI) declined -by 1.45%. Small-caps didn't do too bad relatively speaking, with the Russell 2000 (RUT) down -1.90%. The VIX Volatility Index bounced up by -10.24%.
Among the eleven S&P 500 sectors, only Consumer Staples (XLP +0.03%) held in the positive for the day. That was followed by Health (XLV -0.43%) as the next best sector. Consumer Discretionary (XLY -3.06%) and Communications (XLC -6.69%) were at the bottom of the sector list.
Positive economic data wasn't enough to save sentiment. The weekly Initial Jobless Claims was lower than expected. There were 238,000 claims compared to the forecast of 245,000 claims. In a surprise for the labor market, Nonfarm Productivity for Q4 rose by 6.6% compared to the expected 3.2%. Unit Labor Costs for Q4 were expected to rise 1.5%, but increased by only 0.3%.
Purchasing Managers Index data for the Non-Manufacturing / Services sector were both higher than forecasted. The indexes show the sector is improving, but not quite at the accelerated pace of previous months.
The Bank of England followed through with an expected interest rate hike of 0.25%, bringing the interest rate to 0.50%.
The US Dollar Index (DXY) continues to fall. It declined -by 0.67% today. US 30y, 10y, and 2y Treasury Yields all rose for the day. Both High Yield (HYG) and Investment Grade (LQD) Corporate Bond prices declined sharply. Silver and Gold declined. Crude Oil Futures moved ever higher.
The put/call ratio rose to 0.955. The CNN Fear & Greed index moved further into the Fear range. The NAAIM money manager exposure index showed an increase in exposure, rising to 62.54 from 53.39 the previous week. The exposure index is released on Wednesday nights.
All big six mega-caps declined. Meta (FB) led the way with a -26.39% decline, erasing more than $250 billion in market value and dropping below Tesla (TSLA) in market cap. Ouch. Amazon (AMZN) dropped -7.81% for the day, but is up nearly 15% in after-hours thanks to a great fourth-quarter earnings report. Microsoft (MSFT) dropped back below its 21d EMA with a -3.90% decline.
Only a handful of mega-caps gained for the day. UnitedHealth (UNG) topped the list with a +1.87% gain. The health services provider is heading toward a new all-time high. Amazon and Facebook were at the bottom of the mega-cap list.
In the Daily Update Growth List, only RobinHood (HOOD) and Alibaba (BABA) ended the day in the positive. They advanced +0.93% and +0.48% respectively. Helped to the bottom of the list by Facebook and the communications sector sell-off was Snap (SNAP). Snap declined -by 23.60% for the day. However, the company beat earnings expectations with 42% revenue growth and a first-time net profit. The company soared 60% in after-hours trading.
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Looking ahead
More employment data will be available in the morning. Nonfarm Payrolls and the Unemployment Rate for January are the most significant of the metrics to be released before the market opens.
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Trends, Support, and Resistance
The Nasdaq fell back below the 21d EMA today and is approaching the 13,800 area which may turn to support.
If the index rallies to return to the trend line from the 1.24 low, that would mean a +4.60% advance for Friday.
The five-day trend line points to a +3.85%.
If the one-day trend continues, that would mean a -1.44% decline.
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Wrap-up
Meta lost more than $250 billion of market cap in one day. That's the largest since Apple's huge loss in 2020. It was enough to have an impact across the entire communications sector and the entire market.
Now we have earnings beats from Amazon, Snap, and Pinterest today. Is it enough to lift indexes back into the recent upward trend? Can we get a breadth of gains across the market on higher volume on Friday? That would help with investor sentiment heading into the weekend.
The big six earnings are all out now. Five of the six mega-caps beat expectations. Four of the six provided positive surprises on guidance as well. Add to that numerous positive reports from the rest of the market, and corporate America appears to be very healthy.
The labor data today is interesting. The slower increase in labor costs could help tame inflation in Q1. Add to that the typical slowdown in shipping which could alleviate high container costs and allow the whole system to unclog. We could start to see opinions change toward how hawkish the Fed will be this year.
As for the chart, I don't count after-hours activity in expectations. So the expectation is still Lower for tomorrow, but we will likely get a surprise Higher.
Stay healthy and trade safe!
Notes
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, February 3, 2022
Facts: -3.74%, Volume lower, Closing Range: 7% (w/gap), Body: 47% Red
Good: Stayed above 13,800. Lower volume despite gap-down at open.
Bad: Failed intraday rally, low closing range
Highs/Lows: Lower high, Lower low
Candle: Gap-down at open, long upper wick over red body
Advance/Decline: 0.32, three declining stocks for every advancing stock
Indexes: SPX (-2.44%), DJI (-1.45%), RUT (-1.90%), VIX (+10.23%)
Sector List: Consumer Staples (XLP +0.03%) and Health (XLV -0.43%) at the top. Consumer Discretionary (XLY -3.06%) and Communications (XLC -6.69%) at the bottom.
Expectation: Lower
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Market Overview
Meta killed the rally. Perhaps Amazon can restart it.
The Nasdaq closed down by -3.74% on Thursday, its worst decline since September 2020. After a gap-down at open, a rally attempt in the morning could close the gap, creating a long upper wick above a 47% red body as the rally turned into more losses. The closing range was 7% with the gap. The only potential positive is the lower volume. There were three declining stocks for every advancing stock.
The S&P 500 (SPX) declined -by 2.44%, led lower by growth sectors. The Dow Jones Industrial Average (DJI) declined -by 1.45%. Small-caps didn't do too bad relatively speaking, with the Russell 2000 (RUT) down -1.90%. The VIX Volatility Index bounced up by -10.24%.
Among the eleven S&P 500 sectors, only Consumer Staples (XLP +0.03%) held in the positive for the day. That was followed by Health (XLV -0.43%) as the next best sector. Consumer Discretionary (XLY -3.06%) and Communications (XLC -6.69%) were at the bottom of the sector list.
Positive economic data wasn't enough to save sentiment. The weekly Initial Jobless Claims was lower than expected. There were 238,000 claims compared to the forecast of 245,000 claims. In a surprise for the labor market, Nonfarm Productivity for Q4 rose by 6.6% compared to the expected 3.2%. Unit Labor Costs for Q4 were expected to rise 1.5%, but increased by only 0.3%.
Purchasing Managers Index data for the Non-Manufacturing / Services sector were both higher than forecasted. The indexes show the sector is improving, but not quite at the accelerated pace of previous months.
The Bank of England followed through with an expected interest rate hike of 0.25%, bringing the interest rate to 0.50%.
The US Dollar Index (DXY) continues to fall. It declined -by 0.67% today. US 30y, 10y, and 2y Treasury Yields all rose for the day. Both High Yield (HYG) and Investment Grade (LQD) Corporate Bond prices declined sharply. Silver and Gold declined. Crude Oil Futures moved ever higher.
The put/call ratio rose to 0.955. The CNN Fear & Greed index moved further into the Fear range. The NAAIM money manager exposure index showed an increase in exposure, rising to 62.54 from 53.39 the previous week. The exposure index is released on Wednesday nights.
All big six mega-caps declined. Meta (FB) led the way with a -26.39% decline, erasing more than $250 billion in market value and dropping below Tesla (TSLA) in market cap. Ouch. Amazon (AMZN) dropped -7.81% for the day, but is up nearly 15% in after-hours thanks to a great fourth-quarter earnings report. Microsoft (MSFT) dropped back below its 21d EMA with a -3.90% decline.
Only a handful of mega-caps gained for the day. UnitedHealth (UNG) topped the list with a +1.87% gain. The health services provider is heading toward a new all-time high. Amazon and Facebook were at the bottom of the mega-cap list.
In the Daily Update Growth List, only RobinHood (HOOD) and Alibaba (BABA) ended the day in the positive. They advanced +0.93% and +0.48% respectively. Helped to the bottom of the list by Facebook and the communications sector sell-off was Snap (SNAP). Snap declined -by 23.60% for the day. However, the company beat earnings expectations with 42% revenue growth and a first-time net profit. The company soared 60% in after-hours trading.
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Looking ahead
More employment data will be available in the morning. Nonfarm Payrolls and the Unemployment Rate for January are the most significant of the metrics to be released before the market opens.
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Trends, Support, and Resistance
The Nasdaq fell back below the 21d EMA today and is approaching the 13,800 area which may turn to support.
If the index rallies to return to the trend line from the 1.24 low, that would mean a +4.60% advance for Friday.
The five-day trend line points to a +3.85%.
If the one-day trend continues, that would mean a -1.44% decline.
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Wrap-up
Meta lost more than $250 billion of market cap in one day. That's the largest since Apple's huge loss in 2020. It was enough to have an impact across the entire communications sector and the entire market.
Now we have earnings beats from Amazon, Snap, and Pinterest today. Is it enough to lift indexes back into the recent upward trend? Can we get a breadth of gains across the market on higher volume on Friday? That would help with investor sentiment heading into the weekend.
The big six earnings are all out now. Five of the six mega-caps beat expectations. Four of the six provided positive surprises on guidance as well. Add to that numerous positive reports from the rest of the market, and corporate America appears to be very healthy.
The labor data today is interesting. The slower increase in labor costs could help tame inflation in Q1. Add to that the typical slowdown in shipping which could alleviate high container costs and allow the whole system to unclog. We could start to see opinions change toward how hawkish the Fed will be this year.
As for the chart, I don't count after-hours activity in expectations. So the expectation is still Lower for tomorrow, but we will likely get a surprise Higher.
Stay healthy and trade safe!
