Summary: Consumer price index data was higher than expected which is great for the US dollar, but sent investors into a selling frenzy as they reacted to higher inflation and the possibility of higher interest rates. It's a conflicting mix of being glad the economy is recovering, but also trying to price in the impact to valuations and potential reactions by the Fed to an overheated economy.
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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Wednesday, May 12, 2021
Facts: -2.67%, Volume lower, Closing range: 10%, Body: 64%
Good: Nothing
Bad: Lower high, lower low, lower close, all day selling
Highs/Lows: Lower high, lower low
Candle: Longer upper wick over a tick red body, tiny lower wick
Advance/Decline: Five declining stocks for every advancing stock
Indexes: SPX (-2.14%), DJI (-1.99%), RUT (-3.26%), VIX (+26.33%)
Sectors: Energy (XLE +0.48%) and Health (XLV -0.94%) were top. Technology (XLK -2.81%) and Consumer Discretionary (XLY -3.39%) were bottom.
Expectation: Sideways or Lower
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Market Overview
Consumer price index data was higher than expected which is great for the US dollar, but sent investors into a selling frenzy as they reacted to higher inflation and the possibility of higher interest rates. It's a conflicting mix of being glad the economy is recovering, but also trying to price in the impact to valuations and potential reactions by the Fed to an overheated economy.
The Nasdaq closed down -2.67% on the fourth day in a row of lower highs, lower lows and lower closes. The closing range of 10% comes underneath a 64% red body and a long upper wick formed in a quick but short-lived rebound at open. The selling pressure existed throughout the day as give stocks declined for every advancing stock.
The Russell 2000 (RUT) took the worst hit for the day with a -3.26% decline. The S&P 500 (SPX) declined -2.14%. The Dow Jones Industrial average (DHI) lost -1.99%.
The VIX volatility index rose +26.33%.
In a flip from the previous day, Energy (XLE +0.48%) went from the bottom of the sector list to being the only sector to end today with a gain. Health (XLV -0.94%) was the next best sector even though losing almost 1% for the day.
Only Materials (XLB +0.33%) ended the day with gains while Communications (XLC -0.29%) was the second best sector. Financials (XLF -1.77%) and Energy (XLE -2.57%) moved the bottom of the sector list. Dominated by big tech and high growth companies that are impacted by inflation and higher interest rates, thhe Technology (XLK -2.81%) and Consumer Discretionary (XLY -3.39%) sectors were at the bottom of the list.
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Economic Indicators
The US Dollar (DXY) advanced +0.67%.
The US 30y, 10y and 2y treasury yields all rose for the day and the yield curve steepened.
Both High Yield Corporate Bond (HYG) prices and Investment Grade Corporate Bond (LQD) prices declined.
Silver (SILVER) and Gold (GOLD) declined. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) declined. Copper (COPPER1!) and Aluminum (ALI1!) declined.
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Investor Sentiment
The put/call ratio rose slightly to 0.978. 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 well into the Fear side, but still short of Extreme Fear.
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Market Leaders
All four big mega-caps declined. Only Alphabet (GOOGL) remains above its 50d moving average line, declining -3.08% today. Apple (AAPL) and Microsoft (MSFT) both lost -2.49%. Amazon (AMZN) declined -2.23%.
Only a few mega-caps had gains for the day, with Pfizer (PFE), Toyota Motor (TM ), Chevron (CVX) and Abbvie (ABBV) topping the list. ASML Holding (ASML), Tesla (TSLA), Home Depot (HD) and Nvidia (NVDA) were at the bottom of the list.
None of the daily update growth stocks had gains for the day. Best performing were Ehang Holdings (EH), Alibaba (BABA), Facebook (FB) and Sumo Logic (SUMO). At the bottom of the list was Fastly (FSLY), FUTU Holding (FUTU) and Lemonade (LMND), all with greater than 10% losses.
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Looking ahead
Produce Price Index data will be released in the morning, which is a leading indicator to consumer prices and another input on inflation worries. The weekly update on Jobless Claims also comes in the morning.
Earnings Reports include Alibaba (BABA), Walt Disney (DIS), AirBnB (ABNB), Coinbase (COIN), DoorDash (DASH), Farfetch (FTCH), Celsius (CELH), and DermTech (DMTK).
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Trends, Support and Resistance
The Nasdaq continues to retreat below the 50d moving average line. It closed today just above the 13,000 support line which was first acted as resistance in December, turned to a support area in January. The index dipped below the line twice since that time but then quickly moved back above.
Returning to the midpoint of the trend-line from the 4/29 high would result in a +0.72% advance.
The five-day trend line points to a -0.13% decline tomorrow, a relative sideways move.
The one-day trend, if it continues, would result in a -1.41% decline, busting through 13,000 support.
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Wrap-up
I wrote yesterday that I hoped the worst of inflation was already priced in and possibly inflation would be less than expected or at least at expectation. Well the core consumer price index showed a worst picture than expected. After the data was released, flipping back to the pre-market QQQ chart was enough to tell you how the rest of the day would go. Red.
Tomorrow is produce price index data, and we are somewhat in the same boat. If the data is lower than expected, that should be some positive for investors. But if the index is more than expected, those prices would show up in consumer prices further down the road and indicate no soon end to inflation.
The Fed believes inflation is transitionary and will move back below 2% in the second half of the year. Some analysts would disagree. You can decide who you want to believe. Or just follow the master fortune teller: the market. Do expect a rough ride.
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.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wednesday, May 12, 2021
Facts: -2.67%, Volume lower, Closing range: 10%, Body: 64%
Good: Nothing
Bad: Lower high, lower low, lower close, all day selling
Highs/Lows: Lower high, lower low
Candle: Longer upper wick over a tick red body, tiny lower wick
Advance/Decline: Five declining stocks for every advancing stock
Indexes: SPX (-2.14%), DJI (-1.99%), RUT (-3.26%), VIX (+26.33%)
Sectors: Energy (XLE +0.48%) and Health (XLV -0.94%) were top. Technology (XLK -2.81%) and Consumer Discretionary (XLY -3.39%) were bottom.
Expectation: Sideways or Lower
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
Consumer price index data was higher than expected which is great for the US dollar, but sent investors into a selling frenzy as they reacted to higher inflation and the possibility of higher interest rates. It's a conflicting mix of being glad the economy is recovering, but also trying to price in the impact to valuations and potential reactions by the Fed to an overheated economy.
The Nasdaq closed down -2.67% on the fourth day in a row of lower highs, lower lows and lower closes. The closing range of 10% comes underneath a 64% red body and a long upper wick formed in a quick but short-lived rebound at open. The selling pressure existed throughout the day as give stocks declined for every advancing stock.
The Russell 2000 (RUT) took the worst hit for the day with a -3.26% decline. The S&P 500 (SPX) declined -2.14%. The Dow Jones Industrial average (DHI) lost -1.99%.
The VIX volatility index rose +26.33%.
In a flip from the previous day, Energy (XLE +0.48%) went from the bottom of the sector list to being the only sector to end today with a gain. Health (XLV -0.94%) was the next best sector even though losing almost 1% for the day.
Only Materials (XLB +0.33%) ended the day with gains while Communications (XLC -0.29%) was the second best sector. Financials (XLF -1.77%) and Energy (XLE -2.57%) moved the bottom of the sector list. Dominated by big tech and high growth companies that are impacted by inflation and higher interest rates, thhe Technology (XLK -2.81%) and Consumer Discretionary (XLY -3.39%) sectors were at the bottom of the list.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) advanced +0.67%.
The US 30y, 10y and 2y treasury yields all rose for the day and the yield curve steepened.
Both High Yield Corporate Bond (HYG) prices and Investment Grade Corporate Bond (LQD) prices declined.
Silver (SILVER) and Gold (GOLD) declined. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) declined. Copper (COPPER1!) and Aluminum (ALI1!) declined.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio rose slightly to 0.978. 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 well into the Fear side, but still short of Extreme Fear.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
All four big mega-caps declined. Only Alphabet (GOOGL) remains above its 50d moving average line, declining -3.08% today. Apple (AAPL) and Microsoft (MSFT) both lost -2.49%. Amazon (AMZN) declined -2.23%.
Only a few mega-caps had gains for the day, with Pfizer (PFE), Toyota Motor (TM ), Chevron (CVX) and Abbvie (ABBV) topping the list. ASML Holding (ASML), Tesla (TSLA), Home Depot (HD) and Nvidia (NVDA) were at the bottom of the list.
None of the daily update growth stocks had gains for the day. Best performing were Ehang Holdings (EH), Alibaba (BABA), Facebook (FB) and Sumo Logic (SUMO). At the bottom of the list was Fastly (FSLY), FUTU Holding (FUTU) and Lemonade (LMND), all with greater than 10% losses.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
Produce Price Index data will be released in the morning, which is a leading indicator to consumer prices and another input on inflation worries. The weekly update on Jobless Claims also comes in the morning.
Earnings Reports include Alibaba (BABA), Walt Disney (DIS), AirBnB (ABNB), Coinbase (COIN), DoorDash (DASH), Farfetch (FTCH), Celsius (CELH), and DermTech (DMTK).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
The Nasdaq continues to retreat below the 50d moving average line. It closed today just above the 13,000 support line which was first acted as resistance in December, turned to a support area in January. The index dipped below the line twice since that time but then quickly moved back above.
Returning to the midpoint of the trend-line from the 4/29 high would result in a +0.72% advance.
The five-day trend line points to a -0.13% decline tomorrow, a relative sideways move.
The one-day trend, if it continues, would result in a -1.41% decline, busting through 13,000 support.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
I wrote yesterday that I hoped the worst of inflation was already priced in and possibly inflation would be less than expected or at least at expectation. Well the core consumer price index showed a worst picture than expected. After the data was released, flipping back to the pre-market QQQ chart was enough to tell you how the rest of the day would go. Red.
Tomorrow is produce price index data, and we are somewhat in the same boat. If the data is lower than expected, that should be some positive for investors. But if the index is more than expected, those prices would show up in consumer prices further down the road and indicate no soon end to inflation.
The Fed believes inflation is transitionary and will move back below 2% in the second half of the year. Some analysts would disagree. You can decide who you want to believe. Or just follow the master fortune teller: the market. Do expect a rough ride.
Stay healthy and trade safe!
Comment:
Correction in Overview: The selling pressure existed throughout the day as five stocks declined for every advancing stock.
