The Market Week in Review is my weekend homework where I look over what happened in the previous week and what might come in the next week. It helps me evaluate my observations, recognize new data points, and create a plan for possible scenarios in the future.
I do occasionally have some errors or typos and will correct them in my blog or in the comments on TradingView. I do not have an editor and do this in my free time.
If you find this helpful, please let me know in the comments. I am also more than happy to add new perspectives and data points if you have ideas.
The structure is the following:
If you have been following my daily updates, you can skip down to the “The Meaning of Life”. If not, then this first part is a great play-by-play recap for the week. Click the original charts for more detail each day.
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Monday, February 8, 2021
Facts: +0.95%, Volume higher, Closing range: 100%, Body: 54%
Good: New all-time high, no upper wick, bullish into close
Bad: Small gap to fill
Highs/Lows: Higher high, higher low
Candle: Upper half of candle is body, lower wick from morning dip but did not fill gap
Advance/Decline: 3.36, more than three advancing stocks for every declining stock
Indexes: SPX (+0.74%), DJI (+0.76%), RUT (+2.53%), VIX (+1.77%)
Sectors: Energy (XLE +4.18%) and Financials (XLF +1.29%) were top. Utilities (XLU -0.77%) was the only losing sector.
Expectation: Higher
There was a lot to be excited about in the market today. The Nasdaq gapped up at open, as investors had high optimism for a stimulus bill to pass through congress. Democrats added new details of more than $50b to go toward transportation industries. That not only sent airline stocks soaring, but also pumped up the Energy sector. When the Energy sector leads, in most cases, the whole market follows.
The Nasdaq closed with a +0.95% gain on a big spike in volume. There was a morning dip that nearly closed a gap-up at open, but bulls took over early and led the afternoon to a new all-time high and 100% closing range. The 54% green body in the upper half of the candle was the result of a rally into close. More than three stocks advanced for every stock that declined.
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Tuesday, February 9, 2021
Facts: +0.14%, Volume higher, Closing range: 52%, Body: 52%
Good: New all-time high, higher low, close above 14,000
Bad: Upper wick, tested high three times but closed in middle of range
Highs/Lows: Higher high, higher low
Candle: Lower half of candle is body, upper wick formed after testing high 3 times
Advance/Decline: 1.45, about three advancing stocks for every two declining stocks
Indexes: SPX (-0.11%), DJI (-0.03%), RUT (+0.40%), VIX (+1.84%)
Sectors: Energy (XLE +4.18%) and Financials (XLF +1.29%) were top. Utilities (XLU -0.77%) was the only losing sector.
Expectation: Sideways or Higher
The market continues to move higher, albeit at a slower pace than the previous week. Today brought another new all-time high for the Nasdaq and a higher low. However better than expected Job Openings data wasn't enough for the index to stay at the top of the range, testing the high three times before closing in about the middle of the intraday trading range.
The Nasdaq closed with a +0.14% gain on higher volume than the previous day. The closing range of 52% is above a 52% body that covers the lower half of the candle with no lower wick. A higher high and a higher low is a sign of strength and closing above 14,000 was a key level to look for this week. About three stocks advanced for every two stocks that declined.
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Wednesday, February 10, 2021
Facts: -0.25%, Volume higher, Closing range: 48%, Body: 46%
Good: New all-time high, close above yesterday's low
Bad: Morning dip below previous low, again fading into close
Highs/Lows: Higher high, lower low
Candle: Bearish outside day with hanging man candlestick
Advance/Decline: 0.88, slight more declining stocks than advancing stocks
Indexes: SPX (-0.03%), DJI (+0.20%), RUT (-0.72%), VIX (+1.66%)
Sectors: Energy (XLE +1.91%) and Communications (XLC +0.95%) were top. Consumer Discretionary (XLY -0.99%) was the bottom sector.
Expectation: Sideways
Wednesday was a wild session for the markets with a big dip in the morning as investors reacted to Core Consumer Price Index data that showed inflation was lower than expected. Inflation is something economists want to see at just the right level, not too much and not too little. The market recovered as morning turned into the afternoon, but then dipped again into close after statements from Fed Chairman Jerome Powell.
The Nasdaq closed with a -0.25% loss on higher volume. The closing range of 48% is good considering the morning dip and that the close is higher than yesterday's open. However, the candle has a hanging man pattern that shows sellers are ready to take over as soon as any bad news hits the market. There were slightly more declining stocks than advancing stocks.
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Thursday, February 11, 2021
Facts: +0.38%, Volume higher, Closing range: 77%, Body: 14%
Good: Finished higher, after selling pressure in morning
Bad: Long lower shadow for second day showing more selling pressure
Highs/Lows: Lower high, higher low
Candle: Inside day with long lower shadow, small negative body in upper half of candle
Advance/Decline: 0.54, two declining stocks for every advancing stock
Indexes: SPX (+0.17%), DJI (-0.02%), RUT (+0.13%), VIX (-3.37%)
Sectors: Technology (XLK +1.10%) and Health (XLV +0.19%) were top. Energy (XLE -1.54%) was the bottom sector.
Expectation: Sideways
The Nasdaq moved sideways today as the fight between buyers and sellers created a second day of choppiness. The morning sell-off was possibly prompted by disappointing employment data and a continued outlook from the Fed of an economy that needs support.
The index closed with a +0.38% gain on slightly higher volume than the previous day. The inside day, marked by a lower high and a higher low, saw a big dip in the morning and another dip in the afternoon before bulls took prices higher into close and ended the day with a slight gain. The action resulted in a closing range of 77% and a small 14% red body in the upper half of the candle. There were two declining stocks for every advancing stock.
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Friday, February 12, 2021
Facts: +0.50%, Volume lower, Closing range: 96%, Body: 71%
Good: Good gains in the morning, higher prices into close
Bad: Nothing
Highs/Lows: Higher high, higher low
Candle: Mostly green body with tiny upper wick as index closed near the high
Advance/Decline: 0.89, slightly more declining stocks than advancing stocks
Indexes: SPX (+0.47%), DJI (+0.09%), RUT (+0.18%), VIX (-6.02%)
Sectors: Energy (XLE +1.48%) and Materials (XLB +1.03%) were top. Real Estate (XLRE -0.03%) and Utilities (XLU -0.73%) were bottom.
Expectation: Higher
The market rallied into the end of the week, closing at or near all-time highs across the major indexes. Despite lower than expected consumer sentiment data, investors were optimistic about the stimulus talks and progress with vaccines to end the pandemic. As a sign of that confidence, the defensive play of Utilities remained at the bottom of the sector list heading into a three-day weekend.
The Nasdaq closed with a +0.50% gain, just below the all-time high. The volume was lower than the previous day, but the 96% closing range and 71% green body appear very bullish. Most of the gains came in the last 30 minutes of trading. However, there were more declining stocks than advancing stocks on the Nasdaq.
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The Meaning of Life (View on the Week)
The second week of February began and ended with a rally to all-time highs. Overall, it was a bullish week, but the bears were always present. Monday opened with a gap up that was quickly tested with a dip in the morning, before climbing to close the day with a nearly a 1% gain.
Tuesday set a new all-time high but could not hold onto the high and closed in the middle of the day's price range. Wednesday and Thursday is when the bears made the biggest attempt with big morning and afternoon dips that kept the index in a sideways move. The close from Tuesday to Thursday only changed by 0.13%, but the trading range was nearly 2%. That left Friday as the deciding day on whether the week would be bullish or bearish. The bulls won.
Energy stocks showed up big this week, building on news of a large stimulus targeted at transportation. Add that crude oil prices continued higher throughout the week.
On the other hand, Consumer stocks did poorly after consumer price index data showed inflation lower than expected. Consumer confidence and spending data released later in the week confirmed there was less demand for consumer products.
None of that data was enough to scare investors from the market. Yields on long-term treasury bonds moved higher as investors remained in equity markets. Even within the stock market, the typical defensive plays used by investors did not show up. Utilities remained as the worst performing sector even as Friday closed into a three-day weekend.
The Nasdaq closed the week up +1.73% from the previous weeks close. Volume was higher than the previous week, driven by the two day fight of bulls and bears on Wednesday and Thursday. The closing range of 95% was thanks to a rally in the last 30 minutes of trading on Friday, that brought the index near to the all-time high set earlier in the week.
The average closing range for the past 15 weeks is at 72%. This past week broke a pattern of ups and downs over the previous six weeks with two high weekly closes in a row.
The Russell 2000 (RUT) outperformed the other indexes with a +2.51% weekly gain. The S&P 500 (SPX) gained +1.23% while the Dow Jones Industrial (DJI) gained +1.00%.
The VIX volatility index closed at its lowest point since before the February 2020 highs turned into the 2020 market crash.
Energy ( XLE ) led for a second week in a row as crude oil prices continue to rise and optimism for economic recovery to bring demand back to oil and gas as transportation, travel and leisure sectors bounce back. In particular, transportation companies got a boost on Monday from news of a targeted stimulus to help the sector. In turn, that projects well for Energy.
Technology ( XLK ) and Health ( XLV ) led for Thursday as Energy pulled back for a day. However, Energy bounced back up to the week's highs on Friday.
Consumer Staples ( XLP ) and Consumer Discretionary ( XLY ) both lost for the week. Core CPI numbers showed lower than expected inflation and weighed down on the two sectors.
Utilities ( XLU ) was the bottom sector for the week. There was not much interest in this defensive play for equities this week.
US 30y and 10y Treasury Bond yields continued to rise and widen the gap with shorter term treasury bonds. The yield curve steepens to levels not seen since 2015. This a signal of confidence from investors in the ability for the economy to recover earlier than expected with many analysts projected a full recovery in the second half of this year.
That confidence can also been seen in corporate bonds. High Yield Corporate Bonds (HYG) prices are climbing. Those higher risk bonds are being bough while safer Investment Grade Corporate Bonds (LQD) are being sold. Investors are confident in corporations being able to meet commitments on these bonds.
The US Dollar (DXY) declined -0.62% for the week.
Silver (SILVER) and GOLD (GOLD) both finished the week with gains.
The real story with commodities is the two week rise of Crude Oil Futures (CRUDEOIL1!), Timber (WOOD), Copper (COPPER1!), and Aluminum (ALI1!). These are all key commodities required to support economic activity. Seeing the two week rise is a bullish sign for the recovering economy.
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The Big Four Mega-caps
I had a great conversation in the comments of the daily market update this week about the markets and the big four mega-caps. It reminded me how important it is to look at the weekly charts to see trends.
Apple (AAPL) and Amazon (AMZN) have been somewhat disappointing as you watch the daily charts. You might think there is something wrong. However, taking a step back and looking at the weekly shows them still in uptrends, with higher lows closing in one the highs. As the price range narrows with lowering volume, you can expect a breakout in one direction or the other.
Microsoft (MSFT) and Alphabet (GOOGL) already had their breakouts and continue to trade well above the key moving average lines.
The performance of the big mega-caps has an impact on the indexes. The indexes influence investor sentiment and impact passive instruments including ETFs. Those all impact overall market prices. That's the reason to keep an eye on daily and weekly charts of these top four mega-caps.
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Investor Sentiment
The put/call ratio (PCCE) ended the week at 0.584, still at the level of overly bullish optimism. A contrarian indicator, when the put/call ratio is below 0.7, it signals overly bullish sentiment which typically proceeds a pullback in the market. The indicator was at 0.458 just before the September correction and it was at 0.489 just before the short October correction.
The CNN Fear & Greed index moved more toward Greed level, but is not at an extreme level.
Money managers moved back to a 110 leveraged level as measured by the NAAIM Exposure Index.
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Bumble IPO
Bumble entered the market with an IPO on Thursday and ended the week with a 75% gain over the initial price of $43. Happy Valentine's Day to all the Bumble users and especially the Bumble investors this week.
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The Week Ahead
Markets will be closed on Monday for the President's Day holiday.
Tuesday will be lite on economic news with an update on Manufacturing data in the morning, FOMC Member Daly comments in the afternoon.
Wednesday will have more important news with core producer price index data being released in the morning. The producer price index data can also be an early indicator of inflation so this data will be interesting to watch after last week's consumer price index data disappointed economists. Retail sales data, Industrial Production and weekly Crude Oil stock numbers will also be released on Wednesday.
Thursday will bring Building Permits and Housing Starts data for January. The weekly update on Initial Jobless Claims will also come before market opens. Import/Export price data released on Thursday can impact the US dollar. There will be another update on Crude Oil Inventories later in the morning.
Friday will finish the week with more Home Sales data and the Manufacturing and Service PMI data.
The week will include a number of earnings reports, albeit at a slower pace from previous weeks. CVS Health (CVS), Occidental (OXY) and Avis (CAR) will be interesting to watch on Tuesday. Baidu (BIDU) and Synopsys (SNPS) report on Wednesday. Walmart (WMT) will be an important one to watch on Thursday.
Be sure to check for scheduled earnings reports for stocks in your own portfolio.
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The Bullish Side
Looking just at the equity markets, it's hard to argue with the statement made late on Friday. After a few days of back and forth, the market moved decidedly bullish headed into a three day weekend. Not only did investors not make defensive plays, they bought up assets at a discount relative to where they think prices will go next week.
The impeachment trial is behind us. Congress is now free to focus in on legislating about bills that can help the economy, including the $1.9tn stimulus bill.
Core CPI and consumer confidence and spending numbers released last week may look bleak. But the bright side of those numbers is that Americans are saving money at record levels. Americans don't save money. Eventually as confidence grows, that money is sure to be released into the economy, driving consumer prices higher and driving stock prices higher as well.
The Fed made another affirmation this past week of keeping monetary policy in place for the foreseeable future. A short-term pullback or even small correction is sure to be limited by the asset purchases and low interest rates that will keep money in equity markets.
The breakouts from Microsoft and Alphabet a few weeks ago are still in-tact. It seems any moment new breakout runs could come from Apple and Amazon. These four big mega-caps can carry the market to new highs and that momentum can spread across to a breadth of sectors and stocks.
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The Bearish Side
Investor optimism continues to remain at extreme highs. The put/call ratio is far in the overly bullish range. The CNN Fear & Greed index is moving higher. Money managers only moved out of leverage for one week and now the NAAIM index shows they are back in leverage again this week. All that optimism could be an overwhelming amount of froth that's just waiting for an excuse to see investors run for the exit.
Parts of the stimulus, including the amount of checks and the number of citizens who will benefit from them, continues to be debated. Some of the optimism in the market depends on these checks getting out to as much of the population as possible and driving an increase in economic activity. If this part of the stimulus disappoints investors, it could be a reason to take profits from equities and move money to other asset classes.
The media loves to uncover stories that show faults in the vaccine roll out. Whether its supply chain limitations or the effectiveness of the vaccine, any bad news has a negative impact on sentiment.
As I noted several times in the daily updates, there is a lot of signal to say that investors are bullish, but have one foot out the door and ready to move out at the sign of any bad news.
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Key Nasdaq Levels to Watch
There are several key levels in the Nasdaq to keep an eye out for and respond accordingly. First on the positive side:
On the downside, there are several key levels to raise caution flags:
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Wrap-up
This week was an impressive fight between the bulls and the bears. Both sides of the market showed itself throughout the week. But in the end, the bulls won the fight.
There's a lot of reason to believe the bull market will continue into next week. As investors come back from a three-day weekend, it's becoming increasingly likely that stimulus will pass in congress. Then it's on to a massive infrastructure bill that Biden wants to see congress pass.
At the same time, it's important to realize the market is extended as it continues its rally. Many growth stocks that have been driving the indexes upwards are extended way beyond normal levels. Any news that would spook investors, could bring a pullback or small correction. Or an even bigger correction. It's always important to manage risk in your portfolio. Keep stop losses up to date and make sure you are comfortable with draw down that could occur.
I write these reminders as much for me as I do for any readers of these updates. :)
Happy Valentines Day!
Good luck, stay healthy and trade safe!
I do occasionally have some errors or typos and will correct them in my blog or in the comments on TradingView. I do not have an editor and do this in my free time.
If you find this helpful, please let me know in the comments. I am also more than happy to add new perspectives and data points if you have ideas.
The structure is the following:
- A recap of the daily updates that I do here on TradingView.
- The Meaning of Life, a view on the past week
- What's coming in the next week
- The Bullish View, The Bearish View
- Key index levels to watch out for
- Wrap-up
If you have been following my daily updates, you can skip down to the “The Meaning of Life”. If not, then this first part is a great play-by-play recap for the week. Click the original charts for more detail each day.
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Monday, February 8, 2021
Facts: +0.95%, Volume higher, Closing range: 100%, Body: 54%
Good: New all-time high, no upper wick, bullish into close
Bad: Small gap to fill
Highs/Lows: Higher high, higher low
Candle: Upper half of candle is body, lower wick from morning dip but did not fill gap
Advance/Decline: 3.36, more than three advancing stocks for every declining stock
Indexes: SPX (+0.74%), DJI (+0.76%), RUT (+2.53%), VIX (+1.77%)
Sectors: Energy (XLE +4.18%) and Financials (XLF +1.29%) were top. Utilities (XLU -0.77%) was the only losing sector.
Expectation: Higher
There was a lot to be excited about in the market today. The Nasdaq gapped up at open, as investors had high optimism for a stimulus bill to pass through congress. Democrats added new details of more than $50b to go toward transportation industries. That not only sent airline stocks soaring, but also pumped up the Energy sector. When the Energy sector leads, in most cases, the whole market follows.
The Nasdaq closed with a +0.95% gain on a big spike in volume. There was a morning dip that nearly closed a gap-up at open, but bulls took over early and led the afternoon to a new all-time high and 100% closing range. The 54% green body in the upper half of the candle was the result of a rally into close. More than three stocks advanced for every stock that declined.
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Tuesday, February 9, 2021
Facts: +0.14%, Volume higher, Closing range: 52%, Body: 52%
Good: New all-time high, higher low, close above 14,000
Bad: Upper wick, tested high three times but closed in middle of range
Highs/Lows: Higher high, higher low
Candle: Lower half of candle is body, upper wick formed after testing high 3 times
Advance/Decline: 1.45, about three advancing stocks for every two declining stocks
Indexes: SPX (-0.11%), DJI (-0.03%), RUT (+0.40%), VIX (+1.84%)
Sectors: Energy (XLE +4.18%) and Financials (XLF +1.29%) were top. Utilities (XLU -0.77%) was the only losing sector.
Expectation: Sideways or Higher
The market continues to move higher, albeit at a slower pace than the previous week. Today brought another new all-time high for the Nasdaq and a higher low. However better than expected Job Openings data wasn't enough for the index to stay at the top of the range, testing the high three times before closing in about the middle of the intraday trading range.
The Nasdaq closed with a +0.14% gain on higher volume than the previous day. The closing range of 52% is above a 52% body that covers the lower half of the candle with no lower wick. A higher high and a higher low is a sign of strength and closing above 14,000 was a key level to look for this week. About three stocks advanced for every two stocks that declined.
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Wednesday, February 10, 2021
Facts: -0.25%, Volume higher, Closing range: 48%, Body: 46%
Good: New all-time high, close above yesterday's low
Bad: Morning dip below previous low, again fading into close
Highs/Lows: Higher high, lower low
Candle: Bearish outside day with hanging man candlestick
Advance/Decline: 0.88, slight more declining stocks than advancing stocks
Indexes: SPX (-0.03%), DJI (+0.20%), RUT (-0.72%), VIX (+1.66%)
Sectors: Energy (XLE +1.91%) and Communications (XLC +0.95%) were top. Consumer Discretionary (XLY -0.99%) was the bottom sector.
Expectation: Sideways
Wednesday was a wild session for the markets with a big dip in the morning as investors reacted to Core Consumer Price Index data that showed inflation was lower than expected. Inflation is something economists want to see at just the right level, not too much and not too little. The market recovered as morning turned into the afternoon, but then dipped again into close after statements from Fed Chairman Jerome Powell.
The Nasdaq closed with a -0.25% loss on higher volume. The closing range of 48% is good considering the morning dip and that the close is higher than yesterday's open. However, the candle has a hanging man pattern that shows sellers are ready to take over as soon as any bad news hits the market. There were slightly more declining stocks than advancing stocks.
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Thursday, February 11, 2021
Facts: +0.38%, Volume higher, Closing range: 77%, Body: 14%
Good: Finished higher, after selling pressure in morning
Bad: Long lower shadow for second day showing more selling pressure
Highs/Lows: Lower high, higher low
Candle: Inside day with long lower shadow, small negative body in upper half of candle
Advance/Decline: 0.54, two declining stocks for every advancing stock
Indexes: SPX (+0.17%), DJI (-0.02%), RUT (+0.13%), VIX (-3.37%)
Sectors: Technology (XLK +1.10%) and Health (XLV +0.19%) were top. Energy (XLE -1.54%) was the bottom sector.
Expectation: Sideways
The Nasdaq moved sideways today as the fight between buyers and sellers created a second day of choppiness. The morning sell-off was possibly prompted by disappointing employment data and a continued outlook from the Fed of an economy that needs support.
The index closed with a +0.38% gain on slightly higher volume than the previous day. The inside day, marked by a lower high and a higher low, saw a big dip in the morning and another dip in the afternoon before bulls took prices higher into close and ended the day with a slight gain. The action resulted in a closing range of 77% and a small 14% red body in the upper half of the candle. There were two declining stocks for every advancing stock.
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Friday, February 12, 2021
Facts: +0.50%, Volume lower, Closing range: 96%, Body: 71%
Good: Good gains in the morning, higher prices into close
Bad: Nothing
Highs/Lows: Higher high, higher low
Candle: Mostly green body with tiny upper wick as index closed near the high
Advance/Decline: 0.89, slightly more declining stocks than advancing stocks
Indexes: SPX (+0.47%), DJI (+0.09%), RUT (+0.18%), VIX (-6.02%)
Sectors: Energy (XLE +1.48%) and Materials (XLB +1.03%) were top. Real Estate (XLRE -0.03%) and Utilities (XLU -0.73%) were bottom.
Expectation: Higher
The market rallied into the end of the week, closing at or near all-time highs across the major indexes. Despite lower than expected consumer sentiment data, investors were optimistic about the stimulus talks and progress with vaccines to end the pandemic. As a sign of that confidence, the defensive play of Utilities remained at the bottom of the sector list heading into a three-day weekend.
The Nasdaq closed with a +0.50% gain, just below the all-time high. The volume was lower than the previous day, but the 96% closing range and 71% green body appear very bullish. Most of the gains came in the last 30 minutes of trading. However, there were more declining stocks than advancing stocks on the Nasdaq.
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The Meaning of Life (View on the Week)
The second week of February began and ended with a rally to all-time highs. Overall, it was a bullish week, but the bears were always present. Monday opened with a gap up that was quickly tested with a dip in the morning, before climbing to close the day with a nearly a 1% gain.
Tuesday set a new all-time high but could not hold onto the high and closed in the middle of the day's price range. Wednesday and Thursday is when the bears made the biggest attempt with big morning and afternoon dips that kept the index in a sideways move. The close from Tuesday to Thursday only changed by 0.13%, but the trading range was nearly 2%. That left Friday as the deciding day on whether the week would be bullish or bearish. The bulls won.
Energy stocks showed up big this week, building on news of a large stimulus targeted at transportation. Add that crude oil prices continued higher throughout the week.
On the other hand, Consumer stocks did poorly after consumer price index data showed inflation lower than expected. Consumer confidence and spending data released later in the week confirmed there was less demand for consumer products.
None of that data was enough to scare investors from the market. Yields on long-term treasury bonds moved higher as investors remained in equity markets. Even within the stock market, the typical defensive plays used by investors did not show up. Utilities remained as the worst performing sector even as Friday closed into a three-day weekend.
The Nasdaq closed the week up +1.73% from the previous weeks close. Volume was higher than the previous week, driven by the two day fight of bulls and bears on Wednesday and Thursday. The closing range of 95% was thanks to a rally in the last 30 minutes of trading on Friday, that brought the index near to the all-time high set earlier in the week.
The average closing range for the past 15 weeks is at 72%. This past week broke a pattern of ups and downs over the previous six weeks with two high weekly closes in a row.
The Russell 2000 (RUT) outperformed the other indexes with a +2.51% weekly gain. The S&P 500 (SPX) gained +1.23% while the Dow Jones Industrial (DJI) gained +1.00%.
The VIX volatility index closed at its lowest point since before the February 2020 highs turned into the 2020 market crash.
Energy ( XLE ) led for a second week in a row as crude oil prices continue to rise and optimism for economic recovery to bring demand back to oil and gas as transportation, travel and leisure sectors bounce back. In particular, transportation companies got a boost on Monday from news of a targeted stimulus to help the sector. In turn, that projects well for Energy.
Technology ( XLK ) and Health ( XLV ) led for Thursday as Energy pulled back for a day. However, Energy bounced back up to the week's highs on Friday.
Consumer Staples ( XLP ) and Consumer Discretionary ( XLY ) both lost for the week. Core CPI numbers showed lower than expected inflation and weighed down on the two sectors.
Utilities ( XLU ) was the bottom sector for the week. There was not much interest in this defensive play for equities this week.
US 30y and 10y Treasury Bond yields continued to rise and widen the gap with shorter term treasury bonds. The yield curve steepens to levels not seen since 2015. This a signal of confidence from investors in the ability for the economy to recover earlier than expected with many analysts projected a full recovery in the second half of this year.
That confidence can also been seen in corporate bonds. High Yield Corporate Bonds (HYG) prices are climbing. Those higher risk bonds are being bough while safer Investment Grade Corporate Bonds (LQD) are being sold. Investors are confident in corporations being able to meet commitments on these bonds.
The US Dollar (DXY) declined -0.62% for the week.
Silver (SILVER) and GOLD (GOLD) both finished the week with gains.
The real story with commodities is the two week rise of Crude Oil Futures (CRUDEOIL1!), Timber (WOOD), Copper (COPPER1!), and Aluminum (ALI1!). These are all key commodities required to support economic activity. Seeing the two week rise is a bullish sign for the recovering economy.
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The Big Four Mega-caps
I had a great conversation in the comments of the daily market update this week about the markets and the big four mega-caps. It reminded me how important it is to look at the weekly charts to see trends.
Apple (AAPL) and Amazon (AMZN) have been somewhat disappointing as you watch the daily charts. You might think there is something wrong. However, taking a step back and looking at the weekly shows them still in uptrends, with higher lows closing in one the highs. As the price range narrows with lowering volume, you can expect a breakout in one direction or the other.
Microsoft (MSFT) and Alphabet (GOOGL) already had their breakouts and continue to trade well above the key moving average lines.
The performance of the big mega-caps has an impact on the indexes. The indexes influence investor sentiment and impact passive instruments including ETFs. Those all impact overall market prices. That's the reason to keep an eye on daily and weekly charts of these top four mega-caps.
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Investor Sentiment
The put/call ratio (PCCE) ended the week at 0.584, still at the level of overly bullish optimism. A contrarian indicator, when the put/call ratio is below 0.7, it signals overly bullish sentiment which typically proceeds a pullback in the market. The indicator was at 0.458 just before the September correction and it was at 0.489 just before the short October correction.
The CNN Fear & Greed index moved more toward Greed level, but is not at an extreme level.
Money managers moved back to a 110 leveraged level as measured by the NAAIM Exposure Index.
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Bumble IPO
Bumble entered the market with an IPO on Thursday and ended the week with a 75% gain over the initial price of $43. Happy Valentine's Day to all the Bumble users and especially the Bumble investors this week.
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The Week Ahead
Markets will be closed on Monday for the President's Day holiday.
Tuesday will be lite on economic news with an update on Manufacturing data in the morning, FOMC Member Daly comments in the afternoon.
Wednesday will have more important news with core producer price index data being released in the morning. The producer price index data can also be an early indicator of inflation so this data will be interesting to watch after last week's consumer price index data disappointed economists. Retail sales data, Industrial Production and weekly Crude Oil stock numbers will also be released on Wednesday.
Thursday will bring Building Permits and Housing Starts data for January. The weekly update on Initial Jobless Claims will also come before market opens. Import/Export price data released on Thursday can impact the US dollar. There will be another update on Crude Oil Inventories later in the morning.
Friday will finish the week with more Home Sales data and the Manufacturing and Service PMI data.
The week will include a number of earnings reports, albeit at a slower pace from previous weeks. CVS Health (CVS), Occidental (OXY) and Avis (CAR) will be interesting to watch on Tuesday. Baidu (BIDU) and Synopsys (SNPS) report on Wednesday. Walmart (WMT) will be an important one to watch on Thursday.
Be sure to check for scheduled earnings reports for stocks in your own portfolio.
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The Bullish Side
Looking just at the equity markets, it's hard to argue with the statement made late on Friday. After a few days of back and forth, the market moved decidedly bullish headed into a three day weekend. Not only did investors not make defensive plays, they bought up assets at a discount relative to where they think prices will go next week.
The impeachment trial is behind us. Congress is now free to focus in on legislating about bills that can help the economy, including the $1.9tn stimulus bill.
Core CPI and consumer confidence and spending numbers released last week may look bleak. But the bright side of those numbers is that Americans are saving money at record levels. Americans don't save money. Eventually as confidence grows, that money is sure to be released into the economy, driving consumer prices higher and driving stock prices higher as well.
The Fed made another affirmation this past week of keeping monetary policy in place for the foreseeable future. A short-term pullback or even small correction is sure to be limited by the asset purchases and low interest rates that will keep money in equity markets.
The breakouts from Microsoft and Alphabet a few weeks ago are still in-tact. It seems any moment new breakout runs could come from Apple and Amazon. These four big mega-caps can carry the market to new highs and that momentum can spread across to a breadth of sectors and stocks.
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The Bearish Side
Investor optimism continues to remain at extreme highs. The put/call ratio is far in the overly bullish range. The CNN Fear & Greed index is moving higher. Money managers only moved out of leverage for one week and now the NAAIM index shows they are back in leverage again this week. All that optimism could be an overwhelming amount of froth that's just waiting for an excuse to see investors run for the exit.
Parts of the stimulus, including the amount of checks and the number of citizens who will benefit from them, continues to be debated. Some of the optimism in the market depends on these checks getting out to as much of the population as possible and driving an increase in economic activity. If this part of the stimulus disappoints investors, it could be a reason to take profits from equities and move money to other asset classes.
The media loves to uncover stories that show faults in the vaccine roll out. Whether its supply chain limitations or the effectiveness of the vaccine, any bad news has a negative impact on sentiment.
As I noted several times in the daily updates, there is a lot of signal to say that investors are bullish, but have one foot out the door and ready to move out at the sign of any bad news.
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Key Nasdaq Levels to Watch
There are several key levels in the Nasdaq to keep an eye out for and respond accordingly. First on the positive side:
- Wednesday's high of 14,109.12 will be the first test. Another weekly high would be a great sign for a continued rally.
- Reaching 14,250 would keep moving the weekly highs along an upper channel line from the past few weeks.
On the downside, there are several key levels to raise caution flags:
- 14,000 is now an area of support that held this past week. Staying above this line will make that support stronger.
- The low of the week this past week is 13,845.47.
- The 21d EMA is at 13,609.55. That is around 3.5% below Friday's close.
- The 50d MA is at 13,083.19. A violation of this line will be an added warning side. It has not been tested since 11/4.
- There is support at the 13,000 area, seen in the lows from the first weeks of January.
- Several possible areas of support at 12,550, 12,250, and 12,000.
- The 200d MA moved above the lows of October and is now about 20% below the index at 11,303.89.
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Wrap-up
This week was an impressive fight between the bulls and the bears. Both sides of the market showed itself throughout the week. But in the end, the bulls won the fight.
There's a lot of reason to believe the bull market will continue into next week. As investors come back from a three-day weekend, it's becoming increasingly likely that stimulus will pass in congress. Then it's on to a massive infrastructure bill that Biden wants to see congress pass.
At the same time, it's important to realize the market is extended as it continues its rally. Many growth stocks that have been driving the indexes upwards are extended way beyond normal levels. Any news that would spook investors, could bring a pullback or small correction. Or an even bigger correction. It's always important to manage risk in your portfolio. Keep stop losses up to date and make sure you are comfortable with draw down that could occur.
I write these reminders as much for me as I do for any readers of these updates. :)
Happy Valentines Day!
Good luck, stay healthy and trade safe!
