Summary: Producer Price Index data confirmed fears of continued high inflation for the month of October. We already expected indexes to pull back after a long streak of daily gains, but the inflation worries helped solidify the trend reversal.
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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Tuesday, November 9, 2021
Facts: -0.60%, Volume lower, Closing Range: 25%, Body: 69% Red
Good: Lower volume on pullback
Bad: Lower high, lower low, advance/decline ratio
Highs/Lows: Lower high, Lower low
Candle: Bearish engulfing body marks trend reversal
Advance/Decline: 0.47, more than two declining for every
Indexes: SPX (-0.35%), DJI (-0.31%), RUT (-0.63%), VIX (+3.25%)
Sector List: Utilities (XLU +0.51%) and Materials (XLB +0.46%) at the top. Financials (XLF -0.55%) and Consumer Discretionary (XLY -1.85%) at the bottom.
Expectation: Lower
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Market Overview
Producer Price Index data confirmed fears of continued high inflation for the month of October. We already expected indexes to pull back after a long streak of daily gains, but the inflation worries helped solidify the trend reversal.
The Nasdaq closed with a -0.60% decline for the day. The red body engulfs the bodies of the previous two thin bodies in indecisive candles. The bearish engulfing body confirms the reversal in an uptrend. There were more than two declining stocks for every advancing stock. The good news is that volume was lower than the previous day, signaling less conviction by sellers.
The S&P 500 (SPX) declined -0.35%. The Dow Jones Industrial Average (DJI) lost -0.31%. The Russell 2000 (RUT) fell -0.63%. The VIX Volatility Index continues to rise, advancing +3.25% today.
Utilities (XLU +0.51%) and Materials (XLB +0.46%) were the top sectors for the day as a mix of defensive and cyclical sectors moved higher. Financials (XLF -0.55%) and Consumer Discretionary (XLY -1.85%) were at the bottom of the sector list.
The Core Producer Price Index (PPI), which excludes food and energy, came in at 0.4% month-over-month for October. That was higher than the 0.2% growth for September but lower than the forecast by analysts of 0.5%. The total PPI was 0.6% month-over-month, which matched the forecast.
A 10-year treasury note auction showed lower demand than usual as investors worried about longer-term inflation. API Weekly Crude Oil Stock was at -2.9 million barrels vs. the forecast of +1.9 m barrels.
The US Dollar Index (DXY) dropped -0.08% for the day. The US 30y Treasury Yield dropped for another day, approaching its year-to-date lows. The US 10y and 2y yields also declined for the day. High inflation data would typically push yields higher, but the fact that yields dropped is something to note and could signal bond investors confidence in the Fed controlling inflation in the longer term. It could also just be some hope that the Consumer Price Index data will positively surprise investors tomorrow.
High Yield (HYG) and Investment Grade (LQD) Corporate Bond prices rose for the day.
Gold, a common hedge against inflation, is at its highest point since the middle of June. Crude Oil Futures moved higher based on higher demand. Aluminum Futures continue to fall. The metal is critical to many parts of the supply chain, and so it is significant to see prices fall so far from record highs in October.
The put/call ratio (PCCE) rose to 0.551. The CNN Fear & Greed Index remains in the Extreme Greed range.
Amazon (AMZN) continues to rally back to health with a +2.50% gain today. The stock has climbed 8% in the last five days since closing below its 200d moving average. The chart has nearly filled the gap created on July 30. Apple (AAPL) also advanced today, climbing by +0.25%. The other two of the four largest mega-caps declined, with Microsoft (MSFT) losing -0.21% and Alphabet (GOOGL) falling -0.08%.
Amazon topped the mega-cap list, followed by Nike (NKE). Nike gained +1.15%. Tesla (TSLA) was at the bottom of the list, falling -11.99% today as investors continue to react to Elon Musk's tweet over the weekend that signaled he might sell $21 billion worth of his position. PayPal (PYPL) disappointed investors with their guidance during an earnings call, sending the stock lower by -10.46%.
Zynga (ZNG) and DR Horton (DHI) smashed investor expectations with their earnings, marching +9.44% and +5.18% higher. They topped the Daily Update Growth List. Joining PayPal and Tesla at the bottom of the growth list was Lemonade (LMND). Despite solid earnings, Lemonade declined -10.72% after making investors nervous with guidance and some key business metrics.
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Looking ahead
The focus will be on October's Consumer Price Index data, released before the market opens on Wednesday. The CPI data will show how much produce price inflation passed along to consumers. The weekly Initial Jobless Claims data will also be available.
After the market opens, Crude Oil Inventories will be available.
Walt Disney (DIS), Opendoor (OPEN), Bumble (BMBL), Beyond Meat (BYND), and Wendy's (WEN) are a few of the earnings reports scheduled for Wednesday.
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Trends, Support, and Resistance
The Nasdaq declined for the first time in 12 sessions. The index extended more than 6% above its 50-day moving average before pulling back.
If the one-day trend line continues into Wednesday, it would mean a -0.58% decline.
The five-day trend line and the trend line from the 10/4 low point to a +1.10% gain for Wednesday.
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Wrap-up
It's easy to look at today's decline as a reaction to inflation fears. However, indexes were extended after many consecutive days of gains and needed to pause or decline to let moving averages catch up.
Good or bad surprises in Consumer Price Index data in the morning will undoubtedly impact investor sentiment. Equity markets will react in the short term, but look for what happens in the bond market for what big investors believe about whether inflation is sticky or transitory.
Based on the bearish engulfing candle signaling a trend reversal, the expectation for tomorrow is for Lower.
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=-
Tuesday, November 9, 2021
Facts: -0.60%, Volume lower, Closing Range: 25%, Body: 69% Red
Good: Lower volume on pullback
Bad: Lower high, lower low, advance/decline ratio
Highs/Lows: Lower high, Lower low
Candle: Bearish engulfing body marks trend reversal
Advance/Decline: 0.47, more than two declining for every
Indexes: SPX (-0.35%), DJI (-0.31%), RUT (-0.63%), VIX (+3.25%)
Sector List: Utilities (XLU +0.51%) and Materials (XLB +0.46%) at the top. Financials (XLF -0.55%) and Consumer Discretionary (XLY -1.85%) at the bottom.
Expectation: Lower
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
Producer Price Index data confirmed fears of continued high inflation for the month of October. We already expected indexes to pull back after a long streak of daily gains, but the inflation worries helped solidify the trend reversal.
The Nasdaq closed with a -0.60% decline for the day. The red body engulfs the bodies of the previous two thin bodies in indecisive candles. The bearish engulfing body confirms the reversal in an uptrend. There were more than two declining stocks for every advancing stock. The good news is that volume was lower than the previous day, signaling less conviction by sellers.
The S&P 500 (SPX) declined -0.35%. The Dow Jones Industrial Average (DJI) lost -0.31%. The Russell 2000 (RUT) fell -0.63%. The VIX Volatility Index continues to rise, advancing +3.25% today.
Utilities (XLU +0.51%) and Materials (XLB +0.46%) were the top sectors for the day as a mix of defensive and cyclical sectors moved higher. Financials (XLF -0.55%) and Consumer Discretionary (XLY -1.85%) were at the bottom of the sector list.
The Core Producer Price Index (PPI), which excludes food and energy, came in at 0.4% month-over-month for October. That was higher than the 0.2% growth for September but lower than the forecast by analysts of 0.5%. The total PPI was 0.6% month-over-month, which matched the forecast.
A 10-year treasury note auction showed lower demand than usual as investors worried about longer-term inflation. API Weekly Crude Oil Stock was at -2.9 million barrels vs. the forecast of +1.9 m barrels.
The US Dollar Index (DXY) dropped -0.08% for the day. The US 30y Treasury Yield dropped for another day, approaching its year-to-date lows. The US 10y and 2y yields also declined for the day. High inflation data would typically push yields higher, but the fact that yields dropped is something to note and could signal bond investors confidence in the Fed controlling inflation in the longer term. It could also just be some hope that the Consumer Price Index data will positively surprise investors tomorrow.
High Yield (HYG) and Investment Grade (LQD) Corporate Bond prices rose for the day.
Gold, a common hedge against inflation, is at its highest point since the middle of June. Crude Oil Futures moved higher based on higher demand. Aluminum Futures continue to fall. The metal is critical to many parts of the supply chain, and so it is significant to see prices fall so far from record highs in October.
The put/call ratio (PCCE) rose to 0.551. The CNN Fear & Greed Index remains in the Extreme Greed range.
Amazon (AMZN) continues to rally back to health with a +2.50% gain today. The stock has climbed 8% in the last five days since closing below its 200d moving average. The chart has nearly filled the gap created on July 30. Apple (AAPL) also advanced today, climbing by +0.25%. The other two of the four largest mega-caps declined, with Microsoft (MSFT) losing -0.21% and Alphabet (GOOGL) falling -0.08%.
Amazon topped the mega-cap list, followed by Nike (NKE). Nike gained +1.15%. Tesla (TSLA) was at the bottom of the list, falling -11.99% today as investors continue to react to Elon Musk's tweet over the weekend that signaled he might sell $21 billion worth of his position. PayPal (PYPL) disappointed investors with their guidance during an earnings call, sending the stock lower by -10.46%.
Zynga (ZNG) and DR Horton (DHI) smashed investor expectations with their earnings, marching +9.44% and +5.18% higher. They topped the Daily Update Growth List. Joining PayPal and Tesla at the bottom of the growth list was Lemonade (LMND). Despite solid earnings, Lemonade declined -10.72% after making investors nervous with guidance and some key business metrics.
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Looking ahead
The focus will be on October's Consumer Price Index data, released before the market opens on Wednesday. The CPI data will show how much produce price inflation passed along to consumers. The weekly Initial Jobless Claims data will also be available.
After the market opens, Crude Oil Inventories will be available.
Walt Disney (DIS), Opendoor (OPEN), Bumble (BMBL), Beyond Meat (BYND), and Wendy's (WEN) are a few of the earnings reports scheduled for Wednesday.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support, and Resistance
The Nasdaq declined for the first time in 12 sessions. The index extended more than 6% above its 50-day moving average before pulling back.
If the one-day trend line continues into Wednesday, it would mean a -0.58% decline.
The five-day trend line and the trend line from the 10/4 low point to a +1.10% gain for Wednesday.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
It's easy to look at today's decline as a reaction to inflation fears. However, indexes were extended after many consecutive days of gains and needed to pause or decline to let moving averages catch up.
Good or bad surprises in Consumer Price Index data in the morning will undoubtedly impact investor sentiment. Equity markets will react in the short term, but look for what happens in the bond market for what big investors believe about whether inflation is sticky or transitory.
Based on the bearish engulfing candle signaling a trend reversal, the expectation for tomorrow is for Lower.
Stay healthy and trade safe!
