Summary: The Fed's statements after the two-day Federal Reserve meeting sent the major indexes to new record closes. The expected bond purchase tapering will begin, but the Fed was still firm on inflation being transitory, and they don't see a need yet for interest rate hikes.
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, November 3, 2021
Facts: +1.04%, Volume higher, Closing Range: 95%, Body: 75% Green
Good: Advance on higher volume, closing range, advance/decline ratio
Bad: Nothing
Highs/Lows: Higher high, Higher low
Candle: Small lower wick under a fat green body
Advance/Decline: 1.02, more advancing than declining stocks
Indexes: SPX (+0.65%), DJI (+0.29%), RUT (+1.80%), VIX (-5.80%)
Sector List: Consumer Discretionary (XLY +1.80%) and Materials (XLB +1.04%) at the top. Utilities (XLU -0.37%) and Energy (XLE -0.83%) at the bottom.
Expectation: Sideways
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Market Overview
The Fed's statements after the two-day Federal Reserve meeting sent the major indexes to new record closes. The expected bond purchase tapering will begin, but the Fed was still firm on inflation being transitory, and they don't see a need yet for interest rate hikes.
The Nasdaq rose +1.04%, with most of the gain coming after the Fed issued statements. Volume was higher than the previous day. The closing range of 95% comes above a fat green body, and a small lower wick formed at the opening bell. There were more advancing stocks than declining stocks.
All four indexes had record closes. Small-caps outperformed, sending the Russell 2000 (RUT) up +1.80%, clearly breaking out of its trading range since March. The S&P 500 (SPX) climbed by +0.65%. The Dow Jones Industrial Average (DJI) rose +0.29%. The VIX Volatility Index (VIX) declined -5.92%.
Consumer Discretionary (XLY +1.80%) and Materials (XLB +1.04%) led the sector list. Consumer Discretionary is bouncing up and down along with Tesla, whipping around on Elon Musk's tweets. Utilities (XLU -0.37%) and Energy (XLE -0.83%) were at the bottom. The growth sectors all turned to the upside after the 2 pm Fed statements.
Non-Manufacturing Purchasing Managers Index data, released in the morning, was higher than forecast, showing an uptick in economic activity. The more surprising news was the ADP Nonfarm Employment Change. Employment growth was forecasted to slow with only 400k newly employed. However, the ADP number came in at 571,000.
The US Dollar declined -0.24%. US 30y, 10y, and 2y Treasury Yields rose. Yields on the 30y and 10y rose sharply after the Fed meeting. Tapering will lower prices for Treasury bonds, and yields move opposite of prices.
High Yield (HYG) Corporate Bond prices rose while Investment Grade (LQD) prices dropped. Demand will shift to higher yield bonds as interest rates will keep borrowing costs low and make the higher yield junk bonds a safer bet.
Crude Oil Futures dropped after inventory data in the morning showed less demand than expected. Timber rose sharply today while Copper and Aluminum futures continue to decline.
The put/call ratio (PCCE) increased to 0.537. The CNN Fear & Greed Index is moving further into Extreme Greed.
The four largest mega-caps all moved higher today. Microsoft (MSFT) had another record close. Amazon (AMZN) rose +2.15% to close back above its 21d EMA and 50d MA.
NOVO Nordisk was the top mega-cap for the day, gaining +5.05%. The company beat estimates in its earnings release and raised outlook for 2021. Pfizer (PFE) was at the bottom of the mega-cap list as investors took profits from yesterday's gains off of an earnings beat. Most mega-caps gained for the day.
The Daily Update Growth List was also dominated by gainers today. Fastly (FSLY) topped the list with a +8.11% as investors bet on the company ahead of earnings. The stock is up another +7.11% after hours as the company beat street expectations. Digital Turbine (APPS) disappointed investors despite exceeding expectations. The stock dropped -19.01% today.
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Looking ahead
The weekly Initial Jobless Claims data will be available tomorrow morning. We'll also get an update on Imports and Exports and the Trade Balance for September.
Earnings Reports tomorrow include Alibaba (BABA), Toyota (TM ), Moderna (MRNA), Square (SQ), Airbnb (ABNB), Uber (UBER), MercadoLibre (MELI), Cloudflare (NET), Fortinet (FTNT), Datadog (DDOG), Pinterest (PINS, Peloton (PTON), Wayfair (W), and Penn National Gaming (PENN) among many others.
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Trends, Support, and Resistance
The Nasdaq climbed to another new all-time high today in its eighth consecutive session without a loss. The index is approaching an expected resistance area of 16,000.
If the one-day trend line continues into tomorrow, it would mean a +0.72% gain.
A return to the five-day trend line would mean no gain or loss for tomorrow.
The trend line from the 10/4 low points to a -0.43% decline.
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Wrap-up
The Fed's mandate from Congress is to ensure maximum employment and control inflation. The purpose of easy money policy and bond purchasing was to get employment back to acceptable levels. Now that employment growth is meeting benchmarks they set earlier in the pandemic, the bond purchase tapering can begin.
Now the Fed can turn its attention to inflation, using interest rates to slow down the growth of prices in the economy. Today, Jerome Powell acknowledged that although they see inflation as transitory, people at home and the grocery store might be feeling differently. Still, the factors they see driving inflation are things like supply chain issues that will eventually work themselves out. It won't reverse all inflation, but the Fed's stance is that inflation will turn to an average level without more interest rate hikes.
That message perfectly landed with investors who now see a new window of growth for US corporations. They can count on lower interest rates but also know the Fed is closely monitoring inflation.
The next wave of worry will be solving the debt ceiling crisis, for which a solution is due by the beginning of December.
For tomorrow, the expectation is Sideways. The Nasdaq doesn't seem to be backing down, but it is getting extended with eight positive sessions in a row. At some point, we have to expect a pause or even pullback before moving 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.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wednesday, November 3, 2021
Facts: +1.04%, Volume higher, Closing Range: 95%, Body: 75% Green
Good: Advance on higher volume, closing range, advance/decline ratio
Bad: Nothing
Highs/Lows: Higher high, Higher low
Candle: Small lower wick under a fat green body
Advance/Decline: 1.02, more advancing than declining stocks
Indexes: SPX (+0.65%), DJI (+0.29%), RUT (+1.80%), VIX (-5.80%)
Sector List: Consumer Discretionary (XLY +1.80%) and Materials (XLB +1.04%) at the top. Utilities (XLU -0.37%) and Energy (XLE -0.83%) at the bottom.
Expectation: Sideways
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
The Fed's statements after the two-day Federal Reserve meeting sent the major indexes to new record closes. The expected bond purchase tapering will begin, but the Fed was still firm on inflation being transitory, and they don't see a need yet for interest rate hikes.
The Nasdaq rose +1.04%, with most of the gain coming after the Fed issued statements. Volume was higher than the previous day. The closing range of 95% comes above a fat green body, and a small lower wick formed at the opening bell. There were more advancing stocks than declining stocks.
All four indexes had record closes. Small-caps outperformed, sending the Russell 2000 (RUT) up +1.80%, clearly breaking out of its trading range since March. The S&P 500 (SPX) climbed by +0.65%. The Dow Jones Industrial Average (DJI) rose +0.29%. The VIX Volatility Index (VIX) declined -5.92%.
Consumer Discretionary (XLY +1.80%) and Materials (XLB +1.04%) led the sector list. Consumer Discretionary is bouncing up and down along with Tesla, whipping around on Elon Musk's tweets. Utilities (XLU -0.37%) and Energy (XLE -0.83%) were at the bottom. The growth sectors all turned to the upside after the 2 pm Fed statements.
Non-Manufacturing Purchasing Managers Index data, released in the morning, was higher than forecast, showing an uptick in economic activity. The more surprising news was the ADP Nonfarm Employment Change. Employment growth was forecasted to slow with only 400k newly employed. However, the ADP number came in at 571,000.
The US Dollar declined -0.24%. US 30y, 10y, and 2y Treasury Yields rose. Yields on the 30y and 10y rose sharply after the Fed meeting. Tapering will lower prices for Treasury bonds, and yields move opposite of prices.
High Yield (HYG) Corporate Bond prices rose while Investment Grade (LQD) prices dropped. Demand will shift to higher yield bonds as interest rates will keep borrowing costs low and make the higher yield junk bonds a safer bet.
Crude Oil Futures dropped after inventory data in the morning showed less demand than expected. Timber rose sharply today while Copper and Aluminum futures continue to decline.
The put/call ratio (PCCE) increased to 0.537. The CNN Fear & Greed Index is moving further into Extreme Greed.
The four largest mega-caps all moved higher today. Microsoft (MSFT) had another record close. Amazon (AMZN) rose +2.15% to close back above its 21d EMA and 50d MA.
NOVO Nordisk was the top mega-cap for the day, gaining +5.05%. The company beat estimates in its earnings release and raised outlook for 2021. Pfizer (PFE) was at the bottom of the mega-cap list as investors took profits from yesterday's gains off of an earnings beat. Most mega-caps gained for the day.
The Daily Update Growth List was also dominated by gainers today. Fastly (FSLY) topped the list with a +8.11% as investors bet on the company ahead of earnings. The stock is up another +7.11% after hours as the company beat street expectations. Digital Turbine (APPS) disappointed investors despite exceeding expectations. The stock dropped -19.01% today.
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Looking ahead
The weekly Initial Jobless Claims data will be available tomorrow morning. We'll also get an update on Imports and Exports and the Trade Balance for September.
Earnings Reports tomorrow include Alibaba (BABA), Toyota (TM ), Moderna (MRNA), Square (SQ), Airbnb (ABNB), Uber (UBER), MercadoLibre (MELI), Cloudflare (NET), Fortinet (FTNT), Datadog (DDOG), Pinterest (PINS, Peloton (PTON), Wayfair (W), and Penn National Gaming (PENN) among many others.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support, and Resistance
The Nasdaq climbed to another new all-time high today in its eighth consecutive session without a loss. The index is approaching an expected resistance area of 16,000.
If the one-day trend line continues into tomorrow, it would mean a +0.72% gain.
A return to the five-day trend line would mean no gain or loss for tomorrow.
The trend line from the 10/4 low points to a -0.43% decline.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
The Fed's mandate from Congress is to ensure maximum employment and control inflation. The purpose of easy money policy and bond purchasing was to get employment back to acceptable levels. Now that employment growth is meeting benchmarks they set earlier in the pandemic, the bond purchase tapering can begin.
Now the Fed can turn its attention to inflation, using interest rates to slow down the growth of prices in the economy. Today, Jerome Powell acknowledged that although they see inflation as transitory, people at home and the grocery store might be feeling differently. Still, the factors they see driving inflation are things like supply chain issues that will eventually work themselves out. It won't reverse all inflation, but the Fed's stance is that inflation will turn to an average level without more interest rate hikes.
That message perfectly landed with investors who now see a new window of growth for US corporations. They can count on lower interest rates but also know the Fed is closely monitoring inflation.
The next wave of worry will be solving the debt ceiling crisis, for which a solution is due by the beginning of December.
For tomorrow, the expectation is Sideways. The Nasdaq doesn't seem to be backing down, but it is getting extended with eight positive sessions in a row. At some point, we have to expect a pause or even pullback before moving higher.
Stay healthy and trade safe!
