Summary: This is not the rally we are looking for. The Dow Jones Industrial average closed at a record high today while the rest of the market struggled to hold any gains, with the Nasdaq and Russell 2000 falling further behind the other major indexes.
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 5, 2021
Facts: -0.39%, Volume lower, Closing range: 13%, Body: 76%
Good: Lower than average volume
Bad: Lower high, thick red body from afternoon decline
Highs/Lows: Lower high, higher low
Candle: Inside day, thick red body with similar small upper and lower wicks
Advance/Decline: Two declining stocks for every advancing stock
Indexes: SPX (-0.37%), DJI (+0.29%), RUT (-0.31%), VIX (-1.69%)
Sectors: Energy (XLE +3.23%) and Materials (XLB +1.27%) were top. Real Estate (XLRE -1.47%) and Utilities (XLU -1.69%) were bottom.
Expectation: Sideways or Lower
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Market Overview
This is not the rally we are looking for. The Dow Jones Industrial average closed at a record high today while the rest of the market struggled to hold any gains, with the Nasdaq and Russell 2000 falling further behind the other major indexes.
The Nasdaq closed with a -0.39% loss for the day on lower than average volume. The 13% closing range is under a 76% body with a short lower wick created from a late afternoon dip. The short upper wick was formed just after open before the bears took over. There were two declining stocks for every advancing stock.
The Dow Jones Industrial average (DJI) gained +0.29% for the day. The S&P 500 (SPX) was nearly flat at a +0.07% advance. The Russell 2000 (RUT) declined -0.31%.
The VIX volatility index declined -1.69%.
Cyclicals are still the focus for the market, the only gaining sectors for the day. Energy (XLE +3.23%) and Materials (XLB +1.27%) were top. Crude Oil Inventories were much lower than expected, signaling higher demand. Real Estate (XLRE -1.47%) and Utilities (XLU -1.69%) were at the bottom. It doesn't seem investors are fleeing to safe bets like utilities, but they are going aggressively after cyclical stocks and not broadly making bets across all sectors.
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Economic Indicators
The US Dollar (DXY) stayed about the same with a -0.02% decline.
The US 30y, 10y and 2y yields all declined with the yield curve flattening some more.
High Yield Corporate Bond (HYG) prices and Investment Grade Corporate Bond (LQD) prices advanced.
Silver (SILVER) declined and Gold (GOLD) advanced. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) advanced. Copper (COPPER1!) declined while Aluminum (ALI1!) advanced.
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Investor Sentiment
The put/call ratio declined to 0.655. 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 remains near neutral.
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Market Leaders
Apple (AAPL) and Alphabet (GOOGL) gained for the day with +0.20% and +0.35% advances. Microsoft declined -0.53%. Amazon (AMZN) declined -1.25%.
Exxon Mobil (XOM) and Chevron (CVX) led the mega-caps with ~3% gains. ASML Holding (ASML) and AbbVie (ABBV) round out the top four. Mastercard (MA), Walt Disney (DIS), Netflix (NFLX) and Amazon (AMZN) were the bottom four mega-caps.
Growth stocks continue to struggle in the current market. Penn National Gaming (PENN), FUTU Holdings (FUTU), Nvidia (NVDA) and Solar Edge (SEDG) were at the top of a short list of growth stock gains for the day. Peloton (PTON) fell more than 14% on news of a recall on their Treadmills. Moderna (MRNA) fell -6.19% as the US decided to support lifting patent protections for COVID vaccines. Ehang Holdings (EH) and Roku (ROKU) were also at the bottom of the growth stock list.
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Looking ahead
The weekly Initial Jobless Claims numbers will be released on Thursday morning as well as Nonfarm Productivity and Unit Labor Costs.
Thursday will be another busy day of earnings reports. Linde (LIN), Anheuser Busch (BUD), Volkswagen (BWAPY), Square (SQ), Fidelity (FIS), Moderna (MRNA), Roku (ROKU), Expedia (EXPE), Beyond Meat (BYND), AMC Entertainment (AMC) are some of the interesting reports.
The earnings list is long, so check your portfolio for earnings events so you are not surprised.
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Trends, Support and Resistance
The index moved back below the 13,600 - 13,700 area, but remains above the 50d moving average.
The trend line from the 3/5 low points to a +4.22% advance which does not seem possible unless investor sentiment changed dramatically.
The one-day trend line points to a -0.63% loss.
The five-day trend line points to a -0.76% decline.
If we break below the 50d MA, we'll start a new trend line from the 4/29 all-time high.
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Wrap-up
The story of earnings reactions continues this week. If you want to know what investors care about, it's pretty obvious they are looking beyond results and want to see guidance for the remainder of the year.
That's the challenge for companies like Twilio and Etsy who beat earnings estimates this quarter but are offering lower guidance for the remainder of the year compared to the massive performance they had during the height of the pandemic. Both were down in afterhours trading.
On the other hand, Zynga (ZNGA) missed estimates but offered upbeat guidance and rose more than 5% in after hours. The mortal sin however was to miss estimates and also not provide a positive outlook. Fastly (FSLY) did just that and dropped -17.5% after hours. Ouch!
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 5, 2021
Facts: -0.39%, Volume lower, Closing range: 13%, Body: 76%
Good: Lower than average volume
Bad: Lower high, thick red body from afternoon decline
Highs/Lows: Lower high, higher low
Candle: Inside day, thick red body with similar small upper and lower wicks
Advance/Decline: Two declining stocks for every advancing stock
Indexes: SPX (-0.37%), DJI (+0.29%), RUT (-0.31%), VIX (-1.69%)
Sectors: Energy (XLE +3.23%) and Materials (XLB +1.27%) were top. Real Estate (XLRE -1.47%) and Utilities (XLU -1.69%) were bottom.
Expectation: Sideways or Lower
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
This is not the rally we are looking for. The Dow Jones Industrial average closed at a record high today while the rest of the market struggled to hold any gains, with the Nasdaq and Russell 2000 falling further behind the other major indexes.
The Nasdaq closed with a -0.39% loss for the day on lower than average volume. The 13% closing range is under a 76% body with a short lower wick created from a late afternoon dip. The short upper wick was formed just after open before the bears took over. There were two declining stocks for every advancing stock.
The Dow Jones Industrial average (DJI) gained +0.29% for the day. The S&P 500 (SPX) was nearly flat at a +0.07% advance. The Russell 2000 (RUT) declined -0.31%.
The VIX volatility index declined -1.69%.
Cyclicals are still the focus for the market, the only gaining sectors for the day. Energy (XLE +3.23%) and Materials (XLB +1.27%) were top. Crude Oil Inventories were much lower than expected, signaling higher demand. Real Estate (XLRE -1.47%) and Utilities (XLU -1.69%) were at the bottom. It doesn't seem investors are fleeing to safe bets like utilities, but they are going aggressively after cyclical stocks and not broadly making bets across all sectors.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) stayed about the same with a -0.02% decline.
The US 30y, 10y and 2y yields all declined with the yield curve flattening some more.
High Yield Corporate Bond (HYG) prices and Investment Grade Corporate Bond (LQD) prices advanced.
Silver (SILVER) declined and Gold (GOLD) advanced. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) advanced. Copper (COPPER1!) declined while Aluminum (ALI1!) advanced.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio declined to 0.655. 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 remains near neutral.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
Apple (AAPL) and Alphabet (GOOGL) gained for the day with +0.20% and +0.35% advances. Microsoft declined -0.53%. Amazon (AMZN) declined -1.25%.
Exxon Mobil (XOM) and Chevron (CVX) led the mega-caps with ~3% gains. ASML Holding (ASML) and AbbVie (ABBV) round out the top four. Mastercard (MA), Walt Disney (DIS), Netflix (NFLX) and Amazon (AMZN) were the bottom four mega-caps.
Growth stocks continue to struggle in the current market. Penn National Gaming (PENN), FUTU Holdings (FUTU), Nvidia (NVDA) and Solar Edge (SEDG) were at the top of a short list of growth stock gains for the day. Peloton (PTON) fell more than 14% on news of a recall on their Treadmills. Moderna (MRNA) fell -6.19% as the US decided to support lifting patent protections for COVID vaccines. Ehang Holdings (EH) and Roku (ROKU) were also at the bottom of the growth stock list.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
The weekly Initial Jobless Claims numbers will be released on Thursday morning as well as Nonfarm Productivity and Unit Labor Costs.
Thursday will be another busy day of earnings reports. Linde (LIN), Anheuser Busch (BUD), Volkswagen (BWAPY), Square (SQ), Fidelity (FIS), Moderna (MRNA), Roku (ROKU), Expedia (EXPE), Beyond Meat (BYND), AMC Entertainment (AMC) are some of the interesting reports.
The earnings list is long, so check your portfolio for earnings events so you are not surprised.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
The index moved back below the 13,600 - 13,700 area, but remains above the 50d moving average.
The trend line from the 3/5 low points to a +4.22% advance which does not seem possible unless investor sentiment changed dramatically.
The one-day trend line points to a -0.63% loss.
The five-day trend line points to a -0.76% decline.
If we break below the 50d MA, we'll start a new trend line from the 4/29 all-time high.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
The story of earnings reactions continues this week. If you want to know what investors care about, it's pretty obvious they are looking beyond results and want to see guidance for the remainder of the year.
That's the challenge for companies like Twilio and Etsy who beat earnings estimates this quarter but are offering lower guidance for the remainder of the year compared to the massive performance they had during the height of the pandemic. Both were down in afterhours trading.
On the other hand, Zynga (ZNGA) missed estimates but offered upbeat guidance and rose more than 5% in after hours. The mortal sin however was to miss estimates and also not provide a positive outlook. Fastly (FSLY) did just that and dropped -17.5% after hours. Ouch!
Stay healthy and trade safe!
