Summary: Inflation looms over big tech and growth stocks like an approaching hurricane, keeping investors wondering when and how big it will hit. Last week's jobs data supported the government's case that there is still support needed for economic recovery and that inflation is transitionary. But a shutdown oil pipeline over the weekend has investors worried. And the coming updates on consumer and producer price index data are causing them to take a cautious stance.
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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Monday, May 10, 2021
Facts: -2.55%, Volume higher, Closing range: 0%, Body: 100%
Good: Nothing
Bad: All red body, selling from open to close with a failed rally of the 50d MA
Highs/Lows: Lower high, lower low
Candle: Marubozu red, no upper or lower wick
Advance/Decline: Two declining stocks for every advancing stock
Indexes: SPX (+0.74%), DJI (+0.66%), RUT (+1.35%), VIX (-9.24%)
Sectors: Utilities (XLU +1.01%) and Consumer Staples (XLP +0.76%) were top. Communications (XLC -1.92%) and Technology (XLK -2.52%).
Expectation: Lower
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Market Overview
Inflation looms over big tech and growth stocks like an approaching hurricane, keeping investors wondering when and how big it will hit. Last week's jobs data supported the government's case that there is still support needed for economic recovery and that inflation is transitionary. But a shutdown oil pipeline over the weekend has investors worried. And the coming updates on consumer and producer price index data are causing them to take a cautious stance.
The result was a big hit to big tech and growth stocks as the Nasdaq closed with a -2.55% decline on higher volume. The ominous marubozu candle has no upper and lower wick. It is 100% red body with a 0% closing range. The high of the day was the open and the low of the day was the close. There was a brief rally as the index hit the 50d moving average, but it was short and failed sending the index below the key support line. There were two declining stocks for every advancing stock.
The Russell 2000 (RUT) also suffered from investors reducing risk, declining -2.59% for the day. The S&P 500 (SPX) declined -1.04%. The Dow Jones Industrial (DJI) was the least impacted with a -0.10% decline.
The VIX volatility index advanced +17.80% for the day.
Utilities (XLU +1.01%) and Consumer Staples (XLP +0.76%) were top sectors for the day as investors took defensive positions. Communications (XLC -1.92%) and Technology (XLK -2.52%) were the big losers.
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Economic Indicators
The US Dollar (DXY) advanced slightly, gaining +0.05% after last week's dip.
The US 30y, 10y and 2y treasury yields all rose for the day.
High Yield Corporate Bond (HYG) prices and Investment Grade Corporate Bond (LQD) prices declined.
Silver (SILVER) declined while Gold (GOLD) advanced. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) advanced. Copper (COPPER1!) was flay while Aluminum (ALI1!) declined.
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Investor Sentiment
The put/call ratio rose slightly to 0.693. 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 at neutral.
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Market Leaders
All four of the biggest mega-caps declined for the day. Amazon (AMZN) had the biggest loss with a -3.07% decline and closed below its 50d MA. Apple (AAPL) declined -2.58%, closing right at the 50d MA. Alphabet (GOOGL) declined -2.56%, closing right at the 21d EMA. Microsoft (MSFT) lost -2.09%, closing below the 21d EMA but above the 50d MA.
Not all mega-caps declined for the day. Proctor & Gamble (PG), AT&T (T), Verizon (VZ) and Johnson & Johnson (JNJ) held the top spots with over 1% gains. At the bottom of the list were Tesla (TSLA), ASML Holding (ASML), Facebook (FB) and Taiwan Semiconductor (TSM).
There were four stocks in the daily update growth list that gained for the day. Dr Horton (DHI) has been consistently done well on high demand in housing. The other three, Peloton (PTON), Etsy (ETSY), and Fastly (FSLY) were all in a very oversold state after sell-offs last week. At the bottom of the growth stock list were Lemonade (LMND), UP Fintech (TIGR), FUTU Holdings (FUTU) and Digital Turbine (APPS).
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Looking ahead
On Tuesday, we will get the Monthly OPEC Report and the EIA Shot-Term Energy Outlook. The JOLTS Job Openings report for March will be released just after market open. FOMC Members are scheduled to speak throughout the day. There's also a 3y note-auction which is not quite as important as the 10y, but may be viewed as a preview for the longer term auction performance.
Earnings releases will include Electronic Arts (EA), Palantir (PLTR), Unity Software (U), Quantumscape (QS), Plug Power (PLUG), Upstart (UPST), Lemonade (LMND), Open Lending (LPRO), and SelectQuote (SLQT).
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Trends, Support and Resistance
The Nasdaq fell below the 50d moving average line today after failing to keep above the 21d EMA on Friday.
I've removed the trend line from the 3/5 low and added a trend line from the 4/29 high.
The five-day trend line points to a +1.48% recovery gain tomorrow.
Following the trend-line from the 4/29 high would result in a sideways move tomorrow. That could be likely as investors wait for further input from economic data on Wednesday.
The one-day trend line points to a -1.02% loss.
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Wrap-up
The uncertainty around inflation continues to be a drag on big tech and growth stocks. Not only does it drag down the future value of earnings potential (which will impact growth stocks more than value stocks), but it also tests investors trust of the fed not to raise interest rates. It's a certainty that if the Fed mentions anything around monetary policy changes at this point, that investors will react severely.
So what can you do? First of all, you could just go to cash and wait for better news. That news might come on Wednesday and/or Thursday if consumer and producer index data is lower than expected. The market seems to be pricing in the worst, so there's a good chance for a correction to the upside if the data shows less inflation.
But you can also just stay focused on the stocks in your portfolio. Which ones are performing better than others and seem to be less impacted by inflation news? As inflation numbers go up, it's likely those stocks will continue have better relative strength. Keep stop losses in place to protect against any sudden rotations back to higher risk segments. If you get shaken out of a position, consider holding cash instead of entering new positions until the trend changes.
Above all, always follow your system and your rules for investing your money.
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=-
Monday, May 10, 2021
Facts: -2.55%, Volume higher, Closing range: 0%, Body: 100%
Good: Nothing
Bad: All red body, selling from open to close with a failed rally of the 50d MA
Highs/Lows: Lower high, lower low
Candle: Marubozu red, no upper or lower wick
Advance/Decline: Two declining stocks for every advancing stock
Indexes: SPX (+0.74%), DJI (+0.66%), RUT (+1.35%), VIX (-9.24%)
Sectors: Utilities (XLU +1.01%) and Consumer Staples (XLP +0.76%) were top. Communications (XLC -1.92%) and Technology (XLK -2.52%).
Expectation: Lower
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
Inflation looms over big tech and growth stocks like an approaching hurricane, keeping investors wondering when and how big it will hit. Last week's jobs data supported the government's case that there is still support needed for economic recovery and that inflation is transitionary. But a shutdown oil pipeline over the weekend has investors worried. And the coming updates on consumer and producer price index data are causing them to take a cautious stance.
The result was a big hit to big tech and growth stocks as the Nasdaq closed with a -2.55% decline on higher volume. The ominous marubozu candle has no upper and lower wick. It is 100% red body with a 0% closing range. The high of the day was the open and the low of the day was the close. There was a brief rally as the index hit the 50d moving average, but it was short and failed sending the index below the key support line. There were two declining stocks for every advancing stock.
The Russell 2000 (RUT) also suffered from investors reducing risk, declining -2.59% for the day. The S&P 500 (SPX) declined -1.04%. The Dow Jones Industrial (DJI) was the least impacted with a -0.10% decline.
The VIX volatility index advanced +17.80% for the day.
Utilities (XLU +1.01%) and Consumer Staples (XLP +0.76%) were top sectors for the day as investors took defensive positions. Communications (XLC -1.92%) and Technology (XLK -2.52%) were the big losers.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) advanced slightly, gaining +0.05% after last week's dip.
The US 30y, 10y and 2y treasury yields all rose for the day.
High Yield Corporate Bond (HYG) prices and Investment Grade Corporate Bond (LQD) prices declined.
Silver (SILVER) declined while Gold (GOLD) advanced. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) advanced. Copper (COPPER1!) was flay while Aluminum (ALI1!) declined.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio rose slightly to 0.693. 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 at neutral.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
All four of the biggest mega-caps declined for the day. Amazon (AMZN) had the biggest loss with a -3.07% decline and closed below its 50d MA. Apple (AAPL) declined -2.58%, closing right at the 50d MA. Alphabet (GOOGL) declined -2.56%, closing right at the 21d EMA. Microsoft (MSFT) lost -2.09%, closing below the 21d EMA but above the 50d MA.
Not all mega-caps declined for the day. Proctor & Gamble (PG), AT&T (T), Verizon (VZ) and Johnson & Johnson (JNJ) held the top spots with over 1% gains. At the bottom of the list were Tesla (TSLA), ASML Holding (ASML), Facebook (FB) and Taiwan Semiconductor (TSM).
There were four stocks in the daily update growth list that gained for the day. Dr Horton (DHI) has been consistently done well on high demand in housing. The other three, Peloton (PTON), Etsy (ETSY), and Fastly (FSLY) were all in a very oversold state after sell-offs last week. At the bottom of the growth stock list were Lemonade (LMND), UP Fintech (TIGR), FUTU Holdings (FUTU) and Digital Turbine (APPS).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
On Tuesday, we will get the Monthly OPEC Report and the EIA Shot-Term Energy Outlook. The JOLTS Job Openings report for March will be released just after market open. FOMC Members are scheduled to speak throughout the day. There's also a 3y note-auction which is not quite as important as the 10y, but may be viewed as a preview for the longer term auction performance.
Earnings releases will include Electronic Arts (EA), Palantir (PLTR), Unity Software (U), Quantumscape (QS), Plug Power (PLUG), Upstart (UPST), Lemonade (LMND), Open Lending (LPRO), and SelectQuote (SLQT).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
The Nasdaq fell below the 50d moving average line today after failing to keep above the 21d EMA on Friday.
I've removed the trend line from the 3/5 low and added a trend line from the 4/29 high.
The five-day trend line points to a +1.48% recovery gain tomorrow.
Following the trend-line from the 4/29 high would result in a sideways move tomorrow. That could be likely as investors wait for further input from economic data on Wednesday.
The one-day trend line points to a -1.02% loss.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
The uncertainty around inflation continues to be a drag on big tech and growth stocks. Not only does it drag down the future value of earnings potential (which will impact growth stocks more than value stocks), but it also tests investors trust of the fed not to raise interest rates. It's a certainty that if the Fed mentions anything around monetary policy changes at this point, that investors will react severely.
So what can you do? First of all, you could just go to cash and wait for better news. That news might come on Wednesday and/or Thursday if consumer and producer index data is lower than expected. The market seems to be pricing in the worst, so there's a good chance for a correction to the upside if the data shows less inflation.
But you can also just stay focused on the stocks in your portfolio. Which ones are performing better than others and seem to be less impacted by inflation news? As inflation numbers go up, it's likely those stocks will continue have better relative strength. Keep stop losses in place to protect against any sudden rotations back to higher risk segments. If you get shaken out of a position, consider holding cash instead of entering new positions until the trend changes.
Above all, always follow your system and your rules for investing your money.
Stay healthy and trade safe!
