Summary: This week's uncertainty around how fast the economy is recovering drove volatility in cyclical sectors while sending Treasury yields on a slide that exasperated investors' worries. Still, the major indexes narrowly secured gains for the week while the S&P 500 and Dow Jones Industrial Average (DJI) set new records.
Notes
The structure is the following:
If you have been following my daily updates, you can skip down to "View on the Week." If not, then this first part is a great play-by-play recap for the week. Click the daily charts for more detail on sectors, indexes, and market leaders each day.
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Tuesday, July 6, 2021
Facts: +0.17%, Volume higher, Closing range: 85%, Body: 1%
Good: High closing range, long lower wick shows recovery from dip
Bad: Volatile outside day with doji star candle, bearish pattern
Highs/Lows: Higher high, lower low
Candle: Doji star candle with longer lower wick, outside day
Advanced/Decline: 0.3, more than three declining stocks for every advancing stock
Indexes: SPX (-0.20%), DJI (-0.60%), RUT (-1.36%), VIX (+9.08%)
Sectors: Real Estate (XLRE +0.89%) and Utilities (XLU +0.42%) at the top. Financials (XLF -1.75%) and Energy (XLE -3.25%) were at the bottom.
Expectation: Sideways or Lower
It was a roller-coaster day for the market as prices dipped in the morning and recovered in the afternoon. Investors reacted to the Purchasing Managers index data that indicates the economic recovery may be slowing. Although the Nasdaq could finish the day with a small gain, most stocks across the index declined for the day.
The Nasdaq closed with a +0.17% gain, beginning the day with a gap at open but quickly selling off in the morning. Eventually, the bulls came in and brought the index back just above where it opened. The volume was higher than the previous day, and the mid-day reversal ended with a high 85% closing range. The close, being just above the open, created a slim 1% body. The outside day, doji star candle signals a bearish reversal pattern. Despite the gain in the index, there were more than three declining stocks for every advancing stock.
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Wednesday, July 7, 2021
Facts: +0.01%, Volume higher, Closing range: 28%, Body: 51%
Good: Higher high, higher low
Bad: Couldn't hold morning high, low A/D ratio
Highs/Lows: Higher high, higher low
Candle: Large red body with no upper wick, lower wick created from a morning dip
Advanced/Decline: 0.33, three declining stocks for every advancing stock
Indexes: SPX (+0.34%), DJI (+0.30%), RUT (-0.95%), VIX (-1.46%)
Sectors: Materials (XLB +1.04%) and Industrials (XLI +1.00%) at the top. Communications (XLC -0.15%) and Energy (XLE -1.63%) were at the bottom.
Expectation: Sideways or Lower
Investors rotated back to cyclical stocks after they underperformed yesterday. Mega-caps also did well on a day with no huge surprises in economic news. Jobs data was a bit lower than expected, but not bad, and there were no unexpected statements in the Fed minutes.
The Nasdaq ended the day with a +0.01% gain, carried mainly by mega-caps. There continues to be a much higher number of declining stocks than advancing stocks, with a ratio of 3 to 1 today. The closing range of 28% follows a morning gap-up that quickly sold off to create a long lower wick. The index recovered some of the loss, leaving a 51% red body over the long lower wick.
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Thursday, July 8, 2021
Facts: -0.72%, Volume lower, Closing range: 79%, Body: 63%
Good: Closed above 14,500 support area, lower volume on down day
Bad: Gap down at open, lower high, lower low
Highs/Lows: Lower high, lower low
Candle: Large green body in the middle of two short wicks, the upper wick is slightly longer
Advanced/Decline: 0.37, nearly three declining stocks for every advancing stock
Indexes: SPX (-0.86%), DJI (-0.75%), RUT (-0.94%), VIX (+17.27%)
Sectors: Real Estate (XLRE -0.09%) and Consumer Discretionary (XLY -0.25%) at the top. Industrials (XLI -1.29%) and Financials (XLF -2.00%) were bottom.
Expectation: Sideways or Lower
Is it a pullback from a new high and or the start of a more significant correction? You won't find any easy answers in the data. A few weeks ago, investors were worried about an overheating economic recovery, and now they seem worried about a slowing recovery.
The Nasdaq closed with a -0.72% decline on lower volume. The gap-down at open looked severe and dropped the index below the 14,500 support area, but a mid-day rally brought it back above the support line. The rally created a 63% green body. Prices faded in the late afternoon to create an upper wick and finish the day with a 79% closing range. The lower high and lower low combination is the first in several weeks of gains. The advance/decline line remains low, with almost three declining stocks for every advancing stock.
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Friday, July 9, 2021
Facts: +0.98%, Volume lower, Closing range: 78%, Body: 98%
Good: Close above the weekly open, high closing range, A/D ratio
Bad: Lower volume
Highs/Lows: Higher high, higher low
Candle: Mostly green body, slightly longer lower wick
Advanced/Decline: 2.51, five advancing stocks for every two declining stocks
Indexes: SPX (+1.13%), DJI (+1.30%), RUT (+2.17%), VIX (-14.94%)
Sectors: Financials (XLF +2.89%) and Energy (XLE +2.13%) at the top. Health (XLV +0.34%) and Utilities (XLU +0.12%) were bottom.
Expectation: Higher
Friday brought a confident end to a short but volatile week. After the bond yield slide caused a sell-off the previous day, yields recovered, and investors moved back into equities. In contrast to Thursday, all sectors closed with gains on Friday.
The Nasdaq closed with a +0.98% advance, with gains broadly shared across the index. There were five advancing stocks for every declining stock. The only thing missing was the volume which was much lower than the previous day. Nonetheless, the high closing range of 95% and the green body that spans 78% of the candle are bullish. It also helps close the week with a positive weekly gain.
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View on the Week
This week's uncertainty around how fast the economy is recovering drove volatility in cyclical sectors while sending Treasury yields on a slide that exasperated investors' worries. Still, the major indexes narrowly secured gains for the week while the S&P 500 and Dow Jones Industrial Average (DJI) set new records.
The week opened with investors taking defensive positions in Real Estate and Utilities, showing nervousness over new developments in the pandemic. Among recent surges in the number of cases identified as the Delta variant, Pfizer added worries that the vaccinated population might require a six-month booster shot to remain safe.
In a demonstration of just how confused investors are about economic data, cyclical sectors sold off on Tuesday, were repurchased on Wednesday, sold off again on Thursday, and bought back on Friday. Despite gains on the first two days, the number of declining stocks outnumbered advancing stocks 3 to 1 most of the week. The increases in the indexes for the first three days were driven primarily by mega-caps.
The most significant sign of change in investors thinking was in the sliding yields for Treasury notes. Yields have been dropping since economic data started to show the recovery is progressing slower than previously expected. Never mind that the economy is still expanding at a historically high rate and inflation continues to be a concern. Analysts needed to recalculate and rebalance for the new speed.
The slide in yields came to a critical moment on Thursday when investors who were betting that yields would rise needed to cover those positions. Bond yields move in the opposite direction of prices. Investors were expecting yields to go up, and prices to go down and took short positions in those bonds. When the opposite happened, they needed to buy back the bonds to cover the short position. The result was even higher prices and lower yields.
Once bond investors covered those positions, we saw a recovery of yields on Friday and a boost in equities as investors came back into the market. The story is not over yet. There were more advancing stocks than declining stocks on Friday, but volume in the market was meager.
The Nasdaq advanced +0.43% this week. Volume was slightly higher than the previous week but lower than average for this year. The low is lower than the last week, and the high is higher, marking an outside week for the index. The closing range of 86% is healthy. The long lower wick represents the dip on Thursday that was bought on Friday.
The S&P 500 (SPX) closed the week at another record, advancing +0.40% for the week. The Dow Jones Industrial Average (DJI) also had a record close with a +0.24% gain for the week. The picture was not quite as rosy for small caps, with the Russell 2000 (RUT) declining most of the week. The index gained on Friday, but not enough to end the week positively, falling -1.12% for the week.
The VIX volatility advanced +7.23% for the week. It climbed almost 42% intra-week.
The short week was defined mainly by Thursday's sell-off in equities as Treasury bond yields were sliding. That gave a boost to two defensive sectors, Real Estate ( XLRE ) and Utilities ( XLU ), but the two sectors were already leading from Monday. The worries ended on Friday, but the two sectors remained in the lead for the week.
Technology ( XLK ) and Consumer Discretionary ( XLY ) were the next two sectors at the top of the list, showing a mix of risk-on and risk-off sentiment throughout the week.
The cyclical sectors moved from the top of the sector list on Wednesday to the bottom of the list on Thursday, back to the top of the list on Friday.
Energy ( XLE ) was a consistent loser throughout the week until finally finding itself at the top of the list on Friday. However, the gains were not enough to move it out of the bottom position for the week.
Treasury yields on the 30y, 10y, and 2y all declined for the week. The gap between long-term yields and short-term yields continues to close while the yield curve shape is normalizing.
High Yield Corporate Bond (HYG) prices declined slightly but remained near pre-pandemic highs. Investment Grade Bond (LQD) prices advanced.
The US Dollar (DXY) declined -0.15% for the week.
Silver (SILVER) declined -1.36%, and Gold (GOLD) advanced +1.15%.
Crude Oil (CRUDEOIL1!) declined -0.77% after clearing its 2018 high last week and setting a new high on Monday.
Timber (WOOD) advanced +2.44%.
Copper (COPPER1!) advanced +1.33%.
Aluminum (ALI1!) declined -2.48%.
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Big Four Mega-caps
Microsoft (MSFT) and Alphabet (GOOGL) signaled indecision among investors with their weekly candles. Despite the uncertainty, Microsoft and Alphabet gained +0.10% and +0.21%, respectively. Apple (AAPL) and Amazon (AMZN) showed very bullish weeks. Amazon gained +5.93%, continuing momentum after the government ended an exclusive contract with Microsoft and opened up opportunities for other cloud vendors. Apple gained +3.68% for the week.
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The Four Recovery Stocks
I picked four recovery stocks to track against the indexes and other indicators in this weekly report. Given the worries over the economic recovery and new fears for the pandemic, it's no surprise to see the continued losses in the recovery stocks. Only Marriott (MAR) ended the week with gains, advancing +0.86%. Exxon Mobil (XOM) declined -3.07%. Delta Airlines (DAL) lost -2.79%. Carnival Cruise Lines (CCL) had the most significant decline, falling -6.91%. All four closed the week above their 40-week moving average.
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Cryptocurrency
I started tracking four major cryptocurrencies on the week in review. The four are Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. The latter two are not the largest by market cap but seem to be well-known and are part of the CIX capital.com index, tracking five cryptocurrencies, including these four (Ripple is the fifth).
All four cryptocurrencies declined for the week as they consolidate in sideways trends. Volume is shrinking while bases develop. At the time of writing, Bitcoin (BTCUSD) declined -2.60%. Ethereum (ETHUSD) fell -7.55%. Litecoin (LTCUSD) dropped -7.28%. Bitcoin Cash (BCHUSD) declined -5.20%.
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Investor Sentiment
The put/call ratio (PCCE) moved higher, ending the week at 0.735. A contrarian indicator, when the put/call ratio is below 0.7, it signals overly bullish sentiment and could mean an overbought market.
The CNN Fear & Greed Index moved further into the fear side mid-week but is on its way back toward neutral.
The NAAIM Exposure Index shows money managers at 82.54 average exposure among active money managers. The survey occurs on Wednesdays, so the number does not include any of the selling on Thursday.
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The Week Ahead
The week will start slow, but earnings reports will pick up as Financials kick off the earnings season.
Monday
The USDA will release the monthly agriculture supply and demand estimate report on Monday. Investors will also watch the 10y and 3y note auction closely in the afternoon.
There are no relevant earnings reports for the daily update on Monday.
Tuesday
On Tuesday, investors will get a fresh look at the consumer price index data. It's likely to continue showing higher inflation in general. Compare the total CPI number to the Core CPI, which excludes Fuel and Food. Investors will also look closely at what subcomponents drive inflation and how transitory prices will be in those areas.
Weekly API Crude Oil numbers will be available in the afternoon after the market closes.
JP Morgan (JPM) and Goldman Sachs (GS) will kick-off earnings season with pre-market earnings reports. PepsiCo (PEP) will also release earnings in the morning. Another potentially interesting report to watch is Fastenal (FAST) wholesale distributor. Look for signs of more stress or relief in the supply chain.
Wednesday
The producer price index data released on Wednesday will compliment Tuesday's consumer numbers. The produce prices show a leading indicator of inflation before it passes along to consumers.
Bank of America (BAC), Wells Fargo (WFC), Citigroup (C ), BlackRock (BLK) are among the big finance companies reporting earnings before the market opens. Delta Airlines (DAL) will also be a critical earnings release to watch and measure how airlines are recovering as the economy reopened further this past quarter.
Thursday
Two sets of data will be in focus on Thursday. First, the weekly Initial Jobless Claims will show how the labor market is progressing. Second, the Manufacturing and Industrial Production data in the morning will be closely watched as investors continue to measure the speed of the economic recovery.
Taiwan Semiconductor (TSM) will release earnings on Thursday. The earnings release and commentary should show how stretched the semiconductor giant is to meet demand. The impact may be among auto manufacturers who've had to put plants on hold, waiting for chips from suppliers. Other large producers of electronics will also be impacted.
In addition, UnitedHealth (UNH), Morgan Stanley (MS), U.S. Bancorp (USB), Progressive (PGR), and Cintas (CTAS) will be interesting reports to watch out for on Thursday.
Friday
The focus will be on Retail Sales data on Friday morning. Consumer Sentiment and Consumer Expectations data will be available after the market opens.
Friday's earning reports include Honeywell (HON) and Charles Schwab (SCHW).
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The Bullish Side
Sliding Treasury Yields tested investor confidence this past week. The markets largely passed the test as yields recovered and the indexes moved higher. There are some key things we can look to for a bullish outlook.
First, the lowering treasury yields drive borrowing costs lower for companies. The result is that investors are further buying up both Investment Grade Corporate Bonds and High Yield "Junk" Bonds. Although yields on those bonds also drop as prices go up, the yields are higher than government bonds, and the purchases reflect confidence in US businesses to pay back debts.
If inflation is really going to stick, funding growth via cheap debt now could be a smart move by companies. Use the purchasing power now before further inflation hits, and then as inflation continues, the debt obligation becomes cheaper over time. There are plenty of examples in history of wise business owners funding massive growth by acquiring debt in the face of inflation.
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The Bearish Side
The indexes are extended as they continue to set new record closes. As uncertainty remains around how quickly the economy is expanding, investors will continue to rotate between sectors and cap segments. The volatility will send a portion of smart money to safer bets elsewhere. The pullback isn't necessarily a bad thing but will undoubtedly be painful for some.
As supply chain pressure remains among higher demand from consumers, inflation will remain a concern. This week's CPI and PPI data may be a crushing blow to investor confidence. Higher than expected numbers will drive more volatility in both bond and equity markets.
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Key Nasdaq Levels to Watch
The Nasdaq set another all-time high this week before pulling back on economic worries on Thursday. Still, the index remained above the 21d moving average and continues to track along with a regression trend mid-line from the 5/12 low.
On the positive side, the levels are:
On the downside, there are a few key levels:
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Wrap-up
The mixed sentiment among investors on the economic recovery is interesting. Yes, the economic recovery is slowing, yet it's still expanding at a higher than standard rate. The Fed's monetary policy seems to be supporting the growth while still allowing room to taper if the recovery drives unacceptable levels of inflation.
That's driving yields lower, bringing borrowing costs down. Small and large companies can borrow at those reduced rates to drive further growth. If inflation continues, the costs to servicing the debt only become cheaper. That to me appears bullish, but maybe I'm a fool.
Only history will be the final judge of who is wise and who is a fool. Follow price!
Good luck, stay healthy, and trade safe!
Notes
- 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.
- I occasionally have some errors or typos and will correct them in my blog or 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.
- 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 "View on the Week." If not, then this first part is a great play-by-play recap for the week. Click the daily charts for more detail on sectors, indexes, and market leaders each day.
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Tuesday, July 6, 2021
Facts: +0.17%, Volume higher, Closing range: 85%, Body: 1%
Good: High closing range, long lower wick shows recovery from dip
Bad: Volatile outside day with doji star candle, bearish pattern
Highs/Lows: Higher high, lower low
Candle: Doji star candle with longer lower wick, outside day
Advanced/Decline: 0.3, more than three declining stocks for every advancing stock
Indexes: SPX (-0.20%), DJI (-0.60%), RUT (-1.36%), VIX (+9.08%)
Sectors: Real Estate (XLRE +0.89%) and Utilities (XLU +0.42%) at the top. Financials (XLF -1.75%) and Energy (XLE -3.25%) were at the bottom.
Expectation: Sideways or Lower
It was a roller-coaster day for the market as prices dipped in the morning and recovered in the afternoon. Investors reacted to the Purchasing Managers index data that indicates the economic recovery may be slowing. Although the Nasdaq could finish the day with a small gain, most stocks across the index declined for the day.
The Nasdaq closed with a +0.17% gain, beginning the day with a gap at open but quickly selling off in the morning. Eventually, the bulls came in and brought the index back just above where it opened. The volume was higher than the previous day, and the mid-day reversal ended with a high 85% closing range. The close, being just above the open, created a slim 1% body. The outside day, doji star candle signals a bearish reversal pattern. Despite the gain in the index, there were more than three declining stocks for every advancing stock.
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Wednesday, July 7, 2021
Facts: +0.01%, Volume higher, Closing range: 28%, Body: 51%
Good: Higher high, higher low
Bad: Couldn't hold morning high, low A/D ratio
Highs/Lows: Higher high, higher low
Candle: Large red body with no upper wick, lower wick created from a morning dip
Advanced/Decline: 0.33, three declining stocks for every advancing stock
Indexes: SPX (+0.34%), DJI (+0.30%), RUT (-0.95%), VIX (-1.46%)
Sectors: Materials (XLB +1.04%) and Industrials (XLI +1.00%) at the top. Communications (XLC -0.15%) and Energy (XLE -1.63%) were at the bottom.
Expectation: Sideways or Lower
Investors rotated back to cyclical stocks after they underperformed yesterday. Mega-caps also did well on a day with no huge surprises in economic news. Jobs data was a bit lower than expected, but not bad, and there were no unexpected statements in the Fed minutes.
The Nasdaq ended the day with a +0.01% gain, carried mainly by mega-caps. There continues to be a much higher number of declining stocks than advancing stocks, with a ratio of 3 to 1 today. The closing range of 28% follows a morning gap-up that quickly sold off to create a long lower wick. The index recovered some of the loss, leaving a 51% red body over the long lower wick.
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Thursday, July 8, 2021
Facts: -0.72%, Volume lower, Closing range: 79%, Body: 63%
Good: Closed above 14,500 support area, lower volume on down day
Bad: Gap down at open, lower high, lower low
Highs/Lows: Lower high, lower low
Candle: Large green body in the middle of two short wicks, the upper wick is slightly longer
Advanced/Decline: 0.37, nearly three declining stocks for every advancing stock
Indexes: SPX (-0.86%), DJI (-0.75%), RUT (-0.94%), VIX (+17.27%)
Sectors: Real Estate (XLRE -0.09%) and Consumer Discretionary (XLY -0.25%) at the top. Industrials (XLI -1.29%) and Financials (XLF -2.00%) were bottom.
Expectation: Sideways or Lower
Is it a pullback from a new high and or the start of a more significant correction? You won't find any easy answers in the data. A few weeks ago, investors were worried about an overheating economic recovery, and now they seem worried about a slowing recovery.
The Nasdaq closed with a -0.72% decline on lower volume. The gap-down at open looked severe and dropped the index below the 14,500 support area, but a mid-day rally brought it back above the support line. The rally created a 63% green body. Prices faded in the late afternoon to create an upper wick and finish the day with a 79% closing range. The lower high and lower low combination is the first in several weeks of gains. The advance/decline line remains low, with almost three declining stocks for every advancing stock.
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Friday, July 9, 2021
Facts: +0.98%, Volume lower, Closing range: 78%, Body: 98%
Good: Close above the weekly open, high closing range, A/D ratio
Bad: Lower volume
Highs/Lows: Higher high, higher low
Candle: Mostly green body, slightly longer lower wick
Advanced/Decline: 2.51, five advancing stocks for every two declining stocks
Indexes: SPX (+1.13%), DJI (+1.30%), RUT (+2.17%), VIX (-14.94%)
Sectors: Financials (XLF +2.89%) and Energy (XLE +2.13%) at the top. Health (XLV +0.34%) and Utilities (XLU +0.12%) were bottom.
Expectation: Higher
Friday brought a confident end to a short but volatile week. After the bond yield slide caused a sell-off the previous day, yields recovered, and investors moved back into equities. In contrast to Thursday, all sectors closed with gains on Friday.
The Nasdaq closed with a +0.98% advance, with gains broadly shared across the index. There were five advancing stocks for every declining stock. The only thing missing was the volume which was much lower than the previous day. Nonetheless, the high closing range of 95% and the green body that spans 78% of the candle are bullish. It also helps close the week with a positive weekly gain.
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View on the Week
This week's uncertainty around how fast the economy is recovering drove volatility in cyclical sectors while sending Treasury yields on a slide that exasperated investors' worries. Still, the major indexes narrowly secured gains for the week while the S&P 500 and Dow Jones Industrial Average (DJI) set new records.
The week opened with investors taking defensive positions in Real Estate and Utilities, showing nervousness over new developments in the pandemic. Among recent surges in the number of cases identified as the Delta variant, Pfizer added worries that the vaccinated population might require a six-month booster shot to remain safe.
In a demonstration of just how confused investors are about economic data, cyclical sectors sold off on Tuesday, were repurchased on Wednesday, sold off again on Thursday, and bought back on Friday. Despite gains on the first two days, the number of declining stocks outnumbered advancing stocks 3 to 1 most of the week. The increases in the indexes for the first three days were driven primarily by mega-caps.
The most significant sign of change in investors thinking was in the sliding yields for Treasury notes. Yields have been dropping since economic data started to show the recovery is progressing slower than previously expected. Never mind that the economy is still expanding at a historically high rate and inflation continues to be a concern. Analysts needed to recalculate and rebalance for the new speed.
The slide in yields came to a critical moment on Thursday when investors who were betting that yields would rise needed to cover those positions. Bond yields move in the opposite direction of prices. Investors were expecting yields to go up, and prices to go down and took short positions in those bonds. When the opposite happened, they needed to buy back the bonds to cover the short position. The result was even higher prices and lower yields.
Once bond investors covered those positions, we saw a recovery of yields on Friday and a boost in equities as investors came back into the market. The story is not over yet. There were more advancing stocks than declining stocks on Friday, but volume in the market was meager.
The Nasdaq advanced +0.43% this week. Volume was slightly higher than the previous week but lower than average for this year. The low is lower than the last week, and the high is higher, marking an outside week for the index. The closing range of 86% is healthy. The long lower wick represents the dip on Thursday that was bought on Friday.
The S&P 500 (SPX) closed the week at another record, advancing +0.40% for the week. The Dow Jones Industrial Average (DJI) also had a record close with a +0.24% gain for the week. The picture was not quite as rosy for small caps, with the Russell 2000 (RUT) declining most of the week. The index gained on Friday, but not enough to end the week positively, falling -1.12% for the week.
The VIX volatility advanced +7.23% for the week. It climbed almost 42% intra-week.
The short week was defined mainly by Thursday's sell-off in equities as Treasury bond yields were sliding. That gave a boost to two defensive sectors, Real Estate ( XLRE ) and Utilities ( XLU ), but the two sectors were already leading from Monday. The worries ended on Friday, but the two sectors remained in the lead for the week.
Technology ( XLK ) and Consumer Discretionary ( XLY ) were the next two sectors at the top of the list, showing a mix of risk-on and risk-off sentiment throughout the week.
The cyclical sectors moved from the top of the sector list on Wednesday to the bottom of the list on Thursday, back to the top of the list on Friday.
Energy ( XLE ) was a consistent loser throughout the week until finally finding itself at the top of the list on Friday. However, the gains were not enough to move it out of the bottom position for the week.
Treasury yields on the 30y, 10y, and 2y all declined for the week. The gap between long-term yields and short-term yields continues to close while the yield curve shape is normalizing.
High Yield Corporate Bond (HYG) prices declined slightly but remained near pre-pandemic highs. Investment Grade Bond (LQD) prices advanced.
The US Dollar (DXY) declined -0.15% for the week.
Silver (SILVER) declined -1.36%, and Gold (GOLD) advanced +1.15%.
Crude Oil (CRUDEOIL1!) declined -0.77% after clearing its 2018 high last week and setting a new high on Monday.
Timber (WOOD) advanced +2.44%.
Copper (COPPER1!) advanced +1.33%.
Aluminum (ALI1!) declined -2.48%.
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Big Four Mega-caps
Microsoft (MSFT) and Alphabet (GOOGL) signaled indecision among investors with their weekly candles. Despite the uncertainty, Microsoft and Alphabet gained +0.10% and +0.21%, respectively. Apple (AAPL) and Amazon (AMZN) showed very bullish weeks. Amazon gained +5.93%, continuing momentum after the government ended an exclusive contract with Microsoft and opened up opportunities for other cloud vendors. Apple gained +3.68% for the week.
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The Four Recovery Stocks
I picked four recovery stocks to track against the indexes and other indicators in this weekly report. Given the worries over the economic recovery and new fears for the pandemic, it's no surprise to see the continued losses in the recovery stocks. Only Marriott (MAR) ended the week with gains, advancing +0.86%. Exxon Mobil (XOM) declined -3.07%. Delta Airlines (DAL) lost -2.79%. Carnival Cruise Lines (CCL) had the most significant decline, falling -6.91%. All four closed the week above their 40-week moving average.
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Cryptocurrency
I started tracking four major cryptocurrencies on the week in review. The four are Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. The latter two are not the largest by market cap but seem to be well-known and are part of the CIX capital.com index, tracking five cryptocurrencies, including these four (Ripple is the fifth).
All four cryptocurrencies declined for the week as they consolidate in sideways trends. Volume is shrinking while bases develop. At the time of writing, Bitcoin (BTCUSD) declined -2.60%. Ethereum (ETHUSD) fell -7.55%. Litecoin (LTCUSD) dropped -7.28%. Bitcoin Cash (BCHUSD) declined -5.20%.
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Investor Sentiment
The put/call ratio (PCCE) moved higher, ending the week at 0.735. A contrarian indicator, when the put/call ratio is below 0.7, it signals overly bullish sentiment and could mean an overbought market.
The CNN Fear & Greed Index moved further into the fear side mid-week but is on its way back toward neutral.
The NAAIM Exposure Index shows money managers at 82.54 average exposure among active money managers. The survey occurs on Wednesdays, so the number does not include any of the selling on Thursday.
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The Week Ahead
The week will start slow, but earnings reports will pick up as Financials kick off the earnings season.
Monday
The USDA will release the monthly agriculture supply and demand estimate report on Monday. Investors will also watch the 10y and 3y note auction closely in the afternoon.
There are no relevant earnings reports for the daily update on Monday.
Tuesday
On Tuesday, investors will get a fresh look at the consumer price index data. It's likely to continue showing higher inflation in general. Compare the total CPI number to the Core CPI, which excludes Fuel and Food. Investors will also look closely at what subcomponents drive inflation and how transitory prices will be in those areas.
Weekly API Crude Oil numbers will be available in the afternoon after the market closes.
JP Morgan (JPM) and Goldman Sachs (GS) will kick-off earnings season with pre-market earnings reports. PepsiCo (PEP) will also release earnings in the morning. Another potentially interesting report to watch is Fastenal (FAST) wholesale distributor. Look for signs of more stress or relief in the supply chain.
Wednesday
The producer price index data released on Wednesday will compliment Tuesday's consumer numbers. The produce prices show a leading indicator of inflation before it passes along to consumers.
Bank of America (BAC), Wells Fargo (WFC), Citigroup (C ), BlackRock (BLK) are among the big finance companies reporting earnings before the market opens. Delta Airlines (DAL) will also be a critical earnings release to watch and measure how airlines are recovering as the economy reopened further this past quarter.
Thursday
Two sets of data will be in focus on Thursday. First, the weekly Initial Jobless Claims will show how the labor market is progressing. Second, the Manufacturing and Industrial Production data in the morning will be closely watched as investors continue to measure the speed of the economic recovery.
Taiwan Semiconductor (TSM) will release earnings on Thursday. The earnings release and commentary should show how stretched the semiconductor giant is to meet demand. The impact may be among auto manufacturers who've had to put plants on hold, waiting for chips from suppliers. Other large producers of electronics will also be impacted.
In addition, UnitedHealth (UNH), Morgan Stanley (MS), U.S. Bancorp (USB), Progressive (PGR), and Cintas (CTAS) will be interesting reports to watch out for on Thursday.
Friday
The focus will be on Retail Sales data on Friday morning. Consumer Sentiment and Consumer Expectations data will be available after the market opens.
Friday's earning reports include Honeywell (HON) and Charles Schwab (SCHW).
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The Bullish Side
Sliding Treasury Yields tested investor confidence this past week. The markets largely passed the test as yields recovered and the indexes moved higher. There are some key things we can look to for a bullish outlook.
First, the lowering treasury yields drive borrowing costs lower for companies. The result is that investors are further buying up both Investment Grade Corporate Bonds and High Yield "Junk" Bonds. Although yields on those bonds also drop as prices go up, the yields are higher than government bonds, and the purchases reflect confidence in US businesses to pay back debts.
If inflation is really going to stick, funding growth via cheap debt now could be a smart move by companies. Use the purchasing power now before further inflation hits, and then as inflation continues, the debt obligation becomes cheaper over time. There are plenty of examples in history of wise business owners funding massive growth by acquiring debt in the face of inflation.
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The Bearish Side
The indexes are extended as they continue to set new record closes. As uncertainty remains around how quickly the economy is expanding, investors will continue to rotate between sectors and cap segments. The volatility will send a portion of smart money to safer bets elsewhere. The pullback isn't necessarily a bad thing but will undoubtedly be painful for some.
As supply chain pressure remains among higher demand from consumers, inflation will remain a concern. This week's CPI and PPI data may be a crushing blow to investor confidence. Higher than expected numbers will drive more volatility in both bond and equity markets.
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Key Nasdaq Levels to Watch
The Nasdaq set another all-time high this week before pulling back on economic worries on Thursday. Still, the index remained above the 21d moving average and continues to track along with a regression trend mid-line from the 5/12 low.
On the positive side, the levels are:
- The high of this past week was a new all-time high at 14,755.33.
- The mid-point of the regression trend from the 5/12 low points to 14,914 by the end of the week.
- The round number 15,000 is likely to be a new area of resistance.
On the downside, there are a few key levels:
- The 10d MA is at 14,564.53.
- 14,500 is a support area developed from three days of sideways trading this week.
- The low of this past week is 14,371.59.
- The 21d EMA is at 14,363.62.
- 14,000 has been a key area of support/resistance.
- The 50d MA is at 13,926.79.
- There is a pivot at 13,548.93. This is a "higher low" in the current uptrend.
- There is a support area at 13,000. 13,002.54 is a pivot from May.
- 13,026.58 is the 200d MA. This could be a support point if the index falls below 13,000.
- 12,397.05 is a low pivot point from the early March dip.
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Wrap-up
The mixed sentiment among investors on the economic recovery is interesting. Yes, the economic recovery is slowing, yet it's still expanding at a higher than standard rate. The Fed's monetary policy seems to be supporting the growth while still allowing room to taper if the recovery drives unacceptable levels of inflation.
That's driving yields lower, bringing borrowing costs down. Small and large companies can borrow at those reduced rates to drive further growth. If inflation continues, the costs to servicing the debt only become cheaper. That to me appears bullish, but maybe I'm a fool.
Only history will be the final judge of who is wise and who is a fool. Follow price!
Good luck, stay healthy, and trade safe!
