Trend lines drawn from the 2/16 ATH (9d), 2/22 (5d) and today 2/26 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
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Friday, February 26, 2021
Facts: +0.56%, Volume lower, Closing range: 49%, Body: 12%
Good: Successful test of 13,000 again
Bad: Lower high, lower low, indecisive spinning top candle, close below 50d MA
Highs/Lows: Lower high, Lower low
Candle: Thin red body in the middle of candle, long upper and lower wicks
Advance/Decline: More than two declining stocks for every advancing stock
Indexes: SPX (-0.48%), DJI (-1.50%), RUT (+0.04%), VIX (-3.25%)
Sectors: Technology (XLK +0.53%) and Consumer Discretionary (XLY +0.42%) were top. Energy (XLE -2.37%) and Financials (XLF -1.91%) were bottom.
Expectation: Sideways or Lower
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Market Overview
A week dominated by selling ended with a day of indecision. Investor fears of inflation were lifted a bit by economic data that showed inflation might not be as accelerated as thought. Consumer sentiment numbers rose. Personal spending was lower than expected. That resulted in rising treasury bond yields to back off a bit and the US Dollar to strengthen.
The Nasdaq closed the day with a +0.56% gain on lower volume. The thin 12% body is in the middle of a candle with longer upper and lower wicks. The closing range very near to the open and in the center of the candle at 49% shows as a spinning top candle. The candle is a sign of indecision as both the bulls and the bears had moments throughout the trading session without a winner. There were more than two declining stocks for every advancing stock.
The Russell 2000 (RUT) was the only other major index to close with a gain, and it was small at just +0.04%. The S&P 500 (SPX) declined -0.48% while the Dow Jones Industrial average (DJI) declined -1.50%.
The VIX volatility index declined -3.25% but is still at an elevated level.
The sector list shows rotation back into some of the sectors that suffered earlier in the week. Technology (XLK) and Consumer Discretionary (XLY) moved back to the top, after living at the bottom most of the week. They gained +0.53% and +0.42% respectively. Energy (XLE) and Financials (XLF) moved to the bottom of the list. It's not necessary for them to lead in a rally, but it doesn't help a bull case having them at the bottom.
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Economic Indicators
The US Dollar (DXY) gained a surprise +0.88% on a lower inflation outlook.
Yields on 30y, 10y and 2y treasury bonds all dropped for the day. The 2y yield dropped %28 after spiking %41 yesterday. The downside reversal in treasury bond yields is a welcome change for investors of big tech and growth stocks.
The lower treasury bond yields did not help High Yield (HYG) corporate bonds. Prices on these bonds continued to fall while Investment Grade (LQD) corporate bond prices gained. The signal is still caution as investors will continue to watch the bond market closer as next week unfolds.
Silver (SILVER) and Gold (GOLD) declined. Gold declined over 2%, partially driven by the strengthening dollar. Crude Oil (CRUDEOIL1!) declined. Timber (WOOD) declined. Copper (COPPER1!) and Aluminum (ALI1!) both declined. This is a character change from the bullish outlook the commodities were signaling the past few weeks.
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Investor Sentiment
The put/call ratio rose to 0.810 as fear starts to work its way into the market. 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 moved more toward fear and is exactly neutral at Friday's close. The weekly NAAIM exposure index declined to 85 as money managers reduced positions.
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Market Leaders
All of the big four mega-caps closed the day with gains, but none of them were particularly bullish days, giving up gains as the market came to a close. Apple (AAPL) and Alphabet (GOOGL) gained +0.22% and +0.30%. Microsoft (MSFT) and Amazon (AMZN) did a little better with +1.17% and +1.48% gains, both showing indecisive sessions. Only Alphabet is trading above the 21d EMA and 50d MA. Microsoft is stuck in the middle of the two key moving average lines.
Semiconductors made a bit of a comeback with Nvidia (NVDA) leading the mega-cap list with a +3.06% gain. PayPal (PYPL) was second, advancing +2.33%. Bank of America (BAC) and JPMorgan Chase (JPM) led the Financials sector lower with -3.40% and -2.65% losses. The market was pricing in higher yields having a positive impact on big banks, but now is repricing with a new outlook.
Digital Turbine (APPS) and Etsy (ETSY) led growth stocks higher with 14.08% and +11.48% gains. AirBnb (ABNB) also gained +13.34%. A newer growth stock, Fisker (FSR), got a lot of attention this week and rose +32.07% in today's session.
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Looking ahead
Monday will start with Manufacturing data before market opens that provides a lens on how much activity is being generated by greater demand for goods.
It will be another week of must-watch earnings reports. Monday will kick off with Zoom Video (ZM), MercadoLibre (MELI), Nio (NIO), Lemonade (LMND). Watch for how the market reacts to positive news from any of these reports. A negative reaction to a positive report can be a big signal of investor sentiment in a choppy market. Also check the companies in your portfolio for earnings reports so you are not surprised.
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Trends, Support and Resistance
The one-day trend line points to a +1.29% gain for Monday that would put the index back above the 50d MA.
The five-day trend line points to another -0.43% loss for the start of next week. The longer trend-line from the 2/16 all-time high points to a -1.02% declined for Monday. That would be right above the 13,000 support area.
If there is further downside, the index held the 12,550 area in an early January dip. If it passes that area, the next support area is 12,250.
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Wrap-up
Happy we made it to the Weekend? You are not alone. The expectation for today was to go lower and so a bit of a sideways move that resulted in a small gain for the Nasdaq is welcome. However, the market gave no indication that confidence in the rally had been restored. It was an indecisive day in a downtrend that could end here, or continue.
That creates some weekend homework. Take a close look at positions in your portfolio. How are each performing in the context of the pullback? Which ones are acting relatively well and maybe you are willing to take a bit further draw down to protect the positions? Which ones are not acting well and should be trimmed or sold outright?
If the market does reverse and move up next week, what stocks should be in your watch list? What's your plan for timing and starting those positions? Where should you add to existing positions at the dip?
Most of all, there are plenty of signals to keep a cautious approach to the market. Expectation is set for sideways or lower for Monday. Let's hope for an expectation breaker!
Stay healthy and trade safe!
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=-
Friday, February 26, 2021
Facts: +0.56%, Volume lower, Closing range: 49%, Body: 12%
Good: Successful test of 13,000 again
Bad: Lower high, lower low, indecisive spinning top candle, close below 50d MA
Highs/Lows: Lower high, Lower low
Candle: Thin red body in the middle of candle, long upper and lower wicks
Advance/Decline: More than two declining stocks for every advancing stock
Indexes: SPX (-0.48%), DJI (-1.50%), RUT (+0.04%), VIX (-3.25%)
Sectors: Technology (XLK +0.53%) and Consumer Discretionary (XLY +0.42%) were top. Energy (XLE -2.37%) and Financials (XLF -1.91%) were bottom.
Expectation: Sideways or Lower
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
A week dominated by selling ended with a day of indecision. Investor fears of inflation were lifted a bit by economic data that showed inflation might not be as accelerated as thought. Consumer sentiment numbers rose. Personal spending was lower than expected. That resulted in rising treasury bond yields to back off a bit and the US Dollar to strengthen.
The Nasdaq closed the day with a +0.56% gain on lower volume. The thin 12% body is in the middle of a candle with longer upper and lower wicks. The closing range very near to the open and in the center of the candle at 49% shows as a spinning top candle. The candle is a sign of indecision as both the bulls and the bears had moments throughout the trading session without a winner. There were more than two declining stocks for every advancing stock.
The Russell 2000 (RUT) was the only other major index to close with a gain, and it was small at just +0.04%. The S&P 500 (SPX) declined -0.48% while the Dow Jones Industrial average (DJI) declined -1.50%.
The VIX volatility index declined -3.25% but is still at an elevated level.
The sector list shows rotation back into some of the sectors that suffered earlier in the week. Technology (XLK) and Consumer Discretionary (XLY) moved back to the top, after living at the bottom most of the week. They gained +0.53% and +0.42% respectively. Energy (XLE) and Financials (XLF) moved to the bottom of the list. It's not necessary for them to lead in a rally, but it doesn't help a bull case having them at the bottom.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) gained a surprise +0.88% on a lower inflation outlook.
Yields on 30y, 10y and 2y treasury bonds all dropped for the day. The 2y yield dropped %28 after spiking %41 yesterday. The downside reversal in treasury bond yields is a welcome change for investors of big tech and growth stocks.
The lower treasury bond yields did not help High Yield (HYG) corporate bonds. Prices on these bonds continued to fall while Investment Grade (LQD) corporate bond prices gained. The signal is still caution as investors will continue to watch the bond market closer as next week unfolds.
Silver (SILVER) and Gold (GOLD) declined. Gold declined over 2%, partially driven by the strengthening dollar. Crude Oil (CRUDEOIL1!) declined. Timber (WOOD) declined. Copper (COPPER1!) and Aluminum (ALI1!) both declined. This is a character change from the bullish outlook the commodities were signaling the past few weeks.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio rose to 0.810 as fear starts to work its way into the market. 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 moved more toward fear and is exactly neutral at Friday's close. The weekly NAAIM exposure index declined to 85 as money managers reduced positions.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
All of the big four mega-caps closed the day with gains, but none of them were particularly bullish days, giving up gains as the market came to a close. Apple (AAPL) and Alphabet (GOOGL) gained +0.22% and +0.30%. Microsoft (MSFT) and Amazon (AMZN) did a little better with +1.17% and +1.48% gains, both showing indecisive sessions. Only Alphabet is trading above the 21d EMA and 50d MA. Microsoft is stuck in the middle of the two key moving average lines.
Semiconductors made a bit of a comeback with Nvidia (NVDA) leading the mega-cap list with a +3.06% gain. PayPal (PYPL) was second, advancing +2.33%. Bank of America (BAC) and JPMorgan Chase (JPM) led the Financials sector lower with -3.40% and -2.65% losses. The market was pricing in higher yields having a positive impact on big banks, but now is repricing with a new outlook.
Digital Turbine (APPS) and Etsy (ETSY) led growth stocks higher with 14.08% and +11.48% gains. AirBnb (ABNB) also gained +13.34%. A newer growth stock, Fisker (FSR), got a lot of attention this week and rose +32.07% in today's session.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
Monday will start with Manufacturing data before market opens that provides a lens on how much activity is being generated by greater demand for goods.
It will be another week of must-watch earnings reports. Monday will kick off with Zoom Video (ZM), MercadoLibre (MELI), Nio (NIO), Lemonade (LMND). Watch for how the market reacts to positive news from any of these reports. A negative reaction to a positive report can be a big signal of investor sentiment in a choppy market. Also check the companies in your portfolio for earnings reports so you are not surprised.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
The one-day trend line points to a +1.29% gain for Monday that would put the index back above the 50d MA.
The five-day trend line points to another -0.43% loss for the start of next week. The longer trend-line from the 2/16 all-time high points to a -1.02% declined for Monday. That would be right above the 13,000 support area.
If there is further downside, the index held the 12,550 area in an early January dip. If it passes that area, the next support area is 12,250.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
Happy we made it to the Weekend? You are not alone. The expectation for today was to go lower and so a bit of a sideways move that resulted in a small gain for the Nasdaq is welcome. However, the market gave no indication that confidence in the rally had been restored. It was an indecisive day in a downtrend that could end here, or continue.
That creates some weekend homework. Take a close look at positions in your portfolio. How are each performing in the context of the pullback? Which ones are acting relatively well and maybe you are willing to take a bit further draw down to protect the positions? Which ones are not acting well and should be trimmed or sold outright?
If the market does reverse and move up next week, what stocks should be in your watch list? What's your plan for timing and starting those positions? Where should you add to existing positions at the dip?
Most of all, there are plenty of signals to keep a cautious approach to the market. Expectation is set for sideways or lower for Monday. Let's hope for an expectation breaker!
Stay healthy and trade safe!
