Summary: Equity indexes were led higher by cyclical and tech sectors while small-caps outperformed for another day, providing the breadth needed for good structural gains. Treasury yields continued higher, reaching levels not seen since the pandemic began.
Notes
In yesterday's (Monday) update, I included Wednesday's set of Economic News and Earning Reports for "Looking Ahead". It was past midnight in the US and I didn't notice I was looking at the wrong day.
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
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Tuesday, February 8, 2022
Facts: +1.28%, Volume higher, Closing Range: 89%, Body: 72% Green
Good: Closing range, high advance/decline line, volume slightly higher on gain
Bad: Lower high, lower low
Highs/Lows: Lower high, Lower low
Candle: Mostly green body, with short upper and lower wicks
Advance/Decline: 1.7, more than three advancing for every two declining stocks
Indexes: SPX (+0.84%), DJI (+1.06%), RUT (+1.63%), VIX (-6.21%)
Sector List: Materials (XLB +1.55%) and Consumer Discretionary (XLY +1.41%) at the top. Real Estate (XLRE -0.90%) and Energy (XLE -2.15%) at the bottom.
Expectation: Sideways or Higher
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Market Overview
Equity indexes were led higher by cyclical and tech sectors while small-caps outperformed for another day, providing the breadth needed for good structural gains. Treasury yields continued higher, reaching levels not seen since the pandemic began.
The Nasdaq rose +1.28%, lifted by big tech and small growth stocks alike. The morning saw a dip lower than the previous day's low, but the index recovered to close with an 89% closing range. The upper wick didn't quite set a higher high. The lower low and lower high are not great but are offset by the 72% green body, high closing range, and higher volume. There were also more than three advancing stocks for every two declining stocks.
The Russell 2000 (RUT) outperformed the other indexes for a second day, advancing +1.63%. The Dow Jones Industrial Average (DJI) gained +1.06%. The S&P 500 (SPX) rose by +0.84%. The VIX Volatility Index receded by -6.21%.
Eight of the eleven S&P 500 sectors gained, led by Materials (XLB +1.55%) and Consumer Discretionary (XLY +1.41%). At the bottom of the list were Real Estate (XLRE -0.90%) and Energy (XLE -2.15%). Although growth sectors did well, the Communications (XLC -0.04%) sector was weighed down by Meta (FB).
Trade Balance data showed the US exporting more goods in December than expected.
The US Dollar strengthened, with the index (DXY) climbing +0.22%. Treasury yields rose for the day and are now at pre-pandemic levels. Although yield levels are returning to pre-pandemic levels, the yield curve is still steep relative to just before the pandemic crash when it was nearly flat. Both the High Yield (HYG) and Investment Grade (LQD) Corporate Bond prices declined. Timber prices and Aluminum Futures are both up sharply today. Aluminum Futures are back to a multi-year high.
The put/call ratio (PCCE) increased to 0.743. The CNN Fear & Greed index is in the Fear range.
Of the big six mega-caps, only Meta (FB) declined, falling another -2.10% and weighing down the communications sector. Amazon (AMZN) continues to advance, gaining +2.20% today and closing just below its 50d MA.
China helped send Alibaba (BABA) to the top of the mega-cap list. The company gained +6.17% after China state-related funds entered the market to provide support. At the bottom of the mega-cap list is Pfizer (PFE). Pfizer declined -by 2.84% after missing revenue estimates in its earnings release.
Peloton topped the Daily Update Growth List for a second day, gaining +25.28% on top of the +20% gain on Monday. Peloton was followed in the list by several Chinese growth stocks. RobinHood (HOOD) was at the bottom of the list for a second day, declining -by 3.81% today.
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Looking ahead
Crude Oil Inventories will be available after the market opens tomorrow. Two Fed officials (Bowman and Mester) speak in the morning. There is a 10-year note auction scheduled for the afternoon.
Toyota (TM ), Walt Disney (DIS), CVS (CVS), GlaxoSmithKline (GSK), Uber (UBER), Honda (HMC), Yum! Brands (YUM), Twilio (TWLO), and Zynga (ZNGA) are some of the significant earnings reports for Wednesday.
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Trends, Support, and Resistance
The Nasdaq is nearing the 21d EMA again as it attempts to return to a longer-term upper trend.
The one-day trend line and the trend line from the 1/24 low both point to a +1.26% gain for Wednesday.
The five-day trend line points to a -1.46% decline.
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Wrap-up
Investor sentiment remains at a bearish level. The put/call ratio continues to show a high amount of put hedging. The ratio's multi-day average is at its highest since March 2020. The safe-haven demand component of the CNN Fear & Greed index is high. That means many investors have their money on the sidelines. That is confirmed by the low exposure index from the NAAIM money manager survey.
So when things are this bearish, we're looking for turning points where investors might come rushing back into the market and give us another multi-week or even multi-month gain.
The last three days including Friday, have shown some change in the market. The advance/decline line was above 1.0 all three days which means more stocks gaining than declining. Today, big tech joined the gains as well which helped the Nasdaq move up in addition to small-caps. And support from China state-related funds into Chinese equities also pulls some risk out of the market.
There are no guarantees, but perhaps the market is ready for a solid period of gains, at least until the Fed acts in March.
For tomorrow, the expectation is Sideways or Higher.
Stay healthy and trade safe!
Notes
In yesterday's (Monday) update, I included Wednesday's set of Economic News and Earning Reports for "Looking Ahead". It was past midnight in the US and I didn't notice I was looking at the wrong day.
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=-
Tuesday, February 8, 2022
Facts: +1.28%, Volume higher, Closing Range: 89%, Body: 72% Green
Good: Closing range, high advance/decline line, volume slightly higher on gain
Bad: Lower high, lower low
Highs/Lows: Lower high, Lower low
Candle: Mostly green body, with short upper and lower wicks
Advance/Decline: 1.7, more than three advancing for every two declining stocks
Indexes: SPX (+0.84%), DJI (+1.06%), RUT (+1.63%), VIX (-6.21%)
Sector List: Materials (XLB +1.55%) and Consumer Discretionary (XLY +1.41%) at the top. Real Estate (XLRE -0.90%) and Energy (XLE -2.15%) at the bottom.
Expectation: Sideways or Higher
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
Equity indexes were led higher by cyclical and tech sectors while small-caps outperformed for another day, providing the breadth needed for good structural gains. Treasury yields continued higher, reaching levels not seen since the pandemic began.
The Nasdaq rose +1.28%, lifted by big tech and small growth stocks alike. The morning saw a dip lower than the previous day's low, but the index recovered to close with an 89% closing range. The upper wick didn't quite set a higher high. The lower low and lower high are not great but are offset by the 72% green body, high closing range, and higher volume. There were also more than three advancing stocks for every two declining stocks.
The Russell 2000 (RUT) outperformed the other indexes for a second day, advancing +1.63%. The Dow Jones Industrial Average (DJI) gained +1.06%. The S&P 500 (SPX) rose by +0.84%. The VIX Volatility Index receded by -6.21%.
Eight of the eleven S&P 500 sectors gained, led by Materials (XLB +1.55%) and Consumer Discretionary (XLY +1.41%). At the bottom of the list were Real Estate (XLRE -0.90%) and Energy (XLE -2.15%). Although growth sectors did well, the Communications (XLC -0.04%) sector was weighed down by Meta (FB).
Trade Balance data showed the US exporting more goods in December than expected.
The US Dollar strengthened, with the index (DXY) climbing +0.22%. Treasury yields rose for the day and are now at pre-pandemic levels. Although yield levels are returning to pre-pandemic levels, the yield curve is still steep relative to just before the pandemic crash when it was nearly flat. Both the High Yield (HYG) and Investment Grade (LQD) Corporate Bond prices declined. Timber prices and Aluminum Futures are both up sharply today. Aluminum Futures are back to a multi-year high.
The put/call ratio (PCCE) increased to 0.743. The CNN Fear & Greed index is in the Fear range.
Of the big six mega-caps, only Meta (FB) declined, falling another -2.10% and weighing down the communications sector. Amazon (AMZN) continues to advance, gaining +2.20% today and closing just below its 50d MA.
China helped send Alibaba (BABA) to the top of the mega-cap list. The company gained +6.17% after China state-related funds entered the market to provide support. At the bottom of the mega-cap list is Pfizer (PFE). Pfizer declined -by 2.84% after missing revenue estimates in its earnings release.
Peloton topped the Daily Update Growth List for a second day, gaining +25.28% on top of the +20% gain on Monday. Peloton was followed in the list by several Chinese growth stocks. RobinHood (HOOD) was at the bottom of the list for a second day, declining -by 3.81% today.
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Looking ahead
Crude Oil Inventories will be available after the market opens tomorrow. Two Fed officials (Bowman and Mester) speak in the morning. There is a 10-year note auction scheduled for the afternoon.
Toyota (TM ), Walt Disney (DIS), CVS (CVS), GlaxoSmithKline (GSK), Uber (UBER), Honda (HMC), Yum! Brands (YUM), Twilio (TWLO), and Zynga (ZNGA) are some of the significant earnings reports for Wednesday.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support, and Resistance
The Nasdaq is nearing the 21d EMA again as it attempts to return to a longer-term upper trend.
The one-day trend line and the trend line from the 1/24 low both point to a +1.26% gain for Wednesday.
The five-day trend line points to a -1.46% decline.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
Investor sentiment remains at a bearish level. The put/call ratio continues to show a high amount of put hedging. The ratio's multi-day average is at its highest since March 2020. The safe-haven demand component of the CNN Fear & Greed index is high. That means many investors have their money on the sidelines. That is confirmed by the low exposure index from the NAAIM money manager survey.
So when things are this bearish, we're looking for turning points where investors might come rushing back into the market and give us another multi-week or even multi-month gain.
The last three days including Friday, have shown some change in the market. The advance/decline line was above 1.0 all three days which means more stocks gaining than declining. Today, big tech joined the gains as well which helped the Nasdaq move up in addition to small-caps. And support from China state-related funds into Chinese equities also pulls some risk out of the market.
There are no guarantees, but perhaps the market is ready for a solid period of gains, at least until the Fed acts in March.
For tomorrow, the expectation is Sideways or Higher.
Stay healthy and trade safe!
