Summary: A gap down must have shocked the bulls into action as the major indices crawled their way back up from morning lows. The results show a rotation happened underneath a market sell-off. Growth stocks benefited from the rotation while the broader market had more than two declining stocks for every advancing stock.
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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Tuesday, May 11, 2021
Facts: -0.09%, Volume lower, Closing range: 89%, Body: 87%
Good: Solid green body as bulls take over after gap down
Bad: Lower high, lower low, lower close
Highs/Lows: Lower high, lower low
Candle: Thick green body with short upper wick and high closing range
Advance/Decline: Two declining stocks for every advancing stock
Indexes: SPX (-0.87%), DJI (-1.36%), RUT (-0.26%), VIX (+11.09%)
Sectors: Materials (XLB +0.33%) and Communications (XLC -0.29%) were top. Financials (XLF -1.77%) and Energy (XLE -2.57%) were bottom.
Expectation: Sideways or Lower
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Market Overview
A gap down must have shocked the bulls into action as the major indices crawled their way back up from morning lows. The results show a rotation happened underneath a market sell-off. Growth stocks benefited from the rotation while the broader market had more than two declining stocks for every advancing stock.
The Nasdaq closed down -0.09% on lower volume. Despite a thick green-bodied candle, the lower high, lower low and lower close continue a downtrend that's in its ninth day. The body covers 87% of the candle with a closing range of 89% under a thin upper wick. Two stocks declined for every advancing stock.
The Russell 2000 (RUT) was the next best major index with a -0.26% decline. The S&P 500 (SPX) lost -0.87%. The Dow Jones Industrial (DJI) closed with a -1.36%, gapping down after setting a new all-time high yesterday.
The VIX volatility index advanced +11.09% after being up more than 20% intraday.
Only Materials (XLB +0.33%) ended the day with gains while Communications (XLC -0.29%) was the second best sector. Financials (XLF -1.77%) and Energy (XLE -2.57%) moved the bottom of the sector list.
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Economic Indicators
The US Dollar (DXY) declined -0.12%.
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) and Gold (GOLD) advanced. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) declined. Copper (COPPER1!) advanced while Aluminum (ALI1!) declined.
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Investor Sentiment
The put/call ratio rose slightly to 0.865. 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, moving just slightly to the fear side.
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Market Leaders
Amazon (AMZN) was the only big four mega-cap to gain for the day, advancing +1.05% to get back above the 50d MA after gapping down at open. Apple (APPL) declined -0.74%, closing below its 50d MA. Microsoft (MSFT) declined -0.38% but was able to climb back above the 40d MA before close. Alphabet (GOOGL) lost -0.95% and closed below its 21d EMA.
At the top of the mega-cap list were PayPal (PYPL), Netflix (NFLX), Adobe (ADBE) and Amazon (AMZN). Most mega-caps declined for the day. The biggest decliners include Exxon Mobil (XOM), Oracle (ORCL), Home Depot (HD) and Chevron (CVX).
Growth stocks had a great day, especially considered against the major indices. Fastly (FSLY), Palantir (PLTR), FUTU Holdings (FUTU), Fiverr (FVRR), and Chewy (CHWY) were top gainers with advances above 5%. All of these could be marking bottom pivots if rotation continues into growth. At the bottom of the growth stock list were Draft Kings (DKNG), RH (RH), GrowGeneration (GRWG) and DR Horton (DHI).
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Looking ahead
Consumer Price Index data for April will be released on Wednesday. An indicator of inflation, the numbers will be watched closely. Crude Oil Inventories will be updated in the morning after market open. The 10y treasure note auction will be in the afternoon.
Toyota Motor (TM) along with a large number of Japanese company earnings reports will be released on Wednesday. Some other interesting reports will include Dynatrace (DT) and Bumble (BMBL).
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Trends, Support and Resistance
The Nasdaq remains below the 50d moving average line.
The one-day trend, if it continues, would result in a +1.69% gain. That would bring the index back above the 50d MA.
The five-day trend line points to a -0.36% decline tomorrow.
Following the trend-line from the 4/29 high would result in a -0.83% decline.
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Wrap-up
It's not clear to me why investors decided to jump back into growth stocks today. Perhaps they see a bottom and wanted to catch it. Or it's possible that a record amount of shorts on passive instruments such as ETFs is reversing and a short squeeze is underway. Or even a gamma squeeze as market makers cover the positions.
Highly shorted ETFs have included tech and growth stocks as well as the QQQ ETF itself. So predicting where things will go next may be difficult. Expect a reaction, for better or worse, to the consumer price index data being released tomorrow, which will provide a view on inflation. I have some hope that the worst is already priced in and if the data shows less inflation than expected, we could get a boost.
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=-
Tuesday, May 11, 2021
Facts: -0.09%, Volume lower, Closing range: 89%, Body: 87%
Good: Solid green body as bulls take over after gap down
Bad: Lower high, lower low, lower close
Highs/Lows: Lower high, lower low
Candle: Thick green body with short upper wick and high closing range
Advance/Decline: Two declining stocks for every advancing stock
Indexes: SPX (-0.87%), DJI (-1.36%), RUT (-0.26%), VIX (+11.09%)
Sectors: Materials (XLB +0.33%) and Communications (XLC -0.29%) were top. Financials (XLF -1.77%) and Energy (XLE -2.57%) were bottom.
Expectation: Sideways or Lower
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
A gap down must have shocked the bulls into action as the major indices crawled their way back up from morning lows. The results show a rotation happened underneath a market sell-off. Growth stocks benefited from the rotation while the broader market had more than two declining stocks for every advancing stock.
The Nasdaq closed down -0.09% on lower volume. Despite a thick green-bodied candle, the lower high, lower low and lower close continue a downtrend that's in its ninth day. The body covers 87% of the candle with a closing range of 89% under a thin upper wick. Two stocks declined for every advancing stock.
The Russell 2000 (RUT) was the next best major index with a -0.26% decline. The S&P 500 (SPX) lost -0.87%. The Dow Jones Industrial (DJI) closed with a -1.36%, gapping down after setting a new all-time high yesterday.
The VIX volatility index advanced +11.09% after being up more than 20% intraday.
Only Materials (XLB +0.33%) ended the day with gains while Communications (XLC -0.29%) was the second best sector. Financials (XLF -1.77%) and Energy (XLE -2.57%) moved the bottom of the sector list.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) declined -0.12%.
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) and Gold (GOLD) advanced. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) declined. Copper (COPPER1!) advanced while Aluminum (ALI1!) declined.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio rose slightly to 0.865. 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, moving just slightly to the fear side.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
Amazon (AMZN) was the only big four mega-cap to gain for the day, advancing +1.05% to get back above the 50d MA after gapping down at open. Apple (APPL) declined -0.74%, closing below its 50d MA. Microsoft (MSFT) declined -0.38% but was able to climb back above the 40d MA before close. Alphabet (GOOGL) lost -0.95% and closed below its 21d EMA.
At the top of the mega-cap list were PayPal (PYPL), Netflix (NFLX), Adobe (ADBE) and Amazon (AMZN). Most mega-caps declined for the day. The biggest decliners include Exxon Mobil (XOM), Oracle (ORCL), Home Depot (HD) and Chevron (CVX).
Growth stocks had a great day, especially considered against the major indices. Fastly (FSLY), Palantir (PLTR), FUTU Holdings (FUTU), Fiverr (FVRR), and Chewy (CHWY) were top gainers with advances above 5%. All of these could be marking bottom pivots if rotation continues into growth. At the bottom of the growth stock list were Draft Kings (DKNG), RH (RH), GrowGeneration (GRWG) and DR Horton (DHI).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
Consumer Price Index data for April will be released on Wednesday. An indicator of inflation, the numbers will be watched closely. Crude Oil Inventories will be updated in the morning after market open. The 10y treasure note auction will be in the afternoon.
Toyota Motor (TM) along with a large number of Japanese company earnings reports will be released on Wednesday. Some other interesting reports will include Dynatrace (DT) and Bumble (BMBL).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
The Nasdaq remains below the 50d moving average line.
The one-day trend, if it continues, would result in a +1.69% gain. That would bring the index back above the 50d MA.
The five-day trend line points to a -0.36% decline tomorrow.
Following the trend-line from the 4/29 high would result in a -0.83% decline.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
It's not clear to me why investors decided to jump back into growth stocks today. Perhaps they see a bottom and wanted to catch it. Or it's possible that a record amount of shorts on passive instruments such as ETFs is reversing and a short squeeze is underway. Or even a gamma squeeze as market makers cover the positions.
Highly shorted ETFs have included tech and growth stocks as well as the QQQ ETF itself. So predicting where things will go next may be difficult. Expect a reaction, for better or worse, to the consumer price index data being released tomorrow, which will provide a view on inflation. I have some hope that the worst is already priced in and if the data shows less inflation than expected, we could get a boost.
Stay healthy and trade safe!
