Summary: The market is the great fortune teller, always trying to price in the future, not the present. We saw that in action this week in several ways. The first was with Janet Yellen's comments on Tuesday that interest rate hikes might be needed in the future. That sent investors into a frenzy sell-off before she walked back the comments.
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 do occasionally have some errors or typos and will correct them in my blog or in 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.
- The Meaning of Life, a 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 the “The Meaning of Life”. 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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Monday, May 3, 2021
Facts: -0.48%, Volume lower, Closing range: 8%, Body: 85%
Good: Held above the 21d EMA
Bad: Lower high, lower low, could not stay above 14,000
Highs/Lows: Lower high, lower low
Candle: Thick red body with small upper and lower wicks
Advance/Decline: Slightly more declining stocks than advancing stocks
Indexes: SPX (+0.27%), DJI (+0.70%), RUT (+0.49%%), VIX (-1.61%)
Sectors: Energy (XLE +2.75%) and Materials (XLB +1.49%) were top sectors. Communications (XLC -0.53%) and Real Estate (XLRE -0.54%) were bottom.
Expectation: Sideways or Lower
The cyclical sectors soared. The others did not. A rotation into reopening and cyclical stocks played well for all the major indexes except the Nasdaq which is heavy in big-tech and growth stocks.
The Nasdaq closed down -0.48% on lower volume. A brief rally attempt in the morning brought the index above 14,000 before selling off and testing the 21d EMA several times before closing just above the intraday lows. The thick red body covers 85% of the candle is surrounded by a short upper and lower wick with a closing range of 8%. There were slightly more declining stocks than advancing stocks.
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Tuesday, May 4, 2021
Facts: -1.88%, Volume higher, Closing range: 37% (w/gap), Body: 45%
Good: Bounced off 50d moving average line
Bad: Gap down on news, high volume distribution
Highs/Lows: Lower high, lower low
Candle: Thick red body in upper half of candle, long lower wick
Advance/Decline: Almost four declining stocks for every advancing stock
Indexes: SPX (-0.67%), DJI (+0.06%), RUT (-1.28%), VIX (+6.39%)
Sectors: Materials (+1.09%) and Financials (XLF +0.80%) were top. Consumer Discretionary (XLY -1.04%) and Technology (XLK -1.79%) were bottom.
Expectation: Sideways or Lower
The market sold off sharply at open after comments from Janet Yellen suggested that interest rates might need to increase to keep the economy from overheating. Investors fled sectors more sensitive to interest rate hikes and rotated into the cyclical sectors.
The Nasdaq opened with a gap-down and closed the day with a -1.88% decline on much higher volume. The index continued to decline after open until it hit the 50d moving average and found support through the afternoon. The result is a long lower wick underneath a 45% red body and a 37% closing range, considering the gap as part of the range. There were nearly four declining stocks for every advancing stock.
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Wednesday, May 5, 2021
Facts: -0.39%, Volume lower, Closing range: 13%, Body: 76%
Good: Lower than average volume
Bad: Lower high, thick red body from afternoon decline
Highs/Lows: Lower high, higher low
Candle: Inside day, thick red body with similar small upper and lower wicks
Advance/Decline: Two declining stocks for every advancing stock
Indexes: SPX (-0.37%), DJI (+0.29%), RUT (-0.31%), VIX (-1.69%)
Sectors: Energy (XLE +3.23%) and Materials (XLB +1.27%) were top. Real Estate (XLRE -1.47%) and Utilities (XLU -1.69%) were bottom.
Expectation: Sideways or Lower
This is not the rally we are looking for. The Dow Jones Industrial average closed at a record high today while the rest of the market struggled to hold any gains, with the Nasdaq and Russell 2000 falling further behind the other major indexes.
The Nasdaq closed with a -0.39% loss for the day on lower than average volume. The 13% closing range is under a 76% body with a short lower wick created from a late afternoon dip. The short upper wick was formed just after open before the bears took over. There were two declining stocks for every advancing stock.
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Thursday, May 6, 2021
Facts: +0.37%, Volume higher, Closing range: 99%, Body: 38%
Good: High closing range with gain on higher volume
Bad: Lower low with dip below 50d moving average
Highs/Lows: Lower high, lower low
Candle: Hammer with long lower wick and smaller body in upper half of candle
Advance/Decline: Almost three declining stocks for every advancing stock
Indexes: SPX (+0.82%), DJI (+0.93%), RUT (+0.00%), VIX (-3.97%)
Sectors: Financials (XLF +1.49%) and Consumer Staples (XLP +1.29%) were top. Consumer Discretionary (XLY -0.22%) and Health (XLV -0.13%) were bottom.
Expectation: Sideways or Higher
Another record was set for the Dow Jones Industrial average while value stocks continue to outpace growth stocks. Two intraday rallies might just be the action the Nasdaq needed to join the rally, but the gains were mostly isolated to the mega-caps.
The Nasdaq closed with a +0.37% gain on higher volume. The mid-day rallies formed a long lower wick with a smaller 38% green body in the upper half of the candle, forming a hammer. A hammer can signal a trend reversal but needs to be confirmed the following day. The closing range of 99% comes after a rally late in the afternoon.
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Friday, May 7, 2021
Facts: +0.88%, Volume lower, Closing range: 60% (w/gap), Body: 21%
Good: Higher close, higher high, higher low, confirmation of yesterday's hammer
Bad: Lower volume, gap-up may need revisiting
Highs/Lows: Higher high, higher low
Candle: Longer upper wick over a thin green body in lower half of candle, gap-up at open
Advance/Decline: About three gaining stocks for every declining stock
Indexes: SPX (+0.74%), DJI (+0.66%), RUT (+1.35%), VIX (-9.24%)
Sectors: Energy (XLE +1.78%) and Real Estate (XLRE +1.22%) were top. Utilities (XLU +0.30%) and Consumer Staples (+0.00%) were bottom.
Expectation: Sideways or Higher
More records were set as the S&P 500 and Dow Jones Industrial average both had record closes while the Nasdaq and Russell 2000 joined the rally, also making gains. Employment data in the morning caused the dollar to fall which can give a boost to mega-caps and growth stocks.
The Nasdaq closed with a +0.88% gain. Volume was lower and the morning rally faded through the day, giving the candle a 60% closing range (including the gap) and a thin 21% body under a long upper wick. Nonetheless, the positive gain with a higher high and higher low is a confirmation of the previous day's reversal hammer candle. There were three gaining stocks for every declining stock.
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The Meaning of Life (View on the Week)
The market is the great fortune teller, always trying to price in the future, not the present. We saw that in action this week in several ways. The first was with Janet Yellen's comments on Tuesday that interest rate hikes might be needed in the future. That sent investors into a frenzy sell-off before she walked back the comments.
The second indication of future focus was that investors were much more focused on the guidance in earning reports than they were on the current results. Earning reports that beat expectations, but lowered or kept guidance the same were punished. Earnings reports that didn't meet expectations, but could provide higher guidance were rewarded.
But possibly the biggest indication is the rotation from the growth stocks of the past year, to the value re-opening and infrastructure stocks of this year. While the Dow Jones industrial average (DJI) and S&P 500 (SPX) were setting new records, the Nasdaq (IXIC) was still dropping, dipping below its 50d MA before finding any support. It was nearly the same for small-caps and the Russell 2000 (RUT).
Thursday was the pivot day for both the Nasdaq and RUT, with long lower wicks and high closing ranges. The rally continued into Friday and provides some optimism for possible continuation into next week. But there is still a lot of rebuilding to do across both indexes. Many leading stocks will face overhead supply resistance as they move back toward new highs.
While the two lagging indexes attempt to rally back to new highs, expect investors to stay hyper-focused on inflation and any responses from the Fed. Changes in monetary policy will be met with a swift reaction.
The Nasdaq declined -1.51% for the week, ending the week in the middle of the range with a 52% closing range. Volume was lower than the previous week, with much of the volume focused on Tuesday's sell-off and Thursday's mid-day bounce.
The Dow Jones Industrial average (DJI) didn't have a single declining day during the week and advanced +2.67% over the five days. The S&P 500 (SPX) gained +1.23% for the week. The Russell 2000 (RUT) gained +0.23% after taking a round trip below its 21d EMA and 50d MA but closing just above where it opened for the week.
The VIX volatility index declined -10.32% for the week.
It was the cyclical sectors that ruled the week. Energy ( XLE ), Materials ( XLB ), Financials ( XLF ) and Industrials ( XLI ) were the top four sectors of the week.
The cyclical sectors are benefiting from a pick-up in economic activity driving demand for products from building materials, infrastructure and the manufacturing of consumables. Supply has not been able to keep up with the increased demand, driving commodity prices higher. Timber, Copper , Aluminum are all skyrocketing. And demand for oil is increasing as transportation picks back up.
While the Dow Jones Industrial average (DJI) and S&P 500 (SPX) hit new all-time records, there were four sectors that lost for the week. Technology ( XLK ) and Consumer Discretionary ( XLY ) fell on Monday thru Wednesday along with the Nasdaq, as investors rotated to re-opening and infrastructure stocks.
Real Estate ( XLRE ) and Utilities ( XLU ) were the bottom two sectors. Investors did not have interest in the defensive equity plays this week. Investors remain confident in the equities market, but are playing toward value, re-opening and infrastructure.
The US Treasury 30y, 10y and 2y yields all declined for the week, continuing to flatten the yield curve since its sharpest point in March.
Both the High Yield Corporate Bond (HYG) prices declined slightly while Investment Grade Bond (LQD) prices advanced.
The US Dollar (DXY) declined -1.17% for the week, resting just above a support area from 2018.
Commodities, especially the resources required for recovery, continue to reach new historic high prices.
Silver (SILVER) and Gold (GOLD) advanced +5.94% and +3.53% for the week.
Crude Oil (CRUDEOIL1!) advanced +0.85%.
Timber (WOOD) advanced +5.43%.
Copper (COPPER1!) advanced +4.40% and Aluminum (ALI1!) advanced +5.90%, putting in the fifth week in a row of gains.
This growth/value comparison we've been tracking is showing the big rotation back into value over the past week.
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The Big Four Mega-caps
The big four mega-caps were looking a little ugly on the daily charts this past two weeks. But it's always important to take a broader look at the weekly, and although not great, it doesn't look so bad either. Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) all touched their 10e moving average lines, found support and closed above them. Microsoft was even able to get a slight gain for the week, advancing +0.11%. Apple (AAPL) was down -0.95%. Amazon (AMZN) had the biggest loss of -5.07%, but still stayed above the key moving average line. Alphabet (GOGL) had a dip but recovered, closing just -0.07% from where it opened 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. Exxon Mobile (XOM) had a huge gain this week, advancing +9.07%. However, my other recovery stocks are all down. Delta Airlines (DAL) lost -1.74%. Marriott (MAR) declined -1.23%. Carnival Cruise Lines (CCL) lost -4.29%. So the focus on re-opening stocks may be more about the infrastructure plays and manufacturing goods required to meet increasing consumer demands.
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Investor Sentiment
The put/call ratio (PCCE) closed the week at 0.650, a little lower from the previous week, but was up and down throughout the week. 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 is on the greed side but not far off neutral.
The NAAIM money manager exposure index declined to 87.79, after topping 100 last week.
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The Week Ahead
There are still a high number of earnings reports, so keep an eye on your portfolio so you are not surprised.
Monday
There is not much significant economic news scheduled for Monday.
JD.com (JD), Marriott (MAR), Roblox (RBLX), Trade Desk (TTD), Trex (TREX), Magnite (MGNI) and VUZIX (VUZI) are a few of the interesting earnings reports for Monday.
Tuesday
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), Selectquote (SLQT),
Wednesday
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).
Thursday
The weekly update on Jobless Claims comes on Thursday. Also Produce Price Index data will be released in the morning.
Earnings Reports include Alibaba (BABA), Walt Disney (DIS), AirBnB (ABNB), Coinbase (COIN), DoorDash (DASH), Farfetch (FTCH), Celsius (CELH), and DermTech (DMTK).
Friday
Friday brings an update to Core Retail Sales for April. Export/Import Price Index data will also be released. Closer to open, the Industrial Production and Business Inventories data will be released. Consumer Expectations and Consumer Sentiment numbers for May will come after the market open.
Another large round of Japanese earnings reports come on Friday. UP fintech (TIGR) is also schedule to report on Friday.
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The Bullish Side
Although there is caution in the market at all-time highs for two of the major indexes, there is a switch from previous weeks where Utilities and Real Estate were leading sectors, back to less cautious sectors. And although investors are still playing the value trade against the growth trade, we saw a growth and tech to start to play in the rally on Thursday as well.
It's also very possible based on data available from banks, that hedge funds have been short selling the growth play which has forced prices even lower. The data says the increasing amount of shorts are coming via ETFs, which in light of the GameStop frenzy, seems to be the safer way to play the short side for now. But if the Nasdaq and the passive indexes start to rally, the hedgefunds will need to cover shorts nonetheless, possibly unlocking a short squeeze at a broader level.
As the long as the fed keeps monetary policy, the market will continue to be propped up and any short-sell plays will eventually hit their limit and the buying has to begin again. Let's see.
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The Bearish Side
We've just had several weeks of first quarter earnings reports that beat the previous year, but shared lower guidance for the coming quarters. Many of those companies were driving the market to historical gains over the past year. Now that Q2 has arrived, the year-over-year comparable earnings will get much tougher. That's going to mean more downside for companies that are driving the high prices in the market.
Still, as the economic recovery picks up more steam, investors worry over inflation and interest rates will increase as well. Any small statement like we saw from Yellen this past week could send investors for the exits. And if we actually see a response from the Fed that would touch monetary policy, it will certainly mean a taper tantrum if not done carefully.
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Key Nasdaq Levels to Watch
The Nasdaq found itself below the 21d EMA again this week, but found support at the bottom of the channel from the March 2020 lows. That channel remains intact and the index closed above the 50d MA despite the dip.
On the positive side, the levels are:
- The 21d EMA is at 13,797.33 and is a key level for the index to rise above.
- The 10d MA is at 13,882.14.
- 14,000 has been a key area of support/resistance. The index has only stayed above this level for a few days at a time since the beginning of 2021.
- This past weeks high is 14,042.12.
- The all-time high is at 14,211.57 is the all-time high and the high of this week.
- 14,923 is the middle line of the channel from the March 2020 bottom. The index has been in the channel, but below the midline for the past ten weeks.
On the downside, there are a few key levels:
- A previous support area is around 13,600.
- The lower line of the channel from the March 2020 bottom is around 13,563 for next week.
- The 50d MA is is at 13,529.61 and is an important line to stay above.
- The low of this past week is 13,439.39. Let's get a higher low for next week.
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Wrap-up
If you are a growth investor, it was probably a pretty tough week for your portfolio. Investors were focused on the value play and there was a ton of selling pressure for growth early in the week. But as the Dow Jones Industrial average and S&P 500 close the week at all-time highs, it could be just the right time to take profits and rotate them back into growth stocks.
Good luck, stay healthy and trade safe!
