Summary: 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.
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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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
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Market Overview
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.
The S&P 500 (SPX) declined -0.86%, recovering after nearly dropping below its 21d EMA. The Dow Jones Industrial Average (DJI) fell -0.75%. The Russell 2000 (RUT) seems to be in the most trouble, with a decline of -0.94% today.
The VIX volatility index soared +17.27%.
All sectors lost ground today, and cyclical sectors moved back to the bottom of the sector list. Real Estate (XLRE -0.09%), Consumer Discretionary (XLY -0.25%), and Utilities (XLU -0.29%) were at the top of the list.
Industrials (XLI -1.29%) and Financials (XLF -2.00%) were at the bottom.
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Economic Indicators
The US Dollar (DXY) declined -0.37% for the day.
The big news today was the continued slide of government bond yields worldwide. The US 30y, 10y, and 2y Treasury yields continue to decline as the gap between long-term and short-term yields tighten.
High Yield Corporate Bond (HYG) and Investment Grade Corporate Bond (LQD) prices advanced.
Silver (SILVER) and Gold (GOLD) declined.
Crude Oil (CRUDEOIL1!) advanced slightly.
Timber (Wood) declined.
Copper (COPPER1!) and Aluminum (ALI1!) declined.
Bitcoin (BTCUSD) declined -3.26%. Ethereum (ETHUSD) declined -8.38%. (Time of writing)
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Investor Sentiment
The put/call ratio rose to 0.665. 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. Below that level is overly bullish.
The CNN Fear & Greed index is moved much further to the fear side.
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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Market Leaders
Amazon (AMZN) gained +0.94% today, helping the Consumer Discretionary sector to remain high in the sector list. The other three largest mega-caps declined but remain extended above moving average lines. Alphabet (GOOGL) is the closest to its moving average lines, falling -1.13% today. Apple (AAPL) pulled back -0.92% after several days of rally. Microsoft (MSFT) is also pulling back from a new all-time high, losing -0.90% today.
Only a handful of mega-caps gained today. Tesla (TSLA), Amazon (AMZN), Eli Lilly (LLY), and Novartis AG (NVS) topped the mega-cap list. Alibaba (BABA) the worst-performing in the list as Chinese stocks continue to sell-off. AT&T (T), Bank of America (BAC), and ASML Holding (ASML) were others at the bottom of the list.
The daily update growth list also had more losers than gainers. The most significant gains included Etsy (ETSY), Penn National Gaming (PENN), Fastly (FSLY), and Tesla (TSLA). Alibaba (BABA), FUTU Holding (FUTU), D.R. Horton (DHI), and SNAP (SNAP) were at the bottom of the list.
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Looking ahead
The Fed will release its semi-annual Monetary Policy Report on Friday.
There are no relevant earnings reports for the daily update on Friday.
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Trends, Support, and Resistance
The Nasdaq opened below the 14,500 support area this morning. It rallied back above the level by the end of the day. In the morning volatility, 14,425 also emerged as an area of support.
The one-day trend lien points to a +1.15%, which would continue the recovery from today's low at market open. The trend line from the 5/12 low is just below that target.
The five-day trend line leads to a +0.50% gain for tomorrow.
There's still potential for a further pullback, so I added a trend-line that follows from yesterday's high and ends with a -0.95% loss for tomorrow.
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Wrap-up
Attention was on sliding government bond yields today.
The slide in long-term yields typically indicates less confidence in future economic growth. But as with most economic indicators this year, there may be more to the story.
Some argue that investors were heavily shorting bond prices (prices move in the opposite direction of yields). They expected yields to rise as the economy continues to overheat and people dump the bonds to find inflation-protected gains elsewhere. Recent economic data showed a slower than expected recovery and caused the trade to go against them. The resulting purchases to cover short positions sent yields even lower.
As we saw earlier in the year, volatility in bonds will cause volatility in equities as well. So over the next few days, we will watch to see if investors are correcting for a change in the pace of the recovery or are more severe fears about the future driving the behavior.
With the lower high and lower low, the expectation for tomorrow remains sideways or lower.
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=-
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
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
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.
The S&P 500 (SPX) declined -0.86%, recovering after nearly dropping below its 21d EMA. The Dow Jones Industrial Average (DJI) fell -0.75%. The Russell 2000 (RUT) seems to be in the most trouble, with a decline of -0.94% today.
The VIX volatility index soared +17.27%.
All sectors lost ground today, and cyclical sectors moved back to the bottom of the sector list. Real Estate (XLRE -0.09%), Consumer Discretionary (XLY -0.25%), and Utilities (XLU -0.29%) were at the top of the list.
Industrials (XLI -1.29%) and Financials (XLF -2.00%) were at the bottom.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) declined -0.37% for the day.
The big news today was the continued slide of government bond yields worldwide. The US 30y, 10y, and 2y Treasury yields continue to decline as the gap between long-term and short-term yields tighten.
High Yield Corporate Bond (HYG) and Investment Grade Corporate Bond (LQD) prices advanced.
Silver (SILVER) and Gold (GOLD) declined.
Crude Oil (CRUDEOIL1!) advanced slightly.
Timber (Wood) declined.
Copper (COPPER1!) and Aluminum (ALI1!) declined.
Bitcoin (BTCUSD) declined -3.26%. Ethereum (ETHUSD) declined -8.38%. (Time of writing)
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio rose to 0.665. 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. Below that level is overly bullish.
The CNN Fear & Greed index is moved much further to the fear side.
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.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
Amazon (AMZN) gained +0.94% today, helping the Consumer Discretionary sector to remain high in the sector list. The other three largest mega-caps declined but remain extended above moving average lines. Alphabet (GOOGL) is the closest to its moving average lines, falling -1.13% today. Apple (AAPL) pulled back -0.92% after several days of rally. Microsoft (MSFT) is also pulling back from a new all-time high, losing -0.90% today.
Only a handful of mega-caps gained today. Tesla (TSLA), Amazon (AMZN), Eli Lilly (LLY), and Novartis AG (NVS) topped the mega-cap list. Alibaba (BABA) the worst-performing in the list as Chinese stocks continue to sell-off. AT&T (T), Bank of America (BAC), and ASML Holding (ASML) were others at the bottom of the list.
The daily update growth list also had more losers than gainers. The most significant gains included Etsy (ETSY), Penn National Gaming (PENN), Fastly (FSLY), and Tesla (TSLA). Alibaba (BABA), FUTU Holding (FUTU), D.R. Horton (DHI), and SNAP (SNAP) were at the bottom of the list.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
The Fed will release its semi-annual Monetary Policy Report on Friday.
There are no relevant earnings reports for the daily update on Friday.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support, and Resistance
The Nasdaq opened below the 14,500 support area this morning. It rallied back above the level by the end of the day. In the morning volatility, 14,425 also emerged as an area of support.
The one-day trend lien points to a +1.15%, which would continue the recovery from today's low at market open. The trend line from the 5/12 low is just below that target.
The five-day trend line leads to a +0.50% gain for tomorrow.
There's still potential for a further pullback, so I added a trend-line that follows from yesterday's high and ends with a -0.95% loss for tomorrow.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
Attention was on sliding government bond yields today.
The slide in long-term yields typically indicates less confidence in future economic growth. But as with most economic indicators this year, there may be more to the story.
Some argue that investors were heavily shorting bond prices (prices move in the opposite direction of yields). They expected yields to rise as the economy continues to overheat and people dump the bonds to find inflation-protected gains elsewhere. Recent economic data showed a slower than expected recovery and caused the trade to go against them. The resulting purchases to cover short positions sent yields even lower.
As we saw earlier in the year, volatility in bonds will cause volatility in equities as well. So over the next few days, we will watch to see if investors are correcting for a change in the pace of the recovery or are more severe fears about the future driving the behavior.
With the lower high and lower low, the expectation for tomorrow remains sideways or lower.
Stay healthy and trade safe!
