Summary: The short week pivoted primarily on Friday's unemployment data, a key signal for investors of how well the economy is recovering. The Nasdaq declined through the first three days but rallied back on Friday after the data was released. The caution for investors was apparent in the top sector list before and after Friday's upside reversal.
Notes
The structure is the following:
If you have been following my daily updates, you can skip down to "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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Tuesday, June 1, 2021
Facts: -0.09%, Volume lower, Closing range: 37%, Body: 59%
Good: Higher high, advance/decline ratio above 1.0, support at 13,700
Bad: Low closing range, faded from morning rally to a lower low
Highs/Lows: Higher high, lower low
Candle: Outside day, thick red body with a tiny upper wick and longer lower wick.
Advanced/Decline: 1.32, more advancing stocks than declining stocks.
Indexes: SPX (-0.05%), DJI (+0.13%), RUT (+1.14%), VIX (+6.68%)
Sectors: Energy (XLE +3.85%) and Real Estate (XLRE +1.71%) were top. Utilities (XLU -0.61%) and Health (XLV -1.64%) were bottom.
Expectation: Sideways or Lower
The Dow Jones Industrial Average attempted to set a record, but the small-cap Russell 2000 performed the best among major indices today. As for the Nasdaq, the first day of the summer months started with a rally but faded quickly and continued last week's sideways moves.
The Nasdaq closed the day down -0.09% on lower volume. The opening price was nearly the high of the day, but then the index dropped to 13,700 before finding any support. That formed a 59% red body under a barely visible upper wick. The lower wick developed after the morning selling turned to afternoon buying. Despite the slight decline, there were more stocks advancing than stocks declining.
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Wednesday, June 2, 2021
Facts: +0.14%, Volume higher, Closing range: 77%, Body: 15%
Good: Gain on higher volume, high closing range, support at 13,700
Bad: Lower high, thin green body
Highs/Lows: Lower high, higher low
Candle: Inside day, short spinning top with slight longer lower wick
Advanced/Decline: 0.91, more declining stocks than advancing stocks.
Indexes: SPX (+0.14%), DJI (+0.07%), RUT (+0.13%), VIX (-2.24%)
Sectors: Energy (XLE +1.86%) and Real Estate (XLRE +1.39%) were top. Consumer Discretionary (XLY -0.46%) and Materials (XLB -0.84%) were bottom.
Expectation: Sideways or Higher
Another sideways move for the indexes while investors remained on the sidelines waiting for the economic data coming over the next two days. To pass the boredom, investors watched, or maybe even gambled with meme stocks that had another day of huge swings.
The Nasdaq closed with a small +0.14% gain after dipping in the afternoon and finding support again at 13,700. Volume was higher, and the closing range of 77% is good with a thin green 15% body. The short upper wick was formed from gains in the morning, while the longer lower wick formed in selling at the start of the afternoon. There were more declining stocks than advancing stocks.
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Thursday, June 3, 2021
Facts: -1.03%, Volume higher, Closing range: 47% (w/gap), Body: 30%
Good: Not much
Bad: Gap down at open, broke support at 13,700, close below major moving averages
Highs/Lows: Lower high, lower low
Candle: Long lower wick, red body in upper half of the candle
Advanced/Decline: 0.6, More than three declining stocks for every advancing stock
Indexes: SPX (-0.36%), DJI (-0.07%), RUT (-0.81%), VIX (+3.09%)
Sectors: Consumer Staples (XLP +0.62%) and Utilities (XLU +0.60%) were top. Technology (XLK -0.93%) and Consumer Discretionary (XLY -1.19%) were bottom.
Expectation: Sideways or Lower
Mixed economic data moved investors into defensive mode on Thursday while they await more news on the labor market scheduled for Friday. Today's data gave a boost to the US Dollar but stoked fears of the Fed tapering off monetary policy earlier than expected. The defensive sectors were up for the day while growth sectors took a step back from recent gains.
The Nasdaq closed with a -1.03% decline on higher volume, marking a day of distribution for investors. The closing range of 47% is not terrible, but the 30% red body shows the index could not fully recover from the sell-off after market open. The longer lower wick is representative of the failed attempt to rally back to above key moving average lines. There were more than three declining stocks for every two advancing stocks.
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Friday, June 4, 2021
Facts: +1.47%, Volume lower, Closing range: 91%, Body: 87%
Good: Held morning gains throughout day for a higher high and higher low
Bad: Lower volume
Highs/Lows: Higher high, higher low
Candle: Mostly green body with a tiny upper wick, no lower wick, small gap up
Advanced/Decline: 1.04, About the same number of advancing and declining stocks
Indexes: SPX (+0.88%), DJI (+0.52%), RUT (+0.31%), VIX (-8.87%)
Sectors: Technology (XLK +1.92%) and Communications (XLC +1.43%) were top. Real Estate (XLRE +0.09%) and Utilities (XLU -0.15%) were bottom.
Expectation: Higher
The market responded positively to jobs data released in the morning, sending indexes higher and boosting growth sectors. The unemployment rate dropped more than expected while non-farm payrolls May started to accelerate.
The Nasdaq gained +1.47% for the day on lower volume. The high closing range of 91% and green body covering 87% of the candle represent morning gains that turned into a steady hold near intraday highs in the afternoon. There is no lower wick and a small upper wick. There were about the same number of advancing stocks as declining stocks.
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View on the Week
The short week pivoted primarily on Friday's unemployment data, a key signal for investors of how well the economy is recovering. The Nasdaq declined through the first three days but rallied back on Friday after the data was released. The caution for investors was apparent in the top sector list before and after Friday's upside reversal.
Energy led early in the week as oil prices continued to climb to highs not seen since 2018. On Thursday, Consumer Staples and Utilities topped the list, a defensive move for investors to prepare ahead of any disappointment in the employment data on Friday.
It also didn't help those fears that the tone changed slightly from the Fed, announcing they'd be selling the bonds and bond ETFs they purchased during the pandemic-driven economic crisis. The purchases were small compared to other monetary policies, but investors view it as just the beginning of more tapering.
The employment data on Friday morning was a mix of results against analyst expectations. Unemployment was better than expected. Nonfarm Payrolls was better than April, showing acceleration but less than expected. One interpretation for the data is that it was good enough to show the economic recovery but not so great that the Fed would change monetary policy.
The meme stocks were back in the headlines this week, with GameStop (GME), AMC (AMC), Bed Bath & Beyond (BBBY), and Workhorse (WKHS) among stocks that were pumped up by retail investors, forcing gamma squeezes that sent several of them soaring as high as 100% mid-week.
The Nasdaq closed with a +0.48% gain for the week. Volume was lower than the previous week. The closing range of 92% was good but is above a long lower wick created in the first part of the week. The index climbed back on Friday to end the week with a thin 5% body, the close for the week just below the open.
The S&P 500 (SPX) and Dow Jones Industrial Average (DJI) closed the week near all-time highs. The S&P 500 gained +0.61% for the week, while the Dow Jones gained +0.66%. The Russell 2000 (RUT) closed the week with a +0.77% gain.
The VIX volatility index declined -2.03% for the week.
Energy ( XLE ) and Real Estate ( XLRE ) led the sector list for the week, establishing their lead early in the week. Energy got a boost from the rise in oil prices on high demand. Real Estate is gathering momentum from rising housing and rental prices while also being a great hedge against inflation.
The focus on employment data released on Friday morning is clear in two pivots. There was a sharp sell-off of most sectors except Consumer Staples ( XLP ) and Utilities ( XLU ) on Thursday ahead of the report. The two sectors are good defensive plays when investors get nervous about how the market may react to news or events.
After the report was released, Technology ( XLK ), Consumer Discretionary ( XLY ), and Communications ( XLC ) rallied on Friday. It seems the employment data was good enough to keep a positive outlook, while not so good to drive more fears of tapering by the Fed.
Health Care ( XLV ) was the worst-performing sector for the week.
The US Treasury 30y, 10y, and 2y yields declined for the week, and the spread between long and short-term yields tightened more. Yields on longer-term treasuries dropped on Friday's economic news. They have been in decline since the huge gains in March. At the time, the accelerating yields and widening spread raised fears in investors and caused a sell-off of big tech and growth stocks.
The High Yield Corporate Bond (HYG) and Investment Grade Bond (LQD) prices advanced.
The US Dollar (DXY) advanced +0.09% for the week. The dollar index spiked on Thursday but then returned to the base on Friday following the employment data.
Silver (SILVER) declined -0.42%, and Gold (GOLD) declined -0.67%. Both dipped as the dollar rose on Thursday but recovered some of the loss on Friday.
Crude Oil (CRUDEOIL1!) advanced +4.45%, continuing to move toward highs in 2018.
Timber (WOOD) declined -1.52%. This is the fourth week of declines.
Copper (COPPER1!) declined -3.07%.
Aluminum (ALI1!) declined -1.64%.
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Big Four Mega-caps
The 10-week and 40-week moving average lines are providing support and resistance for the four largest mega-caps. Alphabet (GOOGL) has support at the 10w line, riding above the line for the past four weeks and gaining +1.56% this week. Microsoft (MSFT) is finding resistance at the 10w line for three weeks, gaining +0.44% this week. Apple (AAPL) and Amazon (AMZN) are below their 10w lines but getting support at the 40w line. Apple (AAPL) gained +1.03% for the week, while Amazon (AMZN) declined -0.52%.
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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 Mobil (XOM) rose +5.28% this week as oil prices gained for another week. Carnival Cruise Lines (CCL) gained +3.32% as the demand for leisure options rises. However, Delta (DAL) and Marriott (MAR) had losses of -3.57% and -1.06%.
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Cryptocurrency
I started tracking four major cryptocurrencies on the week in review. The four are Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. The latter two are not the largest by market cap but seem to be well-known and are part of the CIX capital.com index, tracking five cryptocurrencies, including these four (Ripple is the fifth).
There was more volatility in the major cryptocurrencies this past week. Ethereum (ETHUSD) was the biggest gainer with a +12.3% advance. Bitcoin (BTCUSD) volatility continues on random tweets by Elon Musk, gaining +1.2%. Litecoin (LTCUSD) advanced +3% while Bitcoin Cash (BCHUSD) declined -0.5%.
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Investor Sentiment
The put/call ratio (PCCE) moved lower, ending the week at 0.586. 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 just to the fear side of neutral.
The NAAIM money manager exposure index rose to 82.27, the second week of increases.
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The Week Ahead
Monday
There is not much economic news on the calendar for Monday.
Marvell (MRVL) and Vail Resorts (MTN) are the most significant earnings reports for Monday.
Tuesday
Trade Balance data for April will be released before the market opens on Tuesday. After the market opens, the JOLTS Job Openings report for April will be available. There is a 3-Year Note Auction in the afternoon, and Weekly Crude Oil Stock will be released after the market closes.
There are no relevant earnings reports for the daily update.
Wednesday
Wednesday morning will bring Crude Oil Inventories data after the market opens. In the afternoon, a 10-Year Note Auction may have an impact on interest rates.
GameStop (GME), RH (RH), and Lovesac (LOVE) will release earnings on Wednesday.
Thursday
Economic news on Thursday includes the OPEC Monthly Report early in the morning. Core Consumer Price Index data gets released before the market open. Initial Jobless Claims also gets its weekly update. In the after, the Federal Budget Balance for May will be made available.
On Thursday, the only significant earnings report for the daily update is Chewy (CHWY).
Friday
We'll get the first consumer sentiment and expectations data for June after the market opens on Friday morning.
There are no relevant earnings reports for the daily update.
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The Bullish Side
Unrealized fears have driven much of the choppy market these past several months. First, it was the fear in January of what retail investors and meme stocks might do to damage confidence in equity markets. But after a brief and slight dip in January, the fear of missing out drove significant gains in the first half of February.
In early March, we saw the wild climb of treasury yields and steepened yield curve, destabilizing the bond market and providing no safe hedge for investors. Everyone was shouting Yield Curve Control, and in early March, we saw the first significant drop in equities. But the yields stopped climbing, and bonds found stability.
Then it was the fear of out-of-control inflation and the potential action from the Fed. Any good economic news was met with a quick sell-off of growth stocks as the Fed tapering was sure to come at any moment. That never happened, but it didn't stop investors from selling off growth in May.
So here we found ourselves this week, with fear of surprise employment data. Honestly, I heard all week investors were concerned about the data, but I never knew if they were worried it would be too good or too bad. But the data came, and the fears slid away as investors moved back into growth stocks, albeit on lower volume.
Following such a fantastic year in 2020, with the quick recovery from March lows and great returns for almost any investment, it's no wonder investors are waiting for the big correction. But there are plenty of indications that there is still upside in growth stocks.
First, much of the rotation has been into cyclical sectors in recent months, including Industrials and Materials. The rotation was to recovering industries that were impacted by the pandemic. It was also to stocks expected to benefit from spending in Biden's infrastructure plans. nIt's clear that the infrastructure plans will need to be scaled back to get agreement across the aisle, and the capital gains tax seems to have quite a bit of resistance as well.
Inflation fears have also been a considerable headwind for growth stocks, with commodity prices soaring ahead of price index data. However, we finally see a downward trend with commodity prices (not including oil). Wood, copper, and aluminum that are part of this update are all trending downward. Those dropping prices should begin showing up in the producer and consumer price index data soon.
Finally, long-term treasury yields continue to slowly but surely come down, and the yield curve is flattening. The US Dollar dropped back to the level we saw at the beginning of the year. Both the low-interest rates and the weakened US Dollar can be supportive for big tech and growth stocks.
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The Bearish Side
There is still plenty that can change to induce more fear in investors. The G7 agreed to a minimum global tax of 15% to reduce multinationals' ability to steer profits toward low-tax countries to avoid taxes in their home country. It's not clear yet what the real impact will be for big tech and growth companies.
New consumer price index data this week may be enough to stir up inflation fears again. After the Fed decided to sell off bond purchases last week, investors will be watching very closely for any further change in tone. The market wants to price in any monetary policy changes before they become real.
Fear after fear has come and gone this year without any realization of what was feared. But at some point, one of these fears may just come true and give the market the anticipated correction.
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Key Nasdaq Levels to Watch
The Nasdaq dipped below the 21d EMA and 50d MA this week but quickly recovered to close above the key moving averages. By the end of the week, the index was back above 13,800, where it started the week.
On the positive side, the levels are:
On the downside, there are a few key levels:
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Wrap-up
Employment data on Friday breathed new life into big tech, growth stocks, and the Nasdaq. However, the gains were on lower volume, so we'll need to wait until Monday to find out if there is any follow-through on higher volume. With the G7 global tax agreement over the weekend, some initial reactions could keep investors modest to start the week.
Good luck, stay healthy, and trade safe!
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 occasionally have some errors or typos and will correct them in my blog or 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.
- 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 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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Tuesday, June 1, 2021
Facts: -0.09%, Volume lower, Closing range: 37%, Body: 59%
Good: Higher high, advance/decline ratio above 1.0, support at 13,700
Bad: Low closing range, faded from morning rally to a lower low
Highs/Lows: Higher high, lower low
Candle: Outside day, thick red body with a tiny upper wick and longer lower wick.
Advanced/Decline: 1.32, more advancing stocks than declining stocks.
Indexes: SPX (-0.05%), DJI (+0.13%), RUT (+1.14%), VIX (+6.68%)
Sectors: Energy (XLE +3.85%) and Real Estate (XLRE +1.71%) were top. Utilities (XLU -0.61%) and Health (XLV -1.64%) were bottom.
Expectation: Sideways or Lower
The Dow Jones Industrial Average attempted to set a record, but the small-cap Russell 2000 performed the best among major indices today. As for the Nasdaq, the first day of the summer months started with a rally but faded quickly and continued last week's sideways moves.
The Nasdaq closed the day down -0.09% on lower volume. The opening price was nearly the high of the day, but then the index dropped to 13,700 before finding any support. That formed a 59% red body under a barely visible upper wick. The lower wick developed after the morning selling turned to afternoon buying. Despite the slight decline, there were more stocks advancing than stocks declining.
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Wednesday, June 2, 2021
Facts: +0.14%, Volume higher, Closing range: 77%, Body: 15%
Good: Gain on higher volume, high closing range, support at 13,700
Bad: Lower high, thin green body
Highs/Lows: Lower high, higher low
Candle: Inside day, short spinning top with slight longer lower wick
Advanced/Decline: 0.91, more declining stocks than advancing stocks.
Indexes: SPX (+0.14%), DJI (+0.07%), RUT (+0.13%), VIX (-2.24%)
Sectors: Energy (XLE +1.86%) and Real Estate (XLRE +1.39%) were top. Consumer Discretionary (XLY -0.46%) and Materials (XLB -0.84%) were bottom.
Expectation: Sideways or Higher
Another sideways move for the indexes while investors remained on the sidelines waiting for the economic data coming over the next two days. To pass the boredom, investors watched, or maybe even gambled with meme stocks that had another day of huge swings.
The Nasdaq closed with a small +0.14% gain after dipping in the afternoon and finding support again at 13,700. Volume was higher, and the closing range of 77% is good with a thin green 15% body. The short upper wick was formed from gains in the morning, while the longer lower wick formed in selling at the start of the afternoon. There were more declining stocks than advancing stocks.
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Thursday, June 3, 2021
Facts: -1.03%, Volume higher, Closing range: 47% (w/gap), Body: 30%
Good: Not much
Bad: Gap down at open, broke support at 13,700, close below major moving averages
Highs/Lows: Lower high, lower low
Candle: Long lower wick, red body in upper half of the candle
Advanced/Decline: 0.6, More than three declining stocks for every advancing stock
Indexes: SPX (-0.36%), DJI (-0.07%), RUT (-0.81%), VIX (+3.09%)
Sectors: Consumer Staples (XLP +0.62%) and Utilities (XLU +0.60%) were top. Technology (XLK -0.93%) and Consumer Discretionary (XLY -1.19%) were bottom.
Expectation: Sideways or Lower
Mixed economic data moved investors into defensive mode on Thursday while they await more news on the labor market scheduled for Friday. Today's data gave a boost to the US Dollar but stoked fears of the Fed tapering off monetary policy earlier than expected. The defensive sectors were up for the day while growth sectors took a step back from recent gains.
The Nasdaq closed with a -1.03% decline on higher volume, marking a day of distribution for investors. The closing range of 47% is not terrible, but the 30% red body shows the index could not fully recover from the sell-off after market open. The longer lower wick is representative of the failed attempt to rally back to above key moving average lines. There were more than three declining stocks for every two advancing stocks.
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Friday, June 4, 2021
Facts: +1.47%, Volume lower, Closing range: 91%, Body: 87%
Good: Held morning gains throughout day for a higher high and higher low
Bad: Lower volume
Highs/Lows: Higher high, higher low
Candle: Mostly green body with a tiny upper wick, no lower wick, small gap up
Advanced/Decline: 1.04, About the same number of advancing and declining stocks
Indexes: SPX (+0.88%), DJI (+0.52%), RUT (+0.31%), VIX (-8.87%)
Sectors: Technology (XLK +1.92%) and Communications (XLC +1.43%) were top. Real Estate (XLRE +0.09%) and Utilities (XLU -0.15%) were bottom.
Expectation: Higher
The market responded positively to jobs data released in the morning, sending indexes higher and boosting growth sectors. The unemployment rate dropped more than expected while non-farm payrolls May started to accelerate.
The Nasdaq gained +1.47% for the day on lower volume. The high closing range of 91% and green body covering 87% of the candle represent morning gains that turned into a steady hold near intraday highs in the afternoon. There is no lower wick and a small upper wick. There were about the same number of advancing stocks as declining stocks.
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View on the Week
The short week pivoted primarily on Friday's unemployment data, a key signal for investors of how well the economy is recovering. The Nasdaq declined through the first three days but rallied back on Friday after the data was released. The caution for investors was apparent in the top sector list before and after Friday's upside reversal.
Energy led early in the week as oil prices continued to climb to highs not seen since 2018. On Thursday, Consumer Staples and Utilities topped the list, a defensive move for investors to prepare ahead of any disappointment in the employment data on Friday.
It also didn't help those fears that the tone changed slightly from the Fed, announcing they'd be selling the bonds and bond ETFs they purchased during the pandemic-driven economic crisis. The purchases were small compared to other monetary policies, but investors view it as just the beginning of more tapering.
The employment data on Friday morning was a mix of results against analyst expectations. Unemployment was better than expected. Nonfarm Payrolls was better than April, showing acceleration but less than expected. One interpretation for the data is that it was good enough to show the economic recovery but not so great that the Fed would change monetary policy.
The meme stocks were back in the headlines this week, with GameStop (GME), AMC (AMC), Bed Bath & Beyond (BBBY), and Workhorse (WKHS) among stocks that were pumped up by retail investors, forcing gamma squeezes that sent several of them soaring as high as 100% mid-week.
The Nasdaq closed with a +0.48% gain for the week. Volume was lower than the previous week. The closing range of 92% was good but is above a long lower wick created in the first part of the week. The index climbed back on Friday to end the week with a thin 5% body, the close for the week just below the open.
The S&P 500 (SPX) and Dow Jones Industrial Average (DJI) closed the week near all-time highs. The S&P 500 gained +0.61% for the week, while the Dow Jones gained +0.66%. The Russell 2000 (RUT) closed the week with a +0.77% gain.
The VIX volatility index declined -2.03% for the week.
Energy ( XLE ) and Real Estate ( XLRE ) led the sector list for the week, establishing their lead early in the week. Energy got a boost from the rise in oil prices on high demand. Real Estate is gathering momentum from rising housing and rental prices while also being a great hedge against inflation.
The focus on employment data released on Friday morning is clear in two pivots. There was a sharp sell-off of most sectors except Consumer Staples ( XLP ) and Utilities ( XLU ) on Thursday ahead of the report. The two sectors are good defensive plays when investors get nervous about how the market may react to news or events.
After the report was released, Technology ( XLK ), Consumer Discretionary ( XLY ), and Communications ( XLC ) rallied on Friday. It seems the employment data was good enough to keep a positive outlook, while not so good to drive more fears of tapering by the Fed.
Health Care ( XLV ) was the worst-performing sector for the week.
The US Treasury 30y, 10y, and 2y yields declined for the week, and the spread between long and short-term yields tightened more. Yields on longer-term treasuries dropped on Friday's economic news. They have been in decline since the huge gains in March. At the time, the accelerating yields and widening spread raised fears in investors and caused a sell-off of big tech and growth stocks.
The High Yield Corporate Bond (HYG) and Investment Grade Bond (LQD) prices advanced.
The US Dollar (DXY) advanced +0.09% for the week. The dollar index spiked on Thursday but then returned to the base on Friday following the employment data.
Silver (SILVER) declined -0.42%, and Gold (GOLD) declined -0.67%. Both dipped as the dollar rose on Thursday but recovered some of the loss on Friday.
Crude Oil (CRUDEOIL1!) advanced +4.45%, continuing to move toward highs in 2018.
Timber (WOOD) declined -1.52%. This is the fourth week of declines.
Copper (COPPER1!) declined -3.07%.
Aluminum (ALI1!) declined -1.64%.
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Big Four Mega-caps
The 10-week and 40-week moving average lines are providing support and resistance for the four largest mega-caps. Alphabet (GOOGL) has support at the 10w line, riding above the line for the past four weeks and gaining +1.56% this week. Microsoft (MSFT) is finding resistance at the 10w line for three weeks, gaining +0.44% this week. Apple (AAPL) and Amazon (AMZN) are below their 10w lines but getting support at the 40w line. Apple (AAPL) gained +1.03% for the week, while Amazon (AMZN) declined -0.52%.
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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 Mobil (XOM) rose +5.28% this week as oil prices gained for another week. Carnival Cruise Lines (CCL) gained +3.32% as the demand for leisure options rises. However, Delta (DAL) and Marriott (MAR) had losses of -3.57% and -1.06%.
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Cryptocurrency
I started tracking four major cryptocurrencies on the week in review. The four are Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. The latter two are not the largest by market cap but seem to be well-known and are part of the CIX capital.com index, tracking five cryptocurrencies, including these four (Ripple is the fifth).
There was more volatility in the major cryptocurrencies this past week. Ethereum (ETHUSD) was the biggest gainer with a +12.3% advance. Bitcoin (BTCUSD) volatility continues on random tweets by Elon Musk, gaining +1.2%. Litecoin (LTCUSD) advanced +3% while Bitcoin Cash (BCHUSD) declined -0.5%.
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Investor Sentiment
The put/call ratio (PCCE) moved lower, ending the week at 0.586. 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 just to the fear side of neutral.
The NAAIM money manager exposure index rose to 82.27, the second week of increases.
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The Week Ahead
Monday
There is not much economic news on the calendar for Monday.
Marvell (MRVL) and Vail Resorts (MTN) are the most significant earnings reports for Monday.
Tuesday
Trade Balance data for April will be released before the market opens on Tuesday. After the market opens, the JOLTS Job Openings report for April will be available. There is a 3-Year Note Auction in the afternoon, and Weekly Crude Oil Stock will be released after the market closes.
There are no relevant earnings reports for the daily update.
Wednesday
Wednesday morning will bring Crude Oil Inventories data after the market opens. In the afternoon, a 10-Year Note Auction may have an impact on interest rates.
GameStop (GME), RH (RH), and Lovesac (LOVE) will release earnings on Wednesday.
Thursday
Economic news on Thursday includes the OPEC Monthly Report early in the morning. Core Consumer Price Index data gets released before the market open. Initial Jobless Claims also gets its weekly update. In the after, the Federal Budget Balance for May will be made available.
On Thursday, the only significant earnings report for the daily update is Chewy (CHWY).
Friday
We'll get the first consumer sentiment and expectations data for June after the market opens on Friday morning.
There are no relevant earnings reports for the daily update.
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The Bullish Side
Unrealized fears have driven much of the choppy market these past several months. First, it was the fear in January of what retail investors and meme stocks might do to damage confidence in equity markets. But after a brief and slight dip in January, the fear of missing out drove significant gains in the first half of February.
In early March, we saw the wild climb of treasury yields and steepened yield curve, destabilizing the bond market and providing no safe hedge for investors. Everyone was shouting Yield Curve Control, and in early March, we saw the first significant drop in equities. But the yields stopped climbing, and bonds found stability.
Then it was the fear of out-of-control inflation and the potential action from the Fed. Any good economic news was met with a quick sell-off of growth stocks as the Fed tapering was sure to come at any moment. That never happened, but it didn't stop investors from selling off growth in May.
So here we found ourselves this week, with fear of surprise employment data. Honestly, I heard all week investors were concerned about the data, but I never knew if they were worried it would be too good or too bad. But the data came, and the fears slid away as investors moved back into growth stocks, albeit on lower volume.
Following such a fantastic year in 2020, with the quick recovery from March lows and great returns for almost any investment, it's no wonder investors are waiting for the big correction. But there are plenty of indications that there is still upside in growth stocks.
First, much of the rotation has been into cyclical sectors in recent months, including Industrials and Materials. The rotation was to recovering industries that were impacted by the pandemic. It was also to stocks expected to benefit from spending in Biden's infrastructure plans. nIt's clear that the infrastructure plans will need to be scaled back to get agreement across the aisle, and the capital gains tax seems to have quite a bit of resistance as well.
Inflation fears have also been a considerable headwind for growth stocks, with commodity prices soaring ahead of price index data. However, we finally see a downward trend with commodity prices (not including oil). Wood, copper, and aluminum that are part of this update are all trending downward. Those dropping prices should begin showing up in the producer and consumer price index data soon.
Finally, long-term treasury yields continue to slowly but surely come down, and the yield curve is flattening. The US Dollar dropped back to the level we saw at the beginning of the year. Both the low-interest rates and the weakened US Dollar can be supportive for big tech and growth stocks.
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The Bearish Side
There is still plenty that can change to induce more fear in investors. The G7 agreed to a minimum global tax of 15% to reduce multinationals' ability to steer profits toward low-tax countries to avoid taxes in their home country. It's not clear yet what the real impact will be for big tech and growth companies.
New consumer price index data this week may be enough to stir up inflation fears again. After the Fed decided to sell off bond purchases last week, investors will be watching very closely for any further change in tone. The market wants to price in any monetary policy changes before they become real.
Fear after fear has come and gone this year without any realization of what was feared. But at some point, one of these fears may just come true and give the market the anticipated correction.
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Key Nasdaq Levels to Watch
The Nasdaq dipped below the 21d EMA and 50d MA this week but quickly recovered to close above the key moving averages. By the end of the week, the index was back above 13,800, where it started the week.
On the positive side, the levels are:
- The high of this past week was 13,836.17.
- 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.
- The mid-point of the regression trend from the 5/12 low points to 14,072 by the end of the week.
- The all-time high is at 14,211.57.
On the downside, there are a few key levels:
- There is a support area at 13,600 - 13,700.
- The 10d MA is at 13,693.41.
- The key moving averages are lined up close to each other. The 50d MA is at 13,654.08.
- The 21d EMA is at 13,639.43.
- The low of this past week is 13,548.93.
- There is a support area at 13,000.
- 12,786.81 is a low pivot point from the late March dip. Stay above this low to keep an upward trend since early March.
- 12,612.16 is the 200d MA. This could be a support point if the index falls below 13,000.
- 12,397.05 is a low pivot point from the early March dip.
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Wrap-up
Employment data on Friday breathed new life into big tech, growth stocks, and the Nasdaq. However, the gains were on lower volume, so we'll need to wait until Monday to find out if there is any follow-through on higher volume. With the G7 global tax agreement over the weekend, some initial reactions could keep investors modest to start the week.
Good luck, stay healthy, and trade safe!
