Summary: The week began with continued momentum from the end of the previous week as investors speculated ahead of earnings reports from the biggest most influential companies in the market. Those companies gained on Monday as investors became more bullish, sending the put/call ratio to an overly bullish level. The result was that much of the positive earnings reports were already priced into the market, setting expectations even higher.
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, April 26, 2021
Facts: +0.87%, Volume higher, Closing range: 89%, Body: 64%
Good: Move up on higher volume and broadly shared gains
Bad: Nothing
Highs/Lows: Higher high, higher low
Candle: Longer lower wick from dip at open, short upper wick after testing new high
Advance/Decline: Three advancing stocks for every two declining stocks
Indexes: SPX (+0.18%), DJI (-0.18%), RUT (+1.15%), VIX (+1.79%)
Sectors: Energy (XLE +0.67%) and Materials (XLB +0.59%) were top. Utilities (XLU -0.57%) and Consumer Staples (XLP -1.12%) were bottom.
Expectation: Higher
Momentum from the end of last week continued into Monday as markets open the week higher and the S&P 500 and Nasdaq set new records. There are some signs that investors are rotating out of safe bets and buying up speculative positions ahead of earnings reports.
The Nasdaq had a record-setting close, ending the with a +0.87% gain and fell just shy of setting a new all-time high price. Volume was higher and advancing stocks outnumbered declining stocks, great bullish signals for the rally. The closing range of 89% comes after a small dip before close. A longer lower wick was created by a dip just after open before the bulls quickly took over.
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Tuesday, April 27, 2021
Facts: -0.34%, Volume higher, Closing range: 24%, Body: 75%
Good: Higher high, higher low
Bad: Gap up at open, but couldn't hold on, distribution day on higher volume
Highs/Lows: Higher high, higher low
Candle: No upper wick, thick red body with a short lower wick
Advance/Decline: Two declining stocks for each advancing stock
Indexes: SPX (-0.02%), DJI (+0.01%), RUT (+0.14%), VIX (-0.45%)
Sectors: Energy (XLE +1.21%) and Industrials (XLI +0.83%) were top. Health (XLV -0.58%) and Utilities (XLU -0.77%) were bottom.
Expectation: Sideways
The Nasdaq opened with a gap up but couldn't hold on, selling off briskly in the morning along with the other major indexes. Eventually positive consumer confidence numbers and continued growing demand outlook from OPEC helped the markets to settle down and end the day with a relatively small pull back overall.
The Nasdaq closed with a -0.34% decline on higher volume. The distribution day resulted in a 75% red body that ended with a 25% closing range. A small lower wick was formed in the morning before the index found support above 14,000. The higher high and higher low continue an uptrend since last Wednesday. There were two declining stocks for every advancing stock.
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Wednesday, April 28, 2021
Facts: -0.28%, Volume lower, Closing range: 17%, Body: 32%
Good: Lower volume, sideways movement, with support above 14,000
Bad: Lower high and lower low with a low closing range
Highs/Lows: Lower high, lower low
Candle: Long upper wick above a small red body and low closing range
Advance/Decline: Just slightly more declining stocks than advancing stocks
Indexes: SPX (-0.08%), DJI (-0.48%), RUT (+0.13%), VIX (-1.59%)
Sectors: Energy (XLE +3.45%) and Communications (XLC +0.92%) were top. Real Estate (XLRE -0.35%) and Technology (XLK -0.93%)
Expectation: Sideways or Higher
The market attempted to rally a few times today but came back to rest at intraday lows. The good news is those lows seemed to be support areas that the bears could not bust below. The two intraday rallies came in the morning and afternoon, the first possibly on earnings reactions and the second on no surprises from the FOMC press conference.
The Nasdaq closed with a -0.28% loss in a day after testing and getting support around 14,050 three times. The long upper wick was formed from the morning and afternoon rally. The small 32% red body rests in the bottom of the candle above a 17% closing range and a small lower wick. Volume was lower for the day and there were just slightly more declining stocks than advancing stocks.
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Thursday, April 29, 2021
Facts: +0.22%, Volume higher, Closing range: 50%, Body: 47%
Good: New all-time high, higher volume, recovery from morning selling in afternoon
Bad: Couldn't hold the high, lower low
Highs/Lows: Higher high, lower low
Candle: Outside day, long lower wick with a thick red body in upper half of candle
Advance/Decline: Just slightly more declining stocks than advancing stocks
Indexes: SPX (+0.68%), DJI (+0.71%), RUT (-0.38%), VIX (+1.91%)
Sectors: Communications (XLC +2.77%) and Financial (XLF +1.78%) were top. Technology (XLK -0.08%) and Health (XLV -0.40%) were bottom.
Expectation: Sideways or Higher
We got higher, we got lower and we got sideways. It was a whiplash day for the markets that saw record highs be broken right before a painful morning sell-off. Then the afternoon rally brought most of the major indexes back into positive territory and left the S&P 500 at another all-time record close.
The Nasdaq ended the day with a +0.22% gain, a close that is within the highs and lows of the week, marking a sideways move. Volume was higher as the morning high set a record for the index, before selling off to a morning low which is also a low for the week. Finally in the afternoon, the index climbed back to the positive, leaving us with a long lower wick underneath a 47% red body and 50% closing range. There were nearly two declining stocks for every advancing stock.
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Friday, April 30, 2021
Facts: -0.85%, Volume lower, Closing range: 15%, Body: 6%
Good: Not much
Bad: Failed rally in the morning, newer low in the afternoon
Highs/Lows: Lower high, lower low
Candle: Long upper wick and thin red body show the failed morning rally
Advance/Decline: Three declining stocks for every advancing stock
Indexes: SPX (-0.72%), DJI (-0.54%), RUT (-1.26%), VIX (+5.68%)
Sectors: Utilities (XLU +0.79%) and Real Estate (XLRE +0.66%) were top sectors. Technology (XLK -1.36%) and Energy (XLE -2.53%) were bottom.
Expectation: Lower
It was not a great end to the month of April, with a failed rally in the morning that turned into lower lows in the afternoon. Investors are watching economic data closely, especially focused on measures of inflation driving expectations for an overheated economy.
The Nasdaq closed the last day of April with a -0.85% decline on lower volume. The 6% body under a long upper wick and 15% closing range are the result of a morning rally attempt that faded quickly and turned into lower lows at the end of the day. The index was able to close just above the intraday low. Three stocks declined for every advancing stock.
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The Meaning of Life (View on the Week)
The week began with continued momentum from the end of the previous week as investors speculated ahead of earnings reports from the biggest most influential companies in the market. Those companies gained on Monday as investors became more bullish, sending the put/call ratio to an overly bullish level. The result was that much of the positive earnings reports were already priced into the market, setting expectations even higher.
The first warning sign that the speculation may have fragile support was the reaction to Tesla's earnings report. Despite beating earnings and revenue estimates, the challenges faced by the company was too much for investors to remain positive even though none of those challenges were news. Next came a positive report by Microsoft, met with selling in after hours. AMD's positive report turned from gains in aftermarket to losses the next day. Apple and Amazon both turned gains into losses after positive reports.
The only sector that was able to stay bullish was communications, with positive reports from Alphabet (GOOGL) and Facebook (FB) being met by investors with big gains. The two companies stand to benefit immensely from the increase in consumer activity as advertisers will increase spending to capture share of pocket books.
The result was a choppy week for the indexes. The Nasdaq gapped up on Tuesday, but ended the day with losses. Those losses turned into more losses on Wednesday. Then a huge outside day hit on Thursday, setting a new all-time high for the index, but then dipping to the weekly low before ending the day with a small gain. Friday ended the week with another swing, but closing right where it opened.
Small caps and the Russell 2000 (RUT) outperformed early in the week, but the rally ended after Wednesday and the index dropped on Thursday and Friday.
With so many positive earnings reports, why the negative reaction in the market? Inflation. It's looming like Godzilla emerging from the ocean, meeting up with King Kong (the Fed) and fighting over future outlook. Inflation is a necessary part of the economy growing back to pre-pandemic levels. And the Fed says that the inflation will be transitionary and they expect it to drop back to around or below 2% by end of the year. But analysts aren't sure. They fear that Inflation will eventually cause the Fed to take action and rase interest rates.
So in the meantime, inflation is going to often cause good economic news to be met with a negative nelly reaction from investors. That seems to have driven much of what we saw this week.
The Nasdaq closed down -0.39% for the week on higher volume. The closing range was a dismal 8% with a small body sitting in the bottom half of the candle. The upper wick is formed from the attempted rallies on Tuesday and Thursday.
The S&P 500 (SPX) gained +0.02% for the week. The Dow Jones Industrial average (DJI) lost -0.50%. The Russell 2000 (RUT) declined -0.24%.
The Russell 2000 (RUT) gained +0.41% for the week thanks to a strong small cap performance late in the week. The S&P 500 lost -0.13% for the week. The Dow Jones Industrial average (DJI) declined -0.46%.
The VIX volatility index rose +7.39% and is trending up the last two weeks.
Energy ( XLE ) led the weekly sector list for the first time since the first week of March. The sector was helped by oil prices that rose on Tuesday and Wednesday, and positive earnings reports from Exxon Mobile and Chevron.
Financials ( XLF ) and Communications ( XLC ) stocks solidified second and third place with strong opens on Thursday. Financials was boosted by positive earnings reports from Capital One and S&P Global . Communications got a big lift from Alphabet and Facebook , as advertising revenues soar amidst consumers getting back to spending.
Despite several positive earnings reports in the sector, Technology ( XLK ) ended the week in last place. Investor outlook appears to be that these big tech companies will not continue the same amount of growth in the next few quarters, especially compared to the previous year's numbers.
The US 30y treasury bond and US 10y treasury note yields both declined for the week. The US 2y note yield also declined. The yield curve is slightly steeper than the previous week, but spreads are still trending sideways for the past two months.
Both the High Yield Corporate Bond (HYG) prices advanced while Investment Grade Bond (LQD) prices declined.
The US Dollar (DXY) had its first gain after several weeks of declines. It advanced +0.51% this week.
Silver (SILVER) and Gold (GOLD) declined -0.38% and -0.47% for the week.
Crude Oil (CRUDEOIL1!) advanced +1.53%.
Timber (WOOD) declined for another week, losing -0.70%
Copper (COPPER1!) advanced +2.58% and Aluminum (ALI1!) advanced +1.71%. That's four weeks of advances for the two metals required for infrastructure and manufacturing activity.
This growth/value comparison we've been tracking is starting to trend back in favor of value.
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The Big Four Mega-caps
The big four mega-caps had mixed weeks. Amazon (AMZN) and Alphabet (GOOGL) ended the week with gains. Amazon advanced +3.79% for the week and Alphabet advanced +2.33%. Apple (AAPL) and Microsoft (MSFT) could not hold onto gains early in the week, despite both releasing positive earnings and revenue reports. Apple (AAPL) retreated -2.13% while Microsoft lost -3.43%. All big four mega-caps continue to trade above 10w and 40w moving average lines.
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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. All four had gains this week. Marriott (MAR) had the smallest gain with a +0.11% advanced. Carnival Cruise Lines (CCL) and Delta Airlines (DAL) gained +2.53% and +2.45%. Exxon Mobil (XOM) exited the week with a +3.01% gain.
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Investor Sentiment
The put/call ratio (PCCE) closed the week at 0.790, showing a little more caution among investors. On Monday it was a 0.492, very bullish. 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 exposure index moved up to 103.72. That's the first time exposure moved above 100 since February.
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The Week Ahead
Monday
Monday will start the month of May with Manufacturing data, which should show growth in the sector given the other economic recovery data showing demand for goods.
Earnings reports on Monday will include Alibaba (BABA), Estee Lauder (EL), Loews (LO), SolarEdge (SEDG), and Avis (CAR).
Tuesday
Tuesday will bring Exports, Imports and Trade Balance data before market open. Factory Orders data will be released after market open and API Weekly Crude Oil Stock levels will be released after market close.
Tuesdays earnings reports will include Pfizer (PFE), T-Mobile (TMUS), CVS (CVS), Zillow (Z), Verisk (VRSK), LYFT (LYFT), Skillz (SKLZ).
Wednesday
ADP Nonfarm Employment data will be released on Wednesday morning. In addition, the purchasing manager indexes for Services and Non-Manufacturing sectors will be released after the market opens. Crude Oil Inventories will be updated in the morning as well.
PayPal (PYPL), Uber (UBER), Boking (BKNG), General Motors (GM), MercadoLibre (MELI), Twilio (TWLO), Rocket (RKT), Hilton (HLT), Etsy (ETSY), HubSpot (HUBS), 10x Genomics (TXG), Qorvo (QRVO), Zynga (ZNGA), Fastly (FSLY), Redfin (RDFN), Palomar (PLMR) is an abbreviated list of a massive number of earnings reports for Wednesday.
Thursday
The weekly Initial Jobless Claims numbers will be released on Thursday morning as well as Nonfarm Productivity and Unit Labor Costs.
Thursday will be another busy day of earnings reports. Linde (LIN), Anheuser Busch (BUD), Volkswagen (BWAPY), Square (SQ), Fidelity (FIS), Moderna (MRNA), Roku (ROKU), Expedia (EXPE), Beyond Meat (BYND), AMC Entertainment (AMC) are some of the interesting reports.
Friday
More labor statistics will be released on Friday with the Average Hourly Earnings data, Nonfarm Payrolls, Labor Participation data and the Unemployment rate all released before market open.
Adidas (ADDYY), BMW (BMWYY), DraftKings (DKNG), Cinemark (CNK) are a few of the companies to report on Friday and end a big earnings week.
This another super busy week of earnings reports. Check your own portfolio for earnings dates so you aren't surprised.
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The Bullish Side
It may not be quite the week we were looking for, but we got a higher high and a higher low, setting up the markets for an uptrend from here. Even days with a dip, the index still seems to be closing around 14,000 which can be a support level from which to move higher.
The Fed has stood strong on the statement that they would not touch interest rates despite inflation going above 2%.
Now that the price data this past week is behind us, investors can move their focus off inflation and focus on the underlying economic strength that will be shown in manufacturing data, purchasing index data and employment data. That should put more confidence behind the positive earnings reports this past week.
The treasury yield curve remains about the same over the past two months, easing fears that longer term interest rates would outpace short term rates and make money more expensive for growth companies. The US Dollar bounced off of recent lows on Friday, but remains low compared to the past year. That should help large multinationals.
Another week of good earnings reports might be enough to turn sentiment upward and get a more positive reaction from investors.
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The Bearish Side
The failed rally attempts among great earnings reports could just be the beginning. Investors don't trust that market leaders can continue the amazing growth they've showed over the past year. They also see headwinds coming if inflation continues at a high rate, causing a reaction by the Fed.
The looming inflation numbers mean that even with great economic news, investors might just see added fuel to the fire of an overheated economy that needs to be controlled with higher interest rates. Combine that with a breakout of the US Dollar from a descent since the beginning of April and the two could cause quite an impact to valuations for the big multinational companies.
The advance/decline ratio was above 1.0 only six times in April. Meaning most days in April there were more declining stocks than advancing stocks on the Nasdaq. That might be different in the broader market, but it doesn't bode well for big tech and growth stocks.
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Key Nasdaq Levels to Watch
The Nasdaq closed just below 14,000 this past week, but seemed to return to the area after dips. We want to get above that line and stay there to support further gains and break into new all-time highs.
On the positive side, the levels are:
- 14,000 will be the first line to pass, also taking the index above the 10d moving average.
- The all-time high is at 14,211.57 is the all-time high and the high of this week.
- 14,850 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 nine weeks.
On the downside, there are a few key levels:
- The low of this past week is 13,941.63. Let's get a higher low for next week.
- The 21d exponential moving average is at 13,860.07.
- A previous support area is around 13,600.
- The 50d moving average has been moving sideways and is at 13,511.49.
- The lower line of the channel from the March 2020 bottom is around 13,515 for next week.
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Wrap-up
Can it get any better? That's what investors want to know. The economy is super charged for recover and the Fed continues support. But the more overheated the economic growth becomes, the more nervous investors will get. That's why seemingly positive news is being met with dips in the market.
So the next week, we'll watch for reactions to earnings reports and economic news. If the reports are positive and the reactions are good, then we can rest easy. Otherwise, we'll be watching for those key levels to see just how nervous investors have become. If we lose support in some of the key levels, then a defensive position will be warranted.
Lots of earning reports next week. Keep your eye on your portfolio so you are not surprised.
Good luck, stay healthy and trade safe!
