Daily Market Update for 3/3
Trend lines drawn from the 2/16 ATH (12d), 2/25 (5d) and today 3/3 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
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Wednesday, March 3, 2021
Facts: -2.7%, Volume higher, Closing range: 1%, Body: 90%
Good: 13,000 just barely holding on
Bad: Higher volume selling day shows institutional distribution
Highs/Lows: Lower high, lower low
Candle: Tiny upper wick created at open, thick red body with no lower wick
Advance/Decline: More than two declining stocks for every advancing stock
Indexes: SPX (-1.31%), DJI (-0.39%), RUT (-1.06%), VIX (+10.66%)
Sectors: Energy (XLE +1.47%) and Financials (XLF +0.78%) were the top sectors. Consumer Discretionary (XLY -2.35%) and Technology (XLK -2.52%) were bottom.
Expectation: Sideways or Lower
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Market Overview
The market continued its retreat on Wednesday with another session of selling that was shared broadly across the indexes. Only a few cyclical sectors were able to hang onto gains for the day as investors moved from high priced big tech and consumer discretionary stocks to recovery stocks expected to benefit from the economic recovery.
The Nasdaq closed the day with a -2.70% loss on higher volume, marking a clear distribution day for the index. For a second day in a row, the index sold off for most of the day, producing a thick red body with no visible lower wick. The closing range was 1% and the red body covers 90% of the candle. Over two stocks declined for every advancing stock.
The Dow Jones Industrial average (DJI) faired the best for the day, declining only -0.39%. It was held up by strong performances in Energy, Finance and Industrials. The S&P 500 (SPX) dropped -1.31% and the Russell 2000 (RUT) declined -1.06%.
The VIX volatility index rose +10.66%.
Energy (XLE +1.47%) and Financials (XLF +0.78%) were the top sectors. Industrials (XLI +0.11%) was the only other sector with gains. Consumer Discretionary (XLY -2.35%) and Technology (XLK -2.52%) were bottom. Communications (XLC -1.43%) also lost more than the overall index. These sectors have heavy weight mega-cap players that are leading the way down for the indexes.
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Economic Indicators
The US Dollar (DXY) advanced +0.22%.
Yields for the US 30y, 10y and 2y all rose for the day, returning fears to investors' minds on the impact of higher interest rates to big tech and growth companies.
High Yield Corporate Bonds (HYG) and Investment Grade Corporate Bond (LQD) prices both dropped for the day.
Silver (SILVER) and Gold (GOLD) both declined. Crude Oil (CRUDEOIL1!) advanced despite inventories being higher than expected. Timber (WOOD) advanced. Copper (COPPER1!) and Aluminum (ALI1!) both declined. Copper gave back nearly all of its gains from yesterday. Aluminum declined just slightly compared to yesterday's huge gain.
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Investor Sentiment
The put/call ratio rose to 0.719. 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 moved back to the neutral level.
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Market Leaders
All of the big four mega-caps had losses for a second day. Alphabet (GOOGL) was the only of the big four above the 21d EMA, but moved below the line today. Microsoft (MSFT) also hit a significant level, moving below its 40d MA. Apple (AAPL) and Amazon (AMZN) have both been trading below the two levels for the past two weeks.
Bank of America (BAC) and JP Morgan Chase (JPM) led the mega-caps with +2.50% and 1.93% gains. These big banks are expected to benefit from the higher bond yields driving higher interest rates. PayPal (PYPL), Netflix (NFLX), Tesla (TSLA) and Nvidia (NVDA) were at the bottom of the mega-cap list.
The only growth stock tracked by this daily update to end the day in the positive was Alibaba with a +0.79% advance. The hardest hit were Fiverr (FVRR), Esty (ETSY), Grow Generation (GRWG) and Moderna (MRNA), all with greater than 10% losses for the day.
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Looking ahead
Initial Jobless Games, Unit Labor Costs and Nonfarm Productivity data released tomorrow before market open will add to today's narrative around the slowing recovery. Either it will boost confidence or add to worries that maybe the economic recovery is slowing. Fed Chair Jerome Powell is scheduled to speak in early afternoon.
Thursday's earnings reports will include Broadcom (AVGO), Costco (COST), Kroger (KR), Burlington Stores (BURL), Gap (GPS).
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Trends, Support and Resistance
The five-day trend line is pointing to a +2.36% gain for tomorrow. The index is at the lower line of the five-day regression trend channel. The trend-lien from the 2/16 ATH is pointing to a +0.60% gain for tomorrow.
If the one-day and two-day trends continue, then another -1.60% decline can be expected tomorrow.
The index is sitting just a hair below 13,000 right now. If there is further downside, the 12,550 area also held in an early January dip. If it passes that area, the next support area is 12,250.
There is a head and shoulders pattern on the Nasdaq chart. This pattern represents an attempt to move back to new highs that was rejected at a previous resistance point. Generally speaking, the height of the head is measured to determine the potential move downward that will occur as the price breaks below the neck line. That points to a previous support area around 11,800 - 12,000. That likely would not happen in a straight line. The reason to watch for it is not to overreact to bounces along the way. Wait for your market rules to kick in, such as regaining the 21d EMA on higher volume.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
It's tough to watch the market retreat and worry about where it might find the bottom. It's important for my daily homework to not try to predict the movements. Rather we look at the chart and set some expectations so we can act following the set of trading rules that work for me. You should also have a set of rules that work for your trading style and risk tolerance.
The market followed thru with the expectation we set yesterday of lower. Today, the expectation is still set for sideways or lower. We'll look for an expectation breaker as a positive development, especially if the 13,000 area support holds.
Stay healthy and trade safe!
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=-
Wednesday, March 3, 2021
Facts: -2.7%, Volume higher, Closing range: 1%, Body: 90%
Good: 13,000 just barely holding on
Bad: Higher volume selling day shows institutional distribution
Highs/Lows: Lower high, lower low
Candle: Tiny upper wick created at open, thick red body with no lower wick
Advance/Decline: More than two declining stocks for every advancing stock
Indexes: SPX (-1.31%), DJI (-0.39%), RUT (-1.06%), VIX (+10.66%)
Sectors: Energy (XLE +1.47%) and Financials (XLF +0.78%) were the top sectors. Consumer Discretionary (XLY -2.35%) and Technology (XLK -2.52%) were bottom.
Expectation: Sideways or Lower
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
The market continued its retreat on Wednesday with another session of selling that was shared broadly across the indexes. Only a few cyclical sectors were able to hang onto gains for the day as investors moved from high priced big tech and consumer discretionary stocks to recovery stocks expected to benefit from the economic recovery.
The Nasdaq closed the day with a -2.70% loss on higher volume, marking a clear distribution day for the index. For a second day in a row, the index sold off for most of the day, producing a thick red body with no visible lower wick. The closing range was 1% and the red body covers 90% of the candle. Over two stocks declined for every advancing stock.
The Dow Jones Industrial average (DJI) faired the best for the day, declining only -0.39%. It was held up by strong performances in Energy, Finance and Industrials. The S&P 500 (SPX) dropped -1.31% and the Russell 2000 (RUT) declined -1.06%.
The VIX volatility index rose +10.66%.
Energy (XLE +1.47%) and Financials (XLF +0.78%) were the top sectors. Industrials (XLI +0.11%) was the only other sector with gains. Consumer Discretionary (XLY -2.35%) and Technology (XLK -2.52%) were bottom. Communications (XLC -1.43%) also lost more than the overall index. These sectors have heavy weight mega-cap players that are leading the way down for the indexes.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) advanced +0.22%.
Yields for the US 30y, 10y and 2y all rose for the day, returning fears to investors' minds on the impact of higher interest rates to big tech and growth companies.
High Yield Corporate Bonds (HYG) and Investment Grade Corporate Bond (LQD) prices both dropped for the day.
Silver (SILVER) and Gold (GOLD) both declined. Crude Oil (CRUDEOIL1!) advanced despite inventories being higher than expected. Timber (WOOD) advanced. Copper (COPPER1!) and Aluminum (ALI1!) both declined. Copper gave back nearly all of its gains from yesterday. Aluminum declined just slightly compared to yesterday's huge gain.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio rose to 0.719. 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 moved back to the neutral level.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
All of the big four mega-caps had losses for a second day. Alphabet (GOOGL) was the only of the big four above the 21d EMA, but moved below the line today. Microsoft (MSFT) also hit a significant level, moving below its 40d MA. Apple (AAPL) and Amazon (AMZN) have both been trading below the two levels for the past two weeks.
Bank of America (BAC) and JP Morgan Chase (JPM) led the mega-caps with +2.50% and 1.93% gains. These big banks are expected to benefit from the higher bond yields driving higher interest rates. PayPal (PYPL), Netflix (NFLX), Tesla (TSLA) and Nvidia (NVDA) were at the bottom of the mega-cap list.
The only growth stock tracked by this daily update to end the day in the positive was Alibaba with a +0.79% advance. The hardest hit were Fiverr (FVRR), Esty (ETSY), Grow Generation (GRWG) and Moderna (MRNA), all with greater than 10% losses for the day.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
Initial Jobless Games, Unit Labor Costs and Nonfarm Productivity data released tomorrow before market open will add to today's narrative around the slowing recovery. Either it will boost confidence or add to worries that maybe the economic recovery is slowing. Fed Chair Jerome Powell is scheduled to speak in early afternoon.
Thursday's earnings reports will include Broadcom (AVGO), Costco (COST), Kroger (KR), Burlington Stores (BURL), Gap (GPS).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
The five-day trend line is pointing to a +2.36% gain for tomorrow. The index is at the lower line of the five-day regression trend channel. The trend-lien from the 2/16 ATH is pointing to a +0.60% gain for tomorrow.
If the one-day and two-day trends continue, then another -1.60% decline can be expected tomorrow.
The index is sitting just a hair below 13,000 right now. If there is further downside, the 12,550 area also held in an early January dip. If it passes that area, the next support area is 12,250.
There is a head and shoulders pattern on the Nasdaq chart. This pattern represents an attempt to move back to new highs that was rejected at a previous resistance point. Generally speaking, the height of the head is measured to determine the potential move downward that will occur as the price breaks below the neck line. That points to a previous support area around 11,800 - 12,000. That likely would not happen in a straight line. The reason to watch for it is not to overreact to bounces along the way. Wait for your market rules to kick in, such as regaining the 21d EMA on higher volume.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
It's tough to watch the market retreat and worry about where it might find the bottom. It's important for my daily homework to not try to predict the movements. Rather we look at the chart and set some expectations so we can act following the set of trading rules that work for me. You should also have a set of rules that work for your trading style and risk tolerance.
The market followed thru with the expectation we set yesterday of lower. Today, the expectation is still set for sideways or lower. We'll look for an expectation breaker as a positive development, especially if the 13,000 area support holds.
Stay healthy and trade safe!
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