Market Week In Review - 2/16/2021 - 2/19/2021
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. It helps me evaluate my observations, recognize new data points, and create a plan for possible scenarios in the future.
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:
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 original charts for more detail each day.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Tuesday, February 16, 2021
Facts: -0.34%, Volume higher, Closing range: 29%, Body: 58%
Good: Higher high, lower low, new ATH
Bad: Could not hold the morning high
Highs/Lows: Higher high, higher low
Candle: Red body with slightly longer lower wick than upper wick
Advance/Decline: 0.84, slightly more declining stocks than advancing stocks
Indexes: SPX (-0.06%), DJI (+.20%), RUT (-0.72%), VIX (+7.4%)
Sectors: Energy (XLE +2.51%) and Financials (XLF +1.71%) were top. Real Estate (XLRE -1.07%) and Utilities (XLU -1.12%) were bottom.
Expectation: Sideways or Higher
The week opened with all-time highs, but the market could not hold on to those highs. After the first hour of trading, the indexes dropped going into mid-day and then spent the afternoon trading in back and forth choppiness. Despite declines, the major indexes put in higher highs and higher lows for the day.
The Nasdaq closed with a -0.34% decline on slightly higher volume. The closing range of 29% is not great, but is above a low which is higher than Friday's low. The 58% body was formed from the opening gap up and quick sell-off in the morning. There were more declining stocks than advancing stocks.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wednesday, February 17, 2021
Facts: -0.58%, Volume lower, Closing range: 94%, Body: 31%
Good: Mid-day reversal off lows to close near the day's high at end of session
Bad: Gap-down open and below the 14,000 support line
Highs/Lows: Lower high, lower low
Candle: Green body in upper half of candle with a long lower wick
Advance/Decline: 0.46, two declining stocks for every advancing stock
Indexes: SPX (-0.03%), DJI (+0.29%), RUT (-0.74%), VIX (+0.19%)
Sectors: Energy (XLE +1.49%) and Consumer Discretionary (XLY +0.58%) were top. Industrials (XLI -0.28%) and Technology (XLK -0.88%) were bottom.
Expectation: Sideways or Higher
Higher than expected Retail Sales data was enough for Amazon, but not enough to excite the overall market in the morning hours of trading. The higher than expected producer price index data forecasts upcoming inflation. That expected rise in inflation brings up the question of whether the Fed will raise interest rates earlier than previously stated. Higher interest rates tend to impact high growth companies and technology companies the most.
The result was a gap-down and morning sell-off of the tech heavy Nasdaq. Fears began to subside with reassurances from FOMC members comments throughout the day and the release of the FOMC meeting minutes in the afternoon. Those minutes stated that the committee unanimously agreed to keep interest rates low for the foreseeable future. That brought the Nasdaq back up to close near the high of the day.
The Nasdaq closed the day with a -0.58% loss on lower volume. The closing range of 94% resulted from a 31% green body that is above a long lower wick. That long lower wick was formed in the morning sell-off. There were two declining stocks for every advancing stock.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Thursday, February 18, 2021
Facts: -0.72%, Volume lower, Closing range: 79%, Body: 26%
Good: Support at 21d EMA, turned into upside for rest of day
Bad: Another morning sell-off, and the selling into close.
Highs/Lows: Lower high, lower low
Candle: Green body in upper half of candle with a long lower wick
Advance/Decline: 0.27, almost 4 declining stocks for every advancing stock
Indexes: SPX (-0.44%), DJI (-0.38%), RUT (-1.67%), VIX (+4.60%)
Sectors: Utilities (XLU +0.60%) and Consumer Discretionary (XLY +0.04%) were top. Energy (XLE -2.26%) was bottom.
Expectation: Sideways or Lower
Today produced a very similar candle to the day before, and another step back for the Nasdaq. The market opened again reacting to bad economic news, selling heavily in the morning. However, buyers came in as the index hit the 21d exponential moving average.
The Nasdaq closed the day with a -0.72% loss on lower volume. The similar candle to the day before had another high closing range over a long lower wick. The upper wick is slightly longer due to the selling just before close. The closing range was 79% and the green body in the upper half covers 26% of the candle. There were nearly four declining stocks for every advancing stock.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Friday, February 19, 2021
Facts: +0.07%, Volume higher, Closing range: 22%, Body: 38%
Good: Higher high, lower low
Bad: Morning gains lost in afternoon selling, low closing range and red body
Highs/Lows: Higher high, higher low
Candle: Red body in lower half of candle with longer upper wick
Advance/Decline: 1.67, 3 advancing stocks for every two declining
Indexes: SPX (-0.19%), DJI (-0.0%), RUT (+2.18%), VIX (+1.96%)
Sectors: Materials (XLB +1.83%) and Energy (XLE +1.67%) were top. Consumer Staples (XLP -1.26%) and Utilities (XLU -1.49%) were bottom.
Expectation: Sideways
It was day for almost everyone but the mega-caps. Gainers outnumbered losers at more than a three to two ratio. But the mega-caps, especially in tech, lost ground while the rest of the market advanced. Equal weighted QQQE gained +0.36% while the cap weighted QQQ lost -0.44%.
The Nasdaq closed with a +0.07% gain on higher volume. The candle has a longer upper wick over a 38% red body and a dismal 22% range that was created from morning gains being sold off in the afternoon. There were over three advancing stocks for every declining stock.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
The Meaning of Life (View on the Week)
The short week brought a lot of choppiness in the equity markets. There was a mid-day reversal every day of the week. Tuesday was the gap-up that sold off in the afternoon. Wednesday and Thursday started with morning selling that was bought back in the second half of the sessions. Friday finished the week with a rise in the morning only to lose those gains in the afternoon.
What was all the fuss about? It seemed that investors are trying to price in the possibility of higher than expected inflation and the potential for interest rates going up earlier than anticipated. Despite comments from the Fed that monetary policy would remain the same, the worries in the market continued to rise. Many now believe a huge stimulus will super charge inflation as American's unleash stimulus checks and record savings accounts back into the economy.
The expectations I had throughout the week were broken daily. Tuesday I saw support at the 14,000 level and thought the market would build off of that for gains. Wednesday I saw the huge buy back in the afternoon and thought the momentum would lead into the next day's trading. So Thursday I gave up and finally called for Sideways or Lower on Friday.
The gap down on Wednesday and close below the 10d MA should have been the signal for me to set an expectation for lower on Thursday. On Thursday, the bounce off the 21d EMA should have told me that gains were possible in the next day, so should have set Sideways or Higher. Anyway, they are just expectations and not predictions. Part of this weekly review exercise is to learn from the chart, especially where it went against my expectations.
The Nasdaq closed the week down -1.57%. Volume was lower than the previous week. The closing range of 35% is lower than desired but the index did achieve a higher high for the week and closed above last week's low.
The average closing range for the past 16 weeks is at 70%. Although the closing range this week is at 35%, the index is hugging the mid-line of the channel drawn from the March bottom.
The S&P 500 (SPX) declined -0.71% for the week. The Dow Jones Industrial (DJI) advanced +0.11%. The Russell 2000 (RUT) lost -0.99%.
The VIX volatility index closed the week a bit higher but still remains at a very low level compared to the last several months.
It was a week for the cyclical stocks. Energy ( XLE ), Financials ( XLF ), Materials ( XLB ), and Industrials ( XLI ) were the only sectors to close the week with gains.
That was not the case for the entire week. Communication Services ( XLC ) started the week with gains but faded in the last two days.
Utilities ( XLU ) had one day as the leading sector on Thursday, but moved back to the bottom of the list on Friday.
Health Care ( XLV ) was the worst performing sector of the week.
US 30y and 10y Treasury Bond yields continued to rise and widen the gap with shorter term treasury bonds. This is despite a week when equity investors seemed nervous. The bond yields could rise even faster as a stimulus is released into the economy and start to have a negative impact on companies carrying debt.
High Yield Corporate Bonds (HYG) and Investment Grade Corporate Bonds (LQD) prices both dropped for the week.
The US Dollar (DXY) declined just -0.07% for the week.
Silver (SILVER) finished the week about even while and GOLD (GOLD) declined.
Crude Oil Futures (CRUDEOIL1!) fell back just slightly from the previous week's gains.
Timber (WOOD) also declined for the week. However Copper (COPPER1!) and Aluminum (ALI1!) both gained as demand in manufacturing is expected to outpace supply for these metals.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
The Big Four Mega-caps
It was a disappointing week for the big four mega-caps, all closing the week with a loss. Amazon (AMZN) seemed like it would have a great week, having gains each day from Tuesday to Thursday, but it gave up all those gains on Friday to close the week with a -0.85% weekly decline.
Apple (AAPL) continued to pullback, closing under its 10 week moving average and a weekly loss of -4.06%.
Microsoft (MSFT) was down -1.64% for the week while Alphabet (GOOGL) was down -0.30%. Both are still well-above their 10 week moving average.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio (PCCE) ended the week at 0.575, still at the level of overly bullish optimism. It did spike to 0.667 on Thursday but quickly returned to the low level on Friday.
A contrarian indicator, when the put/call ratio is below 0.7, it signals overly bullish sentiment which typically proceeds a pullback in the market. The indicator was at 0.458 just before the September correction and it was at 0.489 just before the short October correction.
The CNN Fear & Greed index is still in a Greed level, but is not at an extreme level.
Money managers are at a 108 leveraged level as measured by the NAAIM Exposure Index.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
The Week Ahead
Consumer confidence numbers will be released on Tuesday that can predict consumer spending and drive economic activity. Also on Tuesday, Fed Chair Jerome Powell is scheduled to speak to congress about the economic outlook.
New Home Sales data will be the focus for Wednesday as the market opens. Thursday will bring an update on Durable Goods Orders, Initial Jobless Claims and Pending Home Sales.
Core Price Index data released on Friday will give another view into inflation. In addition, personal spending and consumer sentiment data will be released Friday.
Oil inventories will be updated with the Weekly Crude Oil Stock on Thursday and the Crude Oil Inventories on Wednesday.
Earnings reports will keep growth investors busy next week with many popular stocks reporting quarterly results. Monday will kick off with a report from Berkshire Hathaway (BRKa) before the market opens. On Tuesday, reports will come from Square (SQ), Intuit (INTU), Upwork (UPWK), among others. On Wednesday, we will get updates for Nvidia (NVDA), Lowe's (LOW), TJX (TJX), Teladoc (TDOC), Magnite (MGNI) and many others. Thursday will add to the tsunami of reports with Salescore.com (CRM), Anheuser Busch (BUD), MercadoLibre (MELI), Moderna (MRNA), Autodesk (ADSK), Workday (WDAY), DoorDask (DASK), Vmware (VMW), Dell (DELL), Zscaler (ZS), Wayfair (W), Etsy (ETSY), Plug Power (PLUG), Farfetch (FTCH), Vipshop (VIPS), Novocure (NVCR), Beyond Meat (BYND), the list just keeps going. Friday will include DraftKings (DKNG), and Cinemark (CNK).
Be sure to check for scheduled earnings reports for stocks in your own portfolio.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
The Bullish Side
The inflation outlook came as a surprise this week. But the good news is that it’s a sign of economic activity returning faster than anticipated. Recovery is happening even as we wait for more stimulus. Commodity prices, including important metals like Copper and Aluminum are climbing.
Retail Sales for January were much higher than expected. Services and Manufacturing PMI showed activity was healthy in those sectors. Building Permits were higher. Both the Import and Export Price indexes were higher than expected. All of the is bullish for the USD and the economy.
The top four sectors for the week were Energy, Financials, Industrials and Materials. Even when the rest of the market was down, these four cyclical sectors ended the week with gains. These are the sectors impacted the most by the economic downturn last week and having them show strength in a week that the market was weak is a bullish sign.
Although the Put/Call ratio is in an overly bullish area, the CNN Fear & Greed index remains moderately on the greed side. Nowhere near the extreme greed level that often predicates a pullback.
The Nasdaq was down for the week, but it is still hugging the midline of the upward channel from the March 2020 bottom. This week produce another all-time high and closed above the previous weeks low. That still reads uptrend.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
The Bearish Side
But how high can it go? That's the question on everyone's mind. And that's the reason that investors continue to be bullish but keep one foot out the door, ready to exit the market on any bad news.
Yields on long term treasury bonds have soared over the past two weeks. With the new stimulus bill seemingly just around the corner that could send yields even higher. On one hand that is an indicator of investor confidence. On the other hand it has an impact on other financial instruments including adjustable loans based on the 10y treasury bond
yield. That can have a negative impact in other areas of the economy and equity markets.
Outflows were high for corporate bond ETFs showing investors getting nervous about corporate debt as treasury bond yields signal higher costs to service the debt.
Mega-caps are showing relative weakness to the market. Amazon finally attempted a rally, but it broke down on Friday and gave back the week's gains. Apple is trading below its 10w moving average. Tesla is trading below its 21d EMA. It's important for these mega-caps to perform well to keep the indexes moving and keep investor sentiment high.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Key Nasdaq Levels to Watch
There are several key levels in the Nasdaq to keep an eye out for and respond accordingly. First on the positive side:
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 original charts for more detail each day.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Tuesday, February 16, 2021
Facts: -0.34%, Volume higher, Closing range: 29%, Body: 58%
Good: Higher high, lower low, new ATH
Bad: Could not hold the morning high
Highs/Lows: Higher high, higher low
Candle: Red body with slightly longer lower wick than upper wick
Advance/Decline: 0.84, slightly more declining stocks than advancing stocks
Indexes: SPX (-0.06%), DJI (+.20%), RUT (-0.72%), VIX (+7.4%)
Sectors: Energy (XLE +2.51%) and Financials (XLF +1.71%) were top. Real Estate (XLRE -1.07%) and Utilities (XLU -1.12%) were bottom.
Expectation: Sideways or Higher
The week opened with all-time highs, but the market could not hold on to those highs. After the first hour of trading, the indexes dropped going into mid-day and then spent the afternoon trading in back and forth choppiness. Despite declines, the major indexes put in higher highs and higher lows for the day.
The Nasdaq closed with a -0.34% decline on slightly higher volume. The closing range of 29% is not great, but is above a low which is higher than Friday's low. The 58% body was formed from the opening gap up and quick sell-off in the morning. There were more declining stocks than advancing stocks.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wednesday, February 17, 2021
Facts: -0.58%, Volume lower, Closing range: 94%, Body: 31%
Good: Mid-day reversal off lows to close near the day's high at end of session
Bad: Gap-down open and below the 14,000 support line
Highs/Lows: Lower high, lower low
Candle: Green body in upper half of candle with a long lower wick
Advance/Decline: 0.46, two declining stocks for every advancing stock
Indexes: SPX (-0.03%), DJI (+0.29%), RUT (-0.74%), VIX (+0.19%)
Sectors: Energy (XLE +1.49%) and Consumer Discretionary (XLY +0.58%) were top. Industrials (XLI -0.28%) and Technology (XLK -0.88%) were bottom.
Expectation: Sideways or Higher
Higher than expected Retail Sales data was enough for Amazon, but not enough to excite the overall market in the morning hours of trading. The higher than expected producer price index data forecasts upcoming inflation. That expected rise in inflation brings up the question of whether the Fed will raise interest rates earlier than previously stated. Higher interest rates tend to impact high growth companies and technology companies the most.
The result was a gap-down and morning sell-off of the tech heavy Nasdaq. Fears began to subside with reassurances from FOMC members comments throughout the day and the release of the FOMC meeting minutes in the afternoon. Those minutes stated that the committee unanimously agreed to keep interest rates low for the foreseeable future. That brought the Nasdaq back up to close near the high of the day.
The Nasdaq closed the day with a -0.58% loss on lower volume. The closing range of 94% resulted from a 31% green body that is above a long lower wick. That long lower wick was formed in the morning sell-off. There were two declining stocks for every advancing stock.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Thursday, February 18, 2021
Facts: -0.72%, Volume lower, Closing range: 79%, Body: 26%
Good: Support at 21d EMA, turned into upside for rest of day
Bad: Another morning sell-off, and the selling into close.
Highs/Lows: Lower high, lower low
Candle: Green body in upper half of candle with a long lower wick
Advance/Decline: 0.27, almost 4 declining stocks for every advancing stock
Indexes: SPX (-0.44%), DJI (-0.38%), RUT (-1.67%), VIX (+4.60%)
Sectors: Utilities (XLU +0.60%) and Consumer Discretionary (XLY +0.04%) were top. Energy (XLE -2.26%) was bottom.
Expectation: Sideways or Lower
Today produced a very similar candle to the day before, and another step back for the Nasdaq. The market opened again reacting to bad economic news, selling heavily in the morning. However, buyers came in as the index hit the 21d exponential moving average.
The Nasdaq closed the day with a -0.72% loss on lower volume. The similar candle to the day before had another high closing range over a long lower wick. The upper wick is slightly longer due to the selling just before close. The closing range was 79% and the green body in the upper half covers 26% of the candle. There were nearly four declining stocks for every advancing stock.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Friday, February 19, 2021
Facts: +0.07%, Volume higher, Closing range: 22%, Body: 38%
Good: Higher high, lower low
Bad: Morning gains lost in afternoon selling, low closing range and red body
Highs/Lows: Higher high, higher low
Candle: Red body in lower half of candle with longer upper wick
Advance/Decline: 1.67, 3 advancing stocks for every two declining
Indexes: SPX (-0.19%), DJI (-0.0%), RUT (+2.18%), VIX (+1.96%)
Sectors: Materials (XLB +1.83%) and Energy (XLE +1.67%) were top. Consumer Staples (XLP -1.26%) and Utilities (XLU -1.49%) were bottom.
Expectation: Sideways
It was day for almost everyone but the mega-caps. Gainers outnumbered losers at more than a three to two ratio. But the mega-caps, especially in tech, lost ground while the rest of the market advanced. Equal weighted QQQE gained +0.36% while the cap weighted QQQ lost -0.44%.
The Nasdaq closed with a +0.07% gain on higher volume. The candle has a longer upper wick over a 38% red body and a dismal 22% range that was created from morning gains being sold off in the afternoon. There were over three advancing stocks for every declining stock.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
The Meaning of Life (View on the Week)
The short week brought a lot of choppiness in the equity markets. There was a mid-day reversal every day of the week. Tuesday was the gap-up that sold off in the afternoon. Wednesday and Thursday started with morning selling that was bought back in the second half of the sessions. Friday finished the week with a rise in the morning only to lose those gains in the afternoon.
What was all the fuss about? It seemed that investors are trying to price in the possibility of higher than expected inflation and the potential for interest rates going up earlier than anticipated. Despite comments from the Fed that monetary policy would remain the same, the worries in the market continued to rise. Many now believe a huge stimulus will super charge inflation as American's unleash stimulus checks and record savings accounts back into the economy.
The expectations I had throughout the week were broken daily. Tuesday I saw support at the 14,000 level and thought the market would build off of that for gains. Wednesday I saw the huge buy back in the afternoon and thought the momentum would lead into the next day's trading. So Thursday I gave up and finally called for Sideways or Lower on Friday.
The gap down on Wednesday and close below the 10d MA should have been the signal for me to set an expectation for lower on Thursday. On Thursday, the bounce off the 21d EMA should have told me that gains were possible in the next day, so should have set Sideways or Higher. Anyway, they are just expectations and not predictions. Part of this weekly review exercise is to learn from the chart, especially where it went against my expectations.
The Nasdaq closed the week down -1.57%. Volume was lower than the previous week. The closing range of 35% is lower than desired but the index did achieve a higher high for the week and closed above last week's low.
The average closing range for the past 16 weeks is at 70%. Although the closing range this week is at 35%, the index is hugging the mid-line of the channel drawn from the March bottom.
The S&P 500 (SPX) declined -0.71% for the week. The Dow Jones Industrial (DJI) advanced +0.11%. The Russell 2000 (RUT) lost -0.99%.
The VIX volatility index closed the week a bit higher but still remains at a very low level compared to the last several months.
It was a week for the cyclical stocks. Energy ( XLE ), Financials ( XLF ), Materials ( XLB ), and Industrials ( XLI ) were the only sectors to close the week with gains.
That was not the case for the entire week. Communication Services ( XLC ) started the week with gains but faded in the last two days.
Utilities ( XLU ) had one day as the leading sector on Thursday, but moved back to the bottom of the list on Friday.
Health Care ( XLV ) was the worst performing sector of the week.
US 30y and 10y Treasury Bond yields continued to rise and widen the gap with shorter term treasury bonds. This is despite a week when equity investors seemed nervous. The bond yields could rise even faster as a stimulus is released into the economy and start to have a negative impact on companies carrying debt.
High Yield Corporate Bonds (HYG) and Investment Grade Corporate Bonds (LQD) prices both dropped for the week.
The US Dollar (DXY) declined just -0.07% for the week.
Silver (SILVER) finished the week about even while and GOLD (GOLD) declined.
Crude Oil Futures (CRUDEOIL1!) fell back just slightly from the previous week's gains.
Timber (WOOD) also declined for the week. However Copper (COPPER1!) and Aluminum (ALI1!) both gained as demand in manufacturing is expected to outpace supply for these metals.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
The Big Four Mega-caps
It was a disappointing week for the big four mega-caps, all closing the week with a loss. Amazon (AMZN) seemed like it would have a great week, having gains each day from Tuesday to Thursday, but it gave up all those gains on Friday to close the week with a -0.85% weekly decline.
Apple (AAPL) continued to pullback, closing under its 10 week moving average and a weekly loss of -4.06%.
Microsoft (MSFT) was down -1.64% for the week while Alphabet (GOOGL) was down -0.30%. Both are still well-above their 10 week moving average.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio (PCCE) ended the week at 0.575, still at the level of overly bullish optimism. It did spike to 0.667 on Thursday but quickly returned to the low level on Friday.
A contrarian indicator, when the put/call ratio is below 0.7, it signals overly bullish sentiment which typically proceeds a pullback in the market. The indicator was at 0.458 just before the September correction and it was at 0.489 just before the short October correction.
The CNN Fear & Greed index is still in a Greed level, but is not at an extreme level.
Money managers are at a 108 leveraged level as measured by the NAAIM Exposure Index.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
The Week Ahead
Consumer confidence numbers will be released on Tuesday that can predict consumer spending and drive economic activity. Also on Tuesday, Fed Chair Jerome Powell is scheduled to speak to congress about the economic outlook.
New Home Sales data will be the focus for Wednesday as the market opens. Thursday will bring an update on Durable Goods Orders, Initial Jobless Claims and Pending Home Sales.
Core Price Index data released on Friday will give another view into inflation. In addition, personal spending and consumer sentiment data will be released Friday.
Oil inventories will be updated with the Weekly Crude Oil Stock on Thursday and the Crude Oil Inventories on Wednesday.
Earnings reports will keep growth investors busy next week with many popular stocks reporting quarterly results. Monday will kick off with a report from Berkshire Hathaway (BRKa) before the market opens. On Tuesday, reports will come from Square (SQ), Intuit (INTU), Upwork (UPWK), among others. On Wednesday, we will get updates for Nvidia (NVDA), Lowe's (LOW), TJX (TJX), Teladoc (TDOC), Magnite (MGNI) and many others. Thursday will add to the tsunami of reports with Salescore.com (CRM), Anheuser Busch (BUD), MercadoLibre (MELI), Moderna (MRNA), Autodesk (ADSK), Workday (WDAY), DoorDask (DASK), Vmware (VMW), Dell (DELL), Zscaler (ZS), Wayfair (W), Etsy (ETSY), Plug Power (PLUG), Farfetch (FTCH), Vipshop (VIPS), Novocure (NVCR), Beyond Meat (BYND), the list just keeps going. Friday will include DraftKings (DKNG), and Cinemark (CNK).
Be sure to check for scheduled earnings reports for stocks in your own portfolio.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
The Bullish Side
The inflation outlook came as a surprise this week. But the good news is that it’s a sign of economic activity returning faster than anticipated. Recovery is happening even as we wait for more stimulus. Commodity prices, including important metals like Copper and Aluminum are climbing.
Retail Sales for January were much higher than expected. Services and Manufacturing PMI showed activity was healthy in those sectors. Building Permits were higher. Both the Import and Export Price indexes were higher than expected. All of the is bullish for the USD and the economy.
The top four sectors for the week were Energy, Financials, Industrials and Materials. Even when the rest of the market was down, these four cyclical sectors ended the week with gains. These are the sectors impacted the most by the economic downturn last week and having them show strength in a week that the market was weak is a bullish sign.
Although the Put/Call ratio is in an overly bullish area, the CNN Fear & Greed index remains moderately on the greed side. Nowhere near the extreme greed level that often predicates a pullback.
The Nasdaq was down for the week, but it is still hugging the midline of the upward channel from the March 2020 bottom. This week produce another all-time high and closed above the previous weeks low. That still reads uptrend.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
The Bearish Side
But how high can it go? That's the question on everyone's mind. And that's the reason that investors continue to be bullish but keep one foot out the door, ready to exit the market on any bad news.
Yields on long term treasury bonds have soared over the past two weeks. With the new stimulus bill seemingly just around the corner that could send yields even higher. On one hand that is an indicator of investor confidence. On the other hand it has an impact on other financial instruments including adjustable loans based on the 10y treasury bond
yield. That can have a negative impact in other areas of the economy and equity markets.
Outflows were high for corporate bond ETFs showing investors getting nervous about corporate debt as treasury bond yields signal higher costs to service the debt.
Mega-caps are showing relative weakness to the market. Amazon finally attempted a rally, but it broke down on Friday and gave back the week's gains. Apple is trading below its 10w moving average. Tesla is trading below its 21d EMA. It's important for these mega-caps to perform well to keep the indexes moving and keep investor sentiment high.
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Key Nasdaq Levels to Watch
There are several key levels in the Nasdaq to keep an eye out for and respond accordingly. First on the positive side:
- The 10d MA is at 13,969.82. The first test is for the index to close back above that line.
- 14,000 is the current support/resistance area so look for the index to get above and stay above this area.
- Monday's high of 14,175.12 will be the next test. Another weekly high would be a great sign for a continued rally.
On the downside, there are several key levels to raise caution flags:- The low of the previous week is 13,845.47 and the index closed this week just above that point. Staying above here next week will be a sign of strong buyer support.
- The low of this week was 13,714.35. Stay above that low to reclaim the trend of higher highs and higher lows.
- The 21d EMA is at 13,712.41. That is around 1.0% below Friday's close. It's good that it is catching up, but would be better that the index stays above the line.
- The 50d MA is at 13,204.03. A violation of this line would be a warning side. It has not been tested since 11/4.
- There is support at the 13,000 area, seen in the lows from the first weeks of January.
- Several possible areas of support at 12,550, 12,250, and 12,000.
- The 200d MA moved above is about 17% below the index at 11,407.58.
I was hoping for a more decisive move on Friday to signal going into next week. Instead the index came to rest inside the gap between the close of the first week of February and the open of the second week. Instead, we got an indecisive finish to the week created by strength in small caps and weakness in large and mega-caps.
Democrats are optimistic about a vote for the stimulus bill happening this week. That could create some more turmoil as investors grapple with the short term benefit to the market weighed against the longer term impact to inflation.
One of the best signals next week will be the massive amount of earnings reports that will be spread across cap-size segments and industry sectors. Watch for how the market reacts to the reports. If the reports are positive but the stock price doesn't budge or worse goes down, that can be a red flag. On the other hand, if reports are good and the market responds positively, it could be a melt-up situation.
Good luck, stay healthy and trade safe! - The low of the previous week is 13,845.47 and the index closed this week just above that point. Staying above here next week will be a sign of strong buyer support.
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