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 am making some changes to the chart presentation and renaming the series to reflect the other data points I'm including. Still based out of the Nasdaq composite.
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.
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Monday, November 30, 2020
Takin’ everythin’ in my stride
Facts: -0.06% lower, Volume higher, Closing range: 79%, Body: 12%
Good: Long lower shadow, filled gap but held support at 12,000
Bad: Dip in morning after a new all-time high
Highs/Lows: Higher high, Lower low
Candle: Outside day, 12% red body with long lower wick.
Advance/Decline: 0.58, about three declining for every advancing stock
Sectors: Technology (XLK +0.67%) and Health (XLV +0.27) were the only gaining sectors. Energy (XLE -5.53%) was the worst preforming.
Expectation: Higher
Gap filled. 12,000 support held. New Intraday all-time high. The Nasdaq held a volatile session today that started with a new all-time high in the morning, but quickly turned down to fill the gap from Friday’s open and test the 12,000 support area. The good news is that it successfully held the support and closed not too far from the day’s highs. The bad news is it caused a lot of churn in many portfolios as there were 3 declining stocks for every 2 advancing stocks. The index closed with a small -0.06% loss, a sideways move that is not unexpected after last weeks gains. The closing range is 79% with a 12% body and a long lower wick that shows the bears ruled the morning, but the bulls saved the day.
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Tuesday, December 1, 2020
I was shaking at the knees
Facts: +1.28% higher, Volume lower, Closing range: 64%, Body: 29%
Good: New all-time high, afternoon dip stayed in upper half of range
Bad: Gap up with lower volume
Highs/Lows: Higher high, Higher low
Candle: Spinning top, longer upper/lower wicks than body.
Advance/Decline: 0.88, more declining stocks than advancing stocks
Sectors: Communications (XLC +1.83%) and Financials (XLF +1.54%) top. Industrials (XLI -0.25%) only losing sector.
Expectation: Sideways
The Nasdaq opened the first session of December on a gap up and further strengthened during the morning on news that a bi-partisan group of senators put a fresh stimulus plan back on the table for negotiation. The gains took the index to a new all-time high before reversing course in the afternoon and closing in the middle of the trading range. The Nasdaq closed with a +1.28% gain on lower volume. The closing range was at 64% with a 29% green body. The spinning top candlestick has upper and lower wicks longer than the body, indicating indecision, which could represent some doubt on whether the new stimulus will pass through the political hoops and become real. The gains on the Nasdaq were not broad across the stocks, with more declining stocks than advancing stocks for the day.
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Wednesday, December 2, 2020
Running out of chips, you got no line in an 8-bit town
Facts: -0.05% lower, Volume lower, Closing range: 93%, Body: 45%
Good: Filled the gap, but closed near the high
Bad: Did not reach yesterday's high
Highs/Lows: Lower high, Lower low
Candle: Longer lower wick similar to Mon
Advance/Decline: 1.21, more advancing stocks than declining stocks
Sectors: Energy (XLE +3.25%) and Financials (XLF +1.10%) were the leading sectors. Materials (XLB -1.28%) was the bottom sector.
Expectation: Higher
The Nasdaq started the day with a pullback, dropping more than a percentage point off Tuesday’s close. Disappointing employment data added to recent sober outlook on economic recovery. Despite that, by 10am the market made a turn for the better and had steady gains with a little back and forth in the afternoon. The index closed with a small -0.05% loss, but with a closing range of 93% and a green 45% body in the upper half of the candle. The day looks very similar to Monday with a dip in the morning led by the bears, but strength in the afternoon as the bulls came back into the market.
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Thursday, December 3, 2020
We ain't no legend, ain't no cause
We're just livin' for today
Facts: +0.23%, Volume higher, Closing range: 25%, Body: 10%
Good: New all-time high, higher low
Bad: Closing range below 40%, sell-off before close
Highs/Lows: Higher high, Higher low
Candle: Shooting star, long upper wick, tiny body
Advance/Decline: 1.54, more advancing stocks than declining stocks
Sectors: Energy (XLE +1.05%) and Real Estate (XLRE +0.74%) were the leading sectors. Utilities (XLU -1.04%) was the bottom sector.
Expectation: Lower
The Nasdaq soared to new highs today after slightly better employment data than expected. The session was already choppy before a selloff in the afternoon caused by disappointing news about supply chain issues impacting the ability to produce vaccines. The result is a shooting star candlestick that prompts a cautious outlook for the next session. The index closed with +0.23% gain on higher volume. The closing range was 23% with a thin body of 10% at the bottom of the candlestick. There were about 3 advancing stocks for every declining stock.
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Friday, December 4, 2020
So look at me now
I'm just makin' my play
Facts: +0.70%, Volume lower, Closing range: 100%, Body: 74%
Good: Close at 100% CR with new all-time high
Bad: Nothing
Highs/Lows: Higher high, Higher low
Candle: No upper wick, tiny lower wick
Advance/Decline: 2.31, more than two advancing stocks for every declining stocks
Sectors: Energy (XLE +5.45%) and Materials (XLB +2.02%) were the leading sectors. Utilities (XLU -1.00%) was the only sector with losses.
Expectation: Higher
What is a great way to end a week? Closing at the top of the trading range with a new all-time high. The Nasdaq opened and climbed throughout the morning, shrugging off bad news on employment numbers and rising on hopes for a completed stimulus bill. There was a small pullback in the afternoon but nothing could hold the index back as it climbed to a new all-time high. The index closed with a +0.70% gain on lower volume. The 100% closing range with a 74% green body represents a very bullish day. It was also broad with two advancing stocks for every declining stock.
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The Meaning of Life (View on the Week)
The Nasdaq gained 2.15% this week, ending the week with a 100% closing range, meaning the index closed at the high for the week. That high was also a new all-time high. The index is now up 38.17% for the year and up 87.96% from the March bottom. Weekly volume for the Nasdaq was 54% higher than the 10w average.
The S&P 500 was up +1.67% for the week and the Dow Jones Industrial was up +1.03%. The Russell 2000 closed with a +2.37% weekly gain. That is the fifth week in a row that the RUT finished with gains. It is also the fifth week in a row to outperform the other major indexes. Small-caps FTW.
The week began with a new all-time high on Monday that turned into a sell-off which tested the 12,000 area. The support held and the index recovered, closing the day with a small loss. That test proved to be a character builder for a week that would bring quite a few challenges. The first challenge started on Monday when OPEC leaders seemed to be at an impasse on oil production. That debate would take all week, not resolving until Friday morning.
Tuesday brought another rotation that produced a back-and-forth on the sector leader charts throughout the day. Mid-cap growth stocks again took the brunt of the rotation, with more money flowing to small-caps and large-caps. Nonetheless, the index had a good gain on the day. Wednesday brought another morning dip after disappointing employment data showed the recovery may be stalling. However, the index was able to recover for a small loss, following an apparent agreement between the Fed and Treasury that more stimulus was needed.
Thursday seemed to be going well. An expected gain in the index was supported by positive Initial Jobless Claims data in the morning. That sent the index to an all-time high, but then Pfizer announced supply chain issues would impact their original plans for scaling vaccine production. The index had a sharp sell-off in the afternoon but somehow was able to close with +0.23% gain. On Friday, the market was ready to shrug off any bad news and finally turn in a big gain to close the week. Ending the week at a 100% closing range with a solid gain, sets up the market for a bullish outlook for Monday.
There have been ups and downs on the Nasdaq the last five weeks, but overall, the market has been bullish. Every week has a higher high and a higher low. The average closing range for each week is at 79.8%, meaning even on down weeks, the bulls bought up any sales that the bears created. Not including the short week for Thanksgiving, the past two full weeks have seen an increase in trading volume included with the gains.
Energy (XLE) is now in its fourth week of leading the sectors list. It did not look that way at the beginning of the week when it sold off sharply amongst disagreements between OPEC members on future oil production. It rose back to the lead as those talks began getting better on Wednesday and OPEC finally had agreement on Friday.
Technology (XLK) and Health Services (XLV) nearly tied for second. They shared the lead on Tuesday. Health Services had a huge boost after the UK announced approval of the Pfizer vaccine. Both Health Services and Technology did not move much after the progress on Tuesday, but it was enough to keep them in position for a solid tying 2nd place ending.
Communications (XLC) led for two days, before being overtaken by the top three and ending the week in fourth place.
Utilities (XLU) was the loser of the week. The defensive play was not needed by investors who seemed optimistic about vaccines, stimulus talks and oil agreements. That was enough optimism to ignore the unemployment data signaling trouble for the economy.
US Treasury Bond Yields rose to their highest point since February with both the US30Y-US10Y and US10Y-US02Y spreads widening. The sell-off of bonds coincides with a drop in the US Dollar and signals two things that could be happening. First, investors are continuing to stay with riskier assets in the US equity markets since bonds will not keep up with expected inflation at the current rates. Second, global investors are moving investments to countries that are more quickly emerging from the pandemic and will have economies recover faster. Many countries in Asia have had the pandemic well under control and aggressive lock downs in European countries have now resulted in better recovery data than the US.
The U.S. Dollar (DXY) lost -1.19% for the week, continuing a slide that puts the dollar at its lowest level since April 2018. The weaker dollar is coming as disappointing employment data signals a slower economic recover than originally anticipated. Some weakening of the dollar is expected given current fiscal policy and a weakened dollar can bring eventual inflation that the Fed wants to see. But at some point, other countries will respond with their own fiscal policy to keep currencies from creating unbalanced competition for imports/exports.
Corporate Bond yields continue to drop (prices in the chart rise, yields drop) while short term Treasury Bond yields rose. The tightening spread (bottom chart) between the two types of bonds shows optimism on US corporations’ ability to pay back debts and survive economic challenges.
The put/call ratio (PCCE) ended the week at the low level of 0.500, showing overly bullish sentiment in the market. 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.
Silver (SLIVER) was up +6.63% for the week and Gold (GOLD) was flat at +0.02% for the week. Crude Oil was up +1.28% as demand continues to increase from summer lows. Timber (WOOD) is still in strong demand gaining another +2.54%. Soybean Futures dropped back -2.41% from its highest point since 2016.
Apple (AAPL) and Alphabet (GOOGL) finished the week with gains. Apple broke out of a price consolidation that had progressed over the previous 12 weeks. Alphabet set a new all-time high and is leading the big four mega-caps in performance for the last eight weeks. Microsoft (MSFT) closed the week with a loss but above the 21d EMA and 50d MA lines which were tested three times during the week. Amazon (AMZN) closed the week below the two moving average lines which often act as price support or price resistance areas.
Snowflake (SNOW) which had a massive IPO in September, released its first quarterly earnings report on Wednesday after market close. It put in two days of huge gains on Thursday and Friday.
In addition to Snowflake, there were other growth stocks with huge gains after earnings this week. Zscaler (ZS) rose 26% after earnings, Crowdstrike (CRWD) was up 14%, DocuSign (DOCU) lifted 11% before falling back to a 5% gain, and Cloudera (CLDR) closed up 7% after earnings.
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The Week Ahead
The week will start off without much scheduled news on Monday. Tuesday will bring the EIA Short-Term Energy Outlook which provides a near-term perspective on energy markets. On Wednesday, Job Openings data will be shared that could shed some more light on employment outlook. Crude Oil Inventories will also be released. Initial Jobless Claims comes on Thursday.
Two key price indexes will be released on Thursday and Friday. The consumer price index will provide a view on purchasing trends and inflation. The producer price index will give a better indication of how prices are moving and whether higher prices for producers will be passed on to consumers and result in inflation.
Interesting earnings reports for next week include Cintas Corp (CTAS) on Monday. Fedex (FDX) results will be watched, but guidance on Q4 could have some signals in it about how the retail holiday season is going. Carnival (CCL) will report on Friday. Carnival has steadily gained in value since the vaccine was announced. Also, Nike (NKE) will report on Friday.
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The Bullish Side
The most bullish sign for the market right now is the progress of a bi-partisan stimulus bill that seems to be moving along smoothly. The new bill comes after a multiple-day testimony from the Fed’s Jerome Powell to congress. Also, the Treasury’s Steven Mnuchin agreed with Powell’s recommendations, a reversal from the disagreement they had weeks earlier. Continued QE from the Fed and additional stimulus will give a boost to the market.
The last five weeks show a strong uptrend with the bulls in control. Any sales in equities were quickly met with purchasing by bulls. Even this past week, Monday and Wednesday began with morning dips that were bought back up by the afternoon. The weekly closing range of the index is high but the gains have not been so super-charged to cause worry.
The dollar is continuing to slide. There must be a point where this hurts more than it helps. However, in the short-term a weaker dollar can be in favor for US-based multinational companies. The US Dollar makes exports cheaper and more competitive in international markets. It also increases the value of foreign subsidiary revenues when the revenue is repatriated to the US.
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The Bearish Side
Employment data this week continued to be bleak, a result of more lockdowns and further impact on companies that cannot afford to keep staff on the payroll. This is causing investors to look at the foreign currencies and markets of countries whose economies will more quickly recover from the pandemic. This seems to be isolated to liquidation of US bonds and currencies, but it may extend to the equity markets at some point.
The Put/Call ratio is a contrarian indicator that shows overly bullish or overly bearish sentiment. It typically will be at the extreme bullish side before a market pullback, or the extreme bearish side before a market rally. The indicator was at 0.458 just before the September correction and it was at 0.489 just before the short October correction. The indicator is currently at 0.500. This is also confirmed by the CNN Fear & Greed contrarian indicator which shows an extremely high greed rating of 89.
The US Dollar is still well-above lows from 2018 and earlier lows from 2004-2014. However, the continued slide could indicate investors are nervous about the US economy and want to exchange US Dollar investments for other foreign currencies. That bearish sentiment can extend to other US markets.
The markets may continue to go up, despite several signals of fragility. But that fragility could come to a test with any bad news over the next few weeks. Bad news could be vaccine delays, new lockdowns, US-China tensions, or the failure of congress to pass a new stimulus bill. Right now, the markets are looking to the future, but the wrong news may bring investors focus quickly to the short-term.
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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:
On the downside, there are several key levels to raise caution flags:
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Wrap-up
The market has had a strong five-week rally from the 10/30 bottom, but it has not been an easy journey. The path has been full of rotations often caused by unexpected news around vaccines, politics, or the oil industry. For investors, it’s been a time of searching for new leading sectors and new market leaders that stick. It is not easy to find them.
As we get closer to the holidays, the economic factors are beginning to evolve. The US Dollar is sliding at an accelerating rate. We are learning more about president-elect Biden’s pick for key positions in leadership for the economy. That is giving hints to what fiscal policies may be put in place. And we can see the light at the end of the tunnel for the pandemic, but that means companies who performed well during the pandemic are changing guidance for future quarters.
Nonetheless, we must follow price or miss out on growth opportunities. It is important to have a risk management plan in place. If the market changes course, know what you will do, whether sell or hold, for each of the investments in your portfolio.
Good luck, stay healthy and trade safe!
I am making some changes to the chart presentation and renaming the series to reflect the other data points I'm including. Still based out of the Nasdaq composite.
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.
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Monday, November 30, 2020
Takin’ everythin’ in my stride
Facts: -0.06% lower, Volume higher, Closing range: 79%, Body: 12%
Good: Long lower shadow, filled gap but held support at 12,000
Bad: Dip in morning after a new all-time high
Highs/Lows: Higher high, Lower low
Candle: Outside day, 12% red body with long lower wick.
Advance/Decline: 0.58, about three declining for every advancing stock
Sectors: Technology (XLK +0.67%) and Health (XLV +0.27) were the only gaining sectors. Energy (XLE -5.53%) was the worst preforming.
Expectation: Higher
Gap filled. 12,000 support held. New Intraday all-time high. The Nasdaq held a volatile session today that started with a new all-time high in the morning, but quickly turned down to fill the gap from Friday’s open and test the 12,000 support area. The good news is that it successfully held the support and closed not too far from the day’s highs. The bad news is it caused a lot of churn in many portfolios as there were 3 declining stocks for every 2 advancing stocks. The index closed with a small -0.06% loss, a sideways move that is not unexpected after last weeks gains. The closing range is 79% with a 12% body and a long lower wick that shows the bears ruled the morning, but the bulls saved the day.
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Tuesday, December 1, 2020
I was shaking at the knees
Facts: +1.28% higher, Volume lower, Closing range: 64%, Body: 29%
Good: New all-time high, afternoon dip stayed in upper half of range
Bad: Gap up with lower volume
Highs/Lows: Higher high, Higher low
Candle: Spinning top, longer upper/lower wicks than body.
Advance/Decline: 0.88, more declining stocks than advancing stocks
Sectors: Communications (XLC +1.83%) and Financials (XLF +1.54%) top. Industrials (XLI -0.25%) only losing sector.
Expectation: Sideways
The Nasdaq opened the first session of December on a gap up and further strengthened during the morning on news that a bi-partisan group of senators put a fresh stimulus plan back on the table for negotiation. The gains took the index to a new all-time high before reversing course in the afternoon and closing in the middle of the trading range. The Nasdaq closed with a +1.28% gain on lower volume. The closing range was at 64% with a 29% green body. The spinning top candlestick has upper and lower wicks longer than the body, indicating indecision, which could represent some doubt on whether the new stimulus will pass through the political hoops and become real. The gains on the Nasdaq were not broad across the stocks, with more declining stocks than advancing stocks for the day.
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Wednesday, December 2, 2020
Running out of chips, you got no line in an 8-bit town
Facts: -0.05% lower, Volume lower, Closing range: 93%, Body: 45%
Good: Filled the gap, but closed near the high
Bad: Did not reach yesterday's high
Highs/Lows: Lower high, Lower low
Candle: Longer lower wick similar to Mon
Advance/Decline: 1.21, more advancing stocks than declining stocks
Sectors: Energy (XLE +3.25%) and Financials (XLF +1.10%) were the leading sectors. Materials (XLB -1.28%) was the bottom sector.
Expectation: Higher
The Nasdaq started the day with a pullback, dropping more than a percentage point off Tuesday’s close. Disappointing employment data added to recent sober outlook on economic recovery. Despite that, by 10am the market made a turn for the better and had steady gains with a little back and forth in the afternoon. The index closed with a small -0.05% loss, but with a closing range of 93% and a green 45% body in the upper half of the candle. The day looks very similar to Monday with a dip in the morning led by the bears, but strength in the afternoon as the bulls came back into the market.
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Thursday, December 3, 2020
We ain't no legend, ain't no cause
We're just livin' for today
Facts: +0.23%, Volume higher, Closing range: 25%, Body: 10%
Good: New all-time high, higher low
Bad: Closing range below 40%, sell-off before close
Highs/Lows: Higher high, Higher low
Candle: Shooting star, long upper wick, tiny body
Advance/Decline: 1.54, more advancing stocks than declining stocks
Sectors: Energy (XLE +1.05%) and Real Estate (XLRE +0.74%) were the leading sectors. Utilities (XLU -1.04%) was the bottom sector.
Expectation: Lower
The Nasdaq soared to new highs today after slightly better employment data than expected. The session was already choppy before a selloff in the afternoon caused by disappointing news about supply chain issues impacting the ability to produce vaccines. The result is a shooting star candlestick that prompts a cautious outlook for the next session. The index closed with +0.23% gain on higher volume. The closing range was 23% with a thin body of 10% at the bottom of the candlestick. There were about 3 advancing stocks for every declining stock.
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Friday, December 4, 2020
So look at me now
I'm just makin' my play
Facts: +0.70%, Volume lower, Closing range: 100%, Body: 74%
Good: Close at 100% CR with new all-time high
Bad: Nothing
Highs/Lows: Higher high, Higher low
Candle: No upper wick, tiny lower wick
Advance/Decline: 2.31, more than two advancing stocks for every declining stocks
Sectors: Energy (XLE +5.45%) and Materials (XLB +2.02%) were the leading sectors. Utilities (XLU -1.00%) was the only sector with losses.
Expectation: Higher
What is a great way to end a week? Closing at the top of the trading range with a new all-time high. The Nasdaq opened and climbed throughout the morning, shrugging off bad news on employment numbers and rising on hopes for a completed stimulus bill. There was a small pullback in the afternoon but nothing could hold the index back as it climbed to a new all-time high. The index closed with a +0.70% gain on lower volume. The 100% closing range with a 74% green body represents a very bullish day. It was also broad with two advancing stocks for every declining stock.
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The Meaning of Life (View on the Week)
The Nasdaq gained 2.15% this week, ending the week with a 100% closing range, meaning the index closed at the high for the week. That high was also a new all-time high. The index is now up 38.17% for the year and up 87.96% from the March bottom. Weekly volume for the Nasdaq was 54% higher than the 10w average.
The S&P 500 was up +1.67% for the week and the Dow Jones Industrial was up +1.03%. The Russell 2000 closed with a +2.37% weekly gain. That is the fifth week in a row that the RUT finished with gains. It is also the fifth week in a row to outperform the other major indexes. Small-caps FTW.
The week began with a new all-time high on Monday that turned into a sell-off which tested the 12,000 area. The support held and the index recovered, closing the day with a small loss. That test proved to be a character builder for a week that would bring quite a few challenges. The first challenge started on Monday when OPEC leaders seemed to be at an impasse on oil production. That debate would take all week, not resolving until Friday morning.
Tuesday brought another rotation that produced a back-and-forth on the sector leader charts throughout the day. Mid-cap growth stocks again took the brunt of the rotation, with more money flowing to small-caps and large-caps. Nonetheless, the index had a good gain on the day. Wednesday brought another morning dip after disappointing employment data showed the recovery may be stalling. However, the index was able to recover for a small loss, following an apparent agreement between the Fed and Treasury that more stimulus was needed.
Thursday seemed to be going well. An expected gain in the index was supported by positive Initial Jobless Claims data in the morning. That sent the index to an all-time high, but then Pfizer announced supply chain issues would impact their original plans for scaling vaccine production. The index had a sharp sell-off in the afternoon but somehow was able to close with +0.23% gain. On Friday, the market was ready to shrug off any bad news and finally turn in a big gain to close the week. Ending the week at a 100% closing range with a solid gain, sets up the market for a bullish outlook for Monday.
There have been ups and downs on the Nasdaq the last five weeks, but overall, the market has been bullish. Every week has a higher high and a higher low. The average closing range for each week is at 79.8%, meaning even on down weeks, the bulls bought up any sales that the bears created. Not including the short week for Thanksgiving, the past two full weeks have seen an increase in trading volume included with the gains.
Energy (XLE) is now in its fourth week of leading the sectors list. It did not look that way at the beginning of the week when it sold off sharply amongst disagreements between OPEC members on future oil production. It rose back to the lead as those talks began getting better on Wednesday and OPEC finally had agreement on Friday.
Technology (XLK) and Health Services (XLV) nearly tied for second. They shared the lead on Tuesday. Health Services had a huge boost after the UK announced approval of the Pfizer vaccine. Both Health Services and Technology did not move much after the progress on Tuesday, but it was enough to keep them in position for a solid tying 2nd place ending.
Communications (XLC) led for two days, before being overtaken by the top three and ending the week in fourth place.
Utilities (XLU) was the loser of the week. The defensive play was not needed by investors who seemed optimistic about vaccines, stimulus talks and oil agreements. That was enough optimism to ignore the unemployment data signaling trouble for the economy.
US Treasury Bond Yields rose to their highest point since February with both the US30Y-US10Y and US10Y-US02Y spreads widening. The sell-off of bonds coincides with a drop in the US Dollar and signals two things that could be happening. First, investors are continuing to stay with riskier assets in the US equity markets since bonds will not keep up with expected inflation at the current rates. Second, global investors are moving investments to countries that are more quickly emerging from the pandemic and will have economies recover faster. Many countries in Asia have had the pandemic well under control and aggressive lock downs in European countries have now resulted in better recovery data than the US.
The U.S. Dollar (DXY) lost -1.19% for the week, continuing a slide that puts the dollar at its lowest level since April 2018. The weaker dollar is coming as disappointing employment data signals a slower economic recover than originally anticipated. Some weakening of the dollar is expected given current fiscal policy and a weakened dollar can bring eventual inflation that the Fed wants to see. But at some point, other countries will respond with their own fiscal policy to keep currencies from creating unbalanced competition for imports/exports.
Corporate Bond yields continue to drop (prices in the chart rise, yields drop) while short term Treasury Bond yields rose. The tightening spread (bottom chart) between the two types of bonds shows optimism on US corporations’ ability to pay back debts and survive economic challenges.
The put/call ratio (PCCE) ended the week at the low level of 0.500, showing overly bullish sentiment in the market. 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.
Silver (SLIVER) was up +6.63% for the week and Gold (GOLD) was flat at +0.02% for the week. Crude Oil was up +1.28% as demand continues to increase from summer lows. Timber (WOOD) is still in strong demand gaining another +2.54%. Soybean Futures dropped back -2.41% from its highest point since 2016.
Apple (AAPL) and Alphabet (GOOGL) finished the week with gains. Apple broke out of a price consolidation that had progressed over the previous 12 weeks. Alphabet set a new all-time high and is leading the big four mega-caps in performance for the last eight weeks. Microsoft (MSFT) closed the week with a loss but above the 21d EMA and 50d MA lines which were tested three times during the week. Amazon (AMZN) closed the week below the two moving average lines which often act as price support or price resistance areas.
Snowflake (SNOW) which had a massive IPO in September, released its first quarterly earnings report on Wednesday after market close. It put in two days of huge gains on Thursday and Friday.
In addition to Snowflake, there were other growth stocks with huge gains after earnings this week. Zscaler (ZS) rose 26% after earnings, Crowdstrike (CRWD) was up 14%, DocuSign (DOCU) lifted 11% before falling back to a 5% gain, and Cloudera (CLDR) closed up 7% after earnings.
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The Week Ahead
The week will start off without much scheduled news on Monday. Tuesday will bring the EIA Short-Term Energy Outlook which provides a near-term perspective on energy markets. On Wednesday, Job Openings data will be shared that could shed some more light on employment outlook. Crude Oil Inventories will also be released. Initial Jobless Claims comes on Thursday.
Two key price indexes will be released on Thursday and Friday. The consumer price index will provide a view on purchasing trends and inflation. The producer price index will give a better indication of how prices are moving and whether higher prices for producers will be passed on to consumers and result in inflation.
Interesting earnings reports for next week include Cintas Corp (CTAS) on Monday. Fedex (FDX) results will be watched, but guidance on Q4 could have some signals in it about how the retail holiday season is going. Carnival (CCL) will report on Friday. Carnival has steadily gained in value since the vaccine was announced. Also, Nike (NKE) will report on Friday.
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The Bullish Side
The most bullish sign for the market right now is the progress of a bi-partisan stimulus bill that seems to be moving along smoothly. The new bill comes after a multiple-day testimony from the Fed’s Jerome Powell to congress. Also, the Treasury’s Steven Mnuchin agreed with Powell’s recommendations, a reversal from the disagreement they had weeks earlier. Continued QE from the Fed and additional stimulus will give a boost to the market.
The last five weeks show a strong uptrend with the bulls in control. Any sales in equities were quickly met with purchasing by bulls. Even this past week, Monday and Wednesday began with morning dips that were bought back up by the afternoon. The weekly closing range of the index is high but the gains have not been so super-charged to cause worry.
The dollar is continuing to slide. There must be a point where this hurts more than it helps. However, in the short-term a weaker dollar can be in favor for US-based multinational companies. The US Dollar makes exports cheaper and more competitive in international markets. It also increases the value of foreign subsidiary revenues when the revenue is repatriated to the US.
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The Bearish Side
Employment data this week continued to be bleak, a result of more lockdowns and further impact on companies that cannot afford to keep staff on the payroll. This is causing investors to look at the foreign currencies and markets of countries whose economies will more quickly recover from the pandemic. This seems to be isolated to liquidation of US bonds and currencies, but it may extend to the equity markets at some point.
The Put/Call ratio is a contrarian indicator that shows overly bullish or overly bearish sentiment. It typically will be at the extreme bullish side before a market pullback, or the extreme bearish side before a market rally. The indicator was at 0.458 just before the September correction and it was at 0.489 just before the short October correction. The indicator is currently at 0.500. This is also confirmed by the CNN Fear & Greed contrarian indicator which shows an extremely high greed rating of 89.
The US Dollar is still well-above lows from 2018 and earlier lows from 2004-2014. However, the continued slide could indicate investors are nervous about the US economy and want to exchange US Dollar investments for other foreign currencies. That bearish sentiment can extend to other US markets.
The markets may continue to go up, despite several signals of fragility. But that fragility could come to a test with any bad news over the next few weeks. Bad news could be vaccine delays, new lockdowns, US-China tensions, or the failure of congress to pass a new stimulus bill. Right now, the markets are looking to the future, but the wrong news may bring investors focus quickly to the short-term.
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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:
- Look for the Nasdaq to keep near or above the all-time high set this week of 12,464.23.
- The next round-number resistance could come at 12,500 or 13,000. Round-number resistance is caused by traders’ tendency to put in sell orders at round numbers.
On the downside, there are several key levels to raise caution flags:
- There was some resistance/support visible in intraday trading around the 12,250 area. That has been noted on the chart. If there is a pullback, hopefully the index stays above that area.
- The 21d EMA is at 12,006.42. The index has closed above this moving average line for 22 trading days.
- November support area is at 12,000 and a round-number point. A move back to this line would be a 4% loss and it is critical the index stay above it to keep the rally going.
- The 50d MA is at 11,625.88.
- The low of Thursday, Nov 4 is at 11,394.21. There is a gap to fill below that line.
- September Support line is at 11,300. Dropping to this level would be a sure sign of correction.
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Wrap-up
The market has had a strong five-week rally from the 10/30 bottom, but it has not been an easy journey. The path has been full of rotations often caused by unexpected news around vaccines, politics, or the oil industry. For investors, it’s been a time of searching for new leading sectors and new market leaders that stick. It is not easy to find them.
As we get closer to the holidays, the economic factors are beginning to evolve. The US Dollar is sliding at an accelerating rate. We are learning more about president-elect Biden’s pick for key positions in leadership for the economy. That is giving hints to what fiscal policies may be put in place. And we can see the light at the end of the tunnel for the pandemic, but that means companies who performed well during the pandemic are changing guidance for future quarters.
Nonetheless, we must follow price or miss out on growth opportunities. It is important to have a risk management plan in place. If the market changes course, know what you will do, whether sell or hold, for each of the investments in your portfolio.
Good luck, stay healthy and trade safe!
