Market Week In Review - 12/14/2020 - 12/18/2020The 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:
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, December 14, 2020
Once upon a time you dressed so fine
Facts: +0.50%, Volume higher, Closing range: 7%, Body: 7%
Good: HH/HL, gain on higher volume
Bad: Long upper wick, low closing range
Highs/Lows: Higher high, Higher low
Candle: Long upper shadow, very slim body
Advance/Decline: 0.99, about even on advancing and declining stocks
Sectors: Technology (XLK +0.36%), Consumer Discretionary (XLY +0.15%).
Expectation: Lower
The Nasdaq opened the week with a gap up as first doses of the vaccine for COVID19 were being delivered to frontline health workers. The index climbed from there to a morning high, but then sold off the rest of the day to close near the open. The long upper wick of the candle indicates the buyer momentum in the morning turning to selling in the afternoon. The Nasdaq closed the day with a +0.50% gain on higher volume. The closing range of 7% with a 7% body and no lower wick shows the bears took over in the afternoon. There were about an even amount of advancing stocks and declining stocks.
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Tuesday, December 15, 2020
Hey, Mr. Tambourine Man, play a song for me
Facts: +1.25%, Volume lower, Closing range: 99%, Body: 40%
Good: HH/HL, recovered from mornings lows, closing range
Bad: Lower volume
Highs/Lows: Higher high, Higher low
Candle: Good sized body in upper half over long lower wick
Advance/Decline: 2.31, more than two advancing stocks for every declining stock
Sectors: Utilities (XLU +1.97%), Energy (XLE +1.97%) were top. Consumer Staples (XLP +0.24%) was bottom.
Expectation: Higher
The Nasdaq started with a small gap up on Tuesday, dipped to a morning low and then gained, never looking back and closing near the all-time high set last week. The index closed with a +1.25% gain, a closing range of 99% and a 40% body in the upper half of a bullish candle. The morning selling by the bears was turned into afternoon buying by the bulls. Optimism for a stimulus and good news on Apple production increase for the first half of 2021 helped fuel the gains. Volume was lower than the previous day. Breadth was good with more than two advancing stocks for every declining stock.
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Wednesday, December 16, 2020
I wasn't born to lose you
Facts: +0.50%, Volume higher, Closing range: 76%, Body: 39%
Good: HH/HL, no gap up, low just below yesterday's high
Bad: Some selling at close
Highs/Lows: Higher high, Higher low
Candle: Medium sized body in middle of the candle, smaller wicks
Advance/Decline: 0.93, less breadth than yesterday
Sectors: Technology (XLK +0.68%) and Consumer Discretionary (XLY +0.66%) were top. Utilities (XLU -1.16%) was bottom.
Expectation: Sideways or Higher
The Nasdaq found another new all-time high today, putting in a series of higher lows and higher highs over the past four days. Retail Sales data came in lower than expected, but Crude Oil Inventories showed a high demand for oil. But the news the market really responded to was the Fed's continuation of a bond buying program that has brought so much liquidity to the equity markets. The index closed with a +0.50% gain on higher volume. The closing range was 76% with a body of 39% in the middle of the candle. There was less breadth than yesterday with about one advancing stock for every declining stock.
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Thursday, December 17, 2020
Well, I see you got your
Brand new leopard-skin pillbox hat
Facts: +0.84%, Volume higher, Closing range: 99%, Body: 49%
Good: HH/HL, upper half of candle is green body, closing at the high
Bad: Small gap up
Highs/Lows: Higher high, Higher low
Candle: Upper half of candle all green body, no top wick.
Advance/Decline: 2.11, two advancing stocks for every declining stock
Sectors: Real Estate (XLR +1.17%) and Materials (XLB +1.15%) were top sectors. Communications (XLC -0.25%) and Energy (XLE -0.47%) were the only losing sectors.
Expectation: Sideways or Higher
The market opened up on mixed good and bad economic news. Building Permits and Housing Starts were both higher than anticipated, giving momentum to the Real Estate and Materials sectors. Broader market excitement was dampened by a higher than expected Initial Jobless Claims report. Investors shrugged off the news by noon and markets rose in anticipation of a stimulus deal. The Nasdaq closed at another new all-time high, rising +0.84% on higher volume. The closing range of 99% and a green 49% body in the upper half of the candle represent the morning selling turning to afternoon buying. There were two advancing stocks for every declining stock and 209 stocks with new all-time highs on the Nasdaq.
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Friday, December 18, 2020
How many roads must a man walk down
Facts: -0.07%, Volume higher, Closing range: 65%, Body: 32%
Good: Finished in upper half of range
Bad: Lower low, close below open, options expiration caused late day gains
Highs/Lows: Higher high, Lower low
Candle: Outside day with high closing range, long lower wick
Advance/Decline: 0.85, more declining stocks than advancing stocks
Sectors: Materials (XLB +0.45%) and Consumer Staples (XLP +0.22%) were top sectors. Real Estate (XLRE -1.73%) and Energy (XLE -1.67%) were bottom sectors.
Expectation: Sideways or Higher
The Nasdaq gave us one more all-time high to finish the week, and then reversed for most of the day as the bears took over. The day ended with 10 minutes of buying, likely to cover futures and options contracts that expired today. The index ended with a -0.07% loss on higher volume, a mostly sideways move for the end of the week. The closing range of 65% was at the bottom of a 32% red body. There were more declining stocks than advancing stocks.
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The Meaning of Life (View on the Week)
The Nasdaq erased last week's loss and continued its climb. The index closed the week with a +3.05% gain on higher volume. The 86% closing range and 82% green body show a solidly bullish week. There is barely any lower wick and the upper wick was created from Friday's intraday volatility on a quadruple witching day to end the week. The week felt bullish with many growth stocks performing very well throughout the week.
The S&P 500 (SPX) gained +1.25% for the week, while the Dow Jones Industrial (DJI) gained +0.44%. But the big news continues to be the Russell 2000 (RUT) which put in its seventh week in a row of big gains, gaining +3.05% this week.
Heading into the week, it seemed everything would be supercharged for gains. Vaccines rolled out on Monday to the priority front-line health workers. The market opened with a gap-up on the great news. But that news was weighed down by the announcement of new lockdowns in the US and around the world. Nervous investors sold equities and treasury bond yields rose. And yet, the index still closed the day with gains and near the opening price. You could almost hear the collective sigh of relief at close among investors.
Tuesday through Thursday were all bullish for the Nasdaq. On same days there were lopsided gains and not all the indexes participated. By Thursday close, everything was looking great. Then Friday's session opened with the anticipation of a quadruple witching day. A witching day is when multiple futures and options contracts all expire on the same day, causing a higher volume of transactions in the market.
Friday's session took the index back down to Wednesday's close, filling a gap created by Thursday's open. It looked dismal heading into the late afternoon. While several growth stocks were accelerating, the broader market was declining. That changed in the last 20 minutes when the index bounced off the day's low and gained 0.80% to close the day with a very small loss.
Stepping back and looking at the weekly chart, the Nasdaq had higher highs and lower lows for the past five weeks with closing ranges averaging in the upper 3/4 of the candles. Volume was higher this past week mostly because of the quadruple witching day on Friday. The index has been trading just below the middle line of an upward channel drawn from the March market bottom.
The sectors took on a character we have not seen for some time.
Technology (XLK) is back to leading the sectors for this week. Helped by a number of breakouts in technology growth stocks. Some of those were fueled by speculation in security stocks following a wide and troublesome security breach that impacted both the government and private sector.
Consumer Discretionary (XLY) came in second, after very briefly passing Technology on Wednesday morning. Retail Sales data and Santa Claus are likely the reasons for the great performance.
Materials (XLB) also performed well on Building Permits and New Housing Starts data that came in better than expected.
The big loser for the week was Energy (XLE). This is after five weeks of leading the sector list. Despite vaccine availability and positive oil prices giving it a boost midweek, the nervous sentiment caused by new lockdowns worldwide have put downward price pressure on the sector.
US Treasury Bond Yields were higher for the week . The spreads between long term and short term bonds widened. The sale of bonds causes yields to rise and it provides some view into investors' confidence in the economy.
To further see investor confidence in the economy, look at corporate bonds compared to short term treasury bonds. The flat price for High Yield Corporate bonds (HYG) shows investors are keeping these bonds while the lower price for shortterm 3-7 treasury bonds (IEI) indicates investors are selling government bonds. As the IEI/HYG ratio gets lower, it shows more bullish sentiment for US corporations and the economy.
The US dollar (DXY) declined -0.82% for the week. The dollar is at a support/resistance area formed in the first quarter of 2018. The lower dollar value compared to other currencies can be a boon for US equities as multinational companies will benefit from the lower dollar. Exports become less expensive in international markets while imports become more expensive in the US, causing consumers to shift to domestic products. In addition, the subsidiaries of multinational companies will have a positive impact on performance as the value of revenues are worth more when repatriated to the US dollar and reported in quarterly earnings.
The put/call ratio (PCCE) ended the week at 0.596. This level is off the lows seen in November, but is still on the overly bullish side. 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 (SILVER) was up +7.79% for the week while Gold (GOLD) rose +2.28% for the week. The sudden decline in GOLDSILVER ratio tends to be a positive indicator. Crude Oil was up +4.57% as demand continues to increase from summer lows. Timber (WOOD) is still in strong demand gaining another +3.68%. Copper (COPPER!1) continued to climb with a +2.53% gain while Aluminum (ALI1!) gained +2.46%. The rising prices of these commodities reveals increased economic activity including new construction (WOOD), additional electronics manufacturing and infrastructure (COPPER) and more demand for consumer staples (ALUMINUM).
Among the biggest four mega-caps, only Alphabet (GOOGL) closed the week with a loss. All four of the mega-caps are trading above their 10w MA, which is a good sign for the broader market. These mega-caps will influence the indexes, which influences investor sentiment. Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) all had breakouts from volatility contraction patterns in the past week.
Checking in on the prior week's high-profile IPOs. AirBnB is 7% above the opening day close, while DoorDash (DASH) is about 8% below opening day close.
In a classic "Sell the news" fashion, Pfizer (PFE) and Moderna (MRNA) both dropped in price this week despite the milestone of vaccines being approved and shipped to the US and globally.
SolarWinds (SWI) sold off sharply, losing 40% of its value for the week, after news of a major security breach that impacted government agencies, utilities and the private sector. That had the opposite impact on several other security stocks. One example, Fortinet (FTNT) gained 14% for the week.
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The Week Ahead
Tuesday will bring an update on GDP for Q3. Along with GDP, we'll also get a view into corporate profits, prices (inflation/deflation) and consumer spending for Q3. Existing Home Sales for November will be an early indicator of current consumer confidence and economic activity.
Weekly Initial Jobless Claims will be released on Wednesday and is expected to continue its increase. More housing data will be made available including New Home Sales and Housing Price indexes (for October). Personal spending data and early consumer sentiment readings for December will also be released. Finally, weekly Crude Oil Inventories will show how demand has been impacted by recent lockdowns.
Thursday, markets will close early for the Christmas holiday. That will come after Core Durable Goods Orders data, which will indicate levels of manufacturing activity.
Friday, the market will be closed for Christmas.
There are not many earnings reports during the holiday week. Cintas (CTAS) and Paychex (PAYX) release earnings on Tuesday and Wednesday respectively. They may provide some additional insight into current employment levels. These uniform and paycheck support stocks would be directly impacted by higher/lower levels of employment.
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The Bullish Side
It's easy to be bullish this week. Every day turned in a higher high, with the last three days being new all-time highs. The news of vaccines becoming available in the US is another big step forward to end the pandemic and get the US economy back on track.
The fed made two big statements this week that are bullish. First, it announced that the bond buying programs will continue into the foreseeable future. This bond buying will continue to lower yields on bonds, causing investors to keep money in equity markets. Higher liquidity, usually means higher stock prices.
The fed also did a stress test of the US banking system late on Friday. After the test, they announced banks can resume stock buyback programs. That means the fed is much less nervous about bank failures, a good sign for progress back to a fully functioning US economy.
Commodity prices are soaring on high demand. Wood is soaring on new construction. Copper is soaring on new network infrastructure and electronics manufacturing. Aluminum is soaring as so many consumer staples (including my beer) require aluminum in the manufacturing process.
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The Bearish Side
We are still waiting for stimulus. The market has been rising in anticipation of a stimulus bill being signed into law this week. Unfortunately, it did not happen before the end of Friday. Congress had to approve and get the Presidents signature for a two-day extension on spending to keep the government from shutting down. If a stimulus is not approved by Sunday, the markets could open Monday with a dip down as investors reprice stocks without the stimulus. Good news is already priced in and bad news could be disastorous.
Tesla will be added to the S&P 500 on Monday. It will be the sixth largest company on the S&P 500 when its added (Alibaba is bigger, but not part of the US S&P 500). This could be another case of Sell the news. The price has increased steadily in anticipation of the addition and spiked near close on Friday as call options expired. If investors take profits on Monday, expect a negative impact to the S&P 500 and the Nasdaq.
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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 high of Friday at 12,809.60 will be the first test. Let's see if the index can put in a new daily high to start the week.
The next round-number resistance could come at 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:
12,432.71 is the low of this week. Staying above the low would put in another week of higher lows.
The 21d EMA is at 12,354.52. The index has closed above this moving average line for the last 32 trading days.
The support area of 12,250 proved itself last week. Hopefully, that area will hold the index above that price level. Dropping below would be a warning shot from the bears.
November support area is at 12,000 and a round-number point. A move below this line would raise more flags for investors.
The 50d MA is at 11,895.50. The index is 7% above this line. Testing the 50d MA will make a lot of investors nervous, already causing a big hit to portfolios.
September Support line is at 11,300. Dropping to this level would be a sure sign of correction.
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Wrap-up
It's Christmas week! And more importantly, we are getting closer to the end of 2020! With gambling and marijuana stocks having huge gains recently, investors must be telling us athat 2021 will be a lot more fun.
While the support of the fed is encouraging, the market is still expecting a stimulus bill to be sent to the President and signed. If that doesn't happen on Sunday, expect some pullback from recent highs. The Brexit deal is also continuing to drag on and can offer more pessimism in the market.
With that out of the way, we still have to look at the higher highs and higher lows on increased volume and be encouraged. Growth stocks and breakout stocks are all acting well on a week-by-week basis. Investors still do not have many options outside of equity markets to put money.
Keep risk under control, but staying engaged seems the right thing to do right now.
Good luck, stay healthy and trade safe!
