Market Week In Review - 11/9/2020 - 11/13/2020The 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 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 larger view on the past week
What's coming in the next week
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 9, 2020
Oh life, it’s bigger
It’s bigger than you know
Facts: -1.53%% lower, Volume higher, Closing range: 3%, Body: 82%
Good: Nothing
Bad: Negative expectation breaker, not much pause on the way down
Highs/Lows: Higher high, lower low, bearish engulfing candle
Candle: Tiny top wick from morning, sell-off rest of day
Advance/Decline: 2.00, two advancing stocks for each declining stock
Sectors: Energy (+14.28%) and Financials (XLF +9.21%) were top. Technology (XLK -0.72%) and Communications (XLC -0.85%).
Expectation: Sideways or Lower
The market turned itself upside down again with a negative expectation breaker following the news of an effective Coronavirus vaccine from Pfizer (PFE +7.69%) and BioNTech (BNTX +13.91%). Investors quickly exited stocks that have grown during the pandemic and rushed into companies that have been weighted down such as travel and energy companies. The Nasdaq started with gains in the morning, but quickly turned those gains into losses that never stopped into close. The index closed down -1.53% with a closing range of 3% and a thick red body of 82%. The candle is a bearish engulfing, with a higher high and a lower low than the previous day. However, advancing stocks outnumbered declining stocks at a 2 to 1 ratio. Who benefited from the day? Small caps, lots of them.
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Tuesday, November 10, 2020
Change don't come at once
It's a wave building before it breaks
Facts: -1.37% lower, Volume lower, Closing range: 54%, Body: 28%
Good: Successful test of 21d EMA
Bad: Choppy back and forth day after dip at open
Highs/Lows: Lower high, lower low, continuation candle
Candle: Thin body, closes in middle of candle, with longer bottom wick
Advance/Decline: 1.49, three advancing stocks for every two declining stocks
Sectors: Energy (+3.24%), Consumer Staples (XLP +1.97%), Industrials (XLI +1.76%) were top. Technology (XLK -1.86%) was at the bottom.
Expectation: Sideways or Lower
The market on Tuesday continued its rotation from big Technology and Communications stocks into small-cap and energy stocks. Initiated by the news on Monday of a vaccine for Coronavirus and hopes the economy could recover sooner than expected. The Nasdaq, heavy on technology stocks, has taken the brunt of the sell-off of stocks that have done well thus far in 2020. The index finished down -1.37% on lower volume than Monday, but higher than average volume for recent weeks. The candle has the properties of a continuation candle with a small 28% red body and a 54% closing range. It leaves me wondering if the index will move sideways from here or have further losses.
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Wednesday, November 11, 2020
Whatever it takes
'Cause I love the adrenaline in my veins
Facts: +2.01% higher, Volume lower, Closing range: 95%, Body: 84%
Good: Up the whole day, closed near highs
Bad: Lower volume
Highs/Lows: Higher high, higher low
Candle: Very tiny wicks, sold green body
Advance/Decline: 1.30, a ratio of about 4:3 advancing to declining stocks
Sectors: Technology (XLK +2.37%) far above the others. Energy (XLE -1.03%) and Materials (XLB -1.49%) at the bottom.
Expectation: Sideways
As rotations often go, the move earlier this week into Energy, Transportation and Leisure stocks was a bit too far and needed to swing back the other way. The Nasdaq benefited from that swing back to Technology stocks which are still in-play until the pandemic is truly behind us. The index is up +2.01% today and moved upward almost the entire day, ending the day with a 95% closing range and 85% green body. Volume was lower than the previous days and fell below the 50d average volume. The positive day was a pleasant surprise after the past two days, but I think we can expect more of the unexpected in coming days and weeks.
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Thursday, November 12, 2020
You'll never find your gold on a sandy beach
Facts: -0.65% lower, Volume higher, Closing range: 24%, Body: 51%
Good: Higher high, Higher low
Bad: Could not hold days high, finished near the low on higher volume
Highs/Lows: Higher high, higher low
Candle: Larger upper wick, thick body.
Advance/Decline: 0.48, 2 declining stocks for every advancing stock
Sectors: Consumer Staples (XLP -0.27%) and Health (XLV -0.37%). Energy (XLE -3.23%) and Materials (XLB -2.11%) at the bottom.
Expectation: Sideways or Lower
The market started the day with some energy when Initial Jobless Claims came in less than expected showing some positive news against continued economic worries surrounded by the pandemic. However, quickly sold off led by the Energy sector after Crude Oil Inventories showed a surprise increase when a decrease was expected. Core CPI came in less than expected and could be a sign of continued economic weakness. The Nasdaq fell -0.65% on slightly higher volume than the previous day. Volume is still below average for recent weeks. The candle has a closing range of 24% with a 51% red body. The upper wick is slightly higher showing the bears won the day. The Nasdaq had two declining stocks for every advancing stock, a better result than the broader market.
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Friday, November 13, 2020
I walk alone, I walk alone
Facts: +1.02% higher, Volume lower, Closing range: 85%, Body: 26%
Good: Closing range near intraday highs
Bad: Lower volume
Highs/Lows: Higher high, higher low
Candle: Long lower wick, thin body, nearly an inside day.
Advance/Decline: 2.89, almost 3 advancing stocks for every declining stock
Sectors: Energy (XLE +3.64%) and Real Estate (XLRE +2.29%) at the top. Utilities (XLU +0.99%) and Technology (XLK +0.85%) at the bottom.
Expectation: Sideways or Higher
The Nasdaq was left out of the all-time high close party where the other indexes celebrated today. It was still a good day, but the focus was on sectors other than Technology, which is heavily represented in the Nasdaq. Producer Price Index (PPI) data came in higher then expected while Core PPI (which excludes Energy and Food) came in lower than expected. Investors seemed to attribute that to the Energy sector, which was the top performing sector of the day.
The Nasdaq index rose +1.02% and ended the day with an 85% closing range and a 26% green body in the upper half of the day. Volume was lower than the prior day. The longer lower wick was formed from morning lows which were not revisited through the rest of the day. A short upper wick formed near close as investors exited positions heading into the weekend. There were three advancing stocks for every declining stock in the Nasdaq.
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The Meaning of Life (View on the Week)
The week of rotations. If your week started the same as mine, it was early Monday morning, and I was putting in my typical orders to create new positions in my favorite growth stocks. The election seemed behind us and it was time for the post-election rally.
And then it happened. The good news that was bad news; bad news for my growth stocks. Pfizer and BioNTech announced data from trials showed a 90% effectiveness rate for their vaccine. I was looking at the Zoom video chart at the time the news came out and watched it plunge.
Investors quickly exited growth stocks that had benefited from the pandemic lockdowns. But not before making a new all-time high for the Nasdaq. That all-time high was short lived as the tech-heavy Nasdaq sold off to other sectors. Where did they go? Two places.
First, they went to stocks that have been held down the pandemic. Those included Transportation stocks such as airlines, Travel stocks such as hotels and Leisure stocks including Cruise lines and Movie theatres. AMC as an example, rose 51.41% on Monday. The other big winner of the day was Energy stocks that will benefit from these other sectors picking back up activity.
Second, investors moved to small caps who also will benefit from an economic recovery. The Russell 2000 index rose 6% for the week compared to the Nasdaq composite index that lost -0.55% for the week.
Not all technology growth stocks were left in the dust. The rotation eventually rolled back somewhat on Wednesday when investors bought back big names like Apple, Microsoft and Amazon. Along with the big names several growth stocks were bought back heavily, but nonetheless ended the week mostly with losses.
Energy (XLE +17.11% WoW) was the clear winner of the week. Straight out of the gait, Energy benefited from the news that an effective vaccine could be available soon. The Energy sector would benefit from the economic recovery of several of sectors including Transportation, Travel and Leisure.
Financials (XLF +8.29% WoW) followed in a distance second. Banks have a lot to benefit from an economic recovery including higher yields in bonds as investors move back into equities.
Those two sectors stood tall above the rest who all performed more closely to the S&P 500 performance.
Technology (XLK -0.31% WoW) was the only sector to end the week with losses. A clear metric of what we already knew - that investors rotated out of popular technology stocks that benefited from the pandemic lockdowns.
US Treasure Bond Yields were up for the week. The 30Y-10Y spread tightened, but the 10Y-2Y spread is back near highs not seen since 2018. That does not necessarily warrant concern by itself but is something to continue to watch. The yields are still too low to attract investors out of equities. However, higher yields will impact where investors focus in the market. The higher yields drive interest rates and may signal a move toward value stocks and away from growth stocks which tend to be heavier on debt to rapidly grow business.
The big four mega-caps did not escape the rotation madness. Apple and Google are up for the week while Microsoft is down. Amazon had the worst week among the big four, ending the week under it’s 21d EMA and 50d MA. Apple and Microsoft both found themselves below these key moving averages earlier in the week but closed back above them by Friday. Depending on their sector, the other mega-caps had mixed results for the week.
The put/call ratio spiked toward the bearish side on Wednesday, but quickly moved back below the 0.7 bullish threshold. The contrarian indicator can show when there is too much bullish sentiment or too much bearish sentiment in the market. The indicator is still above the areas the proceeded corrections earlier this year.
Gold and Silver ended the week flat. Crude Oil futures gained ground. The big story continues to be aluminum. Beer and soda companies are struggling to keep up with demand. Yes, we are all drinking too much during the pandemic.
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The Week Ahead
Next week the story will be about Retail and Consumer Staples. Earnings from big companies like Tyson Foods, Walmart, TJX, Target, Ross, Lowe’s will give investors a clear view in how consumer spending is recovering. The indicators from this past week, including Consumer Price Index, Producer Price Index and Consumer Confidence were mixed so next week’s earnings will be watched closely.
Nvidia will also announce earnings next week, one of the only big tech to release next week.
There will be comments made by the Federal Open Market Committee throughout the week. These comments usually contain subtle hints to monetary policy changes that may be on the horizon.
Core Retail Sales data will be released on Tuesday. Construction and Real Estate data will be released on Wednesday along with the weekly Crude Oil updates.
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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:
11965.54 is the 10/12 pivot day high and currently putting resistance on the index. Passing this will be the first test for next week.
Passing 12108.87 is the new all-time high. The index was only there briefly on Monday before selling-off.
On the downside, there are several key levels to raise red flags, many similar to what we watched for last week:
Tuesday’s low of 11,424.61. Dropping this low would be a signal of significant weakness.
The low of Thursday, Nov 4 is at 11,394.21. There is another gap to fill below that line.
The 21d EMA is at 11533.87. The index successfully tested that line and closed above it this past week.
October Support is at 11,400.
September Support is at 11,300, and just below the 50d MA of 11,308.07.
The next area to watch is the July support area at 10,600. Approaching that area would be a significant pullback and put the market back into correction.
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Wrap-up
That was a crazy week. Growth stock portfolios were ripped apart and watchlists shredded. This weekend will be a good time to pause and look at the big picture of what is going on in the market. What are the new trends to emerge as the market looks past the pandemic? What companies are likely to find strength coming out of the pandemic. The energy, travel and leisure companies may continue to recover or there may be more tough times ahead.
Even with the pandemic in a second wave and new lockdowns possible, the market still seems to be looking beyond that, anticipating an end. On the other hand, it is very real that we are not out of the woods. Economic indicators are mixed across the board. Retail and Consumer Staples earnings next week will be watched very closely for how these sectors are performing now and what their outlook is for the next quarter.
Watch closely the comments from FOMC executives and their confidence levels for economic recovery and any changes to monetary policy.
Good luck, stay healthy and trade safe!
