Nasdaq Market Update for 10/26

Original Chart

Trend lines drawn from 9/3 (37d), 9/24 bottom (23d), 10/12 pivot day (11d), 10/20 (5d), and today 10/26 (1 day).

Monday, October 26, 2020
Hold tight, we’re in for nasty weather
Burning down the house

Facts: -1.64% lower, Volume higher, Closing range: 42%, Red Body: -25%
Good: Support at the end of the day, brought the index back over 50d MA
Bad: Everything else, gap down, closed below the 21d EMA and took a visit below the 50d MA
Highs/Lows: Lower high, lower low
Candle: A large body for a spinning top , but nonetheless shows clearer the action from bears and bulls.
Advance/Decline: 0.23, more than 4 decliners for every advancer
Sectors: All sectors down with Utilities ( XLU ) performing best, holding to a -0.03% loss. Energy ( XLE ) was the worst sector with a -3.59%, erasing gains from last week. Keeping an eye on Technology ( XLK ) this week, it’s near the middle of the sector list with a -2.17% loss and underperforming the SPX .
Expectation: Sideways

Well, crap. Welcome to Monday. News over the weekend reset expectations coming into the morning, but there was still hope that support would firm up and it initially did that as the market opened, coming close to Friday’s high. Then the reversal, 30 minutes into trading, came after New Home Sales data disappointed and it was a long slide from there. At 1:30p, the Nasdaq was down nearly 3% and below the key 50d MA support line. At that point, the bulls came in and brought it back to end the day with a -1.64% loss. The candle looks like a spinning top , albeit a fat one, with a 25% red body and a 42% closing range. There were more than four declining stocks for every advancing stock. Volume was slightly higher than Friday, but still well below recent average volume . The index closed below the 21d EMA for the first time since 9/25.

The S&P500 had a slightly different character with no morning gains. It was all downhill most of the day, with some buying in the afternoon to finish at -1.86% loss. All sectors finished with a loss, but Utilities ( XLU ) held up the best with only a -0.03% loss. This has been the safe haven sector for investors to stay in the market, instead of going to bonds or commodities . Health ( XLV -1.11%), Consumer Staples ( XLP -1.28%), Real Estate ( XLRE -1.21%) all outperformed the broader index. The first two likely because of pandemic news and the third benefiting from the drop in new home sales ( XLRE is dominated by management companies, that benefit from less demand and cheaper prices in real estate). The Russell 2000 (RUT -2.15%) wiped away all gains from the previous week, performing almost as bad as the Dow Jones Industrial (DJI -2.29%).

Treasury Bond spreads shrunk but remained in an upward channel from the last few weeks.

The mega-caps had a mixed day. Microsoft MSFT -2.84%) closed well below it’s 50d MA line, likely being impacted by SAP (SAP -23.16%) that revised guidance downward over the weekend, sending a signal there may be trouble in enterprise software. Google GOOG -3.08%) gave up about half of it’s gains from last week. Apple AAPL +0.01%) and Amazon ( AMZN +0.08%) faired a bit better, ending the day with small gains, although both are holding below key indicators of 21d EMA and 50d MA. The storied stock from last week, Snap (SNAP -4.40%) finally gave up some profits, while there was a lot of carnage with other growth stocks. There were some positive stories among growth stocks. Deckers Outdoor (DECK +2.58%), Shopify (SHOP +1.15%), ZScaler (ZS +1.33%), Zoom Video (ZM +1.23%), Wayfair (W +2.07%) all had good days while the market was struggling.

Microsoft MSFT ) and AMD AMD earnings after close tomorrow. Core Durable Goods Orders data comes in before market and Consumer Confidence data at 10:00am.

I’ll start with the positive trend lines , although I think some sideways action is in order after a negative expectation breaker day. Nonetheless, unexpected news can help put some positive gains in the market. With enough energy, the index could find its way back to the correction regression trend line (which is still on an upward slope) and the trend from the 9/24 bottom. That would be an unlikely +3.30% gain.

The index landed below the 21d EMA , but above the 50d MA. This provides both a resistance and support point that points to a sideways move. The trend line from the 10/12 pivot day, points to a -0.40% loss that keeps the index within this channel. The one day trend points to more losses and would result in -2.50% loss.

I’m keeping the June Support line in view, but its ~12% below the Monday close and there are 3 key support levels that the index would have to break thru. If we have a significant downside that takes the index below 11,300 again, then I’ll add that possibility back to the chart.

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