Nasdaq Market Update for 10/27

Original Chart

Trend lines drawn from 9/3 (38d), 9/24 bottom (24d), 10/12 pivot day (12d), 10/21 (5d), and today 10/27 (1d).

Tuesday, October 27, 2020
You shake my nerves and you rattle my brain

Facts: +0.64% higher, Volume lower, Closing range: 67%, Green Body: +21%
Good: Upward trend most of the day, staying above the 50d MA
Bad: Could not stay above the 21d EMA
Highs/Lows: Lower high, higher low, inside day
Candle: An inside day with a small green body, nearly identical upper and lower wicks
Advance/Decline: 0.63, 3:2 decliners to advancers
Sectors: Communications ( XLC ) and Technology ( XLK ) performed best. All other sectors lost, with Industrials XLI ) and Financials ( XLF ) performing worst.
Expectation: Sideways or Lower

The follow-up to a terrible Monday was an inside day with gains in the Nasdaq while the rest of the market continued to melt down among mixed signals from a positive Durable Goods report, but an unexpected dip in Consumer Confidence. The Nasdaq ended the day up +0.64% higher, driven by big tech and hot communications sector stocks. The day was a bit choppy, but the overall channel for the day was upward. The index poked above its 21d EMA four times but settled at the end of the day just below the key line. The candle is inside the highs and lows of the previous day which typically is a continuation (vs a reversal). Keeping that in mind, it did close in the 67% range of the candle with a green 21% body. There were many more declining stocks than advancing stocks at a ratio of 3:2 (the ratio is worse in the broader NYSE). Volume was lower and continues to be much lower than recent average volume . The index closed below the 21d EMA , but above the 50d MA, both key lines that investors commonly watch.

The S&P500 SPX -0.30%) and Dow Jones Industrial (DJI -0.80%), had decidedly bearish inside days, spending most of the day trading below their 50d MA. The Russell 2000 (RUT -0.90%) also had another loss, falling below the 21d EMA . Communication Services ( XLC +0.64%) was the best sector of the day, driven by gains from Facebook FB +2.23%) and Google GOOG +0.87%). Technology ( XLK +0.50%) sector also had a great day but was driven mostly by the larger stocks Apple AAPL +1.35%) and Microsoft MSFT +1.51%). All other sectors lost on the day with Industrial ( XLI -2.19%) and Financial ( XLF -1.83%) sectors ending the day with the worst performance. Utilities ( XLU -0.08%) had early gains and topped the sector list at times, then faded near close.

The VIX volatility index increased +2.74% for another gain on top of Monday’s surge. The key indicator is now up over 20% for the week and nearing the early September highs.

Treasury Bond spreads shrunk for another day. This is something to keep an eye on, but the spread is still in an upward trend channel from an August pivot .

The real winners of the day were the mega-caps. Microsoft MSFT +1.51%), Apple AAPL +1.35%), Google GOOG +0.87%), Amazon ( AMZN +2.47%), Tesla TSLA +1.05%) and Facebook FB +2.23%) all turned in solid gains for the day. Microsoft and Apple still closed below their 21d EMA , but Amazon regained this key support to join Google above the line. Facebook has a nice base forming heading into earnings . Beyond the mega-caps, the performance is mixed among favorite growth stocks. Dexcom DXCM -8.94%), Draft Kings ( DKNG +2.49%), Workhorse Group WKHS -6.91%), AMD (-4.07%) were among the losers. Pinterest (PINS +4.08%), Etsy ETSY +4.33%), Peloton (PTON +2.58%) and Datadog DDOG +1.57%) were some of the winners. Notice these lists of winners and losers among the favorite growth stocks is rotating at an accelerated space.

Microsoft MSFT ) and AMD AMD ) reported earnings with Microsoft down -1.71% and AMD up +0.34% in afterhours trading, despite both beating expectations. Tomorrow’s reports will include Mastercard (MA) and Visa (V), Boeing (BA), and ServiceNow (NOW) which will all be significant, with several reporting before market open. In economic news, Crude Oil Inventories will be announced at 10:30a.

Continuing today’s trend direction would result in a +0.34% gain tomorrow, taking the index back above the 21d EMA and signaling some recovery from the recent downtrend. Better news from stimulus talks or coronavirus treatments could accelerate that to meet up with the longer trend lines at +2.45%.

The index is still trading below the 21d EMA and above the 50d MA which seems to be a channel for now. In addition, there is a channel that formed from the 10/12 pivot day with a well-defined upper and lower channel line. Following the channel and the regression trend from the 10/12 pivot day as well as the 5d trend, would mean a -0.99% loss and land the index right above the 50d MA.

I’m keeping the June Support line in view, but its ~12.5% below the Tuesday 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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