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:
- 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
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.
Monday, November 16, 2020
Take my hand
We’re off to never never-land
Facts: +0.80% higher, Volume higher, Closing range: 89%, Body: 63%
Good:Recovered from mid-day dip to finish near highs
Bad: Not much, solid day
Highs/Lows: Higher high, higher low
Candle: Thick green body, tiny upper wick.
Advance/Decline: 2.39, almost 5 advancing stocks for every 2 declining stocks
Sectors: Energy ( XLE +6.58%) and Energy ( XLE +6.58%) at the top (yes, I counted it twice). Health ( XLV -0.19) is the only sector with a loss.
The Nasdaq started the week off with a decent gain that showed a positive reaction to comments from the November FOMC meeting. FOMC committee members Daly and Clarida made public comments around 14:00pm that monetary policy , including quantitative easing and interest rates, would remain the same while watching the economy closely. Investors responded positively to the remarks as the indexes pivoted back toward highs of the day. The Nasdaq ended up +0.80% for the day with a 63% green body and an 89% closing range. Volume was higher than the previous day. The candle is mostly body with a lower wick formed from opening levels and a short upper wick from closing near the daily highs. The index closed just under the 10/12 pivot high, a key line to watch for resistance later this week on the way to a new all-time high.
Tuesday, November 17, 2020
When I’m without it
The more that I want it
Facts: -0.21% lower, Volume lower, Closing range: 48%, Body: 14%
Good: Higher high, Higher low trend continues
Bad: Resistance, Could not break into 12,000
Highs/Lows: Higher high, higher low
Candle: Indecision candle with open and close in a tight range
Advance/Decline: 1.09, just slightly more advancing stocks
Sectors: Energy ( XLE +1.02%) and Real Estate ( XLRE +0.05% at the top. Utilities ( XLU -1.96%) is the worst performing.
Today the Nasdaq had a lot of back and forth but within a tight trading range. After shaking off lower than expected retail sales growth, the index grew to a higher high than the previous day. But later in the day sold off perhaps due to dire economic outlooks from FOMC members and the Fed’s Jerome Powell. At the end of the day, the index closed at a -0.21% loss with a small 14% red body and a closing range of 48%. Even though volume was lower than the previous day, its higher than the recent average and shows the undecided outcome between bulls and bears for the day. The index was unable to approach the 10/12 pivot-day high and resistance point, something that needs to happen to keep the rally alive.
Wednesday, November 18, 2020
I’m only happy when it rains
Pour your misery down
Facts: -0.82% lower, Volume higher, Closing range: 1%, Body: 66%
Bad: Character change, break from trend
Highs/Lows: Lower high, lower low
Candle: No lower wick, long red body
Advance/Decline: 0.63, 3 declining stocks for every advancing stock
Sectors:Industrials ( XLI -0.45%), Consumer Discretionary ( XLY -0.68%) were best performing. Energy ( XLE -2.91%) and Utilities ( XLU -1.96%) were worst performing.
The market ended today with a character change, raising questions about where it may go in the near term. The competing optimism and pessimism with the pandemic and economy led to a day and a half of indecision which finally turned to a downside move at the end of Wednesday. The character change is noted and will follow closely over the next few days. The index closed with a -0.82% loss on higher volume . The candle has a red body of 66% and a closing range of 1%, leaving no bottom wick. There were 3 declining stocks for every 2 advancing stocks on the index.
Thursday, November 19, 2020
‘Cause I try and I try and I try and I try
Facts: +0.87% higher, Volume higher, Closing range: 95%, Body: 83%
Good:Bullish all day, close at top of range
Bad: Did not beat yesterday’s high
Highs/Lows: Lower low, lower high
Candle: Very tiny wicks, thick green bullish day
Advance/Decline: 1.86, almost 2 advancing stocks for every declining stock
Sectors: Energy ( XLE +1.64%) and Technology ( XLK +0.81%) were top performing. Utilities ( XLU -1.00%) was worst performing.
Expectation: Sideways or Higher
After yesterday’s late afternoon change in character, the market reversed back to the behavior from the previous several days: modest gains, focus small-caps , energy as the leading sector and rising breadth across advancing stocks. The only thing that did not occur is a higher high and higher low, something to look for on Friday. The Nasdaq closed Thursday with a +0.87% gain and a 95% closing range. The 83% green body and +12.7% increase in volume represented the very bullish day after a small dip at market open. There were just under 2 advancing stocks for every declining stock.
Friday, November 20, 2020
We may lose, and we may win
Though we will never be here again
Facts: -0.42% lower, Volume higher, Closing range: 3%, Body: 45%
Good: Higher high, Higher low
Bad: Sold in afternoon, close at the day’s lows
Highs/Lows: Higher high, Higher low
Candle: Body in lower half of candle
Advance/Decline: 1.10, about even advancing and declining stocks
Sectors: Utilities ( XLU +0.02%) was the only gaining sector. Technology ( XLK -1.03%) was the worst performing.
Expectation: Sideways or Lower
The market showed signs of nervous investors today likely from a disagreement between the Treasury Department and the Fed. That nervousness turned into a sell-off in the afternoon that ended with the index at its daily lows. We did get the higher high and higher low that I hoped for in yesterday’s update. There were also bright spots among some growth stocks with just over half of stocks in the Nasdaq ending the day with gains. Otherwise, it was a disappointing end to a very sideways week which closed almost exactly where it opened. The index ended today with a -0.42% loss on slightly higher volume than yesterday. The closing range of 3% and the 45% body in the lower half of the candle show the gains in the morning were lost in the afternoon.
The Meaning of Life (View on the Week)
The week ended almost exactly where it started. A weekly doji candlestick representing a trading range of about 1.5% shows how tightly the market traded to complete an inside week and close within the 0.55% range of the last three weekly closes. Even as the other indices made new highs, the Nasdaq could not find its way above 12,000 which is now an area of resistance. The index closed with just a +0.22% gain, a 50% closing range, and a thin 4.2% green body. Weekly volume was at its highest since June.
At the start of the week, investors shrugged off any bad news, encouraged by updates on vaccines, positive Retail earnings results, and the continuing Fed monetary policy of low interest rates and quantitive easing. That sentiment started to change late on Tuesday after negative outlooks shared by the FOMC and the Fed’s Jerome Powell. Tuesday’s candlestick showed indecision.
The decision for the market was apparent on Wednesday with a sharp sell-off late in the day and several signals of a character change. But then a positive expectation breaker came on Thursday even amidst worsening employment data. It did not last long. Friday took a turn for the worse in the afternoon with nervous investors reducing positions and selling into the close.
Energy ( XLE ) was the big winner of the week for the second week in a row. Additional positive vaccine news signaled the possibility of several sectors recovering and driving demand for oil and gas. Although ending the week with the most gains, it did briefly pullback on Wednesday as the market started to shift.
After a poor performance last week, the Technology ( XLK ) sector tracked closely to the performance of the S&P 500 index . Utilities ( XLU ) performed the worst this week, although it was the best performing sector during Friday trading. Health Care ( XLV ) also did not have a great week, spending much of the week as the worst sector until the honor was passed to Utilities.
US Treasury Bond Yields were down for the week as investors bought the safe haven instruments. US30Y-US10Y and US10Y-US02Y spreads both tightened. Although some movement to bonds is clear, it is not yet significant to cause concern and prices are still in a downward trend.
Corporate bond yields also declined for the week (prices go up, yields go down). However, the spread between treasury bonds and corporate bonds widened showing investors prefer the corporate bonds and trust companies can weather economic pressures. If the opposite were true, you’d see more selling of corporate bonds and prices going down.
The put/call ratio ended the week at an alarming level of 0.535. A contrarian indicator, a put/call ratio below 0.7 signals overly bullish sentiment which typically proceeds a pullback. The indicator was at 0.458 just before the September correction and it was at 0.489 just before the short October correction.
The U.S. Dollar weakened for the week but is still above a support level which has held since summer. A weaker dollar could help global companies and will eventually lead to inflation which the Fed wants to see as a healthy economic indicator. However, it is not likely foreign banks will allow their currencies to appreciate as the dollar weakens and would counter with their own QE adjustments. It is something to keep an eye on as the pandemic continues its global economic impact .
Silver was down for the week. Gold was flat. Crude Oil is closing in on new highs since the March crash. The other commodities have seen huge gains in prices over that last several weeks. The WOOD ETF is up 70% from March lows.
Except for Google , the four big mega-caps are trending down with lower highs and lower lows. Much of the focus the last two weeks has gone to small-cap stocks and at times rotating back into pandemic growth stocks. Google and Apple ended the week above the key 21d EMA and 50d MA lines. But Microsoft and Amazon closed below the two key indicator lines. All of them underperformed the Nasdaq index for the week.
The Bullish Side
The biggest bullish support for the market right now is the continuation of quantitive easing from the Fed. Keeping interest rates low, holding bond yields down while also making asset purchases. It all provides a tremendous amount of support to the equity markets. Those low interest rates are also supporting higher than expected Housing Starts and Existing Home Sales. Low interest rates reduce costs for existing corporate debt are driving record activity among businesses to borrow either for survival or for acquisitions of other companies.
Although the index could not surpass 12,000, it held up above the 11,700 area and traded within a tight range. The last three weeks closed within a 0.55% range creating a bullish three-weeks tight pattern with increasing volume . It shows to me that investors are in a wait-and-see pattern. There is a balanced amount of selling and buying. Any sell-offs have been bought back as investors “buy the dip”, shift positions for future growth, and wait for a turn in economic news, release of the vaccines or closure to the elections.
I have talked in the past that Energy ( XLE ) very often leads the sectors out of a significant correction. You can go back and compare sector performance during major corrections and see that at least for a few weeks, Energy leads. And it makes sense for this economy that Energy will lead back to health given the number of sectors that depend on Oil and Gas as they recover. Energy has led the sectors for the past two weeks. It took a significant hit Wednesday on investor fear. However, it is still in the lead.
The Bearish Side
On the bearish side, the disagreement between the Treasury and the Fed was a surprise on Thursday as the Treasury said several emergency lending programs would be allowed to expire at the end of the year. Although the programs have gone under-utilized it was a safety net for companies which gave confidence to investors. But it was also the Treasury and Fed working together to support the economic recovery. If they start to disagree as we wait for a new administration, this could be a big risk for the short-term.
Another bearish surprise for this week was the Initial Jobless Claims which rose for the first time since September. Companies are reducing staff again, preparing for what could be an extended lockdown during the holidays. Its unknown what impact the lockdowns will have on Retail sales. So far, retailers (even brick-and-mortar retailers) have seemed to weather the pandemic well.
At the end of this week, investors stayed in equities but moved back to the safe-haven Utilities ( XLU ) sector. There was also a resurgence in prices for pandemic growth stocks – businesses that thrived during the first lockdowns. The combination means investors could be anticipating more downside for the overall market in the coming weeks.
The Week Ahead
Next week is Thanksgiving which means we will be light on economic news and earnings reports, but there are still some significant ones to watch. The market will be closed on Thursday and will close early at 1pm on Friday.
Probably the most important economic numbers will be Consumer Confidence released on Tuesday and more employment data on Wednesday. Core Durable Goods Orders on Wednesday will give a heads up on manufacturing activity.
Several Chinese companies will release earnings before market open on Monday. Electric scooter manufacturer Niu ( NIU ) and smartwatch maker Huami ( HMI ). On Tuesday, technology companies such as Dell Technologies (DELL), HP Inc . ( HP ), Autodesk ( ADSK ) and VMWare ( VMW ) will announce earnings . Also on Tuesday, several Retailers including Gap Inc ( GPS ), Dollar Tree ( DLTR ), Best Buy ( BBY ) and Burlington Stores ( BBY ) will announce earnings .
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. We hoped for a pass over this line this past week and will continue to look for it as 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:
- Thursday’s low of 11,760.98 is the bottom of the tight trading channel for this past week.
- The 21d EMA is at 11663.02. We could see a test of this line before moving higher. Going below it would be a signal of weakness.
- The low on 11/10 of 11,424.61. Dropping this low would start to test October support.
- The low of Thursday, Nov 4 is at 11,394.21. There is a gap to fill below that line.
- October Support line is at 11,400 and just above the 50d MA of 11,387.61.
- September Support line is at 11,300.
- The next area to watch is the July support area at 10,600. Approaching that area would be a significant pullback of 10% and certainly put the market back into correction status.
If you look back to the beginning of November, the market had several days in a row of significant gains and gap up opens to reach a new all-time high. Those accelerated gains on top of the rotations that occurred in the past two weeks require some pause for the index which is exactly what we got this past week.
The uncertainty around the election and transition period for a new administration are putting oil on the fire of more pandemic lockdowns and higher unemployment. Expect more swings in prices and rotations as investors try to decide what sectors will benefit and what sectors will suffer from news. Typically, there will be an initial overreaction and money will rotate back to stocks and investments that are steadily doing well.
The more important thing to watch for is a breakdown in support. If more setups are failing and more stop losses kicking in, then its time to reduce exposure and raise cash.
Good luck, stay healthy and trade safe! Happy Thanksgiving!
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