"Successful trading is about finding the rules that work and then sticking to those rules." — William O'Neil
After yesterday’s late afternoon change in character, the market reversed back to the behavior from the previous several days: modest gains, 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 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.
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.
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 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.
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.
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 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.
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 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.
