Daily Market Update for 4/22

Original Chart

Notes

Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.

Thursday, April 22, 2021

Facts: -0.94%, Volume higher, Closing range: 19%, Body: 55%
Good: Higher high, higher low
Bad: Mid-day reversal on high volume
Highs/Lows: Higher high, higher low
Candle: Reversal candle, gap up with long upper wick, turning into a lower close
Advance/Decline: More declining stocks than advancing stocks
Indexes:SPX (-0.92%), DJI (-0.94%), RUT (-0.31%), VIX (+6.91%)
Sectors: Real Estate ( XLRE -0.43%) and Health ( XLV -0.45%) were top. Technology ( XLK -1.17%) and Materials ( XLB -1.69%) was bottom.
Expectation: Sideways or Lower

Market Overview

The day started by honoring the expectation we had of a move higher, but a mid-day reversal busted that expectation, erasing the gains and sending prices plummeting. The reason was obvious. News broke that Biden would propose a huge increase in capital gains tax. So we’ll look closely at the impact and what we might expect from here.

The Nasdaq closed with a -0.94% decline on higher volume . The higher volume distribution starting at the 1pm news alert. The 94% red body is below a longer upper wick that formed from the morning rally before the news. The closing range is 19% and shows some recovery from the initial selling of the news. There were more declining stocks than advancing stocks.

The Russell 2000 (RUT) rallied 1.25% in the morning before downturn. It ended the day with a -0.31% loss, fairing the best among the major indexes. The S&P 500 (SPX) declined -0.92% while the Dow Jones Industrial average (DJI) declined -0.94%, both giving up most of yesterday’s gains.

The VIX volatility index rose +6.91%.

There was a sharp change in the sector performance list at the news. All sectors lost gains in the morning and ended the day with a loss. Growth sectors moved to the bottom along with Materials ( XLB -1.69%) which has been outperforming the other sectors recently. Real Estate ( XLRE -0.43%) and Health ( XLV -0.45%) were top sectors for the day. Technology ( XLK -1.17%) and Materials ( XLB -1.69%) were at the bottom.

Economic Indicators

The US Dollar DXY advanced +0.18%.

The US 30y treasury bond and US 10y and 2y note yields all declined for the day.

High Yield Corporate Bond ( HYG ) prices declined while Investment Grade Corporate Bond ( LQD ) prices advanced .

Silver SILVER ) and Gold GOLD ) declined. Crude Oil (CRUDEOIL1!) declined. Timber (WOOD) declined for another day. Copper (COPPER1!) and Aluminum (ALI1!) both declined.

Investor Sentiment

The put/call rose to 0.639. The put/call ratio ( PCCE ) is a contrarian indicator that shows overly bullish or overly bearish investor behavior. The 0.7 level is considered normal. As it approaches 0.60 (overly bullish ) and below, watch for a possible pullback in the market.

The CNN Fear & Greed index is leaning toward the greed side.

Market Leaders

The four biggest mega-caps declined for the day. Amazon ( AMZN ) lost -1.58%, Microsoft MSFT ) was down -1.31%, Apple AAPL ) declined -1.17% and Alphabet GOOGL ) lost -1.13%. They all still trade above the 21d EMA and bases are intact.

AT&T (T) gained +4.15% after a great earnings report and didn’t seem impacted by the afternoon swing (although it did close off intraday highs after morning profit taking). Abbot Labs ( ABT ), Salesforce.com ( CRM ), and Mastercard (MA) were also at the top of the mega-cap list, but all with under 1% gains. Most mega-caps declined for the day with high-growth names such as Nvidia NVDA ) and Tesla TSLA ) taking the worst hits.

The growth stock list was not terribly impacted by the afternoon sell-off. About half of the daily update list closed the day with gains. Solar Edge ( SEDG ) and Enphase ( ENPH ) topped the list with 7.69% and 3.74% gains. Crowdstrike ( CRWD ) and FUTU Holdings ( FUTU ) also ended the day near the top of the list. At the bottom of the list were Draft Kings ( DKNG ), PENN Gaming ( PENN ), Grow Generation ( GRWG ) and Twitter TWTR ).

Looking ahead

On Friday the Manufacturing and Services Purchasing Managers Index data will be released. The data is an indicator for economic activity the respective sectors. New Home Sales data will also be released in the morning.

Friday will close the week with earnings reports from Honeywell (HON) and American Express AXP ).

Trends, Support and Resistance

The index popped above 14,000 in the morning before the afternoon downside reversal. It seemed to find support at around 13,800.

The trend line from the 3/5 low points to a +1.50% gain for Friday.

The five-day trend line points to a -0.14% decline. If today’s one-day trend continues, it would mean a -1.37% loss for tomorrow.

Wrap-up

The news that Biden may raise the capital gains tax was enough to send the market into a short panic today. Although the tax would be a ways off, it’s likely investors would take gains in the current year under the current tax rules rather than wait for later years. That sell-off at the end of year is what the market will look to price in now. You saw it show up in the hit to growth sectors and high growth stocks, especially stocks that have big gains over the past year.

But there’s a good possibility that the market just overreacted today to some disappointing news. A good amount of money that is in the market is protected from tax since it comes in from retirement plans and passive indexes. To what degree that’s true is what we’ll find out as Biden’s proposal makes it through the hurdles in its way and the market prices in the impact .

The news was enough to bust our expectation for Higher today and rethink where things might head for tomorrow. Based on the candlesticks , we have to observe the a downside reversal and expectation for lower tomorrow. But the higher high and higher low opens up the possibility for sideways. Sideways or lower. Certainly, we’d welcome another expectation breaker and move higher tomorrow.

Stay healthy and trade safe!

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