"Successful trading is about finding the rules that work and then sticking to those rules." — William O'Neil
A better-than-expected jobs report was enough to continue the trend in Technology and Communications stocks that started yesterday. Eyes remain on the Fed and inflation . Still, a drop in the US dollar and US treasury rates, in addition to lowering expectations from a few retailers, gave investors some relief that the economy was not overheating out of control.
You shake my nerves, and you rattle my brain! There is no question what investors worried about today. They took risk off the table at open ahead of the Fed minutes. Then morning comments from Fed member Quarles started to attract investors back in but at lowering volume . When the meeting minutes were released, volume popped back up as the market reacted.
Surprisingly robust earnings reports from big retail before market open sent major indices on a rally in the morning. Still, the bullish exuberance couldn’t hold on, and the indices closed the day with losses. Despite the downward pressure on the indexes, the growth stock list had a relatively good day.
Monday started with a dip, just like the past several Mondays. This week’s difference is that the bulls entered in the afternoon, bringing the major indices back to near their open. Small Caps performed best on the day as inflation still weighed on big tech and mid-cap growth.
The focus was all on inflation this week. The updated consumer price index numbers were due on Wednesday, and investors entered the week expected the worst. On top of inflation , an oil pipeline closure on the east coast meant even more upward price pressure for consumers. Monday started the week with a terrible-looking marubozu candle which has no upper or lower wick. Prices went straight down from open to close. Utilities was the leading sector as investors took defensive positions. Five stocks declined for every advancing stock.
It was a mix of defensive and cyclical stocks that led the sector list this week. Only three sectors ended the week with gains, while the high growth sectors took the biggest declines.
A lighter volume but positive day followed lower than expected economic indicators, including Retail Sales and Consumer Sentiment. Perhaps the economic recovery is pausing as consumers react to the increases in prices. A little water on the fire could be good news to investors who are afraid things are overheating.
Buy the dip? That seems to be what drove prices higher today on optimism after a positive jobs report. But caution is still in the market with Utilities as the leading sector, growth stocks essentially not participating, and an advance/decline ratio still below 1.0.
Consumer price index data was higher than expected which is great for the US dollar , but sent investors into a selling frenzy as they reacted to higher inflation and the possibility of higher interest rates. It’s a conflicting mix of being glad the economy is recovering, but also trying to price in the impact to valuations and potential reactions by the Fed to an overheated economy.
A gap down must have shocked the bulls into action as the major indices crawled their way back up from morning lows. The results show a rotation happened underneath a market sell-off. Growth stocks benefited from the rotation while the broader market had more than two declining stocks for every advancing stock.
