Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
Monday, September 20, 2021
Facts: -2.19%, Volume lower, Closing Range: 59%, Body: 14% Red
Good: Support at 14,500 turned to late afternoon rally
Bad: Gap-down, selling all-day
Highs/Lows: Lower high, Lower low
Candle: Thin red body with a longer lower wick
Advance/Decline: 0.14, seven declining stocks for every advancing stock
Indexes:SPX (-1.70%), DJI (-1.78%), RUT (-2.44%), VIX (+23.55%)
Sector List: Utilities ( XLU -0.93%) and Real Estate ( XLRE -1.24%) at the top. Financials ( XLF -2.74%) and Energy ( XLE -4.22%) at the bottom.
Expectation: Sideways or Lower
The narrow gains that held up markets last week turned into broad selling today, causing a sharp decline in all four major indexes. Fears that China’s Evergrande would default on credit obligations exasperated worries over the health of the economy.
The Nasdaq closed -2.19% lower, after plunging almost -3.5% intra-day. The gap-down at open put the index below its 50d moving average line. After the morning sell-off, a rally in the last hour of trading brought the index back to a 59% closing range. The result is a small red body in the middle of a short upper and long lower wick. Volume was higher than average, albeit lower than Friday’s extraordinarily high volume .
The Russell 2000 (RUT) performed the worst among the major indexes, declining -2.44%. The S&P 500 (SPX) fell -1.70%, and the Dow Jones Industrial Average (DJI) dropped -1.78%. The VIXVolatility index was up 38.41% intraday but ended the day with a +23.65% gain.
All sectors declined for the day. Utilities ( XLU ) and Real Estate ( XLRE ) were the best performing sectors as investors turned to safe-havens. Financials ( XLF ) and Energy ( XLE ) were the bottom two sectors for the day. During the rally in the final hour, Financials and Energy performed best as they attempted recovery from significant losses.
US Treasury Yields declined for the day as the gap continues to close between long-term and short-term yields. High Yield ( HYG ) corporate bonds sold off sharply while Investment Grade ( LQD ) corporate bond prices increased. Commodities were down across the board except for Gold which rose for the day.
Apple ( AAPL ), Microsoft ( MSFT ), Amazon ( AMZN ), and Alphabet ( GOOGL ) all gapped down at open. Only Microsoft and Alphabet ( GOOGL ) closed the day above their 50d moving average. Only two mega-caps, Pfizer ( PFE ) and Eli Lilly ( LLY ) gained for the day. The worst performing mega-cap was Alibaba (BABA), declining more than -5%.
The daily update growth list also had only two advancing stocks, Paycom ( PAYC ) and Chewy ( CHWY ). Chinese stocks UP Fintech ( TIGR ) and NIU ( NIU ) were the worst performers in the list, declining -8.6% and -9.2%, respectively.
China’s Evergrande made public over the weekend that they may not meet debt obligations due on Thursday. Some compare the possible default of the property giant with the failures of Lehman Brothers in the financial crisis. However, many experts believe the speculative comparison is incorrect. Nonetheless, it gave investors another thing to worry about on Monday.
Building Permits and Housing Starts data will be available on Tuesday.
Trends, Support, and Resistance
The Nasdaq dove well below its 50d moving average line. The selling continued until just above the 14,500 area. A rally in the last hour recovered some of the losses.
The trend line from the 9/7 high points to a +0.50% gain for tomorrow.
The five-day trend line ends with a -0.02% decline. Such a sideways move for the index would be a welcome pause.
The one-day trend line leads to another -2.27% decline for Tuesday.
Fears on top of a weak market last week turned into panic on Monday. It seemed some sanity entered back into the picture with the final hour of buying. Maybe the economy is ok. Maybe Evergrande isn’t so much of a doomsday event. Maybe, but we’ll have to see how the market carries itself tomorrow ahead of the Fed’s announcements on Wednesday.
The expectation is for Sideways or Lower on Tuesday.
Stay healthy and trade safe!
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