Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
Wednesday, September 22, 2021
Facts: +1.02%, Volume higher, Closing Range: 71%, Body: 53% Green
Good: Gain on higher volume , high closing range with close above 50d moving average
Bad: Longer upper wick from fade after intraday high, but not terrible
Highs/Lows: Higher high, Higher low
Candle: Large green body under a long upper wick
Advance/Decline: 1.85, almost two advancing stocks for every declining stock
Indexes:SPX (+0.95%), DJI (+1.00%), RUT (+1.48%), VIX (-14.33%)
Sector List: Energy ( XLE +3.08%) and Financials ( XLF +1.67%) at the top. Communications ( XLC -0.05%) and Utilities ( XLU -0.06%) at the bottom.
Expectation: Sideways or Higher
The Fed’s optimistic view on the economy and reluctance to set an exact timeline for bond tapering got a positive reaction from investors. The US Dollar strengthened while the Treasury yield curve flattened.
The Nasdaq closed with a +1.02% gain. Volume was higher than the previous day. The candle has a 53% green body with a 71% closing range. The upper wick is longer than the lower wick and formed after a fade from the intraday high set in the mid-afternoon. The morning half of the session was very bullish and brought the index above the 50d moving average line. There were almost two advancing stocks for every declining stock.
The Russell 2000 (RUT) outperformed with a +1.48% gain. The Fed’s outlook is particularly supportive to small caps as big tech and large caps benefited from the slump last year. The Dow Jones Industrial Average (DJI) gained +1.00%. The S&P 500 (SPX) advanced +0.95%.
The Fed reiterated previous comments that the economy is still progressing despite headwinds from the Delta variant and that inflation remains transitory in their view. They will begin bond tapering soon, and more Fed officials see an interest rate hike in 2022 to be likely, with another in 2023. The fact that the fed did not announce a firm date on bond tapering while still maintaining a positive outlook on the economy is the likely cause of the very positive reactions from the market.
The announcement that Evergrande in China would make its bond interest payment this week, after announcing earlier that it would delay the payment, gave investors confidence heading into the morning.
The US Dollar ( DXY ) strengthened another +0.26%. 30y and 10y Treasury Yields dropped sharply while the 2y Treasury yield gained, flattening the yield curve. Both High Yield ( HYG ) and Investment Grade ( LQD ) Investment Bonds prices gained for the day. Crude Oil , Timber, Copper , and Aluminum all gained with Aluminum Futures shooting back to a new record high.
The put/call ratio rose for the day, ending at 0.729. The higher ratio is likely from speculative bets placed before the Fed’s announcement. The CNN Fear & Greed index moved back into Fear but remained near the Extreme Fear level.
The largest four mega-caps gained for the day but still have some work to do to get above their key moving average lines. Nvidia ( NVDA ) and Netflix ( NFLX ) were the leading mega-caps of the day, gaining more than 3%. Facebook ( FB ) tumbled -3.99% after the company admitted that Apple’s privacy changes are impacting its business. Adobe ( ADBE ) also lost more than -3.07% despite a strong earnings report that beat estimates. Investors took some profits while some analysts still believe the stock is overpriced.
The majority of stocks in the daily update growth list gained for the day. RobinHood (HOOD) topped the list with a +10.85% gain after it announced it would add cryptocurrency wallets to its offering. Digital Turbine (APPS) was second in the list with a +7.48% gain. Peloton (PTON) was at the bottom of the list with a -6.31% decline.
Initial Jobless Claims data will be available on Thursday. Manufacturing and Services PMI will give an indication of economic activity.
Trends, Support, and Resistance
The Nasdaq rallied in the morning to rise above its 50-day moving average line. It neared the 15,000 support/resistance , setting the intraday high just after the Fed’s announcement. It closes the day just above the 50-day moving average line.
The one-day trend line points to a +0.76% gain for tomorrow to continue the rally.
The Fed has carried a careful tone throughout the pandemic. While delivering a positive outlook for the economy, the Fed’s Jerome Powell noted that much still depends on the pandemic. He announced that bond tapering would start soon but did not set a hard date for beginning or a deadline for when to complete the tapering. Although interest rate hikes are now likely in 2022, officials still see the 2022 and 2023 interest rate rises to be small.
The higher close on higher volume today and closing above the 50d moving average line show strength. There was resistance in the ~15,000 area, which may continue in tomorrow’s session. The expectation is for Sideways or Higher tomorrow.
Stay healthy and trade safe!
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