Daily Market Update for 9/28

Original Chart

Notes

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

Tuesday, September 28, 2021

Facts: -2.83%, Volume higher, Closing Range: 2%, Body: 87% Red
Good: Support above 14,500
Bad: Gap down at open, sell-off thru morning, close below key moving averages
Highs/Lows: Lower high, Lower low
Candle: Mostly red body, small upper wick, smaller lower wick
Advance/Decline: 0.17, almost six declining stocks for every advancing stock
Indexes:SPX (-2.04%), DJI (-1.63%), RUT (-2.25%), VIX (+23.93%)
Sector List: Energy ( XLE +0.34%) and Real Estate ( XLRE -0.60%) at the top. Communications ( XLC -2.44%) and Technology ( XLK -2.96%) at the bottom.
Expectation: Lower

Market Overview

Stocks fell on Tuesday among fears that the US government could shut down and default on its debt if there is no agreement in Congress to raise the debt ceiling this week. Treasury yields rose while interest-rate sensitive Technology stocks led markets lower.

The tech-heavy Nasdaq declined -2.83% for the day. Volume was higher than the previous day. The candle is 87% red body with small upper and lower wicks, and the closing range is 2%. There were nearly six declining stocks for every advancing stock.

The Russell 2000 (RUT) declined -2.25%. The S&P 500 (SPX) fell -2.04%. The Dow Jones Industrial Average (DJI) lost -1.63%. The VIXVolatility Index soared +23.93%.

Energy ( XLE +0.34%) was the only sector to gain for the day. Real Estate ( XLRE -0.60%) was the next best sector but declined more than a half percent. The worst two sectors for the day were Communications ( XLC -2.44%) and Technology ( XLK -2.96%).

Consumer Sentiment released in the morning came in lower than forecast. Jerome Powell and Janet Yellen warned Congress that an economic crisis would occur if politicians did not agree to raise the debt ceiling.

The US Dollar index DXY ) rose to its highest in 2021 with a +0.34% gain today. The US 2y Treasury Yield rose to its highest point since March 2020, while the 30y and 10y yields reached their highest level in three months. High Yield ( HYG ) and Investment Grade ( LQD ) Corporate Bond prices dropped sharply.

Gold declined as the US dollar strengthened. Crude Oil Futures continue to rise. Timber fell significantly for the day. Aluminum Futures reached back to record highs.

The put/call ratio ( PCCE ) rose to 0.836. the CNN Fear & Greed index moved back toward Extreme Fear but remained in the Fear range.

The largest four mega-caps led the market lower, with all four closing below their 21d EMA and 50d MA lines in a clear breakdown of support. Only two mega-caps, Alibaba (BABA) and Exxon Mobil XOM ), gained on the day. Nvidia NVDA ) incurred the most significant loss with a -4.44% decline. Technology and Communications stocks dominated the bottom of the mega-cap list.

Alibaba was also the only gainer in the daily update growth list. Cloudflare (NET) was the biggest loser in the list, with a -7.92% decline.

Looking ahead

Pending Home Sales and Crude Oil Inventories become available after the market opens. The more important news will be any progress in Washington toward raising the debt ceiling.

Jabil ( JBL ) releases earnings before the market opens.

Trends, Support, and Resistance

The Nasdaq dipped well below its 21d EMA and 50d MA before getting support above the 14,500 area.

The one-day trend line points to another -0.61% decline for tomorrow.

A return to the five-day trend line ends with a +1.05% advance.

Getting back to the trend line from the 9/20 low would result in a +1.98% gain on Wednesday.

Wrap-up

When we approached the Fed’s tapering decision last week, I thought we might see higher yields and a 2-3% or worse decline following the news. Instead, it’s taken the fear of a government default on debt to scare investors out of stocks and bonds finally.

What can we expect from here? As with all politics, we can expect a lot of drama and a long, drawn-out decision. Unless surprise progress is made, fears will only grow as we approach Janet Yellen’s estimate of October 18th as the day the government will run out of funding. Yields will continue to rise as investors demand higher returns for higher risk as the government heads toward possible default. Technology and Growth stocks will continue to head lower.

The expectation for tomorrow is lower.

Stay healthy and trade safe!

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