Daily Market Update for 1/5

Original Chart

Notes

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

Wednesday, January 5, 2022

Facts: -3.34%, Volume lower, Closing Range: 1%, Body: 91% Red
Good: Lower volume on decline
Bad: Close well below the 21d EMA and 50d MA
Highs/Lows: Lower high, Lower low
Candle: Almost all red body, small upper wick, no lower wick
Advance/Decline: 0.18, more than five declining stocks for every advancing stock
Indexes:SPX (-1.94%), DJI (-1.07%), RUT (-3.30%), VIX (+16.68%)
Sector List: Materials ( XLB -0.01%) and Energy ( XLE -0.02%) at the top. Technology ( XLK -3.07%) and Real Estate ( XLRE -3.25%) at the bottom.
Expectation: Lower

Market Overview

All indexes and sectors decline in late afternoon trading after the Fed released its December meetings minutes that showed a higher-than-expected concern over inflation combined with the tightening labor market.

The Nasdaq dropped -3.34%. The index was already on the decline before the Fed meeting minutes made things worse. The candle is 91% red body with a small upper wick and the 1% closing range means no lower wick. There were more than five declining stocks for every advancing stock.

The Dow Jones Industrial Average (DJI) held up the best, declining just -1.07%. The S&P 500 (SPX) fell -1.94%. The Russell 2000 (RUT) lost -3.30%. The VIXVolatility Index ( VIX ) rose +16.68%.

All S&P 500 Sectors declined. Materials ( XLB -0.01%) and Energy ( XLE -0.02%) were the best performers. Technology ( XLK -3.07%) and Real Estate ( XLRE -3.25%) had the most significant losses.

ADP Nonfarm Employment Change for December more than doubled the expectation, adding 807,000 payrolls compared to an expected 400,000. Both the Services PMI and Markit Composite PMI for December exceeded forecast. Crude Oil Inventories came in higher than expecting, signaling some softening of demand compared to the forecast.

The US Dollar index DXY ) declined -0.10%. Long and short term US Treasury Yields rose sharply. High Yield ( HYG ) and Investment Grade ( LQD ) Corporate Bond prices declined. Aluminum Futures are on the rise.

All four largest mega-caps declined for the day with Alphabet GOOGL ) having the most significant loss, falling -4.59%. Three of the four continue trading below their 21d EMA and 50d MA. Apple AAPL ) is testing the 21d EMA , but closed above the line today.

Pfizer PFE ) was the top mega-cap of the day with a +2.02% gain. Salesforce.com ( CRM ) lost the most in the mega-cap list, declining -8.28%.

The only two stocks in the Daily Update Growth List to gain today were Chinese stocks. Niu Tech ( NIU ) and Alibaba (BABA) gained +2.41% and +1.34%. The worst losers, GrowGeneration GRWG ), Roku (ROKU), and Enphase ( ENPH ) all declined more than 11%.

Looking ahead

The weekly Initial Jobless Claims numbers will be available before the market opens. Imports/Exports data will also be in view in the early morning.

After the market opens, the ISM Non-Manufacturing Purchasing Managers Index will publish.

Trends, Support, and Resistance

The Nasdaq dove below several key support areas today, seemingly in a free-fall only stopped by the market closing.

It’s unlikely to happen in a single day, but if the index bounces and moves back toward the trend line from the 12/20 low, that would be a +4.76% gain.

The five-day trend line is in decline, but the index would still gain +1.41% if it returned to that line.

If the one-day trend continues, that would mean a -2.69% decline tomorrow with the index moving to the 200d moving average.

Wrap-up

Despite having already anticipated bond tapering and rate hikes, Investors were surprised today after the Fed minutes showed an even more aggressive move to control inflation . We already felt the impact today on the changed outlook from institutional investors. The question that remains is how much adjustment is needed and to what extend that will continue to weigh bond and equity markets.

The expectation for tomorrow is further correction. Lower prices for the Nasdaq.

Stay healthy and trade safe!

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