Daily Market Update for 1/18

Original Chart

Notes

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

Tuesday, January 18, 2022

Facts: -2.60%, Volume higher, Closing Range: 9%, Body: 68% Red
Good: Nothing
Bad: Move below 200d moving average on higher volume
Highs/Lows: Lower high, Lower low
Candle: Thick red body with longer upper wick
Advance/Decline: 0.23, more than four declining stocks for every advancing stock
Indexes:SPX (-1.84%), DJI (-1.51%), RUT (-3.06%), VIX (+18.76%)
Sector List: Energy ( XLE +0.40%) and Real Estate ( XLRE -0.68%) at the top. Financials ( XLF -2.23%) and Technology ( XLK -2.40%) at the bottom.
Expectation:

Market Overview

Equity markets fell for another day as Treasury bond yields hit their highest level since the pandemic began.

The Nasdaq (IXIC) dropped -2.60% today. Volume was higher than the previous day, marking a significant distribution day for the index. The closing range of 9% comes below a red body that covers 68% of the candle. The longer upper wick was formed in the morning as the index attempted to move back above the 200d moving average but hit resistance. There were more than four declining stocks for every advancing stock.

Small-caps had the most significant decline. The Russell 2000 (RUT) dropped -3.06%. The S&P 500 (SPX) fell -1.84% while the Dow Jones Industrial Average (DJI) lost -1.51%. The VIXVolatility Index shot up +18.76%.

Of the S&P 500 sectors, only Energy ( XLE +0.40%) gained for the day. Financials ( XLF -2.23%) and Technology ( XLK -2.40%) were at the bottom of the list. Financials was pulled down by disappointing earnings reports from Goldman Sachs. The Technology sector tends to be most sensitive to rising Treasury yields.

To further dampen market sentiment, the NY Empire State Manufacturing Index came in less than zero at -0.70 compared to the forecast of 25.70. The negative number indicates worsening conditions.

The US Dollar index DXY ) rose by +0.50% today. The dollar strengthened that last three days. The US 10y and 2y Treasury Yields rose sharply, reaching their highest levels since the beginning of 2020. The US 30y Treasury Yield also rose. The gap between long and short term yields continues to tighten. High Yield ( HYG ) and Investment Grade ( LQD ) Corporate Bond prices also dropped sharply, tracking with Treasury prices (Yields rise, prices drop).

Crude Oil Futures are nearing a new high. Silver rose despite the strengthening dollar. Gold declined. Timber (WOOD) prices fell sharply after hitting its highest point since May.

The put/call ratio declined to 0.799. The CNN Fear & Greed index is hovering around Neutral.

All four largest mega-caps declined for the day. Apple AAPL ) is the only of the four remaining above its 50d moving average line, declining -1.89% today. Microsoft MSFT ) and Alphabet GOOGL ) lost -2.43% and -2.50% as they both approach the 200d moving average.

Exxon Mobil XOM ) was the best-performing mega-cap for the day, climbing +1.68%. The only other mega-cap to gain more than 1% was Eli Lilly ( LLY ) closing the day with a +1.21% gain. Taiwan Semiconductor ( TSM ) and Qualcomm QCOM ) were at the bottom of the mega-cap list with -4.86% and -5.21% declines.

Chinese fintech companies topped the Daily Update Growth List. FUTU Holding ( FUTU ) and UP Fintech ( TIGR ) gained +3.85% and +2.97%. The largest losses in the list came from Cloudflare (NET), declining -6.64%, and Lemonade LMND ), falling -6.67%.

Looking ahead

Build Permits and Housing Starts data for December will be available in the morning before the market opens. We’ll also get inflation data for the UK and Canada overnight.

UnitedHealth ( UNH ), Procter & Gamble PG ), Bank of America ( BAC ), Morgan Stanley MS ), and United Airlines ( UAL ) are among the earnings reports for Wednesday.

Trends, Support, and Resistance

The index closed above the 14,500 resistance/ support area .

If the index returns to the trend line from the 12/28 high, that would mean a +0.27% gain for tomorrow.

The five-day trend line points to a -0.22% decline.

If the one-day trend continues, expect a -1.10% decline for Wednesday.

Wrap-up

I mentioned on Friday that we’ll continue to feel pain until the Bond market stabilizes. With yields spiking today, that meant more price declines for the major indexes and nearly all sectors.

Maybe we’ll see a bounce in the right direction tomorrow, but much of that depends on Treasury yields.

Based on the chart, the expectation is for Lower on Wednesday.

Stay healthy and trade safe!

Comments

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