Daily Market Update for 1/27

Original Chart

Notes

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

Thursday, January 27, 2022

Facts: -1.40%, Volume lower, Closing Range: 7%, Body: 81% Red
Good:Volume lower on the decline
Bad: Closing range, low advance/decline ratio
Highs/Lows: Lower high, Lower low
Candle: Mostly red body, with small upper and lower wicks
Advance/Decline: 0.27, nearly four declining stocks for every advancing stock
Indexes:SPX (-0.54%), DJI (-0.02%), RUT (-2.29%), VIX (-4.60%)
Sector List: Energy ( XLE +1.09%) and Utilities ( XLU +0.89%) at the top. Real Estate ( XLRE -1.80%) and Consumer Discretionary ( XLY -2.42%) at the bottom.
Expectation: Sideways or Lower

Market Overview

It was another tough day for the stock market. Indexes opened higher, but then faded throughout the day to close lower. The rally attempt from Monday’s low is still intact but the performance since then isn’t looking good. Will indexes fail Monday’s low and go further down, or will they find support and move higher?

The Nasdaq dropped -1.4% for the day. Volume was less than the previous day. The index opened the day in the positive but then sold off throughout the session, creating a thick red body that covers 81% of the candle. The tiny lower wick left behind a 7% closing range. There were nearly four stocks that declined for every stock that advanced .

The Dow Jones Industrial Average (DJI) held up the best, declining only -0.02% thanks for Energy and Cyclical stocks. The S&P 500 (SPX) declined -0.54%. Small-caps took another hit on the chin with a drop of -2.29% in the Russell 2000 (RUT). Despite the declines, the VIXVolatility Index was lower by -4.60%.

Six of the eleven sectors ended the day with gains. The top sector was Energy ( XLE +1.09%), followed by the defensive sectors of Utilities ( XLU +0.89%) and Consumer Staples ( XLP +0.67%). The bottom two sectors were Real Estate ( XLRE -1.80%) and Consumer Discretionary ( XLY -2.42%) at the bottom.

GDP data showed the economy expanded by 6.9% quarter-over-quarter in Q43 compared to the forecast of 5.5%. Core Durable Goods Orders (which excludes transportation items) for December met expectations, but total Durable Goods Orders fell by -0.9%. That was more than the -0.5% expected decline. The weekly Initial Jobless Claims were at the forecast with 260,000 claims this week.

The US dollar is at its strongest since 2020, with the index ( DXY ) gaining +0.75% today. US 30y and 10y Treasury Yields declined while the 2y yield rose. The gap between long term and short term treasury yields continues to tighten. High Yield ( HYG ) Corporate Bond prices continue to plummet while Investment Grade ( LQD ) Corporate Bond prices rose slightly. Silver and Gold are both dropping sharply as the dollar rises. Crude Oil Futures took off again hitting new highs.

The put/call ratio ( PCCE ) rose to 0.903. The CNN Fear & Greed index moved further into the Fear range. The NAAIM money manager exposure index is at 53.39, down from 56.73 last week.

Of the four largest mega-caps, Amazon ( AMZN )and Microsoft MSFT ) held onto intraday gains, ending with +0.55% and +1.05% advances. Apple AAPL ) declined -0.29% but is expected to reverse those losses after a surprisingly good earnings report and the declaration that supply chain issues are easing. Alphabet GOOGL ) declined -0.18%.

Novo Nordisk NVO ) is at the top of the mega-cap list, gaining +2.51%. That’s followed by Chevron CVX ) which gained +2.02% ahead of its Friday earnings report. Tesla TSLA ) dropped -11.55%, weighing down the entire EV sector and placing the mega-cap at the bottom of the list. Taiwan Semiconductor ( TSM ) and Nvidia NVDA ) were also near the bottom of the list as semiconductors continue to fall.

ServiceNow (NOW) pleased investors with its earnings report, rising to the top of the Daily Update Growth List with a +9.14% gain today. Netflix NFLX ) took back some of its losses after getting a shot of optimism from Bill Ackman declaring he was buying more. Tesla was also the worst growth stock of the day, followed by three Chinese EV stocks. RobinHood (HOOD) dropped -6.45% and then added another -12.58% after hours with terrible misses across its business.

Looking ahead

Inflation will be back in focus tomorrow with the PCE Price Index data for December being available in the morning. After the market opens, we’ll see the Michigan Consumer Sentiment and Consumer Expectations data for January.

The earnings season continues to be mostly positive. Tomorrow will bring reports from Chevron CVX ) and Caterpillar (CAT) among a smaller list than Thursday.

Trends, Support, and Resistance

The Nasdaq had a lower high and lower low today, but held above Monday’s low, keeping alive the potential for a market rally.

If the index returns to the five-day trend line , it would mean a +0.75% gain for Friday.

The trend line from the 1/12 high ends with a -2.01% decline.

Continuing the one-day trend would mean a -3.65% decline for Friday.

Wrap-up

Among all the worrying about inflation and the Fed tightening monetary policy , it’s easy to miss out on the fact that it’s all happening because of an expanding economy driven by an exceptional performance from US companies. The evidence is in the earnings reports from Microsoft and Apple . Even Tesla had great results (and guidance) despite sharing that there would be no new models for 2022.

Apple shared some really great news today. Not only did it smash holiday records, but said that supply chain issues were easing. That’s in contrast to supply chain concerns that Tesla shared in its earnings report yesterday.

So investors will continue to be pulled between worries about the Fed tightening monetary policy and the exceptional performance of the US economy. Of course, the Fed tightening has the purpose of slowing down the economy, but so far it appears that corporate America remains confident. If supply chain issues are easing, that’s even a better outlook. That means the Fed can tighten without impacting employment or causing a recession (marked by two quarters of decline in GDP).

Based on the chart, the expectation is for Sideways or Lower. But cross our fingers for a positive day helped by Apple’s rosy outlook.

Stay healthy and trade safe!

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