Daily Market Update for 1/31

Original Chart

Notes

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

In the past, I focused on the largest four mega-caps. From today, I will start tracking the largest six mega-caps moving forward. These six companies represent nearly 25% of the S&P 500 so have an outsized influence on index performance.

Monday, January 31, 2022

Facts: +3.41%, Volume lower, Closing Range: 99%, Body: 90% Green
Good: Great advance/decline ratio , gain on higher volume , closing range of 99%
Bad: Nothing
Highs/Lows: Higher high, Higher low
Candle: Mostly green body with a tiny lower wick
Advance/Decline: 4.53, more than four advancing stocks for every declining stock
Indexes:SPX (+1.89%), DJI (+1.17%), RUT (+3.05%), VIX (-10.23%)
Sector List: Consumer Discretionary ( XLY +3.85%) and Technology ( XLK +2.51%) at the top. Energy ( XLE +0.44%) and Consumer Staples ( XLP +0.38%) at the bottom.
Expectation: Sideways or Higher

Market Overview

The market took a big step forward to end what was a difficult January. Investors poured back into equities after comments from the US Treasury’s top economist that they see inflation easing in 2022.

The Nasdaq rose +3.41% for the day. Volume was higher than the previous day and higher than the 50-day average volume . The candle has a tiny lower wick under a 90% green body. The 99% closing range left behind no upper wick. There was great breadth, with 4.5 stocks advancing for every stock that declined.

Small-caps also performed well for the day, with the Russell 2000 (RUT) advancing +3.05%. The S&P 500 (SPX) climbed +1.89% while the Dow Jones Industrial Average (DJI) rose +1.17%. The VIXVolatility Index declined by -10.24%, but still remains elevated.

All S&P 500 sectors advanced . Consumer Discretionary ( XLY +3.85%) and Technology ( XLK +2.51%) were the best-performing sectors. Energy ( XLE +0.44%) and Consumer Staples ( XLP +0.38%) were at the bottom of the list.

The Chicago Purchasing Managers Index (PMI) showed a healthy manufacturing sector for January. The index rose to 65.2 from 64.3 the previous month. Analysts expected it to drop to 61.7.

The US Dollar index DXY ) declined -by 0.59% after rising through most of January. US 30y, 10y and 2y Treasury yields all rose. Both High Yield ( HYG ) and Investment Grade ( LQD ) Corporate Bond prices improved. Silver declined while Gold advanced Crude Oil Futures remains very high.

The put/call ratio declined to 0.818. The CNN Fear & Greed index remained at the Fear level.

All of the big six meg-caps advanced for the day. Tesla TSLA ) outperformed the group, advancing +10.68% as it rebounded off its 200d MA. Apple AAPL ) continued to rise above its 21d EMA and 50d MA, advancing +2.61%. Microsoft MSFT ) moved back above its 21d EMA with a +0.88% gain today. Amazon ( AMZN ), Alphabet GOOGL ) and Meta ( FB ) are all still trading below their 21d EMA and 50d MA.

Tesla topped the full mega-cap list, followed by Alibaba (BABA) which gained +9.16%. Only five mega-caps declined with Pfizer PFE ) losing -3.02% to end up at the bottom of the list.

The entire daily update growth list did very well today. The top gainers included Fiverr ( FVRR ) and NIO NIO ), both advancing over 17%. Even the bottom of the list had great advances. RH was the worst performer on the list but gained +2.78% today.

Looking ahead

We will get more manufacturing data after the market opens tomorrow. The ISM Manufacturing PMI is due at 10 am. At the same time, the JOLTs Job Openings report for December will be available. The jobs report could be skewed by the Omicron outbreak. The API Weekly Crude Oil Stock report is due in the afternoon.

Alphabet GOOGL ) and Exxon Mobil XOM ) will be the top earnings reports to watch for tomorrow. Also on the long list of reports is PayPal ( PYPL ), United Parcel Service (UPS), AMD AMD ), Starbucks SBUX Chubb CB ), General Motors ( GM ), and Electronic Arts EA ).

Trends, Support, and Resistance

The Nasdaq made a big move back toward the 21d EMA .

If the one-day trend line continues, the index could advance +1.29% on Tuesday and close back above the 21d EMA .

If the index returns to the five-day trend line and trend line from the 1/24 low, that would mean a -2.00% decline.

Wrap-up

It’s likely we’ll continue to get mixed signals about inflation . There is a supply-side and a demand-side to the story. And both have different data points that economists will continue to watch. They will then weigh those signals against predictions on the Fed’s monetary policy .

Demand was high in 2021 as consumers unleashed record savings and available credit into the economy, but is now starting to ease. That can be seen in the drop-off of retail sales in December.

Supply has been hampered by issues that range from having enough workers to produce goods to having enough containers to ship goods across the world. As China goes into their New Year holiday, that should ease congestion for a time being and give a chance for some catch-up.

So we actually could be on the cusp of easing inflation as the US Treasury predicts. If so, we can expect the Fed to restrain itself from raising interest rates too aggressively and that will ease fears among analysts and investors.

Based on the chart, the expectation for tomorrow is Sideways or Higher. Possibly Sideways because of the huge move we saw today. Possibly Higher because of the momentum.

Stay healthy and trade safe!

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