Daily Market Update for 5/4

Original Chart

Notes

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

Wednesday, May 4, 2022

Facts: +3.19%, Volume higher, Closing Range: 97%, Body: 63% Green
Good: Gain on higher volume , strong afternoon rally with 97% closing range
Bad: Lower low
Highs/Lows: Higher high, Lower low
Candle: Outside day, thick green body over a long lower wick, tiny upper wick
Advance/Decline:
Indexes:SPX (+2.99%), DJI (+2.81%), RUT (+2.69%), VIX (-13.09%)
Sector List: Energy ( XLE +4.15%) and Technology ( XLK +3.51%) at the top. Health ( XLV +2.22%) and Real Estate ( XLRE +1.18%) at the bottom.
Expectation:

Market Overview

Jerome Powell gave unexpected but specific guidance on not only today’s interest rate hikes, but also the next two. In addition, the specifics around reducing the balance sheet helped squash the fear that the Fed would move too fast.

The Nasdaq responded with a late-day rally that helped it close with a +3.19% gain. The intraday swing was a huge 5% from low to high. Volume was much higher than the previous day. The candle has a lower low and a higher high, making for an outside day. The closing range of 97% is above a 63% green body. There were two advancing stocks for every declining stock.

The S&P 500 followed the Nasdaq with a +2.99% gain. The Dow Jones Industrial Average (DJI) rose by +2.81%. The Russell 2000 (RUT) climbed by +2.69%. The VIXVolatility index dropped by -13.09%, although still remains elevated.

All eleven S&P 500 sectors gained today. Energy ( XLE +4.15%) and Technology ( XLK +3.51%) were the best two sectors. Health ( XLV +2.22%) and Real Estate ( XLRE +1.18%) were at the bottom of the sector list.

The ISM Non-Manufacturing PMI for April came in lower than expected at 57.1 compared to the 58.5 forecasts. However the Markit Services PMI and Composite PMI both beat expectations. The biggest news though was the Fed’s decision to raise interest rates by 50 basis points to 1.0% and also stated the next two increases would be 50 basis points, not the 75 basis points feared by some analysts.

The US Dollar Index DXY ) dropped -0.91%. The US 30y Treasury Yield gained while the 10y and 2y Treasury Yields declined. The gap between long and short-term yields widened. High Yield ( HYG ) and Investment Grade ( LQD ) Corporate Bond prices rose. Silver and Gold rose, thanks to the US Dollar’s weakening. Brent Oil is at $109 a barrel after Europe proposed cutting off Russian oil .

The put/call ratio ( PCCE ) rose to 0.857. The CNN Fear & Greed index moved toward Neutral but remained in the Fear region.

All of the big six mega-caps rose today. Meta ( FB ) topped the group with a +5.37% gain. Apple AAPL ) and Meta closed above their 21d EMA and 50d MA. Microsoft MSFT ) moved above its 21d EMA while Tesla TSLA ) closed above its 50d MA.

The big six led the mega-cap list with Facebook Tesla Alphabet GOOG ), and Apple AAPL ) making up the top four. AstraZeneca ( AZN ) was the only declining stock in the list.

The Daily Update Growth List closed almost entirely in the green. PayCom ( PAYC ) topped the list with a +13.78% gain. The only declining stock in the list was RH RH ) which lost -1.46%.

Looking ahead

Tomorrow we will get the weekly Initial Jobless Claims data before the market opens. We will also get Nonfarm Productivity and Unit Labor Costs for Q1.

Shell ( SHEL ), ConocoPhillips (COP), Block ( SQ ), Shopify (SHOP), MercadoLibre MELI ), DataDog DDOG ), Lucid (LCID), Cloudflare (NET), DoorDash (DASH), and Zillow (Z) are among the earnings reports for Thursday.

Trends, Support, and Resistance

The Nasdaq moved back toward the 13,000 support/resistance area and stopped just short of that mark. Will it prove as resistance again or can the index move past the line and top the 21d EMA?

If the one-day trend line continues into Thursday, that would mean a +3.26% gain, rising above the 21d EMA and stopping short of the 50d MA.

If the index returns to the five-day trend line , that would mean a -3.78% decline.

A drop to the trend line from the 3/29 high would mean a -5.83% decline.

Wrap-up

The afternoon rally felt good. Investors’ confidence grew thanks to very specific guidance from the Fed on current and future interest rates and the balance sheet reduction. Forecasting with such specificity is not common for the Fed and shows how careful they are being to not create a recession.

The next few days will be an important signal for equities. If the rally sticks, we should see a few days of gains on elevated volume and breath across the market with an advance/decline ratio over 1.0. Then some consolidation might begin late on Friday or early next week before the next move up.

Stay healthy and trade safe!

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