Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
Tuesday, May 24, 2022
Facts: -2.35%, Volume lower, Closing Range: 66%, Body: 24% Red
Good: Good closing range over long lower wick
Bad: Lower high, lower low, higher volume on decline
Highs/Lows: Lower high, Lower low
Candle: Thin red body in upper part of candle, longer lower wick
Advance/Decline: 0.3, More than three declining stocks for every advancing stock
Indexes:SPX (-0.81%), DJI (+0.15%), RUT (-1.56%), VIX (+3.41%)
Sector List: Utilities ( XLU +2.00%) and Consumer Staples ( XLP +1.64%) at the top. Consumer Discretionary ( XLY -2.57%) and Communications ( XLC -3.55%) at the bottom.
Snap Inc. sent an ominous signal to the market by reducing guidance, causing tech and growth stocks to sell off heavily in the morning before recovering some of the losses.
The Nasdaq fell by -2.35% on higher volume than the previous day. The long lower wick was created at open as key economic metrics missed the forecast. However, the index recovered some of the loss and closed with a 66% closing range. The 24% red body sits at the top of the candle. There were more than three declining stocks for every advancing stock.
The Dow Jones Industrial Average (DJI) was able to finish the day with a gain, advancing +0.15%. The S&P 500 (SPX) declined by -0.81%. The Russell 2000 (RUT) declined by -1.56%. The VIXVolatility Index increased by +3.41%.
Five of the eleven S&P 500 sectors gained, led by defensive sectors. Utilities ( XLU +2.00%) and Consumer Staples ( XLP +1.64%) were at the top of the list. Consumer Discretionary ( XLY -2.57%) and Communications ( XLC -3.55%) were at the bottom, with the former being impacted by Snap’s news.
Manufacturing PMI data for May met the forecast of 57.5 but the Services PMI fell short, coming in at 53.5 compared to the forecast of 5.2. The PMI data is a signal of economic activity within these two sectors.
New Home Sales for April also came in lower than expected. There were only 591,000 new home sales compared to the forecast of 750,000. The previous month was 709,000. The new number shows a significant slowdown.
The US Dollar Index ( DXY ) continued to decline, dropping by -0.32% today. US 30y, 10y, and 2y yields were all lower. High Yield ( HYG ) and Investment Grade ( LQD ) Corporate Bond prices were higher, tracking with treasury prices.
Verizon ( VZ ) was the top mega-cap for the day, gaining +2.03%. Consumer Staples and Health mega-caps dominated the rest of the top ten. Facebook was at the bottom of the list, followed by Tesla ( TSLA ) which fell by -6.93%.
There was only one gainer in the Daily Update Growth List. Zoom Video (ZM) climbed by +5.61% as its earnings report showed continued growth despite the winding down of the pandemic. After Zoom Video, all the stocks on the growth list fell by more than 2%. Five stocks on the list fell more than 10%, led by Snap Inc (SNAP) which dropped by a huge -43.08%.
Wednesday will kick off with the Core Durable Goods Orders data for April. After the market opens we will get the Crude Oil Inventories.
The FOMC Meeting Minutes from the early May meeting will be available in the afternoon.
Trends, Support, and Resistance
The Nasdaq continued its downtrend but held above Friday’s low.
After the dip in the morning, the index trended higher the rest of the day. If the one-day trend line continues into Wednesday, we can expect a +0.69% gain.
The five-day trend line points to a -1.07% decline.
If the index returns to the trend line from the 3/29 high, that would mean a -2.56% decline.
Snap’s message of lower guidance due to economic disruptions drove even more fear among investors in tech and growth stocks, resulting in today’s sell-off. The bleeding continues, and the only question is when will it stop. Perhaps we will continue to bounce around at this level, or maybe we will move lower.
If we can start to see indications of a top to inflation , that will help build more support for gains. Inflation needs to come under control without massive interest rate hikes that will further slow down growth.
Stay healthy and trade safe!
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