Daily Market Update for 5/27

Original Chart

Notes

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

Friday, May 27, 2022

Facts: +3.33%, Volume higher, Closing Range: 100%, Body: 95% Green
Good: 100% closing range, higher volume on green day
Bad: Nothing
Highs/Lows: Higher high, Higher low
Candle: Gap up at open, mostly green body, no upper wick
Advance/Decline: 2.87, almost three advancing stocks for every declining stock
Indexes:SPX (+2.47%), DJI (+1.76%), RUT (+2.70%), VIX (-6.47%)
Sector List: Consumer Discretionary ( XLY +3.43%) and Technology ( XLK +3.38%) at the top. Utilities ( XLU +1.56%) and Consumer Staples ( XLP +1.16%) at the bottom.

Market Overview

Investors continued to pile in as analysts see the Fed at its peak hawkish level and expect less aggressive moves later in the year.

The Nasdaq gained +3.33% and closed its first green week since March. Volume was higher than the previous day as the index opened with a gap up and closed with a 100% closing range. The 95% green body has a small lower wick that formed just after opening and then the index moves steadily upward the rest of the day. There were almost three advancing stocks for every declining stock.

The Russell 2000 (RUT) climbed by +2.70%. The S&P 500 (SPX) advanced +2.47%. The Dow Jones Industrial Average (DJI) gained +1.76%. The VIXVolatility Index fell by -6.47%.

All eleven S&P 500 (SPX) sectors gained. Growth sectors led the charge upward. Consumer Discretionary ( XLY +3.43%) and Technology ( XLK +3.38%) were the best two sectors. Utilities ( XLU +1.56%) and Consumer Staples ( XLP +1.16%) were at the bottom of the sector list.

Personal Spending was higher than expected while PCE Price Index data was on par with the forecast. However, Michigan Consumer Expectations and Sentiment for May were lower than expected.

The US Dollar DXY ) index continued its retreat, lowering by -0.12% on Friday. The 30y and 10y Treasury Yields declined while the 2y yield rose. High Yield ( HYG ) and Investment Grade Corporate Bond prices continued to climb. The gap between high yield corporate bonds and short-term treasury bonds narrowed sharply after widening throughout May.

The put/call ratio ( PCCE ) declined to 0.706. The CNN Fear & Greed index is moving toward Neutral but is still in Extreme Fear.

The big six mega-caps all had spectacular days. Tesla TSLA ) led the pack for another day, gaining +7.33%. Microsoft MSFT ) and Apple AAPL ) were able to close above their 21d EMA lines. Meta ( FB ) had the smallest gain but still advanced +1.83% to close just below its 21d EMA .

Tesla was the top overall mega-cap as well. Alibaba (BABA) gave back some of the huge gains it had on Thursday, declining by -1.13% and ending up at the bottom of the mega-cap list.

Zscaler (ZS) popped to the top of the Daily Update Growth List after beating earnings and revenue estimates. There were only two declining stocks on the list. Workday WDAY ) missed estimates in its earnings release and closed down by -5.57%.

Looking ahead

Markets are closed in the US on Monday for the Memorial Day holiday.

The Chicago PMI for May will arrive on Tuesday morning followed by the CB Consumer Confidence number for May.

Salesforce.com ( CRM ), HP Inc HPQ ), StoneCo STNE ), Digital Turbine (APPS), and Ehang (EH) will report earnings on Tuesday.

Trends, Support, and Resistance

The index closed above the 21d EMA for the first time since April.

If the one-day trend line continues, we can expect a +1.02% advance on Tuesday.

If the index slows and returns to the five-day trend line or the trend line from the 5/20 low, that would mean a -0.08% decline. Not too bad.

Wrap-up

There are several things that are looking very good. The NAAIM money manager exposure index dropped below 40 last week while the CNN Fear & Greed index moved into Extreme Greed. Both often signal a near-term bottom is here. Then the Fed’s meeting minutes this week confirmed that the Fed will frontload interest rate hikes and be less aggressive in the fall.

That brought optimism for growth back into the market, evidenced by broad gains across equities and a sudden advance in corporate bond prices relative to treasuries. We finally had a positive week after a very long weekly losing streak. Let’s see if optimism and confidence continue to grow and whether investors move off the sidelines and get back in the game.

Stay healthy and trade safe!

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