Daily Market Update for 10/12Summary: Soaring oil prices, supply chain disruptions, and bond tapering have investors buying up the US dollar while causing downward pressure on mega-caps stocks. Small caps led on Tuesday while big technology stocks declined.
Notes
I missed yesterday's update. First time in over a year to miss one, but I had a great two-day vacation with my kids. :)
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
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Tuesday, October 12, 2021
Facts: -0.14%, Volume higher, Closing Range: 22%, Body: 66% Red
Good: Advance/decline ratio
Bad: Decline on higher volume, low closing range
Highs/Lows: Lower high, Lower low
Candle: Mostly red body with a longer lower wick
Advance/Decline: 1.09, more advancing than declining stocks
Indexes: SPX (-0.24%), DJI (-0.34%), RUT (+0.05%), VIX (-0.75%)
Sector List: Real Estate (XLRE +1.34%) and Consumer Discretionary (XLY +0.79%) at the top. Technology (XLK -0.52%) and Communications (XLC -0.93%) at the bottom.
Expectation: Sideways or Lower
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Market Overview
Soaring oil prices, supply chain disruptions, and bond tapering have investors buying up the US dollar while causing downward pressure on mega-caps stocks. Small caps led on Tuesday while big technology stocks declined.
The Nasdaq declined -0.14% after several intraday rallies above 14,500 failed to get support. Volume was higher than the previous day. The red body covers 66% of the candle, which has a closing range of 22%. Despite the decline, there were more advancing stocks than declining stocks. The decrease in the index came primarily from large mega-caps.
The Russell 2000 (RUT) advanced +0.05%, with small-caps having better relative performance in the context of a stronger USD. The S&P 500 (SPX) declined -0.24%. The Dow Jones Industrial Average (DJI) fell -0.24%. The VIX Volatility Index (VIX) declined -0.75%.
Real Estate (XLRE +1.34%) and Consumer Discretionary (XLY +0.79%) were at the top of the sector list. The Real Estate sector is a place investors can protect against inflation. Consumer Discretionary got a boost from Tesla, which rose with other renewable energy stocks on fears of an oil crisis. Technology (XLK -0.52%) and Communications (XLC -0.93%) were at the bottom of the sector list, brought down by big tech stocks.
JOLTs Job Openings were at 10.4 million, lower than the forecast of 10.9 million. Fed members reiterated that the central bank is on track to start bond tapering next month.
The US Dollar strengthened, with the index (DXY) gaining +0.16% on higher demand. US 30y, 10y, and 2y yields all declined for the day. High Yield (HYG) and Investment Grade (LQD) Corporate Bond Prices bounced up after several days of sharp declines. Crude Oil Futures declined a bit but are still near all-time highs. Aluminum Futures are also near all-time highs after a massive gain on Monday.
The put/call ratio (PCCE) fell to 0.581. The CNN Fear & Greed index remained in the middle of the Fear range.
Of the four largest mega-caps, only Amazon (AMZN) held onto a gain for the day, advancing +0.03%. Apple (AAPL) declined -0.91% after Bloomberg reported the company would slash iPhone 13 production due to the chip crunch. Alphabet (GOOGL) fell -1.77%, taking the Communications sector lower.
There are more declining stocks than advancing stocks in the mega-cap list. The top-performing mega-cap for the day was Nike (NKE). At the bottom of the mega-cap list is Intel (INTC).
The daily update growth list has more advancing stocks than declining stocks. Renewable energy stocks topped the list, with Solar Edge (SEDG) and Enphase (ENPH) advancing +7.80% and +5.32%. Etsy (ETSY) also exceeded a 5% gain, rising +5.34%. Robinhood (HOOD), UP Fintech (TIGR), and FUTU Holding (FUTU) were at the bottom of the growth list, all declining more than -3%.
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Looking ahead
A look at inflation comes in two forms on Wednesday. First, the OPEC monthly report will show how oil producers respond to shortages as demand spikes and supply chains choke. Second, Consumer Price Index data will be available before the market opens.
Later in the day, investors will closely look at the Fed's minutes from their most recent meeting, looking for more clues on a tightening of monetary policy.
Tomorrow's market will also open with the first significant earnings reports for this quarter. JP Morgan (JPM), BlackRock (BLK), Wipro (WIT), Delta Air Lines (DAL) all report earnings before the market opens.
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Trends, Support, and Resistance
The Nasdaq attempted to rise above the 14,500 area three times today but did not get support and closed below the line.
If the index rejoins the five-day trend line, that will mean a +0.75% gain for Wednesday.
The one-day trend line points to a lateral move of a +0.03% gain.
The trend line from the 9/7 high ends with a -0.94% decline for tomorrow.
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Wrap-up
Fears around the impact of inflation amongst higher oil prices and tighter monetary policy, while employment growth is slowing, are now turning investors' worries toward stagflation. As employment growth stalls, wages remain stagnant or decline while the prices of goods rise. After the JOLTs job openings report today showed fewer than expected jobs, the inflation numbers become even more critical tomorrow.
The expectation is for sideways or lower tomorrow.
Stay healthy and trade safe!
