Daily Market Update for 3/18Trend lines drawn from the 3/5 low (10d), 3/12 (5d) and today 3/18 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
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Thursday, March 18, 2021
Facts: -3.02%, Volume higher, Closing range: 5%, Body: 82%
Good: Nothing
Bad: Broke below 50d MA and 21d EMA, selling most of the day
Highs/Lows: Lower high, lower low
Candle: Mostly red body, with no visible lower wick
Advance/Decline: Four declining stocks for every advancing stock
Indexes: SPX (-1.48%), DJI (-0.46%), RUT (-2.94%), VIX (+12.22%)
Sectors: Financials (XLY +0.52%) was the only sector with gains. Technology (XLK -2.77%) and Energy (XLE -4.49%) were the worst performing.
Expectation: Lower
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Market Overview
Did the market wake up with a hangover? After the positive news from the Fed caused a rally late yesterday, the market took a turn downward today. It started again with a surge in bond yields that impact the valuation of big tech and growth stocks.
The Nasdaq closed down -3.02% in a painfully red session with only a 5% closing range. The 82% red body with no visible lower wick shows the selling throughout the day. A pause at the 21d EMA could not hold and the selling regained steam into close. There were 4 declining stocks for every advancing stock.
The Dow Jones Industrial average (DJI) was holding onto positive gains, even setting a new all-time high before selling off in the late afternoon. The Dow Jones Industrial closed down -0.46%. The S&P 500 (SPX) declined -1.48%. The Russell 2000 (RUT) Declined -2.94%.
The VIX volatility index gained +12.22%.
Only Financials (XLF +0.52%) closed the day with gains. Consumer Discretionary (XLY -2.45%) and Technology (XLK - 2.77%) were hard hit among the sectors. The worst performing sector was Energy (XLE -4.49%).
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Economic Indicators
The US Dollar (DXY) gained -0.42%.
The US 30y, 10y and 2y treasury bond yields all gained for the day with the spread between long term and short term widening again. The US 30y yield is at its highest point since June 2019 while the 10y is at its highest point since January 2020. The yield curve is at its steepest since 2015.
High Yield Corporate Bonds (HYG) and Investment Grade Corporate Bond (LQD) both declined for the day. The spread between corporate bonds and treasury bonds widened a bit.
Silver (SILVER) and Gold (GOLD) both declined. Crude Oil (CRUDEOIL1!) declined for another day. Timber (WOOD) declined. Copper (COPPER1!) and Aluminum (ALI1!) both declined as well.
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Investor Sentiment
The put/call ratio is at 0.627. The put/call ratio (PCCE) is a contrarian indicator that shows overly bullish or overly bearish investor behavior. The 0.7 level is considered normal. As it approaches 0.60 (overly bullish) and below, watch for a possible pullback in the market.
The CNN Fear & Greed index is moving back to neutral.
The NAAIM exposure index is at 78.55 as of the close on Wednesday.
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Market Leaders
Keeping this update brief during vacation.
All four of the largest mega-caps closed below their 21d EMA. Only Alphabet (GOOGL) remains above its 50d MA.
A handful of mega-caps had gains for the day, including large financials Bank of America (BAC) and JP Morgan (JPM). However most mega-caps lost for the day.
Only one of the growth stocks tracked by the daily update had a gain for the day.
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Looking ahead
There are no notable economic news scheduled for tomorrow, however it is a triple witching day.
A triple witching day happens once a quarter when stock options, stock index futures, and stock index option contracts all expire on the same day. It can cause extra trading volume and volatility in the last hour of trading as investors close or roll-out expiring contracts.
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Trends, Support and Resistance
The index dropped below both the 50d MA and 21d EMA today and closed above the 13,000 support area.
The trend line from the 3/5 bottom points to a +3.74% gain for tomorrow. The five-day trend line points to a +2.20% gain.
The one-day trend line points to a -0.92%.
The trend line from the 2/16 all-time high was removed last week, but the index has returned to the midpoint of that channel.
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Wrap-up
It was not the day we expected, but the bond sellers had their way. There will be more volatility in bonds throughout this year as the economic recovery of many countries, not just the US, begins to impact their currency and treasury performance.
The volatility to treasury bonds will likewise be felt with growth and big tech companies that benefit from cheap financing to fund growth. It will be a wild ride this year.
Stay healthy and trade safe!
