Daily Market Update for 10/19Summary: Investors remained bullish on Tuesday as earnings reports start to pick up, and analysts expect positive results. Indexes ticked higher while several sectors traded at record levels.
Notes
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 19, 2021
Facts: +0.71%, Volume higher, Closing Range: 92% (w/gap), Body: 64% Green
Good: Gap up to steady gains in morning, high closing range
Bad: Nothing
Highs/Lows: Higher high, Higher low
Candle: Gap up, mostly green body, longer lower wick
Advance/Decline: 1.19, more advancing than declining stocks
Indexes: SPX (+0.74%), DJI (+0.56%), RUT (+0.36%), VIX (-3.74%)
Sector List: Health (XLV +1.31%) and Utilities (XLU +1.26%) at the top. Consumer Staples (XLP +0.04%) and Consumer Discretionary (XLY -0.28%) at the bottom.
Expectation: Sideways or Higher
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Market Overview
Investors remained bullish on Tuesday as earnings reports start to pick up, and analysts expect positive results. Indexes ticked higher while several sectors traded at record levels.
The Nasdaq advanced another +0.71% today, the fifth consecutive day of gains. The index opened with a gap up and made steady gains through the morning. A dip in the afternoon created a small upper wick, but the index closed with a 92% closing range with the gap. The higher volume with more advancing stocks than declining stocks makes for a constructive day.
The S&P 500 (SPX) gained +0.74%, with gains spread across most sectors. The Dow Jones Industrial Average (DJI) advanced +0.56%. The Russell 2000 (RUT) rose +0.36%. The VIX Volatility Index (VIX) closed at its lowest point since August, declining -3.74% today.
Health (XLV +1.31%) and Utilities (XLU +1.26%) were at the top of the sector list. The two defensive sectors outperformed, which could be a signal of some caution. However, it could just be some rotation into cheaper equities that need to catch up with the rest of the market. Consumer Discretionary (XLY -0.28%) was the only sector to decline for the day, but that came after an all-time high set at the open.
Building Permits and Housing Starts data released in the morning was below the forecast, but the market did not seem concerned with the miss. Fed officials speaking in the afternoon indicated inflation could last longer than previously thought and that the labor market may not return to pre-pandemic levels.
The US Dollar index (DXY) declined -0.17% today. 30y and 10y Treasury Yields rose while the 2y Treasury Yield fell. High Yield (HYG) Corporate Bonds rose for the day while Investment Grade (LQD) Corporate Bonds declined. Crude Oil Futures advanced higher, continuing to set new records. Copper and Aluminum futures fell today but remain near highs.
The put/call ratio declined to 0.538. The CNN Fear & Greed index moved well into the Greed area.
Alibaba (BABA) was the top mega-cap, advancing +6.10% after announcing new cloud server chips today. Johnson & Johnson (JNJ) missed expectations on revenue in its morning earnings release but improved the outlook for the year, sending the stock up 2.34%. Procter & Gamble (PG) beat earnings estimates but said rising costs were impacting the business, sending it to the bottom of the mega-cap list with a -1.18% decline. There were only a handful of mega-caps that declined for today.
Fastly (FSLY) gained +10.72%, topping the Daily Update Growth List. The gain came after the US granted a patent to the company for load balancing across origin services. CloudFlare (NET) broke a 12-day winning streak with a decline today, ending with a -4.36%, the worst performance in the growth list. The decline may be related to Fastly's gain as both are CDN providers, and the patent could impact Cloudflare.
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Looking ahead
Crude Oil Inventories will be available in the morning.
Tesla (TSLA), ASML Holding (ASML), IBM (IBM) are a few of the mega-caps reporting earnings tomorrow.
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Trends, Support, and Resistance
The Nasdaq rose further above the 15,000 support area and cleared a previous pivot high at 15,085. The next critical level is 15,200.
The five-day trend line points to a +1.19% gain for Wednesday.
The one-day trend line ends with a +0.40% gain.
If the index returns to the trend line from the 10/4 low, that will result in a -0.39% decline for tomorrow.
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Wrap-up
The Fed's comments on drawn-out inflation could have had much more of a negative impact today. They also mentioned that the labor market might not return to pre-pandemic levels. So why didn't the market react more negatively? Despite these headwinds and low consumer sentiment, retail sales still soared last month.
Analysts likely see more resilience in the economy than previously thought. Corporations have had to innovate against the pandemic for the past year. In the face of labor shortages, that innovation needs to continue. Productivity in the labor force is rising, a clear sign of that innovation. Ultimately, innovation will be deflationary. So perhaps we are even seeing the market look past inflation, look past stagflation, and start to see the opportunity for tech and growth stocks.
The expectation for tomorrow is for Sideways or Higher. The index may need to pause after several days of gains, but we shouldn't see a move lower unless something changes.
Stay healthy and trade safe!
