Daily Summary – January 27, 2021

 Daily Summary – January 27, 2021

It's always so clear in hindsight, right? The technical divergences, flagging momentum signals, the inconsistent buying volume, the frothy sentiment, the pattern from last quarter (selloff at start of earnings), the Naz and NDX pushing over their channels, etc., etc. A big down day was coming.  It was so obvious. I'm sure we'll hear that a lot. But regardless, we are we are, which is sifting through the wreckage of a tornedo of a day where more than a few stocks got big haircuts while those most shorted stocks cont'd to see big buying. 

At day's end it was the larger and growthier stocks that suffered the most with NDX down 2.8%, Naz - 2.61%, SPX -2.57%, and RUT least bad at -1.91%. Interestingly, it didn't start out that way. At the open while all were red, the RUT was by far the worst actually opening slightly lower than where it closed. All the indices climbed just after the open before selling off around 2pm (Fed statement?) but it was after 2 where the RUT really outperformed losing much less than the other three. Style box was consistent with large and mid growth worst boxes, both down over 3%, small value least bad, down little under 2%.    

Technically today was more about moving averages than trendlines. All of the indices tested one, if not two, and, positively, most of them held. The exception was the SPX which blew through its 20-day MA before bouncing a bit above its 50-day, so it finds itself sort of hanging there in between.

For the others, it was a test of their 20-day MA's, and as noted, all of them held. We also got MACD crossovers on RUT and SPX; Naz and NDX are close. Don't get me started on the RSI's. In terms of sectors, I noted energy, fins, and industrials as falling below key MA's y'day. Energy bounced just above its 50-day, while financials are holding theirs by their fingernails. Materials is hanging between the 50 and 100-days. Utes looking to be moving down to the bottom of their range this year. Staples broke under their 100-day and look a little dicey. We'll see. Otherwise most of the sector charts look ok for now although many have MACD crossovers and RSI issues like the top level charts.

SPX sector flag was, in a word, ugly. Red works also. All sectors down at least 1% led by energy and RE, only two not down at least 1.5%.  Five sectors down at least 2.93% led by comm's on the back of huge down days from the likes of NFLX, TMUS, GOOGL, DIS. 

In key subsectors, semi's went from consolidating to just getting outright sold, down over 5% and gapping under their 20-day MA, and now between that and the 50-day. Technicals just not good on that in the short term. Transp in the same situation but it was the 50-day that it gapped under with 100-day below. XBI outperformed and chart looks good. I'm not even going to talk about retail as I track XRT which is equal weight and only a quarterly rebalance so now it's got GME as 10% of its holdings, BBY is a big percentage, etc.

I don't even know what to do with breadth. I've never seen anything like it. Volume continues to look great considering the losses at 55% positive NYSE and 57% Naz. On any normal day I'd say that was amazing. But then look at issues. 17 and 15% positive respectively. That is amazing, but now in a bad way.  Since I don't really know what to do with it, I'm not going to try.

Outside of equities, mostly what you might expect. Dollar, VIX and long bonds were bought, gold and copper were sold. VIX the big story as all the options activities (both puts and calls) pushed this into mild "panic" territory at 37, highest we've seen since just before the election. Dollar peaked over its 50-day but closed just beneath. Nat gas and crude were also mildly green. 10-yr yield did test that 1% level but stayed above.

Overnight we'll continue to get a little more int'l data but again nothing particularly important, followed by jobless claims, 4Q20 GDP, inventories, new home sales, LEI's, and KC Fed. And earnings continue with 139 reports. While a little less high profile still 5 co's over $100B market cap (V, MA, CMCSA, DHR, MCD; didn't realize DHR was that big).

If we were to look back to the selloff last earnings season, this would be just the start of a three day down move, but I'm not so sure we're going to see that this time. One big difference is stimulus. Last September we were running on the fumes of the first stimulus. This time we just got topped up. In addition, while it hasn't been much talked about, today's action ironically comes on a day when more and more leaders are bringing forward estimates of easing of restrictions, and as vaccine rollout continues to gain better traction (outside of the EU which is in a mess of its own making). I think these are important factors that, along with a better chance of more stimulus coming down the pike than we had last go round (remember the bickering?) will keep this selloff more contained. I'll be interested to see what impact this had on sentiment which had started to moderate but is a long way from "concerned".   

One other thing I thought I'd note was there is some speculation that some of this is due to hedge fund deleveraging.  As many funds like to be close to net neutral in exposure, as they cover their shorts due to the runups in those stocks, they are left net long, so they have to sell their longs to rebalance. It's probably no coincidence that many of their favorites have seen the worst of the selling in recent days. Not sure where we are in that process, but we have to be closer to the end then we were a couple of days ago.