Daily Summary – January 29, 2021

Daily Summary – January 29, 2021

I ended y'day with "Still think at some point we're getting that 5-7% pullback but as always calling the timing is the tricky part."  Well, after today's action we're already there with some indices. RUT despite the cont'd rise in names like GME and AMC is now down 5.5% from its high, while others (SPX, NDX, and Naz) are closing in down in the 4-5% range.  

To recap how we got here, the day started out red (other than RUT which started up) but not terribly so, and after an immediate downdraft, stocks moved up for the most part for the first hour or so before staring to weaken. With no real catalyst, the selling accelerated around noon to push steeply into the red bottoming out in the 1 o'clock hour.  From there it was sort of like the end of a roller coaster with ups and downs but ending not too far from the lows. By the end RUT fared the least worst with the support of those Reddit stocks down 1.56%. SPZ, Naz, and NDX all finished down around 2%. For the week all finished solidly red around the amounts noted at the start as their respective highs were just a bit above where we started the week. For the month RUT and Naz were up modestly, NDX and SPX down modestly. 

In terms of style, while there was red everywhere, small value took the worst of it, mid growth fared best. Value in general did worse while size depended on the style. 

As the action today didn't appear to be tied to news in any specific way, it looks like this is the market mechanism at work. Whether it's hedge funds selling positions to deleverage, a buyer's strike as investors want to wait out the current volatile conditions, or just a market in need of a reset, it's clear that outside of a few names selling positions was the general theme for this week. How far this goes is anyone's guess but the technicals indicate it could be a bit further.

At this point all of those major indices are decisively out of their previous channels (Naz is out the least), and now most of them have broken closest support. RUT, NDX, and Naz all closed beneath their 20-day MA's and SPX beneath its 50-day (every so slightly). Unfortunately all of them have a ways to go before reaching their next MA or major support, so hopefully they can rally without that. But daily MACD's are now accelerating to the downside, and RSI's are plummeting. Weekly charts not much better as MACD's are narrowing, although none have crossed or rolled over (yet), and RSI's are going from over to under 70. Good news is monthly charts still look good although RUT, NDX, and Naz are overbought (but the latter two have been that way for a couple of months).

In terms of sector charts, some damage done today to a few. Worst looking ones are 

Energy

Financials

and Staples

I would be surprised if we didn't see further weakness on those next week. 

After taking a day off, SPX sector flag back to red ugliness with all sectors down led by energy (as it was on Wed) only sector down over 3%. But 7(!) other sectors were down at least 1.95% including all the cyclicals. Very ugly. 

This mirrored the action for the week for the most part where cyclicals saw the worst of the selling this week.  This chart from Stockcharts is as of 2 pm. Interesting how poor the staples chart is given it's only down little over 1% this week.

In key subsectors, semi's traded with tech, bios outperformed with XBI up 0.82% while transp underperformed down 2.7%. XRT was up but you know how I feel about that. Semi's remain in technical limbo between the 20 and 50-day MA's while transp now is right on the 100-day, so hopefully that holds.

With the limits on trading of the Reddit stocks, I think we're finally getting a better view of breadth, and it's not pretty. Only 28% of volume and 26% of issues were positive NYSE, 39 and 29% Naz. So clearly not a lot of people wanting to step in to support stocks here.

Outside of equities, was interesting that unlike Wed, we didn't see the typical "risk off" moves outside of VIX getting a little life (but only up a couple of points). Long bonds and dollar were basically flat. There was some bid to gold but it finished well off the highs. It's basically just been riding that trendline.

Crude was red, finishing right on its trendline and 20-day MA as were copper which finished on its 50-day MA and nat gas which couldn't hold its 50/100 day area and looks to move back down to the $2.40 area.

In terms of data, next week gets us all the "first week" reports capped by the jobs report on Friday. Schedule of major releases below. We also get the standard weekly reports, etc. Int'l reports are similarly heavy.

Next week also another big one for earnings with a little fewer in number (around 600) but some big ones especially Tuesday when we get AMZN, BABA, GOOG, and XOM.

So overall we've got very poor technical conditions, a clear move to defensives, we are not yet oversold, sentiment while not as frothy as coming into the week is not washed out, stocks while down are arguably still expensive, and we seem to have a dearth of buyers. Would not be at all surprised to see at least a weak open on Monday if not a big down day.  But a cont'd selloff, particular another day or two like we saw today might be the best thing to give us a nice cleansing washout that we can rebuild momentum from.