Daily Summary – February 25, 2021

      Daily Summary – February 25, 2021

In last night's wrap up I noted bounce backs after high volume flushes sometimes marked a bottom but sometimes didn't.  In that regard I noted some reasons to expect more future gains (liquidity, coming stimulus, vaccines) but also some reasons for caution - 

"On the side of caution is resistance just overhead for Naz and NDX, some still unresolved technical issues, those yields creeping up that seem to have unnerved some, and what I'd imagine is a monthly rebalancing of some sort needing to be done for those funds that rebalance monthly." 

Don't know how much the first and last contributed, but probably some, but it was the middle one, yields, that according to most accounts of today was the catalyst for our second big down day in the last three days (so, no, that wasn't a bottom). SPX, RUT, NDX, and Naz were sent to lowest closes since beginning of the month and put several of them in dicey technical conditions.

As to the reasoning (higher yields), I'm sure that had something to do with it, but not sure I buy it entirely. The big spike to new highs in the 10-year was around 1 pm (coinciding with a weak 7-year sale (I didn't realize anyone even paid attention to 7-year sales outside of bond geeks like me)) and yields moved lower from there, but stocks actually marked their short term bottom at that point after steadily selling off from the open. They climbed until 2.30 before peaking and from there headed straight down before getting a little bounce (that was partially sold) in the last 20 minutes.  In terms of other potential catalysts, I'd note that there was some chatter about lib Dems maybe blowing up the stimulus bill if they don't get their full wish list (I swear, sometimes they're like children).  Just noting there was other stuff going on today.

But whatever the reason, today was mostly a story of people wanting to sell stocks of all shapes and sizes (unless of course they're part of the "Reddit basket"). At the end of the day all the noted indices were down at least 2.5% (SPX) with Naz, NDX, and RUT all finishing down around 3.5%.  In terms of styles, larger caps outperformed a bit, as did value, but it was bright red all around.

Looking at the technicals, everyone is outside their channels now. And all have big MACD (daily) and RSI issues. But we're not yet oversold so that all bodes for more downside, BUT it should be noted that all of the indices closed just above Tuesday's lows so could this be a retest? Anything's possible so those levels are definite support. Next, SPX is easy, closing just above it's 50-day MA. That's a natural place to bounce. RUT is now beneath its 20-day MA (by a touch), and it has a decent amount of space between its current level and its 50-day. But that's a natural next spot if today's and Tuesday's lows don't hold. Similarly, NDX and Naz closed beneath their 50-days, so if Tuesday's lows don't hold I see 100-day next for them. Like RUT there's a lot of space in there so hopefully they can find support at or around the Tuesday low. 

As you might imagine, there was deterioration in the SPX sector flag. But that sort of puts it mildly. Every sector down at least 0.86% with nine down at least 1%, five down at least 2% and two down over 3% (tech and discr).  Interestingly despite the rise in yields, it was the high yielders (utes, health care, staples, RE, fins) that did the best while those with the lowest yield (but highest growth) did the worst. I guess present value calculations were the meme today over yield competition. Or maybe it was just profit taking in WFH stocks after massive runs the past 11 months with reopening around the corner and the spike in yields was just an excuse to sell. Just a thought.  

In key subsectors, bios back to getting hammered as were semi's (SOX down almost 6%(!) to just above the 50-day) and retail (despite huge strength in the Reddit stocks XRT down over 3%). Transp did less bad but still down 1.8%. 

Breadth was, well, really bad. I think it's the worst since October 28th. 15 and 16% of volume was positive NYSE and Naz and 13 and 12% of issues. I guess it's understandable to some extent, and the good news this sort of one-sided smizing has generally seen a bounce the next day. Looking back to that October 28th period might be instructive. There we were in even worse technical shape below a MA and we saw a bounce, an undercut low the day after that, and then we rallied hard for a couple weeks into the election period.  Might we see something similar here?

Outside of equities, crude managed a barely green day (but set another recovery high), and VIX shot up to over 30 although ended up settling a little below. Dollar was flat. Otherwise lots of red with copper, gold, long bonds, and nat gas all down.  10-yr yield did spike up to over 1.6% at 1 pm but did end up settling back just above 1.5%. Still its gotten parabolic this week, so can understand some concern there (I'm not saying it didn't matter). 

Overnight quite a bit of random int'l data with a lot from Japan followed by personal income and spending, PCE, final UofM confidence, and trade and inventory data in the US. Also earnings season cont's but begins to wind down following the 437 reports today. Tomorrow brings us just 81 although the one $100B plus company is a biggie, as Berkshire is scheduled to report (although not exactly sure when it's actually released).

As noted above, we're in pretty poor technical shape, particularly outside the SPX, but we generally have seen a good bounce following days like this. If we don't get one (or if we get a weak one) it will be instructive. I'll reserve judgment on what happens going forward until I see how markets follow up on today's action. One good thing is froth is definitely starting to come off. Not sure where put/call finished but Fear and Greed was down in the 60's today, and while AAII bulls remain high we saw a decent reduction in II bulls and NAAIM exposure is back down under 100. Not what I'd call "fear" but it's a start.

To see more content, including summaries of some of today's economic reports go to 

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