Daily Summary – February 26, 2021 - Into March we go...

       Daily Summary – February 26, 2021

In last night's wrap up I said

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.

Well, for a bounce-back day that was pretty lame. I mean you're at least supposed to finish up. That was too much for the SPX though which finished down around a half percent.  RUT was basically flat while NDX and Naz both did manage to finish with gains in the six tenths area. But the only style boxes that were green were the growth ones and large value got sold. More on that later. For the week all four closed solidly red and despite the gain the week was enough to push NDX and Naz into the red for the month (Naz by only a few points). This is the second straight red month for the NDX (although last few times that's been bullish). 

Looking at the technicals, not a ton changed given the muted gains and losses (most importantly SPX did hold its 50-day again (barely) after dipping below) although RUT did almost retake its 20-day (on my chart it literally closed right on it) with everyone still outside their channels, with same MACD and RSI issues.  Also, NDX has now added a weekly MACD sell signal (and Naz and SPX are close), and Naz has now conclusively gone from over to under 70 on its weekly RSI. Finally, SPX and RUT both had lower lows today for the week (with SPX closing just above its lowest point of the week).

SPX sector flag improved but not by much. Only two green sectors today and both were up around six tenths. On the downside we had nine red sectors with eight down by at least seventy-seven basis points, seven down at least one percent, and two (fins and energy) down over two percent.  Basically it was what you'd expect if value was getting sold.  This says to me today was perhaps a little less about general market weakness and more about profit taking in value names (although not much profits in utes and staples right now) which might be consistent with a month end rebalance out of winning funds/ETF's (value focused) and into laggards (growth, bonds).  Just a thought.

In key subsectors, semi's had a great day with SOX up over 2%, bios were mixed with XBI up and IBB down, trannies and retail were mildly red. 

Breadth improved in terms of aggregate numbers, but not sure it did in terms of what its saying.  Only 24% of volume was positive NYSE, 44% Naz. Given SPX was only down a half percent and RUT was flat that NYSE volume number is just awful and Naz not much better given Naz was up over half percent. Issues better NYSE at 41% worse Naz at 35%.  Breadth has now gone to yellow light.  

Outside of equities, dollar had a good day pushing all the way up to just under 91 (DXY) and a trendline that runs back to the summer (which is also around the 100-day). That should provide stiff resistance.  

Not sure if it was the dollar strength but commodities sold off with crude, copper, and gold all down at least a couple percent. Gold broke that level I said it shouldn't break so short term downtrend back in play although it is getting oversold (14-day RSI now below 30 which it has only been beneath for very short periods of time over the last year) and it is hitting a high volume zone, so maybe finds some support in this area. Has quite a bit of work to do before I'd be bullish for more than a week though. VIX also ended up pulling back some but remains in the high 20's and bonds got a bit of a bid bringing the 10-yr yield back below 1.5%. 

Here's gold.

As we're turning to a new month, thought we'd look at seasonality.  Due to computer issues I don't have my normal charts that slice and dice in other ways (should on Monday) but have my trusty Yardeni charts that show that overall March is generally positive since 1928 although a little more volatile than February normally.

Next week is first week of the month so we get all those standard reports capped by the monthly jobs report on Friday. 

Also earnings season winds down with around 500 reports but the market cap in general will be smaller and smaller from here.  Biggest on Monday will be ZM and MELI. NIO also reports.

Looking at the bigger picture, there's a lot of technical factors that came into play this week. I clearly think the monthly rebalance played a role, but there's no way you can not somehow take the move in rates into account. I think there might have been some mild "real" selling that accompanied the big spike in rates (which I think was a factor of low liquidity, leveraged positions, and automatic convexity hedging), but from what I'm hearing, that then triggered more selling from algos and risk parity models which flipped to lightening exposure when stocks and bonds suddenly were both going down together. This all pushed the VIX up which then caused vol targeters to lighten up. So lots of individual things that added up to a bigger than necessary selloff. That's the problem with markets these days.  With all these separate but interlinked strategies and all the leverage from easy money, what used to be a standard 1% down day turns into something that feeds on itself and lasts several days. In any event, the good news is it looks like we've got stabilization in rates and the VIX.  We also will be into the new month so any rebalance should mostly be done, and we've got new 401(k) money coming in.  Oh, and in the not too distant future we've got stimulus checks. 37% of people said they'll invest some or all in the market.  Don't want to be on the sidelines that day I don't think.

Of course on the technical side we've got crappy breadth (which may be due to the above technical factors though) and definite loss of momentum on the daily charts which is now starting to creep into the weeklies.  Also while we're definitely not overbought, we're also not really oversold, although that's something that's becoming more and more rare. Will be interesting to see where the sentiment polls come in. Something tells me a lot of froth got worked off this week.

So if I was going to stick my neck out, it would be a weak undercut open that gets bought, and we move up from there.  Either that or more selling.  ;-) Whatever the case we'll find out soon enough!  Have a wonderful weekend.

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