Daily Summary – March 25, 2021 - Not Buying The Bounce Just Yet

 Daily Summary – March 25, 2021  - Not Buying The Bounce Just Yet

So, I asked on Tuesday night whether we had sold off enough for a bounce.  We did bounce Wednesday morning, but when it was sold pretty quickly, I thought it presaged a deeper pullback. Again, I was right for an hour or so, but markets recovered from solid losses (which pushed the RUT into correction territory) to post gains (or almost in the case of NDX) led by value (particularly small value) which pushed the RUT up by 2.29%.  SPX dragged down by its biggest components which are basically all large growth (which finished mildly red) lagged at a half percent gain while the Naz finished a smidge green.  NDX finished just on the other side of the unchanged line down -0.14%. So my bounce call was right, just off by a day. ;-)  In style box form, today looked like this.

As a side note, I've learned from Helene Meisler over the years that a pattern works right up until everyone noticed it.  I I posted this tweet which was widely circulated yesterday.  

So, of course, what do you think we got today?

Technically the biggest thing I see right now is the series of lower highs forming on all of the above indices, particularly on the SPX and RUT where it's a pretty smooth decline.

That, along with the MACD and RSI issues, makes me very hesitant to call for any sort of sustained upside just yet.  Situation is worse on the NDX and Naz, which don't even have a nice smooth pattern like that, but have fallen well below any trend. The only good news is that both were able to retake their 100-days after falling beneath. Also Naz has triggered a go short on the daily MACD, and NDX is ever so close.  But holding the 100-day is a start, I just don't feel very confident in sustained gains for those indices either right now.

But for today at least, SPX sector flag looked great.  Nine green sectors with six up over 0.8%, and the only two red (big cap growth dominated tech and comms) were down less than a third of a percent. Nice looking flag.  

On major sector charts, utes pushed back over the 100-DMA and materials its 20-DMA.  Both are over all of the DMA's I track so for now have clear sailing to 52-week high levels (although utes are a lot further than materials).

Bios after their two-day correction bounced back a bit with XBI up almost 3% and IBB almost 1%, both bouncing right off their 200-days. XRT (retail) also strong up over 3%, and transp continued to act well up 1.75% to within a couple percent of ATH's. Semi's managed to recover from steep losses to finish mildly green.

As you might have guessed from the SPX sector flag, breadth there bounced back in a big way, but it also did on the Naz which I was a little surprised by.  Volume was positive by 75% on NYSE and 70% on Naz, very solid numbers given the respective point gains.  Issues not quite as good at 63 and 62% but still decent.  It's only one day, and comes after a pretty aggressive series of down days, so nothing to get excited about, but I'll be changing my tune quickly if this keeps up.

  

Outside of equities bonds continue to slowly drift down, although today the 10-yr yield bounced off its 10-DMA to finish flat after a decent 7-year auction.  That might act as a floor for now. Crude continued its whipsaw action with its third straight plus/minus 4% day to finish back beneath its 50-day although it did finish off the lows. The 57.25 area (WTI) is setting up as some minor support now. One note to make that was pointed out to me is that with the last few day's volatility, CTA's and vol targeting funds will likely reduce a bit of risk in crude as these big spikes back and forth fall into their lookback periods. 

Also down today was copper which has quietly fallen to a 3-week low, VIX which fell back down under 20, and gold which continues to hug its 20-DMA.  Unfortunately it's downtrending, so so is the price of gold. 

On the green side were the dollar and nat gas, with the dollar (DXY) edging over its 200-day for the first time since last May and now at its highest level since just after the election.  If this sticks (not a false breakout), this would not only surprise me (I thought the 200-day would hold) but could see it get going to the upside which is generally not great for commodities and other risk assets.  Technicals look good there also.

Overnight we'll get Japanese CPI, UK retail sales, EU confidence, and EU leader's summit (early tomorrow morning) amongst int'l data followed by a decent day of data in the US with PCE, retail inventories, personal income and spending, and UofM second read of March confidence.

I noted in this morning's summary (which I'm going to try to make a bit more expansive as time goes on), that taxes had hit the front page of the WSJ.  I noted - "While this is almost certainly not a 2021 story in terms of when they'll be effective, as we've seen the market is forward looking as it tries to discount all available information into current prices, and once you make it to the front page of the Wall Street Journal, you are officially in the market's sights."  And make no mistake the market knows what that means.  It means lower earnings.  Here is a Goldman estimate of the impact of the Biden proposed tax plan.

I would imagine that this will be one of those things that hits stocks every time it pops up or seems to be gaining traction.  

More short term, as noted above, I'm encouraged by the bounce and the buying volume today, but I'm a little disappointed that we didn't get a really good reset of sentiment with this pullback.  While put/call ratio did get up to 0.94 at one point today, it finished well off that, Fear and Greed fell to 34 but finished at 40 which is not really "fearful" for that indicator, NAAIM came down but remains above levels hit just a couple of weeks ago...

... and the one that really surprised me was AAII, which was released today and covers this week, which came in even more bullish than last week.

Plus, I think we still likely have more rebalancing to come before month's end, and I've covered the poor technicals.  I still remain very optimistic as we move into April, and maybe the market will just power through as it sees the strength of what's to come encouraged by jobless claims falling to a post-pandemic low and another strong regional PMI report, but I just think we're not quite done with the selling just yet. 

Oh, and that boat is still stuck.  Somehow I don't think this is going to help with those soaring prices and supply chain issues.

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