Daily Market Update for 12/10

١١ فبراير ٢٠٢٢

Summary: Consumer Price data showed inflation at its highest in forty years, raising concerns that the Fed will be more hawkish in its March rate hike than previously thought. Treasury yields soared while equities pulled back.

Notes

Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.

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Thursday, February 10, 2022

Facts: -2.10%, Volume lower, Closing Range: 17%, Body: 11% Red
Good: Higher high
Bad: Lower low, lower closing range, high volume on decline
Highs/Lows: Higher high, Lower low
Candle: Long upper wick over a thin red body
Advance/Decline: 0.52, two declining stocks for every advancing stock
Indexes: SPX (-1.81%), DJI (-1.47%), RUT (-1.55%), VIX (+19.79%)
Sector List: Materials (XLB -0.58%) and Energy (XLE -0.62%) at the top. Technology (XLK -2.61%) and Real Estate (XLRE -2.85%) at the bottom.
Expectation: Lower

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Market Overview

Consumer Price data showed inflation at its highest in forty years, raising concerns that the Fed will be more hawkish in its March rate hike than previously thought. Treasury yields soared while equities pulled back.

The Nasdaq declined -1.81% for the day. The index rallied after opening lower, passed yesterday's high, but then sold off the rest of the day as investors turned bearish. That left behind a long upper wick and a small 11% red body. The low closing range was 17%. The decline came on higher volume than the previous day and represented two declining stocks for every advancing stock.

The S&P 500 (SPX) dropped -1.81% led lower by big tech. The Russell 2000 (RUT) declined -by 1.55%. The Dow Jones Industrial Average (DJI) did a little better with a -1.55% decline. It was helped by the Materials sector early morning rally. The VIX Volatility Index rose by 19.68%

All eleven S&P 500 (SPX) sectors declined. Materials (XLB -0.58%) and Energy (XLE -0.62%) both rallied in the morning, helping them top the sector list for the day. Technology (XLK -2.61%) and Real Estate (XLRE -2.85%) were the bottom two sectors.

The Consumer Price Index (CPI) for January showed an increase of 7.5% year-over-year, the largest increase in forty years. The Core CPI, which excludes oil and gas, increase 6.0% year-over-year. Initial Jobless Claims were at 223,000. The Fed's priority of a strong labor market appears healthy, allowing it to take a more hawkish approach to control inflation.

The US Dollar index (DXY) rose by +0.25%. The US 2y Treasury Yield rose over 16% and topped 1.6% after markets closed. The US 30y and 10y Treasury Yields also rose sharply, but the gap between long-term and short-term yields squeezed considerably. High Yield (HYG) and Investment Grade (LQD) Corporate Bond prices dropped sharply along with Treasury prices. Copper and Aluminum futures continue to rise.

The put/call ratio (PCCE) rose to 0.708. That rise is less than one might expect given the conditions, but investors are likely betting on a brief CPI reaction and then rebound. The CNN Fear & Greed index is in the Fear range. The NAAIM money manager exposure index rose to 66.8 from 62.54 the previous week. The survey of money managers is conducted on Wednesdays after the market closes.

All big six mega-caps declined today. Tesla (TSLA) had the worst decline, falling -by 2.95%. It was followed by Microsoft (MSFT) and Apple (AAPL) which fell -2.84% and -2.36%.

Walt Disney topped the mega-cap list with a +3.35% gain. The company showed a great post-pandemic recovery in its earnings report released yesterday. The only other mega-cap to gain today was Coca-Cola (KO) which gained +0.54% after beating analyst expectations in a morning earnings report. Adobe (ADBE) was at the bottom of the mega-cap list with a -5.12% decline.

DataDog (DDOG) smashed expectations in its earnings report and provided a great outlook. That sent the stock up nearly 20% intraday. It settled with a +12.28% gain to top the Daily Update Growth List. GrowGeneration (GRWG) was second in the list, gaining +5.67% on the passing of the Safe Banking Act in the House of Representatives which will benefit the cannabis industry. The bill passed thru the House six times but has yet to pass the Senate.

DoorDash (DASH) was at the bottom of the Growth List with a -9.54% decline. As additional states pullback mask mandates and other pandemic measures, investors are expecting diners to return to restaurants.

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Looking ahead

The Fed monetary Policy Report is due tomorrow morning. After the market opens, the Michigan Consumer Expectations and Consumer Sentiment numbers for February will be available. Do consumers see inflation easing or will they confirm fears of further price pressures?

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Trends, Support, and Resistance

The Nasdaq opened lower, but then rallied until it hit resistance at 14,500 and fell back below the 21d EMA. I don't usually mention the 10d simple moving average, but it has provided support over the past six sessions. The index closed right above that line today.

If the index returns to the longer trend, the five-day trend line, and the trend line from the low on 1/24, it would mean a +2.25% gain for Friday.

The one-day trend line points to a -1.90% decline.

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Wrap-up

You can thank James Bullard of the St Louis Fed for today's reversal to the downside. The inflation data was enough to have markets open earlier, but Bullard's comments ended the morning rally. Bullard told the press that he would be open to additional rate hikes outside of regular meetings and wanted to see the rate at one percent by July. Ouch!

We'll have to wait until tomorrow to see how the market further digests that fear. Based on the chart, the expectation is lower.

Stay healthy and trade safe!