Earnings and Volatility

There is not a lot to add to yesterday. Caution remains the rule of the day as defensive sectors led the markets yesterday. Sentiment remains giddy as retail investors continue their record call buying. A slew of earnings announcements will rule the remainder of the week. The companies reporting include Apple (AAPL), Advanced Micro Devices (AMD), Microsoft (MSFT), ServiceNow (NOW), Facebook (FB), and Tesla (TSLA).

Yesterday’s morning swoon and volatility ended up attracting the institutional crowd by the end of the day, handily beating Friday’s volume. As I pointed out yesterday, what looked like a harsh distribution day taking shape in the morning ended up being a liquidation break and a constructive outside day for the Nasdaq composite and S&P 500.

Miraculously, the Democrat States starting opening up right after last week’s inauguration. In an equally amazing coincidence, the CDC announced yesterday that Chinese Virus related cases and deaths had been overstated by ten-fold. If that is not enough good news for you, cases and deaths apparently peaked last week and are now falling dramatically. Even California and New York have announced that they are ready to march back towards normality. Next thing you know, we will hear that the Chinese Virus really isn’t much worse than the flu. Go figure.

Despite all the great news, both the NASDAQ 100 and the retail sector (XRT) charts looked like blow-offs as prices threw over their top channel lines and reversed. Take a look at the retail sector below and the faint red spike from yesterday. Blow-offs lead to corrections – so we need to be careful here.