With earnings season ending soon, stocks were again weighed down today by inflation concerns. Dow Jones Industrial Average fell another 267.13 points or -0.78%. The S&P 500 Index also declined 35.46 points or -0.85%. The Nasdaq Composite Index dropped 75.41 points or -0.56%.
The concerns last week about faster growth in consumer prices could prompt the FED to tighten monetary policy earlier than expected continued to unsettle investors. High growth stocks and areas that have benefited from low-interest rates continue to witness volatile trading conditions.
Those concerns last week led to the SPX Index suffering its biggest weekly decline since late February. The technology-laden Nasdaq Composite Index has fallen for the past four straight weeks, its longest losing streak since August 2019.
From a technical perspective, several developments occurred last week to signal a choppy trading range over the near term. For example, the implied volatility turned sharply higher last week. The SPX implied volatility (VIX) jumped to 28.93, INDU (VXD) leaped to 25.68, and COMPQ soared to 32.72. The increase in market volatility subsequently led to gap-downs (5/11/21) and inside days (5/13/21) in key US market indexes. Gap-down patterns are bearish conditions that warn of selling pressure. Inside days are neither bullish nor bear, but continuation patterns.
After the onsets of daily gap-downs and inside days, traders need to monitor the trading actions. Why? Daily gap-downs that are not filled or closed may lead to further selling/distribution, at least from a near-term basis. Inside days are common technical chart patterns that tend to signal a continuation pattern. Continuation patterns are often consolidations that occur in the middle of a trend. Once the pattern has been resolved, the primary trend will often resume.
Interestingly, the weekly charts this week are also showing the potential for inside week patterns in key market indexes. The weekly closing price on Friday is needed to confirm the inside patterns.
Trading above last week's weekly high would confirm a bullish condition and the resumption of the primary uptrend.
However, trading below last week's weekly low would confirm a bearish condition and the start of a deeper correction.
S&P 500 Index (SPX – 4,127,83)
5/10/21 Week (High = 4,236.39, Low = 4,056.88, and Close = 4,173.85)
5/17/21 Inside Week? (High = 4,171.92, Low = 4,125.99, and Close =?)
Dow Jones Industrial Average (INDU – 34,060.66)
5/10/21 Week (High = 35,091.56, Low = 33,555.22, and Close = 34,382.13)
5/17/21 Inside Week? (High 34,408.99, Low = 34,044.10, and Close =?)
Nasdaq Composite Index (COMPQ – 13,303.64)
5/10/21 Week (High = 13,687.93, Low = 13,002.53, and Close = 13,429.98
5/17/21 Inside Week? (High = 13,485.34, Low = 13,265.40, and Close =?)
