The Powell effect from his testimony to Congress put stocks in a negative tone on Tuesday. He continued on Wednesday with a different set of people but similar questions… similar answers… hearing them twice helped investors understand where the Fed stands… they will hike 50 bps IF necessary. Stocks were up and down on the day and end up closing up 0.1%. Solid economic data didn’t help the cause for the Fed as JOLTS job openings for January numbers were 10.82 million versus 11.23 million previously was better than estimated drops of 800k to 1 million. The market traded lower on that news but manage move off the lows into positive territory prior to the close. The terminal rate moved to 5.65%. The two-year bond moved above 5% along with the three-month bond. The ten-year however, was flat. No big changes from Tuesday. Thus some selling from investors followed by some buying. Day two of Powell’s testimony was a formality. Energy struggled on the day despite the drawdown in crude inventory. The SOXX bounced back nicely on the day gaining more than 2.6 % to lead the day. We have definitely seen some rotation in money flow and watching to see how this unfolds heading into the jobs report on Friday. The S&P 500 index closed higher and 3930 remains the next support level. The NASDAQ was higher on the day closing above the 11,474 key support level at 11,576 and trying to hold support. If we break watch the 50 DMA as the next level to hold. How this unfolds going forward will be of interest as we manage our positions accordingly. No matter what our beliefs the chart is the ultimate decision maker.
Plenty of questions about the current market environment. The VIX closed at 19.1 moving lower on the Fed comments. The S&P 500 index closed up 0.1% for the day. The NASDAQ was up 0.4%. Small Caps (Russell 2000) were up 0.05%. A shift in momentum put plenty of question marks relative to the direction. The ten-year treasury yield closed at 3.99% flat for the day with plenty of intraday volatility. Bonds have been pricing in the Fed and future rate hikes. Watching how this storyline unfolds following Powell’s speech and facing jobs data. Crude (USO) was down 1.1% and gives up last week of gains. Gasoline (UGA) was down 0.4% and reversed course. Natural gas (UNG) was down 2.1% as it continued to move back near the previous lows. The dollar was flat as the bottom reversal remains reinforcing the belief the Fed will continue hiking rates. We are focused on managing the risk and watching how this all unfolds. The negative sentiment shifted for stocks as investors focus on the Fed and interest rates.
Charts to Watch: Watching how markets react heading into the jobs report due out Friday.
Tuesday: XRT (Apr 06 65 put). UBER (upside break from consolidation). AAPL (reversal confirmed).
Previous Charts of Interest Still in Play: GBTC (cup & handle pattern). Nice upside move testing near term. LSCC (testing uptrend). Added upside move. UAL (trading range) added upside move. COIN (triangle pattern) added upside move. DHT (J-Hook pattern). Added to the upside move. BDRY (bottom reversal) remains bullish. Gapped higher and raised stop. RUN (descending triangle break lower short signal). Bounced back… added upside move. STLD (trading range) Added upside move. UAL (break from trading range) Added. MSFT (broke support, puts) Added. SOXX (upside follow-through) Added.
Stops Hit: None
Quote of the Day: “My favorite childhood memory was my parents paying for my vacations.” – Phylis Diller.
The S&P 500 index closed up 5.6 points to 3992 the index was up 0.14% with below-average volume. With the Fed talks done the market turns to the jobs report on Friday and inflation data next week. Seven of the eleven sectors closed higher on the day with REITs as the leader up 1.2%. The worst performer of the day was energy down 1%. The VIX index closed at 19.1 as anxiety moves slightly lower on the Fed comments. The attempt of a bottom reversal is in play as the index holds support at 11,474.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials bottom reversal and back to the top end of the current range. Back above the October trendline as the sector gains momentum. The sector was up 2.3% for the week. Watching how it unfolds near term. Undecided.
XLU – Utilities remain in the down-trending channel… bounced off the lows and posted two solid days on the upside… watching for opportunity short term. The sector was down 3.2% for the week. Moved lower again into the down trending channel.
IYZ – Telecom broke the head and shoulder pattern on the chart to the downside… broke below the trendline off the October lows… bounced to end the week. The sector was down 2.4% for the week. Back to previous support.
XLP – Consumer Staples downtrend from the December highs remains in play. The sector was down 1.8% for the week. Broke lower but bounced to end the week.
XLI – Industrials Sideways trend finally breaks from the trading range on positive momentum. The sector was up 0.3% for the week. Need to hold the break above the $102.40 level.
XLV – Healthcare downtrend in play with a break below the $127.50 mark, but managed to bounce to end the week. The sector was down 2.4% for the week. Gave up the recent gains.
XLE – Energy tested support at $82.74 and bounced. Some momentum from higher crude prices of late. The sector was down 0.4% for the week. Added positions in commodities USO, UNG, UGA. Bottom reversal in play with a test of support.
XLK – Technology The sector moved to support at $136.10. Held the 50 DEMA. Maintaining leadership but struggled of late. The sector was flat for the week. Watching for direction and opportunity near term. Looking for direction.
XLF – Financials broke the trendline from the October lows. The sector was up 0.2% for the week. With interest rates in the headlines not helping the sector. Downside in play.
XLY – Consumer Discretionary rolling top broke to the downside. $147.10 support broken. $141.60 next level of support held. The sector was flat for the week. Remains in a downtrend from the February highs.
IYR – REITs uptrend off the October lows broken. The sector was down 1.8% for the week. The negative influence of rising interest rates and reports of vacancies in commercial rents are rising. Short-side trade opportunity. Downtrend in play.
Trouble is building in commercial office space as the return to the office efforts aren’t working. The headlines are steadily showing the fight between corporations and employees. Amazon is the latest showing 1/2 are willing or want to return to the office for the three days a week proposed. This is impacting commercial property owners as mortgage payments are being delayed more than two months. Banks raised their reserves in January and are likely to increase more in February. With that in mind IYR and REM bounced off the October lows but may retest those lows or beyond based on future defaults. Worth watching the downside risk with SRS.
Summary: The index responded to Mr. Powell’s comments on inflation and interest rates. Watching how it unfolds with the jobs report up next. The charts are a mess for the last two weeks with indecision creating choppiness. 3930 level of support is in play. Interest rates moved to the 3.99% mark showing hope in the Fed comments. Four of the sectors have established a short-term downtrend… but watching how they respond moving forward. We will remain patient for now as investors sort out their collective thoughts about the Fed and inflation. We continue to manage our positions accordingly. Remember two things; first, the trend is your friend, and second, don’t fight the Fed.
(The notes above are posted at the end of each week based on activity from the previous week’s trading. The BOLD/ITALIC comments are the current-day changes worthy of note.)
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
The NASDAQ index closed up 45.6 points to 11,576 as the index was up 0.4% for the day. The 11,474 support is back in play. Money flow remains below 50 with all the news and speculation creating uncertainty around the Fed. Technology and semiconductors are the keys… SOXX bounced nicely on Wednesday. Watching how this unfolds next few days.
NASDAQ 100 (QQQ) was up 0.5% with the mega caps moving back towards $292 support. The sector had a negative bias with 9 of the 100 stocks closing in positive territory for the day. Watching how support plays out near term.
Semiconductors (SOXX) trend turned down breaking support but held and attempted to move higher again. The sector was down 0.1% for the week. $390.40 is near-term support. Looking for clarity in direction near term. Down 2.2% last two days… up 2.6% on Wednesday…
Software (IGV) bounced at $276.50 support. CRM earnings added the spark on the upside. The sector was up 3.7% for the week. Bottom reversal still in play short term.
AI stocks are heating up as companies race to launch new products amid the ChatGPT AI phenomenon. Here is a list to watch and trade the existing opportunities as they present themselves… NVDA, ANET, GTLB, META, BIDU, SPT, CXM, TIXT, STX, MSFT.
Biotech (IBB) The sector bounced at the 200 DMA and moved above $128.35 adding a small position. The sector was up 3.2% for the week. Hit the 200 DMA and watch if the downside continues.
MRNA – Moderna cancer vaccine results could drive the company higher longer term. Despite the tough week for the stock, it is worth keeping on our watch list. Finding support… added small position.
Small-Cap Index (IWM) consolidation pattern on the chart with positive upside on Friday… watching. The sector was up 2.1% for the week. Money flow turned negative. Downtrend in play from the February highs.
Transports (IYT) uptrend from the October low remains in play with plenty of volatility along the way. Trying to hold the $224 support level and cleared $233.95 resistance on Friday. The sector was up 3.9% for the week. Consolidating.
BDRY – Dry bulk shipping looking bullish with a bottom reversal in play. Gapped higher – adjusted stop. Moving towards the January highs.
The Dollar (UUP) The dollar was choppy all week on the back-and-forth talk about the Fed and interest rates. The dollar was up 0.1% for the week. The outlook is positive with the Fed-driven move in play. Traded higher from Mr. Powell’s comments.
GBTC – Grayscale Bitcoin Trust is trading at a 47% discount to the underlying asset. Something to watch moving forward. The chart is testing the rise off the January lows… watching how the news of higher regulations will impact prices going forward. Hit Entry $10.60. Consolidation pattern breaks higher on Fed comments.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.96% up from 3.95% last week. Big shift on Friday as softer Fed belief arise on comments from Atlanta President. TLT was up 0.4% for the week. Held at 3.99% on Powell comments.
Crude oil (USO) trading range on the chart with oil headed back towards the top end of the range. Economic speculation is impacting supply-demand speculation globally. USO was up 4% for the week. The weekly chart shows the downtrend building in crude. Added upside position. Moved lower and remains in a sideways trend.
Gold (GLD) The commodity bounced this week as the dollar waffled. The metal was down 2.2% for the week. Held support at $168. Big reversal on the dollar moving higher Testing support at $168 again.
Put/Call ratio was 0.99 Wednesday… Fed comments in play.
Questions to Ponder: Navigating Uncertainty
Retail sector (XRT) is lagging of late… but the White House says the economy is strong. Scanning the stocks shows WMT, TGT, JWN, KSS, M, etc are all slowing of late. Watching how this unfolds moving forward.
Speculation/Conspiracy Theory: The Fed is in the position of getting the market to do the dirty work for it. If the market drops 20-30% and crashes liquidity for the average American… they, the average Joe, cut spending out of fear. That allows the Fed to not raise rates above the 6% level by allowing the markets to accomplish the feat while they, in the background, dry up the money supply exacerbating the process. The market would crush inflation and throw the economy into a full-blown recession. Which in turn could and would destroy the middle class. This will all be done for the need to preserve the American way… printing money and raising debt levels while the government gains more control and take more of the freedom our forefathers fought for.
Adding to the speculation about the Fed doing the dirty work, JP Morgan is of the opinion with increased 0DTE options (zero days to expiration) trading daily it could send the market down as much as 25% intraday. Reuters posted an article on the impact on Monday. The daily dollar value is now up to $1 trillion per day. One thing is certain… the markets are never dull.
64% of all Americans are living paycheck to paycheck.
FINAL NOTES:
Wednesday: Stocks fought off the selling on Wednesday, but still face plenty of challenges with data from jobs on Friday. Mr. Powell took a firm stance against inflation and higher interest rates to get it under control. He removed some of the uncertainty about the Fed’s future actions, but some of the economic data is still pointing to growth and that is creating a conundrum for the Fed and equally for investors. We take what the market offers watching patiently and managing our money accordingly. It was a boring day of trading after all the hype about the Fed. The dollar jumped higher on the Fed comments… volatility is up intraday but remains lower than you would expect.
Hope is a beautiful thing… but, as we say many times, the data doesn’t matter until it does. That is where we find ourselves currently. We look to the charts to provide the next direction near term… Choppy markets based on the comments the last few weeks by the Fed versus the data reports. This will play out near term and we will look to see where the opportunities are created. Eyes open. Emotions removed. The dollar turned higher on Fed comments. Interest rates are at 3.99% on the ten-year bond up from 3.4% three weeks ago reflecting Fed worries. It is a time for patience as the storylines unfold and the direction is determined. Sectors were mixed on Wednesday showing the indecision of the comments from Powell. The money supply has turned lower showing more money on the sidelines. Don’t assume anything and manage the risk that is. Watch for the volume, direction, sentiment, and volatility levels to lead you to what takes place. There are plenty of moving parts, we have to understand that truth/reality eventually plays out in the markets. Until then we will continue to take what is offered and manage the risk that is.
Our longer-term view is still negative, but nothing goes straight down or up… there are always positive and negative swings in a longer-term trend. Recession talks are trickling back into the headlines. Stagflation showing up in the ISM data. We remain focused on short-term trades until there is longer-term directional clarity. The charts are showing a short-term trend reversal from the upside. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal now is to manage the risk of positions, take what is offered… short or long, and then manage the risk.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese proverb
The goal of these notes is to allow you, the investor, to learn how to see the market development as the progression through the sector develops based on news, speculation, and data. Data drives long-term results and develops trends… speculation and news are short-term drivers and offer higher risk trading opportunities. Through the use of both technical and fundamental data, we can have greater confidence in our trading strategies with a disciplined approach to investing and managing the risk of our money.