Scanning the headlines the outlook for stocks is all over the place. Recession worries, interest rate worries, Fed worries, banking collapse worries, taxes, inflation, stagflation, just about any scenario is in the headlines and making investors nervous. The volatility index remains elevated and intraday volatility over the last two weeks have been intense. Yet despite all of it the Dow was up 1.2%, the NASDAQ up 1.7%, and the S&P 500 gained 1.4% for the week. The consensus among analysts is a trading range-bound market for the balance of the year. The worst case is the bottom falls out and we have a major correction. Thus, all the more reason we need to focus on what is happening and manage our risk accordingly.
The day after, the day after, the FOMC meeting stocks were less volatile intraday as they managed to dig themselves out of a hole from the open. At the end of the day, there were modest gains with some uncertainty in direction as investors attempt to find direction. The financial crisis is averted for the week as liquidity is once again pumped into the system. The Fed and Treasury know what is happening… they helped create the problem. The solution is ugly and no one wants to take the measures to fix it long-term. Thus, the bandaid effect of patching things up and attempting to go a different direction to fight inflation. The Fed, Treasury, and White House are still rattling on about how strong the economy is… really? The Fed pontificated on Wednesday about how strong employment and housing are. The scarecrow at the Treasury says things are great and there isn’t a recession the economy is growing. The White House parrots the Treasury about economic growth. I want to borrow their rose-colored glasses to see the economy they see. It is all a bunch of lies made up of statistics that the same people manipulate to say what they want.
Bank runs and liquidity issues when you are attempting to rein in stimulus and free money are not a sign of a healthy economy or financial system. Statistics don’t lie, only statisticians. Looking at the chart we can see support coming back into play and a retest of the lows in some sectors. The challenge from my perspective is the banking crisis may have been averted for now, but you have to believe there is more to come unless the money supply increases remain in place for a while. Whatever the reality we as investors have to manage what we know and deal with the reality as it unfolds. The Fed put it all in perspective and if you read the comments from Powell they believe they now have the upper hand. As with any belief, we will see how reality unfolds moving forward. We at the very least, understand the Fed’s direction near term, and now we see what transpires. The volatility intraday may be a sign of what to expect near term as the news drives how investors react. No matter what our beliefs the chart is the ultimate decision maker.
Plenty of questions remain about the current market environment. The S&P 500 index closed up 0.5% with intraday volatility. The NASDAQ was up 0.3%. Small Caps (Russell 2000) were up 0.9% managing a modest bounce after testing lower. All the movement intraday with little to show for it at the close. The ten-year treasury yield closed at 3.38% down 2 bps on the day. Bonds have had a volatile ride of late as well, but they are likely to remain in the 3.4.-3.7% range for the near term. Watching how that storyline unfolds. Crude (USO) was down 0.1%… $65.70 is the key level of support for crude. Gasoline (UGA) was up 0.1%. Natural gas (UNG) was up 2.1% volatility remains in the commodity. The dollar was up 0.6% some relief following the move lower. Overall crazy markets. We are focused on managing the risk and watching how this all unfolds. The negative sentiment is in play with a glimpse of hope here and there… patience is the key.
News to follow: COIN was down 8% on Wednesday following a notice from the SEC (Wells Notice) of potential violations of securities laws. It fell another 14% on Thursday. This is a key issue as it relates to Crypto and how it is regulated or not regulated by the government. CNBC story link. Modest bounce on Friday to end the week. An interesting note is the NASDAQ announced on Friday they will house cryptocurrency starting at the beginning of the third quarter.
Charts to Watch: Important to note Thursday and Friday’s trading was mixed. A shift in leadership and the bounce and/or decline never materialized. This leaves room for speculation as we move to the last week of the trading month and quarter.
Friday: Mega Caps – MSFT, META, AAPL, GOOG, AMZN, CSCO. Short – financials XLF, banks KBE, regionals KRE. Precious Metals upside – UGL, NUGT, AGQ. Energy short? XLE, ERY. Technology upside. SOXL.
Thursday: QQQ, SOXX, SPY, IWM… do we bounce following a digestion of the Fed comments? Watching… Upside: MSFT, SLV, PAAS, GLD, NAT, TK. Downside: KBE, KRE, BAC, GS, FCX.
Previous Charts of Interest Still in Play: LSCC (testing uptrend). Added uptrend in play. SOXX (upside follow-through) Added. AAPL (reversal confirmed) Added to the position. GBTC (trading range breakout). Added. XRT (Apr 06 65 put). Added. Thursday sold half. AMZN (bottom reversal) Added. GDX (bottom reversal) Added Friday. PG – trading range break as part of the consumer staples money rotation. Added Monday. KBE April Put $38 @ $2 or allow any bounce to play out and then buy puts at the money. Added Wednesday.
Stops Hit: NONE
Quote of the Day: “My formula for success is rise early, work late and strike oil.” — JP Getty.
The S&P 500 index closed up 22.7 points to 3970 the index was up 0.3% with the above-average volume on the day. Moved back to the 3930 level and watching 3804 support. Nine of the eleven sectors closed higher on the day with utilities as the leader up 3.1%. The worst performer of the day was consumer staples down 0.3%. The VIX index closed at 21.7 as anxiety moved on the intraday volatility. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials Moved below the 200 DMA. Broke support and short-term downtrend in play with some bottoming on the chart. The sector was up 1.7% for the week.
XLU – Utilities retested the lows at $64 and bounced nicely to end the week. The sector was down 1.9% for the week.
IYZ – Telecom bottoming pattern on the chart and letting it unfold. Need to move above $22.35 to have a chance at the upside. The sector was down 0.5% for the week.
XLP – Consumer Staples downtrend from the December highs remains in play. The sector was up 1.2% for the week. Letting it unfold. $73.75 level to clear on the upside.
XLI – Industrials moved to the 200 DMA as support. The sector was up 0.2% for the week.
XLV – Healthcare downtrend in play with a break below the $127.50 mark. Found some support at the October lows. The sector was up 1.1% for the week.
XLE – Energy broke support at $82.74 and moved to $76 support… watch to see if it holds or moves lower. The sector was up 1.2% for the week. ERY entry $32.40. Stop $32.40.
XLK – Technology The sector bounced off support at $135. Maintaining leadership but struggling with the rest of the market. The sector was up 1.7% for the week. Watching for direction and opportunity near term. Broke above $143.45 resistance.
XLF – Financials pressure in banks continues pushing the sector lower. Downtrend accelerated on the news and watching how this unfolds. The sector was up 01% for the week. KBE puts in play. FAZ entry hit $18.35. Stop $23.
XLY – Consumer Discretionary short-term downtrend in play. The sector was up 0.2% for the week. Bottom reversal?
IYR – REITs $82.96 support was broken and tested the October lows. The sector was down 1.7% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Short-side trade opportunity. SRS entry $17.95. Stop $19.
Summary: The index remains volatile on the uncertainty surrounding… everything. The bailout money helped on Monday, reassurances helped on Tuesday… the FOMC on Wednesday gave perspective and stocks fell… Thursday validated the uncertainty with intraday volatility and Friday offered some hope for the buyers. Money flow is of interest as some risk in small caps showed up… QQQ is stalling… crude bounced… treasury bonds rallied… SOXX showing strength overall… still plenty of issues to be faced. The unknown is always the deepest threat to the investor psyche. It is a news-driven market and the headlines are driving for now. The Fed focus is back along with the Treasury Department. The charts are a mess for the last few weeks with indecision and increased volatility. Support is 3804 moved back above the 3930 level and held on Friday. Eight of the sectors have established a short-term downtrend… the other four are not in great shape… watching the retest of previous lows… we could still see some upside short term based on Powell’s comments. We will remain patient for now as investors sort out their collective thoughts about what is fear and what is real. We continue to manage our positions accordingly. Taking exits as necessary and adding where opportunities arise. 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 36.5 points to 11,823 as the index was up 0.31% for the day. The 10,941 support held and the index moved back above the 11,474 previous support. Technology and semiconductors are the keys… SOXX struggled Friday but still showed leadership. Watching how this unfolds inching forward.
NASDAQ 100 (QQQ) was up 0.37% with the mega caps holding above $303 previous support. The sector had a positive bias with 55 of the 100 stocks closing in positive territory for the day. Watching how sentiment plays out near term. Volume is lagging despite the move higher.
Semiconductors (SOXX) sideways trading range with $432.27 resistance. Showing leadership overall. The sector was up 0.9% for the week. If breaks higher offers some sign of hope for stocks near term.
Software (IGV) bounced at $273.40 support. Trying to offer some leadership in the technology sector. The sector was up 1.7% for the week. Need to clear resistance $293ish level.
Biotech (IBB) The sector moved below the 200 DMA and remains in a downtrend from the February highs. The sector was up 1.1% for the week. LABD entry $18.26. Stop $21.50.
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. Entry $142. Added a small position and looking to move above $153.
Small-Cap Index (IWM) downtrend accelerated to support at the December lows. The sector was up 0.3% for the week. Money flow turned negative. Entry TZA $29.20. Stop $34.30. Watching Friday’s bounce?
Transports (IYT) established a downtrend from the January highs. $214 is the support level. The sector was down 1.6% for the week. BDRY showing a topping pattern.
The Dollar (UUP) The dollar was down all week with the Fed and interest rates. The bounce on Friday was a plus… watching how it unfolds. The dollar was down 0.6% for the week.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.38 down from 3.39% last week. Big shift in the last two weeks as the fear of the bank fallout impacts investors’ risk tolerance. TLT was up barely for the week. Entry TLT $102.90. Stop $105.50
Crude oil (USO) Tested lower and bounced but not showing much upside currently. Economic speculation is impacting supply-demand globally. USO was up 3.9% for the week. The weekly chart shows the downtrend building in crude. $65 level is key for crude relative to the downside support.
Gold (GLD) The commodity bounced this week as the dollar waffled and fear rose. The metal was down 0.1% for the week. Entry $169.50. UGL in play.
Put/Call ratio was 1.10 Friday… Showing hedge of risks.
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. The short side has played out well. CTRN earnings data addressed the lower income households struggle… no money and lower spending expected in the first half.
Friday: Stocks show intraday volatility as investors attempt to determine direction and opportunities. The negative open reversed and stocks eased their way to a positive close. Economic data on Friday showed some positives versus the previous data, but still negative. The key will be the Fed’s willingness to deal with things from a longer-term view versus short-term ease of pain. The line between the banks, the Treasury, and the Fed are very blurred as seen in the comments all week. Markets are looking for clarity in direction from the Fed, Treasury, and White House… good luck. Taking it one day at a time. Plenty of questions… too much speculation.
Fear is present despite the VIX being elevated but not in the fear zone. The FOMC did provide direction for the near term… It is just a matter of hearing and believing that is the challenge on Wall Street and Main Street. Eight of the eleven sectors have created short-term downtrends on the charts and watching how they respond going forward with key support levels in play. Treasury yields dipped back to 3.4%… the dollar heading lower… crude flattened out… precious metals bounced. Eyes open. Emotions removed. It is a time for patience as the storylines unfold and the direction is determined. The money supply has turned higher… patience. 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 back in the headlines. Market correction headlines are growing in numbers. But, we have to 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. News is in the driver’s seat as we take positions that are technically moving and offering opportunities. 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.