Markets started lower on Thursday as the hangover from poor economic data weighed on investors. As has been the case of late the mega-cap stocks found buyers as GOOG, MSFT, AAPL, and AMZN headed higher. Jobless claims came in at 228k versus the 204k expected. The challenge came in the previous week’s revisions up 50k to 246k. Continuing claims equally were revised higher from 1.689 million to 1.817 million. The key components on the day were small caps (IWM) which have been lagging and continued to do so up just 0.1% on the day. Semiconductors (SOXX) were down 0.5% were down for the fourth straight day. They closed down 0.1% for the week and the NASDAQ lost 1.1% for the week. Plenty of back and forth as investors continue to push money toward safety. None of the news painted a good outlook… thus, we have to proceed with caution and take what is offered. The belief would be at some point the markets/investors will have to accept the bad news for what it is… reality.
The markets have had every reason to sell lower but manage somehow to hang on. Even so, the moves higher have been in a narrow space, and sectors like small caps have lagged considerably. The move lower in XLI, XLB, and IYZ has not helped the cause. Defensive sectors like XLU, XLV, and XLE have pushed higher. Technology has stalled with SOXX down 5% for the week. We will see how it responds going forward. As I say plenty of times, data doesn’t matter, until does. The current market environment is a bounce off the previous lows with a current test as it got extended or overbought. The Fed liquidity is in play and likely to remain to prop up stocks for now. Oil production cuts will have an impact in time. Inflation will be a challenge again if oil increases to $100 bbl. Liquidity will trigger inflation equally. All issues the market will have to deal with over time as well as the investor. The S&P 500 index closed up 0.3% with intraday volatility. The NASDAQ was up 0.7% with intraday volatility. Small Caps (Russell 2000) were up 0.1%. The ten-year treasury yield closed at 3.28% flat on the day as bonds rally on the week. Crude (USO) was down 0.1%… holding above $80 bbl. Gasoline (UGA) was up 2.9%. Natural gas (UNG) was down 5.6%. The dollar was up 0.1% but remains in a downtrend of late. Overall markets show that liquidity trumps reality, but reality is a bitch. We are focused on managing the risk and watching how this all unfolds.
NEWS: Joe meet Robert! A new challenger with a familiar name is making a run at the White House.
Charts to Watch: AAPL (bull flag). GBTC (Bull flag). XLE (‘V’ bottom). SOXX (up trending channel @ bottom of the channel).
Previous Charts of Interest Still in Play: LSCC (testing uptrend). Added uptrend in play. AAPL (reversal confirmed) Added to the position. GBTC (trading range breakout). Added. AMZN (bottom reversal) Added. GDX (bottom reversal) Added. PG – trading range break as part of the consumer staples money rotation. Added. MCD breakout. Added. WMT ‘V’ bottom breakout. Added. WES reversal. Added. SCCO resuming an upside move. Added. UJB Added. FCX Added. SRS Added. SKF Added. SQQQ Added. SOXS Added.
Stops Hit: None
Quote of the Day: “My definition of a free society is a society where it is safe to be unpopular.” – Adlai Stevenson
The S&P 500 index closed up 14 points to 4105 the index was up 0.36% with the below-average volume on the day. The index closed above the 4086 resistance and showed some intraday volatility. Seven of the eleven sectors closed higher on the day with utilities as the leader up 0.7%. The worst performer of the day was energy down 1.5%. The VIX index closed at 18.4 as anxiety subsides for the week. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials hit resistance at $81 and tested lower for the week. Some rotation is in play short term. The sector was down 1.2% for the week. FCX bottom reversal. SCCO.
XLU – Utilities retested the lows at $64 and bounced breaking through resistance at $67.95. The sector was up 3.1% for the week. Entry $68.
IYZ – Telecom double bottom pattern breaks higher and tests back to support. Cleared $22.35 entry. The sector was down 1.1% for the week.
XLP – Consumer Staples downtrend reversal offer entry at the 200 DMA ($73). The sector was up 0.8% for the week.
XLI – Industrials tough week as the sector fell giving up gains. The sector was down 3.3% for the week.
XLV – Healthcare Made a move back above the $127.50 mark. Broke above $131.40 resistance. Biotech (IBB) equally moved higher. Entry $127.57. The sector was up 3.1% for the week.
XLE – Energy Gapped higher to start the week and held on. The sector was up 2.4% for the week.
XLK – Technology The sector bounced off support at $135 and ran higher… spent the week testing the highs. The sector was down 1.3% for the week. Back to the August highs.
XLF – Financials pressure in banks continues pushing the sector lower. Bear flag pattern on the chart. The sector was down 0.5% for the week. KBE puts remain in play. FAZ Watching after taking gains. Banks are still not on solid ground.
XLY – Consumer Discretionary upward trending channel… closed at the lower end of the channel. The sector was down 3.1% for the week.
IYR – REITs stalled from the bounce last week. Need to clear $85 currently. The sector was down 0.8% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Letting this unfold.
Summary: The index posted a down week barely, but shows intraday volatility and a lack of direction as data shows the economy continuing to slow. Definite rotation in play and watching how it unfolds near term. Volume was below average again… something we continue to watch. Money flow is of interest as remains below 50… crude testing move higher… treasury bonds were higher on jobs data… SOXX tested but holding… still plenty of issues and more data on the way. The charts show reversals in most sectors that were in downtrends… the index held the 4086 support. 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. 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 91 points to 12,087 as the index was up 0.76% for the day. The index held the move back above the 11,474 previous support and now faces the February highs. Technology and semiconductors are the keys… SOXX was lower on intraday volatility. Watching how this unfolds relative to the test.
NASDAQ 100 (QQQ) was up 0.67% with the mega caps holding the move above $312.13 resistance and looking at the August highs. The sector had a negative bias with 46 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 of late.
Semiconductors (SOXX) failed to hold the move above the $432.27 resistance. Not looking good on the charts with four straight down days. The sector was down 5% for the week. Watching how it plays out next week.
Software (IGV) broke through $293.50 resistance adding to the upside move. The sector was down 1.6% for the week. Mega caps leading the sector.
Biotech (IBB) The sector moved above the 200 DMA and completed a trend reversal clearing $128.35. The sector was up 1.5% for the week. IBB entry $127.35. Broke higher from consolidation pattern.
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 to the position and looking to move to $165. Solid week adding to the upside modestly.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. The sector was down 2.5% for the week. Letting it unfold.
Transports (IYT) bottom reversal failed and in a sideways pattern. The sector was down 2.5% for the week. BDRY showing a topping pattern.
The Dollar (UUP) The dollar remains volatile as more countries are willing to trade outside the dollar. The bounce on Thursday was a plus… watching how it unfolds. The dollar was down 0.5% for the week.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.28 down from 3.49% last week. Big shift in the last two weeks as the fear of the bank fallout impacts investors’ risk tolerance. TLT was up 2% for the week. Entry TLT $102.90. Stop $106.50.
Crude oil (USO) Gapped higher to start the week as Saudi Arabia cut production going forward. Without a response from the White House to open pipelines and Gulf, this could be a bigger issue going forward. USO was up 5.7% for the week.
Gold (GLD) The commodity bounced and pushed higher as money rotates. The metal was up 1.8% for the week. Entry $169.50. UGL in play. SLV ‘V’ pattern back to the January highs.
Put/Call ratio was 1.0 Thursday… Flattened out the negative bias.
Questions to Ponder: Navigating Uncertainty
Blackstone REIT limits investor redemptions… Commercial real estate is being challenged more than most want to believe. The movement of money by investors is wider spread than banks. In February there were requests for $4.5 billion and granted only $667 million. Challenges are growing in more places… SRS tested back to the 200 DMA looking for entry again.
SEC Chair Gensler requests more funding to fight bitcoin non-compliance. The government is making its move in the name of “protecting its citizens from a highly speculative asset class”. Of course, they are working on having one controlled by the government.
Saudi Aramco is investing $12 billion in new refining and petrochemical in China’s Liaoning province. In addition, they bought a 10% stake in one of China’s oil refining firms for $3.6 billion. Another shot at the current administration’s strained relationship with Saudi Arabia. Now cuts oil production… very interesting developments.
Thursday: Stocks started lower but managed to close in positive territory. Liquidity is a bigger driver currently than reality. With the Fed ready to save “the system”, markets have been in buy mode in the perceived areas of “too big to fail”, and the balance struggling to move higher. SOXX struggled all week giving up 5%. Economic data remains on the downside seen in the ISM data along with the ADP numbers. Money flow remains below the 50 level. The breadth of the move isn’t great. But, we have to take what is offered and manage the risk that is. Watching patiently.
Downtrending sectors are sporting bottom reversal patterns with some breaking higher. Treasury yields move to 3.28% on the ADP report… the dollar is heading lower… crude jumped 6%… precious metals rebounded and moved higher. Eyes open. Emotions removed. It is a time for patience as the storylines unfold and the direction is determined. 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. We have to remain focused on short-term trades until there is longer-term directional clarity. 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.