Markets experienced intraday volatility based on economic data and investors’ reactions. The CPI data was better than expected with a rise of 0.1% versus 0.3% expected versus 0.4% previous. Y/Y was up 5% versus 5.1% expected versus 6% previous. The cored was up 0.4% versus 0.4% expected versus 0.5% previous. The initial reaction was positive for the markets but then the chatter about the Fed, the economy, earnings, and other issues facing the markets looking forward stepped in and the up and down of the day ended in negative territory. The volume remains anything but impressive. The breadth is minimal. We can say the market is waiting on key data points but overall volume has been below average for the last 18 trading days. That takes us back to the bottom reversal in March. Lack of participation in the upside move makes it susceptible to downside risk. That said, we will take what is offered and see how this unfolds near term. Despite the late-day selling four of the eleven sectors closed in the green. Volatility stepped up slightly on the VIX index and remains on my watch list. Gold, agriculture, and crude show leadership from commodities…. not what you want to see leading as it points to more inflation. look at a chart of each and you see when inflation spiked in the first half of last year and what happened to stocks. None of the news is painting 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 overall continue to hang tough despite the outlook. The data has not been positive, but the liquidity factor as it relates to Fed and the discount window remains an underlying factor. There is the belief the Fed will cut rates in the second half of the year. That said, liquidy is what caused the current inflation issue to begin with. Inflation is falling currently but it is what’s on the horizon that will hurt you. If the Fed continues on the liquidity path and commodities continue to rise, inflation isn’t going away anytime soon. We are heading down a slippery slope and one we have to manage with extreme caution despite the current headlines and bullish talk from analysts and talking heads. As I say plenty of times, data doesn’t matter, until does, so we will be watching just how much it matters. Remember the Saudi Arabia oil production cuts are still looming and Iran isn’t shipping through Turkey currently under litigation issues, both will have an impact on oil prices and on the economy. Inflation will be challenged if oil increases to $100+ bbl. Liquidity will trigger inflation equally if the Fed goes too far. All issues the market will have to deal with over time as well as the investor. The S&P 500 index closed down 0.4% with intraday volatility at the close. The NASDAQ was down 0.8% with intraday volatility as well. Small Caps (Russell 2000) were down 0.7%. The ten-year treasury yield closed at 3.42% down 1 bps on the day as bonds ease from selling. Crude (USO) was up 1.9%… back above the $80 bbl level. Gasoline (UGA) was up 0.2%. Natural gas (UNG) was down 5.8% giving back recent gains. The dollar was down 0.5% struggling globally. We are focused on managing the risk and watching how this all unfolds.
NEWS:
The Financial Times reported that banks are offloading their large commercial loans to free up balance sheets and create more liquidity. This of course comes at a cost to the banks as they sell them at a discount to make them attractive to potential buyers. This will be of interest as banks start to report earnings soon. Watching how the financials (XLF) and banks perform (KBE).
Charts to Watch: BX (downtrend… earnings soon, REIT exposure).
Wednesday: IYT (break downtrend line). ZIM (breakout). FCX ($41.35 resistance, add to existing position). ERX (‘V’ bottom). UNG ($7.15 entry bottom reversal).
Tuesday: SRS (buy the dip). OLLI head & shoulder $60 entry, $69 Target).
Monday: AAPL (bull flag) headed lower on sales data? 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 to the position. 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. UCO ($29.25 resistance) Added. DBA (‘V’ bottom breakout) Added.
Stops Hit: None
Quote of the Day: “To catch a husband is an art; to hold him is a job..” ― Simone de Beauvoir
The S&P 500 index closed down 17 points to 4091 the index was down 0.41% with below-average volume on the day. The index stayed above 4086 barely and showed intraday volatility. Four of the eleven sectors closed higher on the day with industrials as the leader up 0.3%. The worst performer of the day was telecom down 1.6%. The VIX index closed at 19.1 as anxiety was higher to start the week. Plenty to watch moving forward. February highs are the current target if the upside continues.
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. Bounced to start the week.
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. At the 200-day MA.
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. Sold lower on the day.
XLP – Consumer Staples downtrend reversal offer entry at the 200 DMA ($73). The sector was up 0.8% for the week. Attempting to move higher.
XLI – Industrials tough week as the sector fell giving up gains. The sector was down 3.3% for the week. Bounced to start 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. Bounced off the lows.
XLE – Energy Gapped higher to start the week and held on. The sector was up 2.4% for the week. Bull flag.
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. SOXX and IGV drag on the sector.
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. $32.36 resistance – banks earnings on deck.
XLY – Consumer Discretionary upward trending channel… closed at the lower end of the channel. The sector was down 3.1% for the week. Faded again on worries.
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. Higher despite rate moves Monday.
Summary: The index tried to move higher on CPI data but failed on the Fed minutes in the afternoon. Closed at support… could show a shift in direction. The worries over inflation data and the Fed set the tone with PPI data on Thursday. Volume was below average again… something we continue to watch. Plenty of things to worry about on the horizon… crude is a concern longer term… treasury bond yields bounce on Fed concerns… leadership… geopolitics… dollar… and plenty of data on the way. We did hold 4086 support barely. 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 down 102 points to 11,929 as the index was down 0.85% for the day. The index held the move back above the 11,474 previous support and watching how it handles the news ahead. Technology is the key… SOXX and IGVwere lower. Data ahead will play a role in the chart.
NASDAQ 100 (QQQ) was down 0.88% with the mega caps holding the move above $312.13 and in a consolidation pattern. The sector had a negative bias with 24 of the 100 stocks closing in positive territory for the day. Watching how sentiment plays out near term. Volume is lagging again on the day.
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. up 1.7% to start the week… gave back 0.5% Tuesday and down 1.8% on Wedensday.
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. Second inside trading day… turned slightly lower and watching if the downside gains momentum.
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. Holding the uptrend.
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. Bear flag on the chart… if breaks higher positive for the overall market. Gave back bounce and watching.
Transports (IYT) bottom reversal failed and in a sideways pattern. The sector was down 2.5% for the week. BDRY showing a topping pattern. bounce reversed.
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. Plenty playing into the dollar globally and domestically as downside resumes.
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. 13 bps bounce pushing bonds lower… inflation worries in play.
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. Back above the $80 bbl and breaks above resistance on the upside.
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. Higher on a lower dollar.
Put/Call ratio was 1.0 Wednesday… moderating on data points.
Questions to Ponder: Navigating Uncertainty
Airlines were under pressure on Wednesday following AAL update of 1st quarter estimated earnings adjusted to 1-5 cents… Analyst’s expectations were 5 cents sending the stock down 9.2%. DAL fell 2.5% and UAL was down 6.5%. Something to watch as fuel price rise again.
Semiconductors (SOXX) earnings season is approaching and the outlook isn’t positive according to IBD. Worth watching how this unfolds. We already own SOXS and watching if it pans out near term..
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.
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. Iran not exporting oil through Turkey… more cuts on oil availability. We own UCO and looking to add to the position.
FINAL NOTES:
Wednesday: Stocks were up and down and closed lower on the day. The focus was on what the CPI versus the Fed minutes meant to the markets looking forward. Based on the activity it was an indecisive conclusion. Maybe the PPI data and jobless claims on Thursday will offer some insight for stocks. Plenty of data out the balance of the week as well with earnings starting. The banking sector will kick off the season Friday… that should be interesting reading and could spark some selling in the sector if the data reveals a further weakness in banks. The breadth of the move isn’t great. But, we have to take what is offered and manage the risk that is. Watching patiently.
Watching the trends in crude, agriculture, and precious metals, they are leaning toward future inflation. SOXX is a key indicator for the markets and after peaking eight days ago has been testing lower. TSV and RSI have fallen along with the sector. Closed at key support levels and watching how it unfolds the next few days as an indicator. Watch for the major index’s 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 your money.
“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.