More intraday volatility for the markets as they close lower testing near-term support. The NASDAQ and S&P 500 indexes gapped lower and worked their way back to even only to move back to the low of the day. The market had more of a negative bias on the day as economic data and earnings continue to worry investors. The attempt to take out resistance levels this week leaves you thinking about some selling showing up on the charts. The sellers have had their opportunities as well but the markets have held key support levels. We have been at a point of indecision all week… maybe Friday will decide? Doji candles were left on SPY, QQQ, SOXX, and IWM Thursday… worthy of our attention heading into Friday’s trading day. Jobless claims were up, continuing claims hit the highest level since 11/2021, existing home sales fell 2.5% month/month, down 22% year/year, Philly Fed for April was -31.3 versus -20 expected versus -23.2 previous. No matter how you stack it that data is bad! Then why are the markets holding near their current highs? As I stated last week it is hard to wrap your head around the current thesis of the markets as it relates to what is positive and what is not… the entire philosophy continues to revolve around the Fed and interest rates. Thus each data point is weighed relative to how it will impact how the Fed treats interest rates and liquidity/easing. That leaves investors in a position of watching and interpreting the outcome based on Fed action… not a good idea. The volume remained below average on Thursday but higher on the selling. The breadth is minimal relative to the current move from the March lows. Overall volume has been below average for the last 24 trading days despite the overall move higher. That takes us back to the bottom reversal in March. Consumer staples were the leaders on Thursday. Semiconductors tested support again and not giving the leadership needed to the broader markets. Metals and miners are struggling as well following their leadership in the current move showing topping patterns on the charts. There is still plenty of indecision in place as you would expect in a news-driven market. None of the news is painting a good outlook… thus, we proceed with caution watching for clarity. The belief would be at some point the markets/investors will have to accept the bad news for what it is… reality. But then again, we are an optimistic society when it comes to stocks.
The markets overall continue to hang tough despite the outlook as they continue to hold support. 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 factoring into current decisions. 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 oil production cuts are still looming in the background… despite the current move lower in crude prices, the cuts will impact oil prices should demand rise in China or the US. Liquidity from the Fed 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 0.6% as intraday volatility remained. The NASDAQ was down 0.8% the mega-caps struggled on the day led by Telsa’s poor earnings news. Small Caps (Russell 2000) were down 0.5% forfeiting the gains from Monday. The ten-year treasury yield closed at 3.54% down 6 bps on the day. Crude (USO) was down 2.4%… the dollar and uncertainty relative to demand in China are weighing on the commodity. Gasoline (UGA) was down 1.8%. Natural gas (UNG) was up 0.4% testing the current bounce. The dollar was up flat and struggling globally. We are focused on managing the risk and watching how this all unfolds.
NEWS: TSLA down 9.8% on earnings… KRE down 1.9% on missed regional bank earnings (ZION, TFC)… AXP missed earnings… Weak economic data pushed 10-year bond yields lower… Fed Presidents are out talking everywhere today… could add some volatility along with earnings.
Charts to Watch: UVXY if anxiety rises. XRT, GDX, USO, XLP, XLB, SOXX… leadership groups.
SPY, QQQ, IWM, SOXX. The continued lateral movement is a concern relative to breaking higher. The patterns are set to continue higher but breadth and volume say no. Watching for a decision from investors.
Banks break from consolidation. KBE, KRE are both higher. Thursday gave some back.
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. FCX ($41.35 resistance, add to existing position). Added. SRS Added. SRS (buy the dip). Added. SOXS Added. ZIM (breakout). Added. BLK (downtrend… earnings soon, REIT exposure). Added on positive earnings.
Stops Hit: UCO and DBA
Quote of the Day: “In politics stupidity is not a handicap.” – Napolean Bonaparte
The S&P 500 index closed down 24 points to 4129 the index was down 0.6% with below-average volume on the day. The index stayed above 4086 holding the upside move. 4169 next level of resistance which we have been unable to break above. The up-trendline was broken on Thursday… watching how that unfolds. One of the eleven sectors closed higher on the day with consumer staples as the leader up 0.2%. The worst performer of the day was telecom down 2.6%. The VIX index closed at 17.1 as anxiety ticked up on the day with rising concerns. 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 tested lower and bounced back to $81. Some rotation is in play short term. The sector was up 1.6% for the week. FCX bottom reversal. SCCO.
XLU – Utilities Bounced breaking through resistance at $67.95 and hitting resistance at the 200-day MA. The sector was down 1.3% for the week. Entry $68. Flag pattern
IYZ – Telecom double bottom pattern breaks higher and tests back to support at $22.35. $22.35 entry. The sector was down 1.1% for the week. Moving lower again Support at $21.63.
XLP – Consumer Staples downtrend reversal offer entry at the 200 DMA ($73). Moved to resistance at the $75.50 level. The sector was down 0.2% for the week. Higher high in current trend.
XLI – Industrials bounced back from a tough week but remain in a trading range currently. The sector was up 2.1% for the week.
XLV – Healthcare Made a move back above the $127.50 mark. Broke above $131.40 resistance. Adding to the upside move $136.50 resistance next. Biotech (IBB) equally moved higher. Entry $127.57. The sector was up 0.8% for the week. Testing. Rolling top.
XLE – Energy double bottom reversal back to resistance at the $86.85 level. The sector was up 2.6% for the week. Rolling top.
XLK – Technology The sector cleared the $144.10 resistance and testing. The sector was down 0.3% for the week. Back to the August highs.
XLF – Financials breaks above resistance at the $32.36 level on better-than-expected earnings. Bear flag pattern on the chart broke to the upside. The sector was up 2.8% for the week. KBE, KRE, KIE fail to move higher on Friday. Held breakout on solid earnings in an uptrend. KBE & KRE were up. Watching with stops in place.
XLY – Consumer Discretionary $147.11 resistance in play again. Retail sales didn’t help as they fell into negative territory. The sector was up 1.3% for the week. Cleared $147.11 resistance and gave it back.
IYR – REITs stalled from the bounce and moved sideways over the last two weeks. Need to clear $85 currently. The sector was down 1.4% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Letting this unfold. SRS entry $17.75. Consolidation pattern.
Summary: The index continues with intraday volatility and indecision. Economic data remains a driver along with earnings. 4169 next level to clear on the upside… 4086 level to hold on the downside. 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… earnings… and plenty of data on the way. We will remain patient for now as data versus hope play out. 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 97 points to 12,059 as the index was down 0.8% for the day. The index held the move back above the 11,474 previous support with a two-week lateral move on the chart. Still technically in a position to move back to the August highs, but equally could test support. Technology is the key… SOXX and IGV lower on the day. Watching the cup & handle pattern.
NASDAQ 100 (QQQ) was down 0.76% with the mega caps struggling of late. The move held above $312.13 and letting it play out. The sector had a negative bias with 38 of the 100 stocks closing in positive territory for the day. Mega-caps are testing sideways. Hammer doji candle just above the 20-day EMA.
Semiconductors (SOXX) failed to hold the move above the $432.27 resistance. Not looking good on the charts with the test lower. The sector was down 0.16% for the week. Watching how it plays out next week. More intraday volatility as retest the lows and hold.
Software (IGV) broke above $293.50 resistance and stalled near the $301.50 level. The sector was down 0.5% for the week. Mega caps leading the sector. Flag pattern.
Biotech (IBB) The sector moved above the 200 DMA and completed a trend reversal clearing $128.35 and added to the move this week. The sector was down 0.8% for the week. IBB entry $127.35. Stop $130.50. Tested on the day.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. The sector was up 1.5% for the week. Letting it unfold. Bear flag pattern.
Transports (IYT) bottom reversal failed and is in a sideways pattern. The sector was up 1.4% for the week. BDRY showing a topping pattern. Broke higher from the pattern. Looking for follow-through.
The Dollar (UUP) The dollar remains volatile as more countries are willing to trade outside the dollar. The bounce on Friday was a plus… watching how it unfolds. The dollar was down 0.2% for the week. Still challenged globally.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.52 up from 3.28% last week. Big this week as future rate hike talks push yields up. TLT was down 3.1% for the week. Hit stop on TLT posted a solid gain. 3.54% shows pricing in the Fed rate hike.
Crude oil (USO) Gapped higher last the week as Saudi Arabia cut production going forward. Iran cut production temporarily and crude moved back above $80 per bbl. Without a response from the White House to open pipelines and Gulf, this could be a bigger issue going forward. USO was up 2.6% for the week. UCO entry $25.80. Stop $28.50. Tested lower on a stronger dollar… could fill the gap left on the chart. Posted a 2.5 week low as speculation rises based on the days economic data that demand will slow in the US and China still not growing at pre-pandemic levels.
Gold (GLD) The commodity bounced and pushing higher as money rotates. The metal was down 1.7% for the week. Entry $169.50. Stop $$184.50. UGL in play. SLV ‘V’ pattern back to the January highs… entry $20.70. stop $23. Testing near the highs as the steadier dollar played into the move.
Put/Call ratio was 0.99 Thursday… expiration week sparks some volatility.
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. Added to the downside Thursday.
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. They now cut 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:
Thursday: Stocks were slightly lower on the day with intraday volatility still in play. Despite the intraday swings volatility remains at 17.1 and watching how it unfolds near term. There is still plenty ahead for investors to ponder relative to the economy, earnings, the Fed, and inflation. The positive signs of late were overshadowed by negative economic data released on Thursday along with Tesla earnings impacting large-cap stocks. The market breadth for the upside move still isn’t great. But, we have to take what is offered and manage the risk that is. We see plenty of opportunities setting up both on the downside and the upside on the charts.
Watching the trends in the leading sectors. Watching the major indexes as they test key support levels. The SOXX is a key indicator for the markets and after peaking eleven days ago has been testing lower. TSV and RSI have fallen along with the sector. Closed at key support levels and looking at how it plays out near term. 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.