The markets opened higher and closed higher thanks to NVDA and large-cap technology stocks. The 50% beat of earnings news from NVDA sparked the run higher for the broad indexes. The challenge came from the rest of the market as defensive stocks continue to struggle. On the NYSE declining stocks led the advancing stocks 9 to 5. The ratio on the NASDAQ was 2 to 1. That data shows how much the balance of the market struggled on Thursday. Then there is the debt ceiling and no solution… in fact, they seem further apart on the issues than they do on a solution. Looking for news around this on Friday. Mega caps like AMZN, META, NFLX, GOOG, AAPL, and others were in a position to bounce as they held up well into the close. The NASDAQ has been leading the upside move and with the current outlook is likely to continue that leadership. The VIX index moved down to 19.1 on the day as concern from investors remains. Jobless claims were solid at 229k versus 242k last week. Continuing claims fell 5k to 1.794 million… the job market continues to be solid according to the made-up numbers. Q1 GDP was revised higher to 1.3% versus 1.1% previously. All the major indexes closed higher on the day with some angst still in play. AI, technology, mega caps, lead the day.
Overall markets stepped higher… questions relative to the downside in XLV, XLI, XLB, XLP, IYR, XLE, IYZ, and XLU as they all show downtrends on the charts. XLY and XLF are sideways, and the sole upside is XLK. Not the kind of balanced market you want to see. Three of the eleven sectors closed in positive territory on Thursday. The S&P 500 index closed up 0.9%. The NASDAQ was up 1.7% with SOXX up 6.6%. Small Caps (Russell 2000) were down 0.8% testing lower again. The ten-year treasury yield closed at 3.81% up 10 bps on the day with TLT moving toward the March lows. Crude (USO) was down 2.4% over issues in the global outlook. (UGA) was down 2..8%. Natural gas (UNG) was down 4.5% turning lower again. The dollar was up 0.4% establishing an uptrend last week. We are focused on managing the risk and watching how this all unfolds.
ONE Chart to Watch: QQQ – 1) Tested the $329.77 support and held Wednesday. Thursday jumped 2.4% on the NVDA news. 2) Short-term trend is UP… starting from the January low. 3) Accelerated above the trendline, retraced on a test… NVDA sparked upside continuation. 4) TQQQ entry $27.45. stop $31.50 (adjusted). target $32.28 (hit Monday). Adjusted the stop and sold 1/2 of the position at $31.65. Letting it run for now. 5) Adjusted stop and watching how Friday unfolds.
Additional Charts to Watch: SPY – retraced below the resistance $415.20 failed to recapture the upside Thursday. Trendline off the March lows is in play. Need to hold if the trend is to resume. IWM – moved below support at $174.50 and remains in a trading range. SOXX – gapped below $432.30 support Wednesday… Gapped up 6.6% on NVDA news Thursday… Raised stops and let it run. Added SOXL @ $14.65. Stop $18.40. USO – oversold… gap bounces off the lows offered entry at $63.60. Stop $63.60. Reversal on Thursday following the breakout is negative, raised stop.
Leadership – NASDAQ, NASDAQ 100, SP500, XLY, XLK, SOXX… QQQ testing the break higher still shows mega-cap strength. SPY testing upside momentum. Technology is the leading sector. Consumers (XLY) showing signs of slowing and testing lower. Volume was below average on the day… watching how this plays out. If the debt ceiling issue is resolved the upside has a chance of extending, but we saw what happened on Tuesday & Wednesday when the deal wasn’t done.
Laggards – SP400, RUTX, USO, XLF, XLI, XLE… all mixed in trading as sectors have lagged overall. If the markets are to run higher we need to see them participate. IJH is testing lows. IWM can’t get out of the bottoming range. 7 of the 11 sectors in the S&P 500 index are supporting downtrends short term.
Interesting Charts: DAL (break higher follow through. $36.25 entry).
ON TAP TODAY: 1) Bumbling into default. Neither side is willing to give in on what they deem are important issues… thus they bumble along. McCarthy said almost there late Thursday? 2) Watch the testing in some of the mega-caps… AMZN, NFLX, NVDA, AMAT… 3) Durable goods orders, personal income, PCE index, and Consumer Sentiment are all on tap Friday.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Earnings 5/4 after-hours beat estimates. Holding. AMZN (bottom reversal) Holding (continued upside on Thursday… raised stop). SOXX reversal. Holding. TQQQ breakout. Holding. SRS Holding (big break higher Tuesday). SJB Holding (break higher Tuesday). TGT (descending triangle short setup with Jun Puts). Holding. Holding. LABU (break up from bottoming range). Holding. ARKK (bottom reversal). Holding. EMTY (breakout confirmation). Added 5/8. FNGU (breaking out). Added Tuesday 5/8. GOOG (Channel breakout – raised stop). Added Wednesday 5/9. MSFT (break from flag pattern). Added 5/18. AI (break higher… $23 level to hold). Added 5/18. MU (break above resistance). Added 5/19. CSCO (bottom reversal… good earnings). Added 5/19. PFE (bottom reversal on a new drug). Added 5/23. NFLX (test to $350 and bounce?). Added 5/24.
Stops Hit: None
Quote of the Day: “Fashions have done more harm than revolutions.” – Victor Hugo.
The S&P 500 index closed up 36 points to 4151 the index was up 0.88% with above-average volume on the day. The index broke below the 4160 support and 4086 next level to hold. Watching how the test unfolds. Managing the risk near term. Debt ceiling agreement stalls and stalls markets along with it. Three of the eleven sectors closed higher on the day with technology as the leader up 3.8%. The worst performer of the day was energy down 1.7%. The VIX index closed at 19.1 moving lower with anxiety about the debt ceiling still in play. The uptrend from the October low remains in play. Plenty to watch as this all unfolds.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials downtrend off the January highs with some volatility along the way. Flirting with the 200-day MA as support. The sector was down 1.2% for the week. Breaks lower testing the March lows.
XLU – Utilities trending lower from the December highs. Broke below the 50-day MA and $68 support. The sector was down 4.2% for the week. Hit stop on positions. Moving lower again.
IYZ – Telecom downtrend from the February highs. No momentum to speak of and looking for a break lower. The sector was up 1.2% for the week. Bear flag on chart. Moved back to $21.63 previous support. Breaking lower.
XLP – Consumer Staples upside trend with flag pattern breaking lower testing the 50-day MA. The sector was down 1.5% for the week. Trend reversal in play. Gapped lower with money rotating…
XLI – Industrials triangle pattern of consolidation on the chart. Looking for a trend to break up or down. The sector was down 1.3% for the week. Broke lower from the triangle pattern and accelerated.
XLV – Healthcare drifting lower with support at $130.68. Topping pattern on the chart. The sector was down 0.6% for the week. XBI testing the upside trend. Broke below support.
XLE – Energy broke lower testing the March lows… attempted to bounce to end the week. The sector was up 1.4% for the week. The downtrend is in play from the November highs. Crude is down on global demand speculation relative to slowing economics. Hit stop on short positions with nice gain… watching how the week starts. Reversed downside again.
XLK – Technology The sector broke from the trading range clearing the $154.42 resistance. The sector was up 4.3% for the week. Providing leadership for the broad index. SOXX moved higher for the week as well as IGV. GOOG running on AI news. Gapped higher on NVDA news.
XLF – Financials broke below the $32.36 level and recovered with a modest bounce in the banks. The sector was up 2.1% for the week. The trend is down from the February highs. Double bottom setup. Broke support $32.26…
XLY – Consumer Discretionary Broke higher from the consolidation pattern in play on the chart. Retail got a boost on reports that the consumer is spending. They learned from the government. The sector was up 2.5% for the week. Testing on retail data weakening.
IYR – REITs remain in a trading range within the downtrend from the February highs. The sector was down 1.9% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising. Own SRS on downside risk. Residential moving up… commercial moving down. Broke lower watching the March lows.
Summary: The index was on Thursday thanks to NVDA earnings and the technology sector. Gap higher open held the gains throughout the day. Eight sectors closed lower on the day… not a great sign for the upside move. Remains a sector-driven market. XLK gapped higher. XLY struggling to hold the uptrend. KRE moved lower again. XLE gapped lower on crude decline reversing the move higher. XLV, XBI, XLI, IYR, IYZ, and XLU are all struggling to find support. XLP accelerated lower again on Thursday. The index remains in an uptrend from the October low but the breadth remains narrow as seen in only two sectors showing an uptrend on the chart. News is the primary driver up and down for the index. Taking what is offered near term and letting it all unfold. 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 213 points to 12,698 as the index was up 1.71% for the day. The index remains in the uptrend and we will watch how this plays out. Mega-caps leading along with technology. SOXX gapped higher up 6.6%. IGV added 2.5%. 12,246 is the level of support to hold. NVDA earnings were the driver on Thursday… Taking what is offered long and short.
NASDAQ 100 (QQQ) was 2.43% with the mega caps driving the sector higher. The support is $329.77 and bounced off the Wednesday test. The sector had a negative bias with 48 of the 100 stocks closing in positive territory for the day. Added TQQQ entry $27.45 (raised stop $31.50) Sold 1/2 of the position.
Semiconductors (SOXX) Tested the $400 level of support and finally found some upside momentum. The trend reversed back to the upside and needs to clear the March highs. Added SOXL $13.60. Stop $17.07 (Adjusted). The sector was up 7.8% for the week. Watching how it plays out next week. Gapped higher from the NVDA earnings effect gaining 6.6% on Thursday. Watching how it unfolds… raised stop on the balance of position.
Software (IGV) Broke above the $304 resistance adding to the uptrend. Added IGV $291. Stop $310 (adjusted). The sector was up 5.2% for the week. Mega caps leading the sector. Moved higher on the NVDA effect on Thursday.
Biotech (IBB) The sector tested back to the $128.35 level and consolidating. The sector was down 0.1% for the week. Large caps are outperforming small and mid-cap stocks. Added IBB $129.50. Added XBI $82.80. Consolidation pattern in a downtrend. Establishing a trading range…broke below the $128.35 support on Thursday… opens short opportunity on follow through.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. Established a bottoming range. The sector was up 1.9% for the week. Letting it unfold. Remains in the range and retested the lows.
Transports (IYT) negative earnings created a big test lower to support at the $213 level. Established a trading range. The sector was up 1.5% for the week. If the markets are to move higher overall they need transport to be positive. Moved to the bottom of the range and bounced.
The Dollar (UUP) The dollar remains volatile but did break higher for the week. What is on the horizon? If the dollar gets stronger watch the ripple effect… but, needs to follow through first. The dollar was up 0.6% for the week. Uptrend continued.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.69% up from 3.46% last week. Rates climbed all week on Fed talk. Yields trended higher for the week pushing TLT lower. TLT was down 3% for the week. Waiting on the Fed to offer a sign… or debt ceiling to cause havoc. TLT moved lower as rates jumped 10 bps on Thursday to 3.81% on the ten-year bond.
Crude oil (USO) Bounced and then sold lower… the news states China and US are consuming less on weaker economic data. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. USO was up 2.9% for the week. Bottom reversal on the chart. Warning from the Saudi energy minister to speculators… pushed the agenda of another production cut. EIA showed big drawdown in supply… prices moving higher. Thursday they reversed lower on OPEC+ projected cuts in production at their June 4th meeting.
Gold (GLD) The commodity moved lower on the stronger dollar all week. It managed to bounce on Friday… worth watching how this plays out next week. The stronger dollar is weighing on the metal… for now. The metal was down 1.7% for the week. Dollar keeping the metal in downtrend.
Questions to Ponder: Navigating Uncertainty
Stagflation – persistent inflation combined with stagnant consumer demand and relatively high unemployment. Do we have this situation currently in the US economy? If it doesn’t exist in a purely technically defined way, it is creating the same economic environment currently in the US, and the current administration is in denial. Thus, we will continue to feel the effects of this until we change course.
Money Supply – Falling at the fastest rate since 1930. M2 fell 2.2% in February and fell 2.4% in March… Contraction in supply should contract liquidity in the system and stifle inflation. Watch bank deposits they are still declining. See the above definition of stagflation… the pressure on the economy is building.
Banking Facts: banks borrowed $8 billion last week down from the $32.6 billion the previous week. 9% decline reported by regional banks in deposits… outflows remain… “sound and resilient”. The Fed is giving just enough money through the BTFP (Bank Term Funding Program) facility to keep from a collapse ($305.4 billion, up $8 billion on the week) but not enough to eliminate the pain. “Sound and resilient” are the words uttered by many… not even close.
Interest Rates: Fed Funds Rate currently stands at 5.25%… Jamie Diamon (JP Morgan) stated in a presentation he believes rates go to at least 6% and possibly 7% before inflation breaks. Think about what that means for the financial markets if that is true.
Money Market Funds showed an $18.3 billion increase in deposits. Bank deposits fell $26.4 billion for week of 5/10. Third week of outflows… “sound & resilient”! Small banks are at the lowest deposits since 5/2021 with 5 consecutive weeks of outflows and declines. The picture isn’t improving and Treasury Secretary Janet Yellen said to expect more bank mergers going forward… i.e. failures.
Volatility Index (VIX–X) Tested down to the 16 level the last month showing little anxiety from investors despite all the news surrounding the markets. Short-term belief is they are focused on the Fed over the debt ceiling issues. Still an underlying belief the Fed will cut rates prior to the end of the year… despite what all the Fed folks say. The CBOE has added a a 1-day Volatility Index (VIX1D) you can now track the volatility daily versus the rolling 30-day in the regular VIX. Note Monday’s volatility actually dropped despite the debt-ceiling deal not getting done. Worth tracking and learning more.
Consumer credit card debt is on the rise. It totaled $986 billion in the first quarter. This is a negative sign for the economic picture as most consumer debt is attributed to monthly expenses rising due to inflation.
FINAL NOTES:
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. A look at the daily chart from the October lows validates exactly that premise with the trend higher overall but plenty of volatility along the way. We remain focused on short-term trades until there is longer-term directional clarity. Trading the volatility has performed better than holding through the cycle. Sector-driven activity is in play short term with narrow leadership. 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.
Thursday: Stocks traded higher thanks to NVDA earnings beat. The leadership remains thin at best with just three sectors in positive territory. The markets show a shift in anxiety with the debt ceiling unsettled. Banks (KBE) struggled on the day with some selling. Energy (XLE) struggled as they expect cuts in crude production globally. All eyes are on Washington for now and letting this test of the upside move play out. Three of the eleven sectors closed higher on the day with above-average volume. We see the overall trend is still up from the October lows. Major indexes showed some resilience overall. Manage the risk as news continues to drive the indexes along with the mega caps.
What I am watching on Friday: NVDA impact on the AI sector. SOXX was up 6.6% on the news. KBE/KRE follow through on bounce and test? Test of the mega caps… could offer some entry opportunities AMZN, META, NFLX… GLD bounce? USO lower? This market has to be evaluated sector by sector to define the leadership near term. Positive setups are in place… Upside: QQQ, SOXX, SPY, SOXX. Downside: FAZ, SRS, ERY, TZA, DIA. Practice Simple.
“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.