The markets end the week on a down note, but post a solid week of returns with the NASDAQ up 3.2%, S&P 500 up 3%, Dow up 1%, and Small Caps up 0.5%. Large and mega-cap stocks were the leaders overall but there was more breadth for the week showing the upside trend getting stronger… not weaker. The Fed members were out reiterating the need for more hikes as it relates to inflation. The question still remains if they need to hike why didn’t they do it at the FOMC meeting? Sometimes trying to apply logic to the situation doesn’t make sense. The SP500 cleared the 4400 mark and is now eyeing the highs of last April near the 4585 mark. The level for the NASDAQ would be 14,600. Not even the Fed is going to derail the current enthusiasm for large-cap stocks. Consumer sentiment was better up to 63.9 from 59.2 previous showing some hope from the consumer. It was a solid week for economic data overall showing signs of improvement. A long weekend with the markets closed on Monday. More time to relax and decide how to approach the current market levels.
The positive week was steady, with above-average volume, good breadth, and higher highs on the charts. The ability to ignore things that should cause angst among investors is interesting as always which is why looking at the trend is equally as important as looking at the fundamentals. XLK led the week with IGV moving higher. XLB, XLY, and IYZ all posted solid gains for the week as well. XLE was the laggard and the only sector to close in negative territory. Some rotation into commodities as DBA jumped higher. Three of the eleven sectors closed in positive territory on Friday. The S&P 500 index closed down 0.3%. The NASDAQ was down 0.7% with SOXX down 0.9%. Small Caps (Russell 2000) were down 0.8%. The ten-year treasury yield closed at 3.76% up 4 bps on the day. Crude (USO) was up 1.5%. (UGA) was up 1.1%. Natural gas (UNG) was up 2.4%. The dollar was up 0.2% as comments from Yellen continue to weigh on the buck. We are focused on managing the risk and seeing how investors respond to the revised outlook from the Fed.
ONE Chart to Watch: QQQ – 1) Moved above $366.14 breaking through the resistance from the April 2022 highs. 2) Short-term trend is UP… starting from the January low. 3) Accelerated above the trendline with verticle move. Tested the move and resumed the uptrend. 4) Responded to the FOMC with a break higher. 5) TQQQ $37.15 Monday. Stop $40.29.
Additional Charts to Watch: SPY – Moved to new highs from March lows resuming the uptrend. Manage your stops. IWM – broke from the trading range moving higher with entry at $178.95 (stop $184.45 adjusted)… need to clear $188.58. SOXX – cleared $497.61 resistance leading upside move. Entry $492.65. Stop $510 (Stop Hit). USO – oversold… bottom reversal confirmed entry $63.10… volatility on speculation about consumption. OPEC+ still weighing on the commodity and Goldman Sachs downgraded the commodity price outlook. Supply and demand at work… watching how it unfolds.
Interesting Charts: UNG double bottom reversal?
ON TAP TODAY: 1) Overbought conditions could see a test near term.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added 5/7. Holding. AMZN (bottom reversal) Added 5/7. SOXX reversal. Added 5/17 reversal. TQQQ breakout. Added 5/17. Holding.LABU (break up from bottoming range). Added 5/17. ARKK (bottom reversal). Added 5/18. FNGU (breaking out). Added Tuesday 5/8. GOOG (Channel breakout). Added 5/9. Added to position 6/6. MSFT (break from flag pattern). Added 5/18. CSCO (bottom reversal… good earnings). Added 5/19. NFLX (test to $350 and bounce?). Added 5/24. AMD (consolidation top from a move higher). Added 6/6. AI (on test move lower). Added 6/6. DIA (break from consolidaiton). Added 6/8. HON (trading range breakout). Added 6/13. FCX (bottom reversal). Added position 6/13. KSS (breakout above resistance). Added 6/15.
Stops Hit: None
Quote of the Day: “A person will sometimes devote all his life to the development of one part of his body – the wishbone.” – Robert Frost.
The S&P 500 index closed down 16 points to 4409 the index was down 0.37% with above-average volume on the day. The index held the move above 4400 with 4585 next level to clear. Managing the risk of extended move near term. Three of the eleven sectors closed higher on the day with utilities as the leader up 0.5%. The worst performer of the day was technology down 0.8%. The VIX index closed at 13.5 as it moved lower despite the downside move in the index. The uptrend from the October low remains in play.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials ‘V’ bottom on the chart trying to break above resistance $81.75. Solid week for the sector up 3.5% for the week. Watching XLB, STLD, FCX, SCCO, X
XLU – Utilities Bottom reversal in play with the downtrend as the next resistance. The sector was up 1.7% for the week.
IYZ – Telecom downtrend from the February highs and moved higher from the bottoming range. The sector was up 3.1% for the week.
XLP – Consumer Staples broke up from the bear flag pattern and posted a solid week. The sector was up 2.1% for the week.
XLI – Industrials The trend broke to the upside breaking above resistance at the $102.40 level. The sector was up 3% for the week. HON, IR, ITW, ETN, EMR look good.
XLV – Healthcare Bottom reversal in play $130.68 level cleared The sector was up 1.3% for the week. XBI, IHE, IHF, and IHI all bounced. Tried to break higher through resistance… patience.
XLE – Energy bounced at the lows along with crude. The sector was down 0.5% for the week. The downtrend is in play from the November highs. Needs to clear $82.70 on the upside. DO, RIG, PTEN, SWN, RRC to name a few movers.
XLK – Technology The sector broke from the trading range clearing the $154.42 resistance and going vertical climbing to new highs. The sector was up 4.3% for the week. Providing leadership for the broad index.
XLF – Financials cleared $3350 resistance and trying to clear the 200-day MA. The sector was up 1.3% for the week. The trend is down from the February highs. Banks are the key to the outlook.
XLY – Consumer Discretionary Broke higher and continues to trend higher as one of the key leaders. The sector was up 3.2% for the week.
**Citigroup warned that credit card spending trends are slowing… they noted that travel and entertainment are slowing more than other areas. That is something to watch in the trendlines of those sectors. PEJ.
IYR – REITs the trend is sideways wiht an attempt to break higher. The sector was up 1.8% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising but home flow has increased to other areas of the sector.
Summary: The index saw some profit taking into the long weekend, but the overall move for the week was positive with a positive move higher in the uptrend. Economic data helped the cause as investors remain positive overall. Three sectors closed higher on the day… breadth is growing showing strength overall in the trend. Remains a sector-driven market. The broad index remains in an uptrend from the October low showing stronger money flow from investors and rotation to lagging sectors. 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 down 93 points to 13,689 as the index was down 0.68% for the day. The index remains in the uptrend and clears resistance at the 13,620 level. Support is 13,274. Watching how the trend unfolds short term. SOXX was lower on the day. IGV gave up early gains. Taking what is offered long and short.
NASDAQ 100 (QQQ) was down 0.63% with the mega caps lagging in the afternoon. The index did gain 3.8% for the week pushing to a new high off the January lows. The move is overextended but moving higher nonetheless. The sector had a negative bias with 36 of the 100 stocks closing in positive territory for the day. TQQQ reentry in play.
Semiconductors (SOXX) The sector moved higher the first three days of the week and took a break. The sector was up 4.2% for the week. Watching how it unfolds and the next opportunity.
Software (IGV) Broke above the $336 resistance adding to the uptrend. Added IGV $291. Stop $335.90 (adjusted). The sector was up 5.1% for the week. Impressive week for the large-cap portion of the sector.
Biotech (IBB) The sector moved back above the $128.35 level. Attempting to break the downtrend from the January highs. The sector was down 0.4% for the week.
Small-Cap Index (IWM) lagging overall but did manage to break from the trading range… only to start a new one. Looking for follow through to the move. The sector was down 0.8% for the week. Letting it unfold.
Transports (IYT) Made a break higher from the trading range and cleared the $234 resistance. The sector was up 4.4% for the week. The end of the port strikes on the west coast offered some life.
Thursday: Tentative agreement on the west coast port stoppage and strikes. The challenge is getting $5.2 billion of backed-up cargo in containers and trucks to start moving again. 14 days doesn’t sound like much but to clear the backlog it could take months. IYT was up 1.2% on the news. Watching the break higher.
Friday: UPS is going on strike if they don’t get a new contract by July 31st.
The Dollar (UUP) The dollar remains volatile and turned over on comments from Treasury Secretary Yellen. What is on the horizon? Weak dollar policy from the current administration. The dollar was down 1.1% for the week.
Yellen says to expect a gradual decline in the dollar’s share of global reserves… amazing how between Obama and Biden the dollar has deteriorated.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.76% up from 3.74% last week. Rates are reacting to the FOMC meeting and how the Fed acts in the coming month. TLT was up 0.6% for the week.
Crude oil (USO) Remains in a short-term downtrend but it did manage to bounce off the lows. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. USO was up 1.4% for the week.
Gold (GLD) The commodity is moving sideways with the dollar down on the week. Letting this unfold and watching for some upside in the metal. The metal was down 0.2% for the week.
Questions to Ponder: Navigating Uncertainty
Stagflation – is defined as 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. Layoffs from early 2022 to current continue… Bankruptcy filings are not slowing as the hit the fastest pace since 2010. War – Costs… Ukrain/Russia endless war isn’t good for the US economy. Inflation is here 1970’s style. Markets are giving the Fed cover to hike again with the surge in technology stocks. Although the leadership is narrow. Things are not as good as they seem on the surface.
Port of Los Angeles and ports up the west coast staging strikes… watch the supply chain issues this creates looking forward… that will equally impact inflation. Strikes were settled on Wednesday… now we see what ramifications it will cause from the stoppage.
Janet Yellen has been on the financial stations talking about more “consolidation” in the banking sector. Under normal circumstances we would view that as mergers and acquisitions… but, it seems like she is talking about a takeover relative to the failure of more banks. Despite that outlook, banks have rallied more than 12% in the last week. Take what is offered but manage your risk accordingly.
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. With the trend higher for more than six months it puts the broad indexes in intermediate uptrend… this is a positive overall for the broad markets. We remain focused on short-term trades based on the short-term volatility and until there is longer-term directional clarity we remain with our current approach. Trading the volatility has performed better than holding through the cycle. Sector-driven activity is in play short term with broadening leadership. The breadth did improve over the last few weeks and that supports the current trend continuing. News has been 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.
Friday: The charts broke from the consolidation patterns to start the week. Technology remains the leader along with consumer discretionary. SOXX and IGV moved higher to lead the sectors. Trading the trends on sectors showing strength. We see the overall trend is still up from the October lows. Major indexes have moved higher on the mega-cap moves and technology. We introduced some speculation and uncertainty on the FOMC announcement, but the response has been positive as the breadth widens bringing commodities into the uptrend. Watching how that unfolds going forward. Manage the risk that is as we add some rotation.
What I am watching on Tuesday: 1) Probable test of the current move higher. 2) SOXX testing at the highs. 3) DBA, XLB, XLI making moves to the top of their respective ranges… 4) GLD, SLV, lagging… weaker dollar on the chart could spark an upside in the metals. 5) XME attempting to break higher. 6) Looking for signs of rotation… cyclical especially. 7) SCCO, X, UGL, DPST, SOUN,
Decide what you’re doing before the market opens based on your beliefs. Entry. Exit. Target. Define the risk of the position. Nothing more… Nothing less.
“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.