Market ends week in negative territory

The markets tested lower and tried to rally but closed lower on the day. The broad indexes closed lower for the week as they continue to test the move higher. There was plenty of talk related to the rate hikes from the central banks around the world and inflation concerns globally. This isn’t anything new it was simply pushed to the front by banks raising rates in anticipation of inflation or stagflation. Mr. Powell’s talks on Capital Hill discussed the same issues along with raising rates to fight inflation. The sticky effect of inflation is still in play and may have reached a low in the near term. The NASDAQ was down 1.4% and the S&P 500 was off 1.3% for the week. Despite the declines the volatility index remained at 13.4 showing no real anxiety from investors. The charts show solid patterns with some testing off the recent highs. Watching how the week unfolds as the month, quarter, and first half of the year come to a close next week.

Friday showed the tug-o-war with investors currently relative to the future. Inflation, earnings growth, economic conditions weakening, and geopolitical issues weighing on clarity. All eleven sectors closed in negative territory showing the breadth of the distribution on Friday. We continue to see the jockeying of money as indecision near term remains in play. Bitcoin was the winner for the week up 17% as institutional interest in the asset picks up. The S&P 500 index closed down 0.7%. The NASDAQ was down 1% with SOXX down 1.7%. Small Caps (Russell 2000) were down 1.6%. The ten-year treasury yield closed at 3.73% down 7 bps on the day. Crude (USO) was down 0.1%. (UGA) was down 0.9%. Natural gas (UNG) was up 5.3%. The dollar was up 0.5% as it holds above the 50-day MA. We are focused on managing the risk and seeing how investors respond to the revised outlook for global economics.

ONE Chart to Watch: QQQ – 1) Moved below $366.14 negating the break higher. Watching how it holds the $362.15 level. 2) Short-term trend is UP… starting from the January low. 3) Moved below the 10-day MA. 4) TQQQ $39.55 Entry. Stop $37.57. Reentered position.

Additional Charts to Watch: SPY – Moved to new highs from March lows and tested the move. Manage your stops accordingly. IWM – struggling as it erased the breakout move. SOXX – moved back below the $497.61 level and looking at $473.23 support. USO – down 2.9% for the week on concerns globally as central banks hike rates. Plenty of speculation in the commodity near term as it remains in a trading range.

ON TAP TODAY: 1) Looking for the leaders to resume the upside… XLY, XLK, SOXX. 2) Laggards to find support and join the bounce… IWM, IJH, IYZ, XLU, XLI, XLB. 3) Banks to join in the move again… KRE, KBE. 4) Stocks in good patterns…

Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added 5/7. Holding. AMZN (bottom reversal) Added 5/7. LABU (break up from bottoming range). Added 5/17. 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. NFLX (test to $350 and bounce?). Added 5/24. HON (trading range breakout). Added 6/13.

Stops Hit: None

Quote of the Day: “Any idiot can face a crisis: it’s this day-to-day living that wears you out.” – Anton Chekhov

The S&P 500 index closed up 33 points to 4348 the index was down 0.77% with below-average volume on the day. The index remained below 4400 and watching how the test unfolds. Managing the risk of extended move near term. None of the eleven sectors closed higher on the day with healthcare the leader down 0.3%. The worst performer of the day was utilities down 1.4%. The VIX index closed at 13.4 as it inched higher on the day. 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. A negative week for the sector down 2.5%. Testing the move higher.

XLU – Utilities Bottom reversal fails as the downtrend remains in play. The sector was down 3.3% for the week.

IYZ – Telecom In a downtrend from the February highs and failed to hold the bounce. The sector was down 5% for the week. Down all week and testing previous lows.

XLP – Consumer Staples broke up from the bear flag pattern and testing the move. The sector was down 1.2% for the week.

XLI – Industrials The trend broke to the upside breaking above resistance at the $102.40 level. Testing the breakout. The sector was down 2% for the week.

XLV – Healthcare Remains in a consolidation pattern from the March lows. The sector was down 0.1% for the week. Watch for break from the pattern as the next opportunity.

XLE – Energy Bounce attempts failed retesting testing the March and June lows. The sector was down 4.3% for the week. The downtrend is in play from the November highs. Needs to hold $76ish level of support.

XLK – Technology The sector is testing the move higher. The sector was down 2.7% for the week. Need to resume the leadership for the broad index.

XLF – Financials retesting the $32.36 level of support. The sector was down 2.5% for the week. The trend is down from the February highs. Banks are the key to the outlook.

XLY – Consumer Discretionary Consolidating near the highs. The sector was down 0.5% for the week. Topping?

**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 moved below $82.96 support. The sector was down 4% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising but money flow has increased to other areas of the sector.

Summary: The index continues to see some testing with a negative week for the broad index. None of the sectors closed higher on the day… breadth contracted again as the laggards pulled back to their respective support levels. Remains a sector-driven market. The broad index remains in an uptrend from the October lows with some interim testing currently. 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 138 points to 13,492 as the index was down 1.01% for the day. The index remains in the uptrend with some testing near the highs. Support is 13,274. Watching how the trend unfolds short term. SOXX was lower on the day. IGV tested the $335.68 support. Taking what is offered long and short.

NASDAQ 100 (QQQ) was down 0.99% with the mega caps lower on the day. Some testing at the near-term highs but holding the trend. Need the mega-caps to resume their leadership if the trend continues higher. The sector had a negative bias with 14 of the 100 stocks closing in positive territory for the day.

Semiconductors (SOXX) The sector moved lower testing the uptrend. The sector was down 4.5% for the week. Watching how it unfolds and the next opportunity.

Software (IGV) Testing the uptrend as the sector moves to $336 support. Added IGV $291. Stop $335.90 (adjusted). The sector was down 3% for the week.

Biotech (IBB) The sector moved back to support at the $128.35 level. failed to hold last week’s bounce. The sector was down 2.1% for the week.

Small-Cap Index (IWM) lagged overall and broke lower to end the week. The sector was down 2.8% for the week. Testing support at the $179 level.

Transports (IYT) Made a break higher from the trading range and testing the move. The sector was down 2% for the week.

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 lower on comments from Treasury Secretary Yellen. What is on the horizon? Weak dollar policy from the current administration. The dollar was up 0.7% for the week. More chatter about losing dollar status globally.

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 3.73% down from 3.76% last week. Rates are reacting to the FOMC meeting and how the Fed acts in the coming month. TLT was up 0.02% for the week.

Crude oil (USO) Remains in a short-term downtrend on worries about central banks raising interest rates to fight inflation. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. USO was down 3% for the week.

Gold (GLD) The commodity is moving sideways to lower even with weakness in the dollar of late. Letting this unfold and opportunities presented. The metal was down 1.9% 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.

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 some testing at the highs. 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 show some topping last four days. Technology remains the leader along with consumer discretionary. None sectors managed to close in positive territory on Friday. Bitcoin continued the move higher gaining 17% for the week on the ETF news from Blackrock. Trading the trends on sectors showing strength and weakness… We see the overall trend is still up from the October lows. The major indexes tested lower for the week as we track the downside leaders for opportunities. Watching where money is going near term for clues of what is on the horizon. Manage the risk that is and let the current trend play out.

What I am watching on Monday: 1) Continued test of the recent move higher. 2) SOXX testing lower… 3) Leadership lagging… how long, how much? 4) GLD, SLV, lagging… GLD broke support? Downside in play or temporary? 5) Crude testing support.

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.

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