The markets bounce at the key support levels we discussed yesterday and show buyers are still willing to put money to work. Economic data provided some help as Durable Goods Orders were up 1.7% in May versus 1.2% in April versus -0.2% expected. New Home Sales jumped 12.2% in May versus the 1.2% expected. Year-over-year sales were up 20%, the best level since February 2022. Consumer Confidence in June rose to 109.7 versus 103.8 expected and 102.5 previous. In case you are thinking all this positive news will deter the Fed from hiking rates… they won’t like positive trends with inflation still high. The broad indexes closed higher led by IYT and IYZ. Transports were up 2.1% versus the Dow up only 0.6%. The transports are up 3.7% in the last two days… definitely taking a leadership role for now. SOXX was up 3.5% renewing some leadership for the technology sector. Overall it was a broader move as the support level of 13,274 for the NASDAQ and the S&P 500 index at the 4300 level held and bounced. IGV, XLK, XLB, and XLI all pushed the indexes higher on the day. The VIX did move down to 13.7 on the day showing a slight decrease in the anxiety levels from investors seen on Monday. The charts show solid patterns remain in play they just need enough conviction to follow through. Watching how the week unfolds as the month, quarter, and first half of the year come to a close.
Tuesday showed better activity in the leaders and laggards but if you through the sectors it was still a narrow number of stocks that led the moves. There is still a tug-o-war with investors currently relative to the future. Inflation, earnings growth, economic conditions, and geopolitical issues weighing on clarity. Ten of the eleven sectors closed in positive territory showing some interest in buying. Volume remained below average. We continue to see money flow showing indecision near term. Coinbase joined the rally in crypto up 12.8% on the Supreme Court ruling. The S&P 500 index closed up 1.1%. The NASDAQ was up 1.6% with SOXX up 3.4%. Small Caps (Russell 2000) were up 1.4%. The ten-year treasury yield closed at 3.76% up 5 bps on the day. Crude (USO) was down 2.2%. (UGA) was down 1.4%. Natural gas (UNG) was down 3%. The dollar was down 0.2% 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 $352 level of support. Tuesday bounced to $363.86. 2) Short-term trend is UP… starting from the January low. 3) Moved near key support at the $355 level. 4) TQQQ $39.55 Entry. Stop $36.98. Reentered position. 4) Need upside to follow through on Wednesday. NOTE: Tuesday was an inside day on the chart… should continue upside on Wednesday. Look for a move above $364.81.
Additional Charts to Watch: SPY – Moved to new highs from March lows and tested the move. Manage your stops accordingly. $429.50 level to hold. Nice bounce on Tuesday. IWM – struggling but found some buyers on Tuesday. SOXX – moved back above the $497.61 level and on a solid move Tuesday… watching for a follow-through. USO – moved lower to the bottom of the current range. Plenty of speculation in the commodity near term. TSLA downgraded… extended on the chart downside opportunity developing. IYT transports are moving higher which is a positive sign for DIA… watching both near term. DIA – closed over the prior day’s high for the first time since the test of the high… swing trade entry signal if it moves above Tuesday’s high, or an intraday reversal at Monday’s high.
ON TAP TODAY: 1) Looking for the leaders to follow through on the upside… XLY, XLK, SOXX. 2) Laggards to join the bounce… IWM, IJH, IYZ, XLU, XLI, XLB. 3) Banks to join in the move again… KRE, KBE. 4) Leadership to define itself. Indexes are reaching key decision points but they will need a catalyst to push them back to the upside. 5) IYT, XLI, and XLB showed solid moves on Tuesday… need to take leadership.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added 5/7. Holding. AMZN (bottom reversal) Added 5/7. MSFT (break from flag pattern). Added 5/18. NFLX (test to $350 and bounce?). Added 5/24. HON (trading range breakout). Added 6/13. TQQQ (reversal) Added 6/27. SOXL (reversal) Added 6/27.
Stops Hit: None
Quote of the Day: “Our knowledge is a little island in a great ocean of nonknowledge.” – Isaac Bashevis Singer.
The S&P 500 index closed u 49 points to 4378 the index was up 1.15% with below-average volume on the day. The index remained below 4400. Managing the risk as the upside remains challenged. Ten of the eleven sectors closed higher on the day with Telecom the leader up 2.2%. The worst performer of the day was healthcare down 0.2%. The VIX index closed at 13.7 as it inched lower 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. Solid bounce on Monday and Tuesday.
XLU – Utilities Bottom reversal fails as the downtrend remains in play. The sector was down 3.3% for the week. Solid bounce on Monday and held.
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. Solid bounce on Monday and Tuesday.
XLP – Consumer Staples broke up from the bear flag pattern and testing the move. The sector was down 1.2% for the week. Consolidation pattern in play.
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. Solid bounce on Monday and Tuesday.
XLV – Healthcare Remains in a consolidation pattern from the March lows. The sector was down 0.1% for the week. Watch for a break from the pattern as the next opportunity. Laggard.
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. Solid bounce on Monday and held.
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. Solid bounce on Tuesday.
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? Negative move on Monday bounced back on Tuesday.
**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. Back above $82.96 support Monday added on Tuesday.
Summary: The index bounced at support with some positive breadth. Ten of the sectors closed higher on the day… the laggards IYR, XLE, IYZ, XLU bounced off their respective lows near term. Remains a sector-driven market but there remains indecision in the leadership overall. 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 up 219 points to 13,555 as the index was up 1.65% 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 higher on the day. IGV recovered the $335.68 support as a positive. Taking what is offered long and short.
NASDAQ 100 (QQQ) was up 1.72% with the mega caps moved higher on the day. The testing continues from the near-term highs but holds the trend. Need the mega-caps to resume their leadership if the trend continues higher. The sector had a positive bias with 85 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. Up 3.5% on Tuesday bouncing.
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. Back above the $336 support.
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. Testing the May lows.
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. Added upside move on Tuesday needs to follow through.
Transports (IYT) Made a break higher from the trading range and testing the move. The sector was down 2% for the week. Solid bounce on Monday and Tuesday showing leadership.
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. Moved lower on Tuesday speculation of weaker Chinese demand.
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.
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.
Tuesday: The charts tested key support levels and bounced. Now it needs to follow through on Tuesday. Technology remains the leader along with consumer discretionary despite some testing. Seeing some added leadership from Transports last two days is a positive. Ten sectors managed to close in positive territory. XLI and XLB positive moves showed breadth on Tuesday. 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 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 Wednesday: 1) Follow through on the Tuesday bounce. 2) SOXX follow through to solid move higher Tuesday. 3) Leadership SOXX, XLI, XLB, IGV, IYT, to continue. 4) GLD, SLV, lagging… GLD broke support? Downside in play or temporary? 5) Breadth and volume to expand.
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.