The markets ended the week with a solid day of buying. All the sectors closed in positive territory and investors showed more confidence. All the pessimism seemed to take a back seat to hope as the first half of the year came to a close. Technology and consumer discretionary took the lead, SOXX bounced back, commodities were higher, and healthcare showed some upside as well. Economic data continued the positive run of late with PCE up 0.1% and the core up 0.3% showing some stickiness with inflation. Real spending was flat at 0%. Wages were up 0.5%. Chicago’s PMI was 41.5 vs 40.4 previous. Overall some positive news with inflation still a challenge. Small caps added to their bounce as well showing some modest strength. The NASDAQ was slightly higher, and the S&P 500 both gapped higher and closed higher. The charts show solid patterns in play as they finally show some follow-through on the upside. Watching how the holiday week unfolds as we celebrate the 4th of July.
The end of the month and the S&P 500 closed up 5.3%, the NASDAQ gained 6.9%, SOXX was up 6.4% with the leaders showing a solid move from the previous test. The move on Friday would be the start of the fifth leg higher if it follows through from the October lows. Inflation, earnings growth, economic conditions, and geopolitical issues remain the obstacle to clarity and investor confidence. All of the eleven sectors closed in positive territory. Volume remained below average. Money flow has been positive of late. The S&P 500 index closed up 1.2%. The NASDAQ was up 1.4%. The SOXX was up 1.5%. Small Caps (Russell 2000) were up 0.4%. The ten-year treasury yield closed at 3.81% down 5 bps. Crude (USO) was up 0.9%. (UGA) was up 2.2%. Natural gas (UNG) was up 3.3%. The dollar was down 0.4% 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 back above the $366.14 renewing the break higher. Watching how it holds the $352 level of support. 2) Short-term trend is UP… starting from the January low. 3) Moved near key support at the $355 level and held. 4) TQQQ $39.55 Entry. Stop $39.55 adjusted. Reentered position. 4) Need upside to follow through on Friday move.
Additional Charts to Watch: SPY – Moved to new highs from March lows and tested the move. Manage your stops accordingly. Gapped higher on Friday. IWM – struggling but found some buyers the last four days. SOXX – moved back above the $497.61 level and followed through. USO – moved lower to the bottom of the current range and bounced again. Plenty of speculation in the commodity near term. TSLA downgraded… watching the reaction to the extended stock. IYT transports are moving higher which is a positive sign for DIA… Moved above resistance at $247.67. DIA closed over the prior day’s high for the first time since the test of the high… swing trade entry signal… added position $339.35. DIS – double bottom pattern.
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. Solid moves on Friday. 3) Banks to join in the move again… KRE, KBE. 4) Leadership to define itself. Indexes broke above key decision points but they will need a catalyst to push them higher. 5) IYT, XLI, and XLB showed solid moves on Friday… widening the leadership. 6) DKNG (consolidation pattern)
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. DIA (technical entry) Added 6/29.
Stops Hit: None
Quote of the Day: “If it weren’t for Philo T. Farnsworth, inventor of television, we’d still be eating frozen radio dinners.” – Johnny Carson.
The S&P 500 index closed up 54 points to 4450 the index was up 1.23% with below-average volume on the day. The index moved back above the 4400 level. Managing the risk as the upside remains challenged. Eleven of the eleven sectors closed higher on the day with technology the leader up 1.6%. The worst performer of the day was REITs up 0.4%. The VIX index closed at 13.5 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 Cup and handle pattern breaks above resistance $81.75. A positive week for the sector up 4%. Positive uptrend in play short term.
XLU – Utilities Bottom reversal fails as the downtrend remains in play, but attempts to establish a double bottom. The sector was up 0.6% for the week.
IYZ – Telecom In a downtrend from the February highs but bounced at support and trying to reverse the trend. The sector was up 5% for the week.
XLP – Consumer Staples messy consolidation pattern in play and trying to establish the uptrend again. The sector was up 0.5% for the week.
XLI – Industrials The trend broke to the upside breaking above resistance at the $102.40 level. Tested the breakout and moved higher. The sector was up 3.9% for the week.
XLV – Healthcare Remains in a consolidation pattern from the March lows. The sector was up 0.5% for the week. Watch for a break from the pattern as the next opportunity.
XLE – Energy Bounce attempt from the test of the lows yet again. The sector was up 4.9% for the week. The downtrend is in play from the November highs. Needs to move above the $82.74 level.
XLK – Technology The sector tested the move higher with a solid bounce on Friday. The sector was up 1.6% for the week. Need to resume the leadership for the broad index.
XLF – Financials retested the $32.36 level of support and bounced back to the 200-day MA. The sector was 2.9% for the week. The trend is up from the March lows… slow and steady wins the race.
XLY – Consumer Discretionary broke higher from the consolidation pattern at the highs. The sector was up 2.6% for the week. Resumed the leadership role.
IYR – REITs moved above the $85.50 resistance level and looking for a follow-through moving forward. The sector was up 5.2% 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 held support with some mixed results on Thursday and gapped higher on Friday to renew the uptrend. All eleven sectors closed higher on the day showing more breadth in the move. Remains a sector-driven market as it looks for overall leadership. The broad index remains in an uptrend from the October lows with some interim testing. 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 196 points to 13,787 as the index was up 1.45% 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 up 1.5% on the day. IGV was up 1.1%. Taking what is offered long and short.
NASDAQ 100 (QQQ) was up 1.54% with the mega caps moved higher on the day. Moved back above the $366.14 resistance and looking for a follow-through. Need the mega-caps to resume their leadership if the trend continues higher. The sector had a positive bias with 92 of the 100 stocks closing in positive territory for the day.
Semiconductors (SOXX) The sector tested the uptrend and bounced to end the week. The sector was up 4.6% for the week. Watching how it unfolds and the next opportunity.
Software (IGV) Testing the uptrend as the sector moves above the $336 level. Added IGV $291. Stop $335.90 (adjusted). The sector was up 2.7% for the week.
Biotech (IBB) The sector moved back to support at the $125.50 level. bounced but still needs money flow to turn positive. The sector was down 1.2% for the week.
Small-Cap Index (IWM) found some buyers near the 200-day MA. Need to clear the $188 level. The sector was up 3.7% for the week.
Transports (IYT) Made a break above the January highs and showed solid momentum. The sector was up 5.2% 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 holding with a cup and handle pattern on the chart. What is on the horizon? Weak dollar policy from the current administration. The dollar was up 0.1% 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 3.81% up from 3.73% last week. Rates are reacting to the Fed talk on hiking rates… indecision in the action of late. TLT was down 0.4% 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 up 1.8% for the week.
Gold (GLD) The commodity is in a downtrend from the May highs. Letting this unfold and opportunities presented. The metal was up 0.04% for the week.
Questions to Ponder: Navigating Uncertainty
Bank Stress Test – Wednesday the Fed said that all 23 major financials passed their annual stress tests, with sufficient levels of capital to get through a severe recession. Interesting considering that just four months ago the sky was falling. And let’s not forget the Fed continues to provide liquidity to banks in short-term loans. KBE continues to trade laterally following the big downside move in March. Worthy to see how this unfolds in light of this news.
BTFP hits new record: The emergency bank bailout facility moved to another record high of 103.1 billion dollars. Sound and resilient… passed the stress test… borrowing when no one has stated there is an emergency. All is well in OZ.
Bidenomics – The president rolled out his newly revised plan that has created the greatest economy ever… 14% inflation, -3.1% hourly earnings growth, trillions added to the debt, etc. greatest presidency ever.
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 shifting to neutral as the upside trend from the October lows remains in play. 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 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. If the uptrend resumes following the recent test it will be the fifth stage higher. 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 gapped higher for the major indices renewing the uptrend. Still looking for an upside follow-through in the coming week. Technology remains the leader along with consumer discretionary. Seeing some added leadership from Transports last few days is a positive. Positive bounce from DIA and IWM. Eleven sectors managed to close in positive territory. Trading the trends on sectors showing strength and weakness… We see the overall trend is still up from the October lows. 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) Directional follow-through on leadership. 2) Tug-o-war between the leaders and the laggards resolved. 3) GLD, SLV, lagging… GLD broke support? Downside in play or temporary? 4) IGV as software stocks are well positioned to follow through on the Friday move. Scanning the sector shows positive charts for the leaders.
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.