The market started lower and closed lower on the day. Semiconductors took the tech stocks lower and banks were higher despite the BTFP lending hitting new highs… interesting. Utilities led the upside for the S&P 500 index. Commodities continue to see upside as Russia bombs the ports in Ukraine. We took some money off the table in troubled sectors and watching how Friday unfolds. Economic data was soft again with the Existing Home Sales lower by 3.3% to 4.16 million versus 4.3 million previously… evidently, inventory was the blame, not interest rates. The Philly Fed Index dropped to -13.5 versus -9 previously. Jobless claims remain solid but continuing claims continue to creep higher at 1.754 million. We have discussed the extended moves from the March lows and the run higher over the last two weeks the markets were due for a test and some profit-taking. The leaders XLK and XLY were the heavy sellers on the day which makes sense, but it was still selling. Friday is options expiration and could offer some volatility as positions get balanced out.
The markets started lower and moved lower the balance of the day as volatility picked up. The Dow closed higher thanks to healthcare stocks breaking higher led by JNJ and MRK. Eight of the eleven sectors closed in the green but the leadership came from XLV, XLE, XLU, and XLP… defensive sectors. Volume was above average on the day. Scanning the ETFs we some interesting moves higher in UNG, TLT, DFEN, XLU, and KIE. The S&P 500 index closed down 0.6%. The NASDAQ was down 2%. The SOXX was down 3.6.%. Small Caps (Russell 2000) were down 0.8%. The ten-year treasury yield closed at 3.85% up 9 bps. Crude (USO) was up 0.5%. (UGA) was up 1.1%. Natural gas (UNG) was up 4%. The dollar was up 0.5%. We are focused on managing the risk and seeing how investors respond to the optimism relative to the outlook.
ONE Chart to Watch: QQQ – 1) Held above the $366.14 mark with some selling. 2) Short-term trend is UP… starting from the January low. 3) Tested back to the 10-day MA. 4) TQQQ $39.55 Entry. Stop $45.16 stop hit locked in a nice gain. 5) Watching for entry up or down?
Additional Charts to Watch:
SPY – Moved above the June highs and resumed the uptrend. Manage your stops accordingly. $457.60 target on the current move. Doji candle on the close Wednesday sold lower on Thursday… watching.
IWM – struggled and reversed off support with solid follow-through on the upside clearing the $189 level. TNA entry $36.31. Resumed upside and tested at resistance.
SOXX – moved back above the $497.61 level and above the June highs. Established a higher lower and followed through. Entry $497.60. Target $550. Looking sluggish with some topping on the chart Wednesday… sold on Thursday sold to lock in gains. Watching on Friday.
USO – broke above the top of the range with upside pressure coming from the supply data. Hit the entry point at $65. Stop $66.23 (adjusted). $66.23 support in play with downside pressure from China. Consolidating at the current highs.
IYT transports tested back to the $247.67 level bounced and moved to new highs.
DIA reversed the swing trade upside and tested back to the $337.10 support… added a position $339.35. Stop $339.35. Solid gains for the week thus far. Struggled to clear $345 resistance… healthcare and banks led the index higher on Thursday.
Gold (GLD/GDX) bottoming pattern in play. Watching the dollar in freefall on Wednesday. $179.60 level to clear. UGL leveraged ETF. GDX – will trade higher if gold moves up. Entry UGL $58.80. Entry GDX $30.90. Watching the dollar last two days.
ON TAP TODAY: 1) Commodities making move higher. 2) Earnings. 3) DBA, CORN, SOYB, WEAT grain issues in Ukraine/Russia conflict 4) TSLA downside move. 5) QQQ, XLK, SOXX do they bounce or sell further?
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. DIA (technical entry) Added 6/29.
Stops Hit: NFLX, AMZN, TQQQ locked in solid gains.
Quote of the Day: “If you think it’s hard to meet new people, try picking up the wrong golf ball.” – Jack Lemmon.
The S&P 500 index closed down 31 points to 4534 the index was down 0.68% with above-average volume on the day. The index held the move above the 4400 level. 4585 next resistance level to watch. Eight of the eleven sectors closed higher on the day with utilities as the leader up 3%. The worst performer of the day was consumer discretionary down 3.4%. The VIX index closed at 13.9 and remains at the previous lows. The uptrend from the October low remains in play.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials solid week as the chart clears $81.75 resistance to move higher. The sector was up 2.5% for the week. No Positions.
XLU – Utilities Bottom bounce and a double bottom pattern… need to clear $67. The sector was up 2.2% for the week. No Positions. Breaking up from the consolidation pattern? Need to follow through.
IYZ – Telecom In a downtrend from the February highs, bounced at support and failed to move higher. Need to clear $22.30 resistance. The sector was down 2.6% for the week. No Position. Retested previous lows and bounced back to the top of the range.
XLP – Consumer Staples messy consolidation pattern in play and moved back to the 50-day MA. The sector was 1.1% for the week. No Positions. Broke from the range… add at $74.72.
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 2.2% for the week. XLI entry $102.40. Continued higher.
XLV – Healthcare Remains in a consolidation pattern from the March lows. Tough week as it traded lower in the pattern with a bounce on Friday. The sector was up 2.1% for the week. No Positions. Solid break higher. Entry.$132.64 .
XLE – Energy Bounced and cleared the $82.74 level only to reverse on Friday. The sector was up 0.8% for the week. No Positions. Struggles renewed on China data… still shows upside bias cleared $82.74 resistance.
IEO – breaking higher as offshore interest rise. Patterns of interest SWN, WTI, ET
XLK – Technology The sector continued the move higher in an uptrend. The sector was up 2.8% for the week. XLK entry $151.53. Tested with weakness in SOXX.
XLF – Financials holding above $33.35 support and in an uptrend from the March lows. The sector was up 1.9% for the week. KIE breaking above resistance. Entry $40.60. Stop $40.60. Watching earnings in the sector. SKF entry $17.85. Continued upside move.
XLY – Consumer Discretionary continued higher in the uptrend. The sector was up 3.2% for the week. Remains in a leadership role. XLY Entry $147.10. Sold @ $173.27.New 52-week highs. Big test on Thursday… watching how it unfolds… locked in solid gain on XLY.
IYR – REITs moved above the $85.50 resistance level with the target now $90.47. The sector was up 2.9% 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. No Positions.
REITs on watch with interest rates rising above 4% and the latest round of mortgage data showing a 4.4% decline in applications. That is the first decline in four weeks. 30-year mortgage jumped to 6.85%. IYR and ITB are on watch relative to the downside. Watching the downside risk in commercial properties. Rolling top on the chart.
Starwood (STWD) defaulted on $212+ million office tower in Atlanta… stock is back near the February highs? Interesting times.
Summary: The index made a move to resume the uptrend but showed some fatigue on Wednesday which led to some selling on Thursday with XLK and XLY testing lower. Eight of the eleven sectors closed higher on the day with some rotation in leadership toward defensive stocks. Watching how this unfolds on Friday. 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 down 294 points to 14,063 as the index was down 2.05% for the day. The index remains in the uptrend with some testing. Support is 13,762. Letting the test unfolds as tech and mega caps test their respective highs. SOXX was down 3.6% on the day. IGV was down 2.4%. Watching support and how the activity unfolds.
NASDAQ 100 (QQQ) was down 2.31% on the day. Remains above the $366.14 support and the 10-day MA. The mega-caps, as we have discussed, are/were extended from the May break higher and thus we manage the risk short term. We locked in solid gains on TQQQ. Watching for the next directional opportunity. The sector had a negative bias with 32 of the 100 stocks closing in positive territory for the day.
Special Rebalance – The NASDAQ exchange operator is set to rebalance the NASDAQ 100. An announcement will be made on July 14th with the change taking place on July 24th. Since we invest in QQQ regularly it will be news of interest relative to the asset’s future growth. Link to article.
Semiconductors (SOXX) The sector broke higher from the consolidation pattern. Established a higher low followed through in a continuation of the uptrend. The sector was up 4.8% for the week. Sold position for a solid gain. Thursday responds to the downside… 497.61 level to hold.
Software (IGV) Broke higher from the consolidation pattern on the chart. The sector remains above the $336 level of support. Added IGV $291. Stop $335.90 (adjusted). The sector was up 5.5% for the week. Some selling on Thursday… watching.
Biotech (IBB) The sector tried to break above the $128.35 resistance level. The sector was up 3.1% for the week. No Positions. Moved above $128.35 resistance and followed through.
Small-Cap Index (IWM) Cleared the $189 resistance level to establish an uptrend. The sector was up 3.7% for the week. Entry TNA $36.31. Resumed upside move and testing at the February highs.
Transports (IYT) Made a break above the January highs and showed solid momentum as it tests near the highs. The sector was up 1.9% for the week. IYT Entry $231. Tested the extended move and resumed higher.
Worry: UPS is going on strike if they don’t get a new contract by July 31st. Supply chain disruption will be a challenge for the economic picture.
The Dollar (UUP) The dollar tanked for the week retesting the April lows. The dollar was down 2.1% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Bounced off the lows.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.81% down from 4.05% last week. Big treasury action this week took rates lower… guess who was buying? You are right the Fed pushing rates lower to help banks. TLT was up 2.2% for the week. Moved back in the 3.7-3.85% range.
Crude oil (USO) Broke higher from the consolidation pattern showing positive momentum based on supply data during the week. USO was up 2.4% for the week. UCO entry $24.15. Big test on Friday. China economic data weighing on the commodity… solid bounce on Tuesday.
Gold (GLD) The commodity broke higher from the base. Entry $179.36. UGL entry $59. GDX entry $31. Letting this unfold. The metal was up 1.5% for the week. Solid upside on Tuesday for metal and miners… watching the dollar bounce.
Questions to Ponder: Navigating Uncertainty
Banks passed their respective stress tests two weeks ago. The treasury yields fell 20 bps following a strong auction Monday… Fed was buying to help banks with lower interest rates. Bank earnings showed positive results… Everything is good… right? Dig into the earnings reports and you will see plenty of questions concerning the future as it relates to nonperforming loans, higher reserves, etc. KBE was up 2% in the premarket on Friday it closed down 2% after solid earnings… maybe we aren’t the only ones believing there could be problems on the horizon.
FINAL NOTES:
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. The higher low in the last leg of the trend has pushed stocks up more than 4% over the last weeks. Some profit-taking on Friday was expected, but the outlook now begs what’s ahead. Tightening our stops on intermediate and short-term positions. 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. The uptrend resumes following the recent test it is the fifth stage of the move 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 is to manage the risk of positions, take what is offered… short or long, and then manage your money. Listen to the market not the talking heads.
Thursday: The markets struggled again on Thursday as the semiconductors and consumer discretionary sector sold lower. Defensive stocks led on the day. The housing data wasn’t great. Doji candles on the close Wednesday led to some selling on Thursday… thus, we manage our risk by taking some money off the table and adding to some defensive and commodity positions. FOMC meeting on July 26th looms, and let’s not forget the sudo stimulus in the form of the Fed’s bank rescue funds (which hit record levels this week)… that money is making its way into the markets to offset underperforming assets on banks’ balance sheets from the low-interest rate environment as seen in the earnings data. Thus, the need to pass the stress test from the Fed… one hand washes another. Trading the trends in 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 plays out. Friday is options expiration and should add some activity/volatility.
What I am watching on Wednesday: 1) SPY, QQQ, SOXX, response to Tuesday. 2) Commodities reacting to the Russia/Ukraine issue for grain exports. 3) Earnings.
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.