Data driving market direction

The FOMC voted unanimously to raise the Fed funds rate by 25 basis points as expected. The market closed slightly higher on the day as the indexes held their own following the FOMC decision. Economic news showed a dip of 2.5% in New Home Sales with higher interest rates getting the blame. The biggest moves on the day came from the industrial and financial sectors. Semiconductors gave up Tuesday’s gains as the sector led the downside. Treasury bonds moved higher hitting resistance at the 200-day MA as yields fell on the FOMC news. Commodities in the food arena continue to be volatile as OJ futures hit new highs as disease damages crops. Earnings in the technology sector were hit-and-miss as GOOG jumped 5.6% on a beat and MSFT fell 3.7% on their cloud profits less than expected. Regional banks (KRE) were higher on merger news between PACW and BANC. The transports (IYT) were higher thanks to positive earnings from BA. Overall the status quo remains for stocks.

The markets were divided by earnings as some do well and some struggled. Data is driving currently as the news takes the back seat. Five of the eleven sectors closed in the green the leadership came from XLI, IYR, and XLF. Volume was average on the day. Scanning the ETFs The leaders were KBE, KWEB, IYT, and XRT. The S&P 500 index closed down 0.02%. The NASDAQ was down 0.1%. The SOXX was down 1.4%. Small Caps (Russell 2000) were up 0.8%. The ten-year treasury yield closed at 3.85% down 6 bps. Crude (USO) was down 0.7%. (UGA) was up 1.6%. Natural gas (UNG) was down 1.6%. The dollar was down 0.3%. 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 closing on a doji candle. 2) Short-term trend is UP… starting from the January low. 3) Moved below the 10-day MA. 4) 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. Watching the current test near the highs.

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. Regional banks helped on Wednesday.

SOXX – moved back above the $497.61 level and above the June highs. Testing the latest move higher. No positions and watching how this unfolds near term. Holding the 20-Day MA.

USO – broke above the top of the range with upside pressure coming from the supply data. Hit the entry point at $65. Stop $67.70 (adjusted). $66.23 support in play with downside pressure from China. Broke higher and back near the April highs. Tested on Wednesday.

IYT transports tested back to the $247.67 level bounced and moved to new highs. Entry $231.20. Stop $255. Solid uptrend in play with rounding top broke higher on BA earnings.

DIA reversed the swing trade upside and tested back to the $337.10 support… added a position $339.35. Stop $350. An uptrend in play.

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. holding steady as the dollar moved lower on Wednesday.

Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added 5/7. HON (trading range breakout). Added 6/13. DIA (technical entry) Added 6/29.

Stops Hit: MSFT locked in a nice gain.

ON TAP TODAY: 1) Earnings. Reaction to FOMC. 2) Economic data. 3) DBA, CORN, SOYB, WEAT grain issues in Ukraine/Russia conflict 4) QQQ, XLK, SOXX do they bounce or sell further? 5) XME breakout.

Quote of the Day: “If life was fair, Elvis would be alive and all the impersonators would be dead.” – Johnny Carson.

The S&P 500 index closed down 7 points to 4566 the index was down 0.02% with average volume on the day. The index held the move above the 4400 level. 4585 next resistance level to watch. Five of the eleven sectors closed higher on the day with industrials as the leader up 0.7%. The worst performer of the day was technology down 1.4%. The VIX index closed at 13.1 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 holds above the $81.75 resistance to move higher. The sector was up 0.6% for the week. No Positions. Broke above the March highs with inside day.

XLU – Utilities Bottoming range broke higher on Friday and looking for follow-through to the move… The sector was up 2.4% for the week. Entry $67.05.

IYZ – Telecom In a downtrend from the February highs, bounced at support and back to the top of the current range. Need to clear $22.30 resistance. The sector was up 3.4% for the week. No Position. Stalled at resistance and tested lower.

XLP – Consumer Staples broke higher from the consolidation pattern. Added at $74.72. The sector was 1.8% 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 0.8% for the week. XLI entry $102.40. Resumed uptrend.

XLV – Healthcare Finally broke higher from the consolidation pattern from the March lows. Solid trading week for the sector. The sector was up 3.4% for the week. Entry.$132.64. Stalled at the highs.

XLE – Energy Bounced and cleared the $82.74 level and trying to break the downtrend from the October highs. The sector was up 3.5% for the week. Entry $81.95. Broke above the 200-Day MA. Set to return to leader?

IEO – broke higher as offshore interest rise. Entry $85. Stop $89. WTI breakout entry $4.40.

XLK – Technology The sector is testing the move higher closed on the 10-day MA. The sector was up 0.08% for the week. XLK entry $151.53. Tested with weakness in SOXX. Tested lower with SOXX falling.

XLF – Financials holding above $33.35 support and in an uptrend from the March lows. The sector was up 2.9% for the week. KIE breaking above resistance. Entry $40.60. Stop $40.60. Earnings mixed in the sector. UYG entry $45.60. Continued upside move. Added to the uptrend. KRE jumps on merger news.

XLY – Consumer Discretionary Tested the move higher in the uptrend. The sector was down 2.2% for the week. Remains in a leadership role. XLY Entry $147.10. Sold @ $173.27. Big test… locked in solid gain.

IYR – REITs moved above the $85.50 resistance level with the target now $90.47. The sector was down 0.01% 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.

Summary: The index was challenged by data points on the day and essentially closed flat. Five of the eleven sectors closed higher on the day with some rotation in leadership with industrials and financials breaking higher. 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.)


The NASDAQ index closed down 17 points to 14,127 as the index was down 0.12% 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 1.4% on the day. IGV was down 0.97%. Watching support and how the activity unfolds.

NASDAQ 100 (QQQ) was down 0.3% on the day with MSFT weighing on the sector. Remains above the $366.14 support. The mega-caps, as we have discussed, are/were extended from the May break higher and thus we manage the risk short term. We don’t have any positions currently. Watching for the next directional opportunity. The sector had a negative bias with 41 of the 100 stocks closing in positive territory for the day.

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 down 1.4% for the week. Sold position for a solid gain. $497.61 level to hold. Volatility remains in the sector.

Software (IGV) Broke higher from the consolidation pattern on the chart. The sector remains above the $336 level of support. Added IGV $291. Stop $351 (adjusted). The sector was up 0.08% for the week. Tested lower.

Biotech (IBB) The sector broke above the $128.35 resistance level. The sector was up 2.5% for the week. Entry $129.10. Moved back to the $128.35 support.

Small-Cap Index (IWM) Cleared the $189 resistance level to establish an uptrend. The sector was up 1.5% for the week. Entry TNA $36.31. Pennant pattern at the highs.

Transports (IYT) Made a break above the January highs and showed solid momentum as it tests near the highs. The sector was up 2.7% for the week. IYT Entry $231. Higher on BA earnings.

The Dollar (UUP) The dollar tanked retesting the April lows and bounced. The dollar was up 1.3% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Heading lower again.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.83% up from 3.81% last week. TLT was up 0.4% 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 2.2% for the week. UCO entry $24.15. Reestablished the uptrend as supply tightens. Continues to climb on supply tightening.

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 0.45% for the week. Watching the dollar bounce. Weaker dollar will help upside.

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.


Our longer-term view shifted 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 week started solid but some testing to end the week is in play. The FOMC meeting is on Wednesday and all eyes and ears will be focused on the Fed comments following the meeting. Some rotation to the defensive sectors the last few days has our attention as well looking forward. Tightening our stops on intermediate and short-term positions. We locked in some gains on technology positions and added some others as money rotated. 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 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.

Wednesday: The markets were mixed on the FOMC decision. Some juggling as some money continues to rotate. We have added positions in the benefactor sectors and exited others as we manage our risk accordingly. 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. Plenty to ponder as we progress in the current environment.

What I am watching on Thursday: 1) SPY, QQQ, SOXX, directional decision. 2) Commodities reacting to the Russia/Ukraine issue for grain exports. 3) TLT reaction to Fed.

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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