The markets started the new month with a turn lower as earnings disappointed investors with misses by PFE, UBER, JBLU, and MRK. CAT was on the plus side with solid numbers. The headlines are stating overbought conditions for stocks as the cause and we don’t disagree, but we will see how it unfolds as the week progresses. Economic data saw the ISM Manufacturing number lower than expected at 46.4% versus 46% previous. The numbers also showed that employment declined at the fastest rate since the lockdowns. JOLTS job openings hit a two-year low. As stated yesterday… look for data to be more of a driver than news. As we head into Wednesday the outlook is still not great and investors continue to tread lightly as seen in the volume. The MACD was a lower high from the earlier high in July showing slowing, VIX has moved off the low on both the S&P and the NASDAQ… all pointing towards a test on the major indexes. Not saying it is definitive but something to watch near term. As we all know bull markets don’t die easy. Take what the market gives but take note of the signs showing overbought situations and manage the risk accordingly. The uptrend is still in play and like it or not we follow the trend. Taking it one day at a time with a focus on managing risk.
Looking at the key indicators were slightly negative on the day. Earnings overall were disappointing. Economic data isn’t looking impressive as recession talks begin again. Worries about the US debt climbing was greeted by a downgrade by Fitch to AA+. I guess spending $2 trillion in six months will do that. We have adjusted stops based on current activity. Four of the eleven sectors closed in the green the leadership came from IYZ on Tuesday. Volume was below average on the day. Scanning the ETFs The leadership was thin with GDX, IYZ, and ITB positive. The S&P 500 index closed down 0.2%. The NASDAQ was down 0.4%. The SOXX was up 0.1%. Small Caps (Russell 2000) were down 0.4%. The ten-year treasury yield closed at 4.05% up 10 bps. Crude (USO) was down 0.3%. (UGA) was down 1%. Natural gas (UNG) was down 2.6%. The dollar was up 0.4%. 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 and closed lower on Tuesday. 2) Short-term trend is UP… starting from the January low. 3) Moved above the 10-day MA. 4) Watching for entry up or down? No Positions.
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. Hit the target Monday. Watching the current test near the highs. Sold half of the position. Letting it unfold.
IWM – struggled and reversed off support with solid follow-through on the upside clearing the $189 level. TNA entry $36.31. Stop $40. Resumed upside and let it unfolds. Adjusted stop on Monday move.
SOXX – moved back above the $497.61 level and above the June highs. Cleared the previous July high. No positions and watching how this unfolds near term. Looking for a test of the move higher with the uptrend in play.
USO – broke above the top of the range with upside pressure coming from the supply data. Hit the entry point at $65. Stop $71.22 (adjusted). Positive for the commodity as our positions post gains, but the impact on the economic picture isn’t as it acts as a tax on individuals.
IYT transports tested back to the $247.67 level bounced and moved to new highs. Entry $231.20. Stop $260. A solid uptrend in play. Some selling on the ISM data Tuesday… has my attention.
DIA reversed the swing trade upside and tested back to the $337.10 support… added a position $339.35. Stop $351.30. An uptrend in play with a rolling top currently.
AAPL – reversal confirmed with higher low and break upside. Added 5/7 $173. The uptrend remains.
Stops Hit: None
Quote of the Day: “Married men live longer than single men. But married men are a lot more willing to die.” – Johnny Carson
The S&P 500 index closed down 12 points to 4576 the index was down 0.27% with below-average volume on the day. The index held the move above the 4400 level. 4585 resistance came into play again. Four of the eleven sectors closed higher on the day with telecom as the leader up 0.4%. The worst performer of the day was utilities down 1.2%. The VIX index closed at 13.9 holding at the current 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 $84 resistance to move higher. The sector was up 1.8% for the week. No Positions.
XLU – Utilities Bottoming range broke higher and tested holding support at $66.85… The sector was down 2% for the week. Entry $67.05. Broke support at$66.85.
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 0.1% for the week. No Position. Stalled at resistance. Moved above the 200 day MA.
XLP – Consumer Staples broke higher from the consolidation pattern. Entry at $74.72. The sector was 0.6% for the week. Rolling top.
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 0.5% for the week. XLI entry $102.40. Positive upside Tuesday.
XLV – Healthcare Finally broke higher from the consolidation pattern from the March lows. Volatile trading week for the sector. The sector was up 0.3% for the week. Entry.$132.64. Stalled at the highs. Testing lower again with $132.64 support. Earnings from MRK and PFE not helping.
XLE – Energy Bounced and cleared the $82.74 level and broke the downtrend from the October highs. The sector was up 1.8% for the week. Entry $81.95. Is it ready to resume a leadership role? Added to upside move need to clear $87.54 resistance.
IEO – broke higher as offshore interest rise. Entry $85. Stop $92. WTI breakout entry $4.40.
XLK – Technology The sector is testing the move higher closed on the 10-day MA. The sector was up 1% for the week. XLK entry $151.53. Tested but held support.
XLF – Financials holding above $33.35 support and in an uptrend from the March lows. The sector was down 0.1% for the week. KIE broke above resistance. Entry $40.60. Stop $40.60. UYG entry $45.60. Continued upside move. Rolling top
XLY – Consumer Discretionary Tested the move higher in the uptrend. The sector was up 1% for the week. Remains in a leadership role. No Positions.
IYR – REITs moved above the $85.50 resistance level and tested this week. The sector was down 1.8% 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. Watching interest rate near the 4% level again.
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 struggled on the day… watching as risk rises in the current environment. Adjusted stops and letting it unfold. Four of the eleven sectors closed higher on the day with IYZ in the leadership role. 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 62 points to 14,283 as the index was down 0.43% for the day. The index remains in the uptrend with some testing. Support is 13,762. Letting the move unfold as tech and mega caps test their respective highs. SOXX was up 0.1% on the day. IGV was up 0.1%. Watching support and how the activity unfolds.
NASDAQ 100 (QQQ) was down 0.23% on the day as mega caps traded in a tight range. 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 37 of the 100 stocks closing in positive territory for the day.
Semiconductors (SOXX) The sector continued higher after testing and remains in an uptrend. Established a higher low followed through in a continuation of the uptrend. The sector was up 4.3% for the week.
Software (IGV) Testing again in the uptrend. The sector remains above the $336 level of support. Added IGV $291. Stop $351 (adjusted). The sector was up 0.1% for the week. Positive upside to start the week.
Biotech (IBB) The sector broke above the $128.35 resistance level and tested. The sector was down 1.2% for the week. Broke $128.35 support.
Small-Cap Index (IWM) Cleared the $189 resistance level to establish an uptrend. The sector was up 1% for the week. Entry TNA $36.31. Stalled at the current highs. Solid upside to test the March highs… letting it unfold.
Transports (IYT) Remains in a solid up trend with the 10-day MA as support. The sector was up 2% for the week. IYT Entry $231. Tested on ISM data.
The Dollar (UUP) The dollar tanked retesting the April lows and bounced in ‘V’ bottom pattern. The dollar was up 0.7% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Higher on the week.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.96% up from 3.83% last week. TLT was down 1.9% for the week. Moved above 4% briefly and watching how it impacts the economy. Moved above 4% again as Fitch downgrades bonds.
Crude oil (USO) Broke higher and remains in a solid uptrend. USO was up 4.5% for the week. UCO entry $24.15. Reestablished the uptrend as supply tightens. Broke above the Jan and March highs.
Gold (GLD) The commodity broke higher from the base and reversed on a stronger dollar. No positions. The metal was down 0.2% for the week. Messy chart showing indecision.
FINAL NOTES:
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 topping patterns remain in place and we remain cautious about the outlook near term. The economic data is showing some signs of fatigue relative to growth. Some testing in leaders and some rotation among sectors but overall the trend remains higher. 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.
Tuesday: Modest downside moves on the day with a negative start to the day. Plenty of data for July on tap and watching how that impacts the current move. Letting it play out as we look for directional confirmation on QQQ, SPY, SOXX, and TLT. We have added positions in sectors showing positive momentum such as XLE and USO… and exited those hitting our stops. 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 Tuesday: 1) SPY, QQQ, SOXX, directional decision. 2) Commodities GLD, SLV, USO, DBA… 3) TLT reaction to downgrade. The issues are just beginning relative to the spending spree of the current administration. The debt has increased $2 Trillion in 2023 and we still have 5 months to go. 10-Year yield moved above 4% again… watching how this plays out. TBT added to our positions. 4) ADP Employment data. 5) AI, AMD, UEC, XLI, XLB, XME… are a few to watch.
Trending concerns:
1) Elimination of the debt ceiling by Congress has sent the administration on a spending spree… no big surprise when you can’t bounce checks you keep writing them for undisclosed favors. TLT fell 1.9% Tuesday and we added TBT to our positions. Watching how this storyline unfolds as Fitch downgrades the Treasury Bond to AA+.
2) Inflation warnings are popping up again… on May 4th crude was $67. On August 1st crude was $81.96 which is a 22.1% increase in price… where does it go? Correct, into everything we basically touch. We own USO and UGA in order to keep pace with being able to afford gasoline. But it goes further and we should be looking at where to invest to keep pace with the next wave of inflation.
3) Climate Emergency? If this executive order is enacted by the Biden Administration bar the doors as spending will escalate to levels not seen since WWII. The draconian measures will mirror those seen during the pandemic lockdowns. They want to eliminate anything gas or electric in the name of “clean energy”. Another storyline that has our attention.
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.