The markets were content to wait and see ahead of the FOMC meeting this week. Despite the economic data, earnings, and FRC in the headlines investors were focused on waiting. Volume was on the low side and the overall changes were small. ISM Manufacturing was 47.1% versus 46.3%. The sector is still showing contraction but improved in April. Construction spending was unchanged at 0.3% in March and Manufacturing PMI was up to 50.2 from 49.2 previous. Decent data for the current environment. The big news of the day was FRC being taken over by JPM as the FDIC stepped in to take over the bank. KRE fell 2.8% in a muted response from the sector. The data was mostly ignored by investors, but I am sure that information will sink in eventually. The FOMC meeting is Wednesday and will also bring some interesting data from the Fed. The focus will primarily be on preserving the system the Fed has built. Plenty of data on the horizon and plenty to ponder… for now the markets are content to wait. The S&P 500 held above the 4160 resistance and QQQ held above the $320.92 resistance keeping the uptrend alive from the January lows. Overall boring day for stocks with six of the eleven sectors closing higher.
The market is pondering how the Fed will respond relative to interest rates, it is equally concerned about the outlook for rates relative to inflation. The S&P 500 index closed down 0.04% as trading was muted. The NASDAQ was down 0.1% with SOXX up 0.9%. Small Caps (Russell 2000) were up 0.06% holding the bounce. The ten-year treasury yield closed at 3.57% up 12 bps showing volatility again to start the week. Crude (USO) was down 1.4%… economic strain putting pressure on prices. Gasoline (UGA) was up 1.1%. Natural gas (UNG) was down 3.5% as volatility remains. The dollar was up 0.5% and struggling globally. We are focused on managing the risk and watching how this all unfolds.
ONE Chart to Watch: QQQ – 1) Broke above $320.92 resistance and offered upside trade (TQQQ). 2) Short-term trend is UP… starting from the January low. 3) $330 next resistance to watch. 4) Uptrend line in play with test at $292 and $310.80. 5) Break higher on Friday still needs to confirm the upside move as down 0.1% on Monday.
Additional Charts to Watch: SPY – broke to a new near-term high (SPXL). IWM – solid upside move off the low. SOXX – finally had a good day on Friday and followed through on Monday. Watching SRS with all the rumblings about defaults rising in commercial real estate.
Leadership – NASDAQ, NASDAQ 100, SP500, Dow… All moved back near the recovery highs of February. The major indexes are led by the mega caps and taking the overall markets higher for the week.
Laggards – SOXX, SP400, RUTX… struggling despite the bounce to end the week. The growth stocks are still not showing the needed leadership if the markets are to run higher.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added to the position. AMZN (bottom reversal) Added. PG – trading range break as part of the consumer staples money rotation. Earnings gapped higher. Added. MCD breakout. Added. WMT ‘V’ bottom breakout. Added. WES reversal. Added. TSLS. Added. SPXL breakout. Added. SOXX reversal. Added. TQQQ breakout. Added.
Stops Hit: None
Quote of the Day: “Women who seek to be equal with men lack ambition..” – Tom Leary.
The S&P 500 index closed down 2 points to 4167 the index was down 0.04% with below-average volume on the day. The index broke the 4160 resistance on Friday and held. The bounce puts the index close to a new eight-month high. Six of the eleven sectors closed higher on the day with industrials as the leader up 0.5%. The worst performer of the day was energy down 1.1%. The VIX index closed at 16.1 as anxiety is subdued. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials hit resistance at $81.75 and tested lower holding above the 200-day MA. Solid bounce to end the week. The sector was down 0.2% for the week.
XLU – Utilities trading range developing on the chart with resistance at the 200-day MA. The sector was down 0.9% for the week. Entry $68.
IYZ – Telecom gapped down to $21.63 support and held with a bounce to end the week. The sector was down 0.5% for the week.
XLP – Consumer Staples upside trend continues as money rotates to the “safe” haven of defensive stocks. The sector was up 1.1% for the week.
XLI – Industrials moving sideways with some volatility showing on the chart. The sector was down 0.6% for the week.
XLV – Healthcare made a move through two resistance points. $136.30 next resistance as it held $131.40 support. Topping pattern on the chart. The sector was down 0.6% for the week.
XLE – Energy rolling top as hits resistance at the $86.85 level and held the $82.74 support. The sector was down 2.4% for the week. Crude moving lower impacting stocks short term but solid bounce on Friday. Traded lower on the day… watching short-side setup. ERY.
XLK – Technology The sector cleared the $144.10 resistance and retested with a bounce back to resistance… trading range is in play. The sector was up 1.4% for the week. Need some leadership from the sector if markets are going higher. Need to clear the previous highs.
XLF – Financials breaks above resistance at the $32.36 test the move and bounced to keep the uptrend in play off the Mach lows. Testing the short-term leadership. The sector was down 0.1% for the week. Banks will be the key short-term as they continue to struggle with regional banks reporting weaker earnings. Watching fallout and reactions to FRC failure.
XLY – Consumer Discretionary $147.11 resistance in play again. Retail is struggling as consumer debt rises to record levels. They learned from the government. The sector was up 0.3% for the week.
IYR – REITs broke from the trading range on Friday. Cleared $85 and watching as the commercial property remains a challenge overall. The sector was up 1.5% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Tracking SRS for an opportunity.
Summary: The index was flat on the day. The uptrend from the October low remains intact with three higher lows keeping the trend in place. Earnings pushed the index back above support and offered some optimism to investors. The 4160 resistance was broken and needs to follow through for confirmation. Volume was below average on Monday showing a lack of participation. FOMC on Wednesday will come into focus. We will remain patient for now as data versus hope play out. 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 14 points to 12,212 as the index was down 0.11% for the day. The index held the moved to resistance at the 12,227 level. The bounce was positive and watching to see if the uptrend can gain momentum or if we retrace lower again. Technology is the key… SOXX posted another positive move on Monday.
NASDAQ 100 (QQQ) was down 0.11% with the mega caps resting on the day. The bounce pushed the sector above the $320.92 resistance point. The break needs to confirm the move. The sector had a positive bias with 50 of the 100 stocks closing in positive territory for the day. Added TQQQ entry $27.45.
Semiconductors (SOXX) Tested the $400 level of support and bounced with follow-through on Friday. Still trading below the 50-day MA. Added SOXL Friday on the confirmation. The sector was down 1.1% for the week. Watching how it plays out next week. Added to upside bounce.
Software (IGV) Tested to the $289 support level and bounced. Added IGV. The sector was down 1.4% for the week. Mega caps leading the sector.
Biotech (IBB) The sector tested back to the $128.35 level and bounced. The sector was down 2.2% for the week. Added IBB on the bounce at support.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. The bottom reversal offered an entry for an upside bounce. The sector was down 1.3% for the week. Letting it unfold.
Transports (IYT) negative earnings created a big test lower to support at the $213 level. Nice bounce on Friday and watching how it unfolds. The sector was down 2.6% for the week. If the markets are to move higher overall they need transport to be positive.
The Dollar (UUP) The dollar remains volatile as more countries are willing to trade outside the dollar. Held steady for the week… watching how it unfolds. The dollar was up 0.1% for the week. Solid bounce to start the week.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.45% down from 3.57% last week. Mixed reactions all week reacting to the news. TLT was up 1.9% for the week. Jumped to 3.57% ahead of the FOMC.
Crude oil (USO) Tough week for oil as news states China and US are consuming less on weaker economic data. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. Nice bounce on Friday to end the week. USO was down 1% for the week.
Gold (GLD) The commodity is showing a rolling top. The metal was up 0.3% for the week. Watching for upside to resume. Reacted to the dollar.
Put/Call ratio was 0.98 on Monday… back to neutral.
Questions to Ponder: Navigating Uncertainty
Stagflation – 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.
Money Supply – Falling at the fastest rate since 1930. M2 fell 2.2% in February and fell 2.4% in March… Contraction in supply should contract liquidity in the system and stifle inflation. Watch bank deposits they are still declining. See the above definition of stagflation… the pressure on the economy is building.
Semiconductors – China announced a national security review into US chipmaker – and one of three memory chip market leaders – Micron. MU fell on the news. This battle between the US and China over chips has been going on for some time… caught in the crossfire are South Korea and Taiwan.
FINAL NOTES:
Monday: Stocks were mostly flat on the day as investors were willing to wait and see relative to the Fed. ISM data was better but still contracting. Earnings still showing positive. VIX is falling showing a lack of angst from investors… are we lining up for the perfect storm? six of the eleven sectors closed higher on the day with below-average volume and a wait-and-see focus. We see opportunities setting up both on the downside and the upside on the charts. The key is to let it unfold and take the opportunities as they are presented. There are some positive setups for the broad indexes and larger sectors but we will need to see confirmation soon. That could be a challenge with the FOMC meeting Wednesday.
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. We have to remain focused on short-term trades until there is longer-term directional clarity. News is 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.
“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.