Apple and Banks Lead the Day

The markets were happy on Friday as Apple earnings data along with a different view of banks helped the indexes close higher. Both PACW and WAL bank worries saw some short covering to help the psyche at least for the day. KRE was up 6% as well. Earnings outlook from Apple was equally positive and as they say, everything seemed right with the world. All of the worries that have plagued the markets and the headlines all week seemed to be okay… but they are not and the outlook hasn’t changed, it was just a day to celebrate a breath of positive air. If you are Mr. Powell or Ms. Yellen you have to wonder what it will take for the exuberance in the markets to dissipate. The challenge of inflation remains… the jobs report was better than expected with 253K new jobs versus 165K previous, and 236K expected. Hourly wages were up 0.5% versus 0.3% previous. Consumer Credit jumped 26.5 billion versus $15.3 billion last month. The data keeps pointing to a resilient consumer and economic picture. Supposedly the White House is now considering a debt ceiling extension to negotiate more time for a deal in Congress. It was a day where everything seems good for all. We will take what is offered and manage our money accordingly, but we also tend to live in a realistic world when it comes to the risk of the markets.

The S&P 500 moved back above the 4086 support and closed higher on the day. QQQ moved above the $320.92 resistance to close at a new high. The NASDAQ composite index close at the resistance of 12,246. It was an interesting day that seemed like a fairy tale after the first four days of the week. Eleven of the eleven sectors closed in positive territory. The S&P 500 index closed up 1.8%. The NASDAQ was up 2.2% with SOXX up 2.1%. Small Caps (Russell 2000) were up 2.4% bouncing off support. The ten-year treasury yield closed at 3.44% up 9 bps on the jobs report. Crude (USO) was up 3.8%… positive news creates optimism about the negative economic picture. Gasoline (UGA) was up 4.8%. Natural gas (UNG) was up 1.4% as volatility remains. The dollar was down 0.1% and struggling globally. We are focused on managing the risk and watching how this all unfolds.

ONE Chart to Watch: QQQ – 1) Moved back above the $320.92 resistance and renewed the upside break. 2) Short-term trend is UP… starting from the January low. 3) Uptrend line held along with the $312.78 support. 4) Solid bounce higher breaking upside. 5) Note the declining trend in volume since the March lows… money supply same thing, not a confidence builder for the uptrend. 6) Friday move has to follow through.

Additional Charts to Watch: SPY – reversed back above support at $407.19. Needs to follow through. IWM – retested the previous lows and bounced. SOXX – retesting last week’s lows and bounced. USO – oversold… bounced on Friday?

Leadership – NASDAQ, NASDAQ 100, SP500, DBP, Dow… All moved lower the first four days of the week… bounced back on Friday. They are now in the same spot as last Friday… need to follow through upside if the trend is to continue for the leaders.

Laggards – SOXX, SP400, RUTX, USO, XLF… struggling despite the bounce at the end of the week. The growth stocks are still not showing the needed leadership if the markets are to run higher. IWM fell 2.7% last four days then bounced 2.4% on Friday? Needs to improve if the overall trend is to develop. Energy fell 8.2% last four day and bounced 2.7% on Friday… plenty of work to be done.

Interesting Charts: EMTY (breakout confirmation). BNKD (running higher… look for test and entry near $15.25) got the test on Friday… watching Monday. BTAI (cup & handle breakout).

ON TAP THIS WEEK: 1) Debt Ceiling is one of the top issues as White House holds meeting… June 1st is the date Yellen gave for being broke. 2) CPI & PPI inflation data… not expecting big changes but any surprises will rock investor psyche. 3) Earnings from DIS, ABNB, RIVN, OXY… each have implications about the economic picture. 4) Consumer Sentiment will end the week. 5) Markets are at key resistance levels. We have been here twice before, do they break higher and continue the uptrend?

Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Earnings 5/4 after-hours beat estimates. Added 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. TSLS. Added. SPXL breakout. Added. SOXX reversal. Added. TQQQ breakout. Added. SRS Added. SJB Added. NUGT (cup & handle) Added. TGT (descending triangle short setup). Added. UGL (breaking higher from range). Added. LABU (break up from bottoming range). Added. ARKK (bottom reversal). Added. SIL (bottom reversal). Added.

Stops Hit: None

Quote of the Day: “Life is a zoo in a jungle.” – Peter De Vries.

The S&P 500 index closed up 75 points to 4136 the index was up 1.85% with average volume on the day. The index moved back above the 4086 support. 4173 is the next key resistance for the index. Four down days and one up… all is good right? Eleven of the eleven sectors closed higher on the day with energy as the leader up 2.7%. The worst performer of the day was telecom up 0.5%. The VIX index closed at 17.1 negating all the anxiety build-up for the week. The uptrend from the October low remains in play. Credit goes to AAPL for the rally from oversold conditions on Friday… 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. The downtrend from the January highs remains in play. The sector was down 1.2% for the week.

XLU – Utilities trading range developing on the chart with resistance at the 200-day MA. The sector was up 0.1% for the week. Entry $68. The downtrend is in play from the January highs.

IYZ – Telecom traded down to $21.63 support and watching again. The sector was down 4.2% for the week. The downtrend is in play from the January highs.

XLP – Consumer Staples upside trend continues as money continues to move toward the “safe” haven of defensive stocks. The sector was down 0.2% for the week. The trend is up from the March lows.

XLI – Industrials moving sideways with some volatility showing on the chart. The sector was down 0.3% for the week. Consolidation pattern.

XLV – Healthcare made a move through two resistance points. Topping pattern on the chart. The sector was down 0.1% for the week.

XLE – Energy broke the $82.74 support. The sector was down 5.7% for the week. The downtrend is in play from the November highs. Accelerated lower with crude on the week. Short-side trade entry hit $82.70 ERY.

XLK – Technology The sector remains in a trading range. Closed at the top of the range… need to clear $151.53. The sector was up 0.3% for the week. Need some leadership from the sector if markets are going higher.

XLF – Financials broke below the $32.36 level and bounced back… banks are still a challenge for the sector overall. The sector was down 2.5% for the week. The trend is down from the February highs.

XLY – Consumer Discretionary consolidation pattern in play on the chart. Retail is struggling as consumer debt rises to record levels. They learned from the government. The sector was down 0.4% for the week.

IYR – REITs remain in a trading range within the downtrend from the February highs. The sector was down 0.3% 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 higher on Friday and moved back above the 4086 level… all is well… right? The uptrend from the October low remains intact with three higher lows keeping the trend in place. Earnings pushed the index up and the Fed is getting the blame for the move lower… however, we have not reversed the trend… yet. We will remain patient for now as data versus hope plays 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 up 269 points to 12,235 as the index was up 2.25% for the day. The index moved back to resistance and looking for a follow-through if the uptrend is to resume. 11,800 is the level of support to hold. Technology is the key… SOXX still lagging.

NASDAQ 100 (QQQ) was up 2.05% with the mega caps leading on the day. Moved above the $320.92 resistance again… needs to follow through if the upside is to resume. The support is $312.78 and watching as we break from the trading range. The sector had a positive bias with 89 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 an upside on Friday. Still trading below the 50-day MA. Added SOXL $13.60. The sector was up 0.5% for the week. Watching how it plays out next week.

Software (IGV) Tested to the $289 support level and bounced Friday. Added IGV $291. The sector was down 1.1% 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 $129.50. Consolidation pattern in a downtrend.

Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. Established a bottoming range. The sector was down 0.3% for the week. Letting it unfold.

Transports (IYT) negative earnings created a big test lower to support at the $213 level. Established a trading range. The sector was up 0.5% 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 within the range for the week… watching how it unfolds. The dollar was down 0.3% for the week.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.44% down from 3.45% last week. Mixed reactions all week reacting to the news. TLT was down 1.5% for the week.

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 6.6% for the week.

Gold (GLD) The commodity is consolidating near the highs. The metal was up 1.3% for the week. Watching for the upside to resume.

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 SupplyFalling 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.

Banking Facts: 19 banks borrowed $32.6 billion last week. $360 billion of deposit outflows in the last three weeks alone. The Fed is giving just enough money through the BTFP (Bank Term Funding Program) facility to keep from a collapse but not enough to eliminate the pain. “Sound and resilient” are the words uttered by many… not even close.

FINAL NOTES:

Friday: Stocks were higher to end the week following four days of volatile selling. Overall the signals are mixed with the indexes attempting to resume the upside. Friday is likely a bounce from the selling and we would anticipate a return to the downside… the same issues are still present that started the selling. AAPL earnings and a made-up jobs report don’t change the outlook. There is plenty of work left to be done, not the least of which is a follow-through to the Friday activity. Eleven of the eleven sectors closed higher on the day with average volume. PACW bank bounced giving some hope to the banking sector. Apple earnings were positive. The jobs report was better than expected. All is good on Wall Street for the day. We see the overall trend is still up from the October lows. Testing is in play and we continue to 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. I am willing to be more patient than anxious currently as the trend unfolds.

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.

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