The week started with issues in the banking sector tanking stocks… then a rally off the lows as things seem to be okay on the surface… Wednesday was doing nicely until Credit Suisse bank needed money. Thursday brought brighter days for stocks as investors push money into large-cap tech stocks. Why the rush to buy? $54 billion to Suisse Bank, $30 billion to First Republic. Calming presser from the banks lending the money stating the banking system is fine. ECB raises interest rates 50 bps and all is well in the world of finance. Economic data has been lost in the news that is more interesting like banks failing, but the housing starts were better than expected at 1.45 million versus 1.32 million previously. Permits were up to 1.52 million from 1.34 million previously. Initial jobless claims fell to 192k versus 212k previously. Philly Fed manufacturing came in at an ugly -23.2 versus -24.3 previously showing little improvement in the region. KBE was 3% attempting to put in a bottom for bank stocks. The challenge from my perspective is the crisis may have been everted for now, but you have to believe there is more to come. Whatever the reality we as investors have to manage what we know and deal with the reality as it unfolds. The markets bounced on Thursday and its expiration Friday and we could see some rebalancing of the risk that is heading into the FOMC meeting next week. The volatility index fell to 23% on the day showing a significant turn lower on the news. Money flow ticked up to 34.7 on the S&P 500 index which also closed higher at 3960 and back above the 3930 previous support level. The NASDAQ was up leading the day as well. How this unfolds going forward will be of interest as we manage our positions accordingly. No matter what our beliefs the chart is the ultimate decision maker.
Plenty of questions remain about the current market environment. The VIX closed lower with the bailout money easing some anxiety near term. The S&P 500 index closed up 1.7% for the day. The NASDAQ was up 2.5%. Small Caps (Russell 2000) were up 1.3%. A shift in momentum put plenty of question marks relative to the direction and opportunities. The ten-year treasury yield closed at 3.58% up 9 bps for the day with plenty of intraday volatility. Money flow into bonds slowed with some money see opportunity in the technology sector. Watching how this storyline unfolds. Crude (USO) was flat on the day after breaking lower from the trading range. $65.70 is the key level of support for crude. Gasoline (UGA) was up 1.3%. Natural gas (UNG) was up 3% and remains volatile day to day. The dollar was down 0.1% holding the near-term uptrend. We are focused on managing the risk and watching how this all unfolds. The negative sentiment shifted for stocks as investors put some money to work… patience is the key.
Charts to Watch: QQQ follows through upside along with SOXX. KBE money flow. PANW (cup and handle pattern). GDX (bottom reversal). IGV (leader in tech). SWKS (breakout).
Credit default swaps didn’t dive lower on the bailouts… US sovereign reached a new record high even with the bailouts… immediate panic was averted… but is the smart money betting the banking issues aren’t over? Interesting question… my bet is no. In the words of Winston Churchill, “Never let a good crisis go to waste.”
Previous Charts of Interest Still in Play: LSCC (testing uptrend). Added uptrend in play. SOXX (upside follow-through) Added. AAPL (reversal confirmed) Added. TSLA (185 puts on the break of support). Added. XRT (Apr 06 65 put). Added. Thursday sold half. TMF (interest rates reversal on fear). Added. Thursday sold half. TZA (IWM broke support from consolidation pattern). Added. AMZN (bottom reversal) Added.
Stops Hit: SPXS
Quote of the Day: “I must say I find television very educational. The minute somebody turns it on, I go into the library and read a good book.” – Groucho Marx
The S&P 500 index closed up 68.3 points to 3960 the index was up 1.76% with the above-average volume on the selling. Markets reacted to the news as bank failure eased by money. Eleven of the eleven sectors closed higher on the day with technology as the leader up 2.8%. The worst performer of the day was REITs up 0.02%. The VIX index closed at 23 as anxiety moves lower on all the headlines. The bounce eased anxiety for now and watching how this unfolds.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials Moved to the 200 DMA. Support at $77.25. The sector was down 7.6% for the week. Moved below the January lows… bounced back.
XLU – Utilities remain in the down-trending channel… moved to the bottom end of the channel. The sector was down 2.7% for the week. Bottom reversal in play. $68 resistance.
IYZ – Telecom broke the head and shoulder pattern on the chart to the downside… broke below the trendline off the October lows… broke $22.35 support. The sector was down 4.1% for the week. Bottoming?
XLP – Consumer Staples downtrend from the December highs remains in play. The sector was down 1.9% for the week. Downside remains in play.
XLI – Industrials Sideways trend favoring the downside. The sector was down 4.5% for the week. Moved to $99 support. Broke support on the downside acceleration. bounced on Thursday.
XLV – Healthcare downtrend in play with a break below the $127.50 mark accelerating the move. Nearing the October lows. The sector was down 3.8% for the week. $127.50 level to clear upside.
XLE – Energy tested support at $82.74 and watching how it unfolds. The sector was down 5.3% for the week. Watching for downside trade if breaks support. Bottom fell out as crude drops. Modest bounce Thursday not convincing.
XLK – Technology The sector moved to support at $135.30. Maintaining leadership but struggled of late. The sector was down 3.1% for the week. Watching for direction and opportunity near term. Trading range in play. $143.50 level to clear.
XLF – Financials not the kind of week anyone expected with the failure of SIVB bank. Downtrend accelerated on the news and watching how this unfolds. The sector was down 8.5% for the week. KBE puts in play. FAZ in play. “banked half of gains”.
XLY – Consumer Discretionary rolling top broke to the downside and accelerated. $141.60 level of support broken. The sector was down 5.5% for the week. Bottom reversal?
IYR – REITs $82.96 support was broken on Friday. The sector was down 7% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Short-side trade opportunity. SRS entry $17.95. Downtrend in play.
Trouble is building in commercial office space as the return to the office efforts aren’t working. The headlines are steadily showing the fight between corporations and employees. Amazon is the latest showing 1/2 are willing or want to return to the office for the three days a week proposed. This is impacting commercial property owners as mortgage payments are being delayed more than two months. Banks raised their reserves in January and are likely to increase more in February. With that in mind IYR and REM bounced off the October lows but may retest those lows or beyond based on future defaults. Worth watching the downside risk with SRS.
Summary: The index remains volatile on the uncertainty surrounding… everything. The Credit Suisse bailout helped. Republic bailout helped. Money flowed into technology as expected with the too-big-to-fail money pushing in the NASDAQ 100 largest stocks. The unknown is always the deepest threat to the investor psyche. It is a news-driven market and the headlines are driving for now. The Fed focus isn’t gone just on the back burner while we deal with the liquidity issues that could be very well Fed-induced. The charts are a mess for the last few weeks with indecision and increased volatility. Support is 3804 and the bounce back above 3930 is what we are watching on Friday. Interest rates moved to 3.58% on bank bailouts. Seven of the sectors have established a short-term downtrend… watching how they respond moving forward. Some bounced on Thursday… watching for follow-through. We will remain patient for now as investors sort out their collective thoughts about what is fear and what is real. We continue to manage our positions accordingly. Taking exits as necessary and adding where opportunities arise. 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 283.2 points to 11,717 as the index was up 1.76% for the day. The 10,941 support held and the index moved back above the 11,474 previous support. Money flow remains below 50 with all the news and speculation creating uncertainty around the markets. Technology and semiconductors are the keys… SOXX held up well in the face of the selling and bounced nicely on Thursday to lead tech. Watching how this unfolds inching forward.
NASDAQ 100 (QQQ) was up 2.64% with the mega caps moving back above $303 previous support. The sector had a positive bias with 86 of the 100 stocks closing in positive territory for the day. Watching how negative sentiment plays out near term.
Semiconductors (SOXX) trend turned down breaking support but held and attempted to move higher again, but failed again. $402.60 is the level to hold near term. The sector was down 3.5% for the week. Looking for clarity in direction but it did hold up well in the face of selling. Moving sideways in all the news. Leader on Thursday up 4%.
Software (IGV) bounced at $276.50 support. Failed Friday to hold the move. The sector was down 5.6% for the week. Watching how it unfolds next week. Bounced off the lows and posted a solid move on Thursday.
AI stocks are heating up as companies race to launch new products amid the ChatGPT AI phenomenon. Here is a list to watch and trade the existing opportunities as they present themselves… NVDA, ANET, GTLB, META, BIDU, SPT, CXM, TIXT, STX, MSFT.
Biotech (IBB) The sector bounced at the 200 DMA and moved above $128.35 but the move failed offering downside trade at $126. The sector was down 6.5% for the week. LABD entry $18.26. Found support and watching.
MRNA – Moderna cancer vaccine results could drive the company higher longer term. Despite the tough week for the stock, it is worth keeping on our watch list. Entry $142. Finding support… added small position.
Small-Cap Index (IWM) downtrend accelerated to end the week. The sector was down 8% for the week. Money flow turned negative. Entry TZA $29.20. Trying to hold the January lows with a bounce.
Transports (IYT) broke the uptrend line from the October lows but held the 200 DMA. Trying to hold the $224 support level. The sector was down 5% for the week. Testing the January lows and bounced.
The Dollar (UUP) The dollar was choppy all week on the back-and-forth talk about the Fed and interest rates. The dollar was up 0.1% for the week. The outlook shifted on Friday with the jobs report and bank failures… watching next week’s activity. Big bounce on Wednesday.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.69 down from 3.96% last week. Big shift on Friday as the fear of the bank fallout impacts investors’ risk tolerance. TLT was up 3.6% for the week. Entry TLT $102.90. Yields fall to 3.49% and bounced to 3.58… volatility for all.
Crude oil (USO) trading range on the chart with oil headed back towards the bottom end of the range. Economic speculation is impacting supply-demand globally. USO was down 3.9% for the week. The weekly chart shows the downtrend building in crude. Tanks on fear globally of economic downturn. Held the lows on Thursday and bounced back to even.
Gold (GLD) The commodity bounced this week as the dollar waffled. The metal was up 0.8% for the week. Held support at $168 and posted a solid reversal. Entry $169.50. Fear benefactor. Raised stop.
Put/Call ratio was 0.98 Thursday… Turned neutral. Expiration Friday.
Questions to Ponder: Navigating Uncertainty
Retail sector (XRT) is lagging of late… but the White House says the economy is strong. Scanning the stocks shows WMT, TGT, JWN, KSS, M, etc are all slowing of late. Watching how this unfolds moving forward. Short side has played out well.
Adding to the speculation about the Fed doing the dirty work, JP Morgan is of the opinion with increased 0DTE options (zero days to expiration) trading daily it could send the market down as much as 25% intraday. Reuters posted an article on the impact on Monday. The daily dollar value is now up to $1 trillion per day. One thing is certain… the markets are never dull.
Thursday: Stocks turn volatile on speculation around banks… bailout Thursday helped investor psyche for now. The flight to safety calmed with money flowing into large-cap technology stocks… volatility eased on Thursday but this is not over. Inflation expectations were in line with CPI and PPI helping ease some of the anxiety about the Fed. FOMC is up next week to add to the fun. The question is how much of the problem in banks is being caused by the Fed? My view of course enough. Did the Fed put pressure on the larger banks to help bail out Republic? The line between the banks, the Treasury, and the Fed are very blurred. Remember if the Fed is providing liquidity it is taking more onto its balance sheet which is the opposite of what it wants to do. It is one big tangled mess. We have discussed the M2 issue for the Fed relative to money supply… did it go too fast? Were the banks ready for the withdrawal of liquidity? Plenty of questions… few answers.
Hope is back as fear subsided at least on Thursday. It remains a balancing act between hope and fear. We look to the charts to provide the next direction near term… Seven of the eleven sectors have created short-term downtrends on the charts. Several bounced on Thursday… do they reverse? Follow the leaders and let it unfold. Technology held up well in the face of the current dilemma and showed solid leadership on Thursday led by SOXX. Treasury bonds have risen on the flight to safety. If that eases, watch for money to flow out of bonds… ie. downside plays. Eyes open. Emotions removed. Interest rates are at 3.58% rising 9 bps on the shift in sentiment around the banks… watching. It is a time for patience as the storylines unfold and the direction is determined. The money supply has turned lower showing more money on the sidelines (flight to safety?). Don’t assume anything and manage the risk that is. Watch for the volume, direction, sentiment, and volatility levels to lead you to what takes place. There are plenty of moving parts, we have to understand that truth/reality eventually plays out in the markets. Until then we will continue to take what is offered and manage the risk that is.
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. Recession talks are trickling back into the headlines. Market correction headlines are growing in numbers. But, we have to remain focused on short-term trades until there is longer-term directional clarity. The charts are showing a short-term trend reversal from the upside. 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 the risk.
“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.