The markets were lower and traded in a tight range near the lows all day. Worries are back with bank failures, PACW bank worries, rate hikes and the Fed, Yellen and the debt ceiling, inflation data in the EU, economic data, and earnings all set the tone for the downside. Simply put the same old worries along with some new ones sent stocks lower for the third day. The day of reconning is coming relative to the fight against inflation. Digging further into the comments from Powell and other Fed Presidents you can see the angst the Fed is dealing with. FFRates are at 5-5.25% leaving little room for the Fed to continue hiking rates without breaking the system… banks, pensions, insurance companies, etc. Inflation is still almost 6%. The Fed needs a market correction soon in order to keep some semblance of control in the system. They are walking a tightrope and it is getting slippery. Thus, investors are showing some signs of understanding the current dynamics in play. Bank stocks fell another 5.3% on the day. There is plenty of more on the ropes and the “secure and safe” system is being challenged as JP Morgan gets bigger… again. Anxiety has risen the last three days with the VIX rising back over 20. Economic data was of interest with the Unit Labor Cost rising 6.3% versus 3.3% previous and 3.9% expected… wage inflation? Jobless Claims were 242k versus 230k prior and continuing claims dropped to 1.805 million from 1.843 million prior. Apple beat earnings after hours and watching to see if that impacts the mega-cap tech sector.
The S&P 500 moved below 4086 support at the close… 4048 is the next level of support. QQQ moved below the 10-day MA $317.29 and needs to hold $312.78 support. The NASDAQ composite index support is 11,800. It was an interesting day that could have been worse. Nine of the eleven sectors closed in negative territory. The S&P 500 index closed down 0.7%. The NASDAQ was down 0.5% with SOXX down 0.5%. Small Caps (Russell 2000) were down 1.1% breaking lower. The ten-year treasury yield closed at 3.35% down 5 bps showing some flight to safety this week. Crude (USO) was up 0.6%… economic strain putting pressure on prices. Gasoline (UGA) was up 0.6%. Natural gas (UNG) was down 3.1% as volatility remains. The dollar was up 0.1% and struggling globally. We are focused on managing the risk and watching how this all unfolds.
NEWS: US Banking Crisis Growing… Read this article
ONE Chart to Watch: QQQ – 1) Moved back below the $320.92 resistance and negated the upside break. 2) Short-term trend is UP… starting from the January low. 3) Uptrend line in play with the $312.78 level to hold for support currently. 4) Negated the breakout from Friday. 5) Note the declining trend in volume since the March lows… money supply same thing, not a confidence builder for the uptrend.
Additional Charts to Watch: SPY – broke support at $407.19 & trendline from the March lows. IWM – retested the previous lows. SOXX – retesting last week’s lows. USO – oversold… bounce on the horizon?
Leadership – NASDAQ, NASDAQ 100, SP500, Dow… All moved lower on Wednesday after a move near the recovery highs of February. The major indexes are led by the mega caps and watching how they respond to the selling following the FOMC decision.
Laggards – SOXX, SP400, RUTX… struggling despite the bounce at the end of last week. The growth stocks are still not showing the needed leadership if the markets are to run higher. IWM fell 2% on Tuesday… bounced 0.4% on Wednesday, fell Thursday 1.1%. Important to note the move lower in XLE down 7.1% last three days as the sector saw money flow drop.
Interesting Charts: ARKK (bottom reversal). SIL (bottom reversal). EMTY (breakout confirmation). BNKD (running higher… look for test and entry near $15.25).
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.
Stops Hit: None
Quote of the Day: “The scientific theory I like best is that the rings of Saturn are composed entirely of lost airline luggage.” – Mark Russell.
The S&P 500 index closed down 29 points to 4061 the index was down 0.7% with above-average volume on the day. The index moved the 4086 support. Indecision remains in play as volatility moved higher. Two of the eleven sectors closed higher on the day with REITs as the leader up 0.8%. The worst performer of the day was telecom down 1.7%. The VIX index closed at 20.1 for the first time since March 28th… anxiety jumped on the uncertainty of banks and the Fed. Please note that the chart has the micro up trendline from the March lows… 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. Downtrend from the January highs in play.
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. Tested $67.95 support.
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. Back below $21.63 support.
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. Reversal? Broke the 10-day MA.
XLI – Industrials moving sideways with some volatility showing on the chart. The sector was down 0.6% for the week. Consolidation pattern.
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. Consolidation pattern.
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. Short-side trade entry hit $82.70 ERY. Added to the move lower.
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. In a trading range.
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. Moved below $32.33 support as banks fall more than 6% again.
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. Consolidation pattern.
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 lower on the day and broke support at the 4086 level… watching to see if can recover or does it break lower. 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 down 59 points to 11,966 as the index was down 0.49% for the day. The index failed to hold the move higher moving below the 10-Day MA. 11,800 is the level of support to hold. Technology is the key… SOXX equally gave up the positive move on Monday.
NASDAQ 100 (QQQ) was down 0.35% with the mega caps struggling on the day. The support is now $312.78 and watching as we remain in a trading range. The sector had a negative bias with 39 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. Moved up to the 50-day MA and reversed.
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. Moved down to the 50-day MA and broke lower.
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. Consolidation pattern.
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. Negative falling back to support at $169.89… decision time.
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. Attempted to break higher?
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. Lower the last few days.
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% Monday and fell to 3.42% on Tuesday… 3.4% on the FOMC decision… 3.35% showing flight to safety.
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. Big dump lower of 10%. Modest bounce on Thursday… Simply put the data shows slowing economic activity in China and the US… not good for consumption looking forward.
Gold (GLD) The commodity is showing a rolling top. The metal was up 0.3% for the week. Watching for the upside to resume. Bounced in response to the worries hitting new high.
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.
Thursday: Stocks were lower on the day as worries rise relative to headlines, not the least of which is the FOMC decision on the FFRate to 5-5.25% and new bank failures. The VIX rose above 20 for the first time in five weeks. Two of the eleven sectors closed higher on the day with above-average volume and selling following the meeting. PACW bank is in trouble and looking for someone to acquire them fell 50%… KRE is down 17% in four days. The financial networks are trying to tell everyone not to panic… “pay no attention to the man behind the curtain.” There will be opportunity after the banking fire burns out… but, standing there trying to have a wiener roast isn’t exactly a good idea. 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. 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.