Bottom falls out as the sellers take control

The market key support of 4086 gave way to the sellers with the S&P 500 index closing at 3997 on Tuesday. After a long weekend to contemplate investors decided it was time to head to the sidelines. The fear of rising rates from the Fed based on the latest economic data weighed on investors and the selling started from the open and closed at the lows of the day. Short signals were offered and stops were hit based on the activity of the day. Volume has been below average and the money supply turned lower again on Tuesday. What changed? Essentially the data… the thing that doesn’t matter until it does. Investors are trying to determine what the data means to the Fed and in turn to stocks. This is a speculation game at its best and void of any additional data from the Fed investors headed for the sidelines. The Fed presidents speaking in the media continued with the possible need to move 50 bps at the next FOMC meeting versus the expected 25 bps. That just adds to the anxiety and uncertainty. The S&P 500 index started the day with a gap lower and closed at the lows of the day. The data isn’t as good as the headlines want us to believe and that is where the challenge comes for the Fed…. do they follow what they know to be true or the headlines? The propaganda house, alias the White House, wants us to believe all is well. The S&P 500 index closed below the 4086 key level at 4078 Friday setting up the short side trade… it confirmed the break lower on Tuesday and we look for the index to retrace further. 3930 would be the next potential support. The NASDAQ shows a consolidation pattern breaking lower as well with 11,474 as the key support level. The downside break low ended any hope of holding the consolidation patterns and now invites the short sellers into the game. The leaders broke support as we look at how this next leg unfolds. Entered short-side trades. Hit stops on most positions.

The volume remains below average giving some questions about the current market environment, the VIX closed at 22.8 and offered entry on UVXY. The S&P 500 index closed down 2% for the day. The NASDAQ was down 2.5%. Small Caps (Russell 2000) were down 2.9%. The leadership in technology and consumer stocks broke lower on the day and offered short-side entry points. The ten-year treasury yield closed at 3.95% down 13 bps for the day. Bonds are pricing in the Fed and future rate hikes. TLT broke the trendline from the November lows and offered a short entry signal (TMV) last week and that is playing out nicely. Crude (USO) was down 0.5% as uncertainty remains. Gasoline (UGA) was up 0.3% and testing the 50 DMA. Natural gas (UNG) was down 7% and breaking below the April 2021 lows. The dollar was up modestly 0.3% on the day maintaining the bottom reversal and showing belief the Fed will continue hiking rates. We are focused on managing the risk and watching how this all unfolds.

NOTE: FOMC minutes released on Wednesday at 2 pm… based on currently activity and speculation around the Fed… these will have an impact on afternoon trading.

Things to Watch This Week: 1) Flash PMI US Services (50.5 versus 46.8 returns to expansion as a surprise to investors). Flash PMI US Manufacturing (47.8 versus 46.9 improves but still shows contraction). Existing Home Sales Jan (4 million versus 4.03 million. 4.02 million expected). 2) FOMC minutes on Wednesday. 3) GDP 4th quarter released on Thursday. 4) Consumer spending, Personal Income, Core PCE, New Home Sales, and Consumer Sentiment on Friday.

Key Data: 1) New York Fed inflation expectation (5% versus 5% previous). 2) Wholesale Inventories (0.1% versus 0.1% previous. 0.1% expected). Consumer Credit ($12 billion versus $28 billion previous. $27 billion expected). 3) Jobless Claims (196k versus 183k previous. 192k expected). Continuing Claims (1.69 million versus 1.65 million previous). 4) University of Michigan Consumer Sentiment Index (66.4 versus 64.9 previous. 65.1 expected). 5) Powell speaks on Tuesday… all ears want to hear if he has truly changed his tone inflation. Powell in his comments did seem confident that inflation is declining and we are on the path to a soft landing… markets liked what he had to say… if he truly believes that, equities will rally in response… until which time earnings fall based on slower growth. He didn’t address the growth side of the equation, but he did elude to disinflation as part of the process. Remember, don’t fight the Fed.

Charts to Watch: SPY, QQQ, SOXX, IMW follow through on selling.

Tuesday: NASDAQ Index breakout from the flag pattern… needs to follow through and SOXX and IGV will be key components of that happening. Short side trades were offered on Tuesday in each component.

Previous Charts of Interest Still in Play: TMV @ 200 DMA (hit entry and moved higher ). NAT (double bottom breakout and moved to resistance… took 2/3 of position and profits). TMV (cup pattern followed through upside. Added to position). ITA (Breakout and follow through). DBA (breakout ‘V’ bottom)


Quote of the Day: “Politics have no relation to morals.” – Niccolo Machiavelli

The S&P 500 index closed down 81.7 points to 3997 the index was down 2% with below-average volume. The index moved below the 4086 level Friday and confirmed the downside break on Tuesday. None of the eleven sectors closed higher on the day with consumer staples as the leader down 0.4%. The worst performer of the day was consumer discretionary down 3.3%. The VIX index closed at 22.8 as anxiety jumped on the day with Fed speculation the cause. Downside in play and watching how this unfolds.

Sector Rotation and the S&P 500 Index:

XLB – Basic Materials broke the uptrend line from the October lows… negative. Closed below the 50 DMA and established a lower low. The sector was down 0.9% for the week. Hit stop locked in a nice gain. Watching how it unfolds near term. Broke support offers short-side trade.

XLU – Utilities closed at the top of the down-trending channel… looking for a break higher. Close above $68 a positive to end the week. The sector was up 1.1% for the week.

IYZ – Telecom moved up for the week closing at the 200 DMA. The uptrend from the October lower remains in play. The sector was up 3% for the week. Watching how it unfolds. Tested to the 50 DMA.

XLP – Consumer Staples downtrend from the December highs remains in play. The sector was up 1% for the week. Letting it play out and looking for a break above the trendline. Consolidation pattern.

XLI – Industrials moved back to the previous highs and attempted to break higher but moving sideways for now. The sector was up 0.9% for the week. Need to hold above $102.50. Tested to the 50 DMA.

XLV – Healthcare Struggling to find direction $131.40 support is level to hold. Down trending channel on the chart. The sector was down 0.4% for the week.

XLE – Energy gapped lower to end the week. Broke both intermediate and short-term trendlines. The sector was down 6.3% for the week. Short entry signal in play ERY, SCO, KOLD. $83.50 level to hold for support.

XLK – Technology The sector moved into a trading range and tested the lower end on Friday. Closed below the 10 DMA which has essentially been the trendline This is the key component in the current trend off the previous lows. The sector was down 0.4% for the week. Entry at $127.50. $141.75 hit stop and locked in gains. Broke support at $138.92. $136 level to hold.

XLF – Financials testing the trendline from the October lows. The sector was down 0.2% for the week. Entry $34.50 Stop $35.80. Watching interest rates and impact near term. Broke $35.80 support and uptrend line from October lows. Hit stops.

XLY – Consumer Discretionary moved from an uptrend to a consolidation pattern. $147.10 level to hold near term. The sector was up 1.6% for the week. Entry $132. Took some profit (1/2) and letting it play out. Broke $147.10 support and hit stops on the balance of position.

CCL breakout and test of support ($11) offered trade opportunity. $11.50 entry Tuesday.

WMT double bottom breakout. $145 entry. Tested.

IYR – REITs uptrend remains from the October lows. The sector was down 0.8% for the week. $90.47 is the level to hold near term. Broke support, trendline is in play.

Trouble is building in commercial office space as a 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 in an uptrend from the October lows. It broke the short-term trendline from the January test. The 50 DMA is the next level to watch. Moved below the 4086 level Friday and confirmed the break lower on Tuesday. Fed is in play and the FOMC minutes are on tap Wednesday afternoon. We will remain patient for now as investors sort out their collective thoughts about the Fed and inflation. We hit stops, held on some positions, added some short-side trades, and raised stops on existing short-side trades. 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.)


The NASDAQ index closed down 294.9 points to 11,492 as the index was down 2.5% for the day. The 11,474 is still in play, barely. Money flow has turned negative with all the news and speculation creating indecision. Technology and semiconductors are the keys…. both broke near-term support and watching how that unfolds. Short-side entries were added with DXD, SOXS, and TECS.

NASDAQ 100 (QQQ) was down 2.37% with the mega caps back below the $303 level of support and confirmed the break lower on Tuesday. The sector had a negative bias with 4 of the 100 stocks closing in positive territory for the day. The chart trend broke lower from the consolidation pattern and confirmed the move… the question is will it resume the uptrend or continue lower? Added SQQQ.

Semiconductors (SOXX) trend turned sideways and testing support. The sector was down 1.5% for the week. $432.27 resistance held. Entry $355/adjusted stop. Took some gains (1/2) – Hit Stop on balance. NVDA entry $171.95. Stop $211.50. Took some gains (1/2) – Hit stop on balance. AVGO (cup & handle/adjusted stop) entry $559.10. Took some gains (1/2) – hit stop on balance. RMBS (broke above previous highs/adjusted stop/ took gains on 1/2) – hit stop on balance. SWKS solid break higher/hit stop locked in gains). Managing the risk. Pennant pattern on the chart looking for direction near term. Taking some profits and watching. Confirmed the break lower. Hit stops on the balance of positions. $390.40 level to watch near term.

Software (IGV) Uptrend moving sideways and consolidating. The sector was down 1.1% for the week. Target is the August highs. $275 entry (sold 1/2) – hit stop on the balance. Volatility is in play as the sector test moves sideways. Confirmed the downside move… watching.

Biotech (IBB) The sector remains in a trading range with a double-top pattern. The sector was up 0.7% for the week. $128.35 level to hold as moves back to the bottom of the trading range.

Small-Cap Index (IWM) uptrend into a pennant pattern. Indecision on the chart short term. The sector was up 1.5% for the week. Money flow turned negative. Breaks lower for the wedge pattern on above-average volume hitting stops.

Transports (IYT) uptrend from the October low remains in play with plenty of volatility along the way. Trying to hold the $234 support level. The sector was down 0.1% for the week. Broke support and sitting on the uptrend line from October.

Nordic American Tank Shipping (NAT) double bottom breakout ($3.25) and follow through. $3.40 entry. Moved to resistance at $3.76 took 2/3 position off and banked the profits.

The Dollar (UUP) The dollar moved lower on the FOMC announcement but bounced as economic data may keep the Fed in play relative to interest rates. The dollar was up 0.4% for the week. The outlook remains negative longer term. Fed-driven for now.

GBTC – Grayscale Bitcoin Trust is trading at a 47% discount to the underlying asset. Something to watch moving forward. The chart is testing the rise off the January lows… watching how the news of higher regulations will impact prices going forward. Hit Entry $10.60. Solid upside move adjusted the stop. Held up on Tuesday.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.82% up from 3.74% last week. The yields reversed the downtrend following the FOMC announcement. TLT was down 1% for the week. Added TMV $112.50. Raised stop. Double bottom breakout on yields? TLT $99.60 level to hold.

Crude oil (USO) trading range on the chart with a gap lower on Friday. Economic speculation is impacting supply-demand speculation globally. USO was down 4.1% for the week. The weekly chart shows the downtrend building in crude. A break of support sets up short-side trade. Remained in the trading range.

Gold (GLD) The commodity shifted lower with the bounce in the dollar. The metal was down 1.2% for the week. Watching for support at $170.50.

Put/Call ratio was 0.98 on Tuesday… Neutral bias despite selling on the day.

Questions to Ponder: Navigating Uncertainty

Speculation/Conspiracy Theory: The Fed is in the position of getting the market to do the dirty work for it. If the market drops 20-30% and crashes liquidity for the average American… they, the average Joe, cut spending out of fear. That allows the Fed to not raise rates above the 6% level by allowing the markets to accomplish the feat while they, in the background, dry up the money supply exacerbating the process. The market would crush inflation and throw the economy into a full-blown recession. Which in turn could and would destroy the middle class. This will all be done for the need to preserve the American way… printing money and raising debt levels while the government gains more control and take more of the freedom our forefathers fought for.

Consumer credit was up $394 billion. That is the biggest gain in 20 years, to a record $16.9 trillion. That is up $2.75 trillion from 2020. Mortgage balances were up $254 billion in Q4 2022 and up 1 trillion for 2022. Home equity credit lines were up $14 billion to $340 billion. Student loans outstanding up $21B to $1.60 trillion. Auto loan balances up $28 Q4 2022. Delinquency rates for mortgages 90 days late +0.57% (2x from 2021). Auto loans +0.6%. Credit card +0.8% (to 4%). Substantial rises across the board from Q4 2021. Younger age groups are having particular trouble with their revolving debt. Credit card balances up $61 billion to $986 billion, surpassing the pre-covid high of $927 billion.

64% of all Americans are living paycheck to paycheck.


Tuesday: Stocks were lower on the day and ended down 2% on the S&P 500 index. The debate about interest rates, inflation, the Fed, economic data, consumer, and just about everything else is impacting the outlook for stocks. With all the uncertainty surrounding the future stocks have turned down with volatility picking up and money flow declining. The appearance is plenty of money heading to the sidelines and waiting for some clarity. The indexes all broke key first levels of support… The confirmation of the downside break on Friday is a negative sign for the markets overall and watching how investors respond to the drop. FOMC minutes on tap Wednesday afternoon. I am sure there will be plenty of speculation before and after. The belief of ‘disinflation’ thanks to Mr. Powell is being challenged by the data and investors have lost faith in the belief. Data continues to lean towards the Fed taking further action. We will watch patiently and manage our money accordingly. We took some profits, hit stops, raised stops, and added some short positions. Taking what is offered and managing the risk.

Hope is a beautiful thing… but, as we say many times, the data doesn’t matter until it does. That is where we find ourselves currently. We traded the hope in the move higher. We have banked gains and hit stops and managed a solid profit over the last five weeks. We have added new positions both short and long over the last two weeks. We look to the charts to provide the next direction near term… which is currently moved to a negative bias. It remains a news-driven market and thus offers shorter-term opportunities. We will manage our risk of hope giving way to reality along the way. Eyes open. Emotions removed. Mixed economic data has caught the attention of the talking heads only from the perspective that it goes against the FOMC message. Watching how that twist turns out near term. We are a far way from seeing growth… my opinion, but we trade what the market gives not what we think. Yes, we have thoughts and beliefs, but we will always follow the trend on the charts and never fight the Fed. The dollar turned higher on Fed worries. Interest rates are at 3.95% on the ten-year bond up from 3.4% two weeks ago reflecting Fed worries. I state this so we understand it is the data that ultimately determines the direction of stocks and the Fed is currently in play. The leaders took a turn down on Friday and confirmed the breaks on Tuesday. Energy turned negative with a gap lower. Volatility closed at 22.8 and gapped higher on fear of the Fed. The money supply has turned lower showing more money on the sidelines. Stay focused and follow the money. Follow the Fed. 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. We remain focused on short-term trades until there is directional clarity. The charts are showing a short-term trend reversal from the upside… technology and consumer discretionary have led the move and tested key support to end the week. 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.

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