The major indices fell at least one percent on the day with the advance/decline line favoring the decliners 5 to 1 on the NYSE. Treasury yields were the rationale for the selling as the 10-year bond yield eclipsed 4.9%. That aside there was a great 20-year auction helping somewhat on the day, but geopolitical issues were back in the headlines not helping the cause throughout the day. The SP500 opened soft and sold slowly throughout the day. Nine sectors closed in the red with energy as the leader on the upside. Transports were a big drag on the day with UAL revising estimates lower on higher fuel and labor costs. JBHT missed earnings stating higher costs and they see a freight recession. As we have discussed several times of late there is uncertainty in the air and one thing markets don’t like is uncertainty. Economic data wasn’t great as Housing Starts were up 7% versus 7.8% expected and -12.5% previously. Housing Permits fell 4.4% versus -5.7% expected and -14% previously. The 30-year mortgage rose above 8% for the first time since 2000. The US veto of a UN cease-fire resolution sank any rally attempt in the afternoon… headlines are plentiful as the news was the greatest deterrent to stocks on the day. The volume was above average as stocks retreated on the day. A look at the charts shows a move back to near-term support. We are willing to take what the market gives both up and down. The indecision is keeping the indexes in check and volatility above average. Manage your risk accordingly.
Wednesday was a slow burn to the downside as investors tried to read below the headlines for the reality of data being released. The complexity of the outlook for global economics, domestic economics, and uncertainty are alive and well. Any momentum gained on Tuesday was given up on Wednesday. The S&P 500 index closed down 1.3%. The NASDAQ was down 1.6%. The SOXX was down 1.8%. Small Caps (Russell 2000) were down 2%. The ten-year treasury yield was 4.9% up 6 bps. Crude (USO) was up 1.3%. (UGA) was up 2.4%. Natural gas (UNG) was unchanged. The dollar was up 0.3%. We are focused on managing the risk in the current environment.
ONE Chart to Watch: QQQ – 1) Moved below the $366.14 level 2) The down trendline is in play from the July highs. 3) Patience as the consolidation pattern plays out.
* All Charts in the update are provided by TC2000
Quote of the Day: “People say nothing is impossible, but I do nothing every day.” – Winnie the Pooh.
Additional Charts To Watch
XRT – Retail showing a consolidation pattern at the near-term lows. Cleared $60.45 as an entry point and confirmed yesterday on solid upside. The Retail Sales data showed better than expected results… watching to see if it tests or runs higher. Tested on Wednesday.
Stops Hit: None
Sector Rotation And The S&P 500 Index
The S&P 500 index closed down 58 points to 4314 moving the index down 1.34% with above-average volume on the day. The index held above 4300 support and watching how Thursday unfolds. Two of the eleven sectors closed higher on the day with energy as the leader up 0.9%. The worst performer of the day was basic materials down 2.6%. The VIX index closed at 19.2 moving higher on the day as anxiety returned on the geopolitical front. The downside motion carried throughout the day as the headlines kept coming. Will the buyers follow through or do more testing? Plenty to ponder from the headlines and facts.
XLB – Basic Materials moved back to support at the $77 level. Consolidation pattern in place. The sector was up 0.4% for the week. No Positions. Bottom reversal… failed. Bottoming consolidation pattern moved to the previous low.
XLU – Utilities found support at the $56 level… bounced and faced some resistance at the $59.50 level. Watch for follow-through upside. The sector was up 3.5% for the week. Bottom reversal in play. Need to clear $59.85.
IYZ – Telecom reversed lower again test support at the $20.50 level. Remains in a downtrend. The sector was up 0.6% for the week. No Positions. Need to clear $21.30.
XLP – Consumer Staples Remains in a downtrend with a bear flag pattern on the chart. The sector was up 0.2% for the week. No Positions. Bottom reversal… back in play. Cleared $67.65 and looking for confirmation to the move.
XLI – Industrials downtrend remains in play but did find some support at $99. The bounce moved back below the $102.40 level and the 200-day MA. The sector was up 0.9% for the week. No Positions. Bottom reversal… tested. Broke below the $102.41 level on negative momentum… watching.
XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce and watch how it unfolds. The sector was up 0.1% for the week. No Positions. Need to clear $132. Reversed on Wednesday.
XLE – Energy gapped higher as the war in Gaza unfolds. letting the volatility settle, but expect the upside to resume. The sector was up 4.5% for the week after falling 5% last week. Entry $90.80. Stop $90. Bottom reversal… cleared $89.45… closed on doji candle Monday. Cleared $91 resistance on Tuesday. Followed through on Wednesday. Adjusted stop.
XLK – Technology The sector is in a bottom reversal pattern with a test of the move on Friday. The sector was up 0.2% for the week. Hit stops on some positions on Friday. Need some leadership here.
XLF – Financials bottom reversal pattern is in play with the sector up 0.5% for the week. Banks posted solid earnings to end the week. Need to clear $33.60. Bank earnings are solid, but not really helping the sector as interest rates jumped the last three days.
BAC – up on earnings… bottom reversal pattern worthy of watching near term.
XLY – Consumer Discretionary bottoming pattern on the chart with resistance at $163.10. The sector was down 1% for the week. No Positions. Bottoming consolidation pattern.
IYR – REITs found support at the $75 level and bounced slightly. Higher interest rate worries and downside talk on defaults rising in commercial real estate. The sector was up 1.7% for the week. No Positions. Bottoming pattern tests lower.
Summary: The index struggled to work through the earnings and economic data thus far. Some up and down activity in play resulting in plenty of consolidation patterns on the charts. Earnings kicked off with banks showing some positive results. The bounce-off support was tested, as the uncertainty returned. The talk about the year-end rally remains… but there are a lot of hurdles to jump to get there. The index moved to previous lows… tested and bounced and tested again and bounced and tested again… clearly consolidating. 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 219 points to 13,314 as the index was down 1.62% for the day. Intraday volatility in play and a lack of leadership from technology isn’t helping the cause. Closed lower and testing the 13,275 level of support. Back below the 50-day MA. The downtrend from the July highs is still in play.
NASDAQ 100 (QQQ) was down 1.31% for the day as the megacaps traded lower. After testing support, the sector bounced but it is testing again. Cleared $366.14 and gave it back on Wednesday. The sector had a negative bias for the day with 14 of the 100 stocks closing in positive territory for the day. Intraday volatility remains in play.
AAPL bottoming pattern reversal (added $174.35)… Tested.
AMZN found support and consolidation pattern needs to clear $131.86… (added $131.90) Tested.
GOOG moved above the 50-day MA (added $135.65)… Tested.
META consolidation pattern (added $307.50)… Tested
MSFT consolidating (added $320). Tested.
Semiconductors (SOXX) The sector closed above the $473 level of support after selling lower on Friday. The sector was down 0.7% for the week. Hit stops and let this unfold. Need some leadership here. Tested back below $473 support and doji candle left on the day.
Software (IGV) The sector moved above $345 resistance validating the bounce at support. The sector was up 0.1% for the week. Added IGV entry $340. Stop $349. Need some leadership here. Trading sideways for now.
Biotech (IBB) The sector remains in a downtrend with support at the $119 level. Looking for a follow-through upside. The sector was down 0.7% for the week. Consolidation pattern testing the lows.
Small-Cap Index (IWM) Found support bounced and retreated back to support. The sector was down 1.5% for the week. No Position. Growth outlook weighing on the sector. Nice upside Monday & Tuesday… lower again on Wednesday.
Transports (IYT) downtrend remains in play with a consolidation pattern emerging on the chart. Closed below the 200-day MA. The sector was down 1.3% for the week. No positions. Consolidation pattern breaks lower on UAL warning and JBHT missing earnings. The talk of recession from the trucking sector not helping along with higher fuel costs for the airlines.
The Dollar (UUP) The dollar bounced back from early week selling to close near the current highs. The dollar was up 0.6% for the week. No Positions. Challenges with the 10 and 30-year treasury auction bring more questions about the future of the buck. Consolidation near the highs.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.62% up from 4.78% last week. TLT was up 3.3% for the week. Watching how the Fed manages the yield curve. No Positions. Locked in solid gains on TMV. Back above the 4.9% mark… remember the 5% level is a big concern for the system to withstand eroding asset values.
Crude oil (USO) Crude sold lower on worries about consumption. OPEC and others saying lower production is needed… data versus vested interest is the challenge. USO was 6.5% for the week gapping on the Gaza war. Gapped higher on Friday. Watching for more upside… got some on Wednesday… EIA inventory showed a 4.3 million barrel drawdown versus the expected 400k build… trouble is brewing in the commodity.
The Hamas/Isreal war is adding to the speculation around oil prices and the alignment of countries in the Middle East. Iran called for an embargo on Israel over the war. Has my attention with the belief that oil will rise above the $100 mark moving forward. UCO entry $34.
Gold (GLD) The commodity accelerated higher this week on all the geopolitics in play. The metal was 5.3% for the week. Added positions at $172. Managing the risk. See notes below. broke to new highs.
Our longer-term view remains neutral as the upside trend from the October lows was broken. The short-term downtrend from the July highs is where our attention resides. If the longer-term trend is to resume the short-term downtrend needs to reverse… soon. Nothing, as we all know, goes straight down or up… there are always positive and negative swings in a longer-term trend. A look at the daily chart from the October lows validates exactly that premise with plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate limbo awaiting confirmation… the last ten weeks’ the micro-trend has offered short-term downside trades. The current bounce off the lows is being challenged by uncertainty in the economy and geopolitics ramping up. Current activity raises questions relative to direction and growth. We look to charts and fundamentals for some answers. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal is to manage the risk of positions, take what is offered… short or long, and then manage your money. Stops are a must currently on longer-term holdings. Listen to the market not the talking heads.
Wednesday: Indexes were lower and they will need some clarity if the upside is to gain any real momentum. The SP500 and NASDAQ closed flat to lower on the day. Earnings started with some positive data, but as seen on Wednesday not all things are rosy looking forward. Transports… warning on the downside. Materials and Industrial warnings as well. Higher interest rates will torpedo any positives in the financial sector. There is no lack of issues on the table each taking their respective turn in the spotlight. We will be patient to let this unfold as the pattern and consolidation still show an upside bias with specific weaknesses. For the day two of the eleven sectors closed in positive territory. The leadership came from energy. Watching how technology and consumer discretionary unfold as they need to provide leadership. Sector laggards remain with some testing and some breaking near-term support. Interest rates above 4.9%. Economic data is confirming the ugly outlook. I would expect the data to remain negative with the only real caveat being how negative it will be. We have put money to work short term based on the technical moves and we continue to manage risk and take what the markets give. Remember all moves at this point are relief rallies and we will treat them as such until they validate otherwise.
Explore the following links for new pages that dig into data both In & Outside the markets. Jim’s insights highlight potential opportunities emerging from the current market environment. The pages also discuss the Reality of closed opportunities, whether they proved profitable or fell short of our expectations.
Decide what you’re doing before the market opens based on your beliefs. Entry. Exit. Target. Define the risk of the position. Nothing more… Nothing less.
“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.