The market indexes struggled early but they found buyers to follow through on the modest bounce from Wednesday. The SOXX set the pace as needed showing a solid upside day. Transports and midcaps equally posted a nice bounce off the lows. The financial data was not good in the least with personal consumption falling almost 1% versus last month. Consumer spending fell 0.3% versus last week showing weakness. When you account for inflation the falling consumer spending is worse due to the higher prices paid as retail is measured in dollars, not units sold. Q2 GDP was 2.1% in line with previous revisions. However, the numbers posted were revised lower for data posted from 2013 to 2023… meaning savings were $1.1 trillion less than reported. That said, there is plenty of negative data about the consumer with Goldman Sachs and Bank of America both releasing data on Thursday about how negative it is and projected to be looking forward… then why the bounce? Oversold conditions and hope springs eternal. How much do we bounce? Watching the charts and letting them tell us… resistance on the S&P 500 4351 and 4450. We will watch and take what the market offers. We exited our short side trades and look for the next opportunities as they present themselves.
Volume was above average on the day. Got the follow-through to Wednesday’s move off the lows. The S&P 500 index closed up 0.6%. The NASDAQ was up 0.8%. The SOXX was up 1.8%. Small Caps (Russell 2000) were up 0.9%. The ten-year treasury yield closed at 4.59% down 3 bps. Crude (USO) was down 1.6%. (UGA) was down 2.7%. Natural gas (UNG) was up 1.8%. The dollar was down 0.5%. We are focused on managing the risk and seeing how investors respond to the current situation.
ONE Chart to Watch: QQQ – 1) Tested support at $355 and bounced. 2) Broke the uptrend from the August low. Reestablished the downtrend from the July highs with a lower high. Watching the bounce from Thursday… 3) Hit Stop on SQQQ entry $18.62. Stop $20.60.
Additional Charts to Watch:
SOXX – Found support and bounced after breaking support at the $473.23 level. Hit stops on SOXS entry $10.35. Stop $11.89. Watching how this unfolds near term.
Retail Stores – EMTY breaking higher as commercial real estate for retail stores struggles with plenty of distressed sales and bankruptcy issues in play. Short side entry was taken. Entry $15.25. Stop moved to $16.85. Watching how Friday unfolds.
Energy – upside in play as supply data shows more shortages. Crude was higher along with the stocks in the sector. UCO entry $30.72. Stop $35. Letting it work. Played out as anticipated with some testing and a return to the upside. Watching opportunities. XLE back added $90.80.
Stops Hit: SQQQ, SOXS
Quote of the Day: “Suburbia is where the developer bulldozes out the trees, then names the streets after them.” – Bill Vaughan.
The S&P 500 index closed up 25 points to 4299 moving the index up 0.59% with above-average volume on the day. The index added to the Wednesday reversal… needs to show better conviction in the move. Ten of the eleven sectors closed higher on the day with consumer discretionary as the leader up 1.1%. The worst performer of the day was utilities down 2.1%. The VIX index closed at 17.3 moving lower on the day. Watching how Friday responds. End of the month trading.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials broke below the August lows and now looking at the June lows. The sector was down 4% for the week. No Positions. Bounced…
XLU – Utilities moved to the $63 level of support as interest rates weakened the outlook again. The sector was down 2.5% for the week. Down 2% on interest rate worries.
IYZ – Telecom reversed lower again test support. The sector was down 2.4% for the week. No Positions. Broke support at $21.63 and bounced.
XLP – Consumer Staples broke below the March lows. Remains in a downtrend. The sector was down 2.6% for the week. No Positions. Held at the lows.
XLI – Industrials downtrend accelerated. The sector was down 3% for the week. No Positions. Bounced?
XLV – Healthcare downtrend in play with $129 near-term support. The sector was down 1.5% for the week. No Positions.
XLE – Energy tested this week with the large-cap stocks showing some profit-taking. The sector was down 2.9% for the week. No Positions. Bounced and added position back at $90.80.
XLK – Technology The sector has turned lower and broke support at the $169.50… negative short-term outlook. The sector was down 2.6% for the week. Broke the August lows… bounced.
XLF – Financials downside accelerated on higher interest rates. The sector was down 3.3% for the week. Bank downgrades not helping the sector. Broke support with negative interest rate impacting the sector. Bounced Thursday.
XLY – Consumer Discretionary accelerated lower on data and the outlook from the Fed. The sector was down 6.3% for the week. No Positions. Led downside all week. Retail (XRT) chart moving lower as stocks show weakness. Bounced Thurday.
IYR – REITs Broke $82.96 support as higher interest rates take a toll. The sector was down 5.1% for the week. No Positions. Bottom falls out on worries around the Fed and rates. SRS playing out well. Watching Thursday bounce.
Summary: The index started lower and found buyers intraday to bounce back… followed through on Wednesday’s move. Still too many questions and sellers still lurking. The impact of Powell’s comments remains in play. The upside was led by XLY and IYZ. SOXX posted a solid upside. Treasury yields steadied. The index remained below the August lows and watching how the bounce unfolds. Remember two things; first, the trend is your friend, and second, don’t fight the Fed. The Fed proves once again they are in control.
(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 108 points to 13,201 as the index was up 0.83% for the day. Mega-caps led the upside. Support at 13,618 broken… 13,274 support broken… 12,977 held for now. Watching how stocks respond near term… the oversold sectors bounced helping the overall index bounce. SOXX was up 1.8% and IGV was up 0.7% for the day. Watching how the near-term move unfolds.
NASDAQ 100 (QQQ) was up 0.84% for the day as mega caps moved back above the $355 level watching to see how the bounce unfolds. The sector had a positive bias for the day with 73 of the 100 stocks closing in positive territory for the day. Watching… AAPL breaks a key level of support… AMZN gapped lower… GOOG moved above the 50-day MA… META consolidation pattern… NFLX moved to $375 support.
Semiconductors (SOXX) The sector moved below the $473 level of support and remained negative overall. The sector was down 3.1% for the week. Bounced… watching.
Software (IGV) The sector broke lower on the week $335 is the support level to hold. The sector was down 3.2% for the week. Bounced back above the $335 level of support.
Biotech (IBB) The sector accelerated lower and remains in a downtrend. The sector was down 3.2% for the week. No Positions. Touched $121.30 support?
Small-Cap Index (IWM) Broke below $182.40 support accelerating the downtrend. Equally broke support of the head and shoulder pattern. The sector was down 3.7% for the week. No Position. IJH midcaps were equally as bad on the week. Bounced…
Transports (IYT) downtrend remains in play and looking for support. Closed at the 200-day MA. The sector was down 3.3% for the week. No positions. Bounced back above the $231 support.
The Dollar (UUP) The dollar moved back above the June highs and continued higher. The dollar was up 0.3% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Moved higher.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.43% up from 4.32% last week. TLT was down 1.6% for the week. Watching how the Fed manages the yield curve. Yields holding at the 4.4% mark for now… Fed wants to keep it there or lower. No Positions. 4.59%…
Crude oil (USO) Crude bounced off support and broke higher as supply cuts remained and speculation rose. USO was down 0.8% for the week. UCO entry $30.72. Stop $35.44. Held the 10-day MA and consolidating… the upside is still in play.
Gold (GLD) The commodity remains in a downtrend from the June highs. The metal was up 0.1% for the week. Letting it unfold. Watching the 200-day MA. Gapped lower? Not looking good near term.
FINAL NOTES:
Our longer-term view remains neutral as the upside trend from the October lows was broken confirming the downside in play for long-term positions manage your stops near term. Nothing 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 eight weeks’ the micro-trend has tested the longer-term trend and we need to manage stops accordingly on longer-term positions. The topping patterns broke short-term support to create micro-term downtrends that moved lower this week. The economic data is showing signs of fatigue relative to growth. Seeing some oversold sectors short term and looking at how it impacts the longer term view. 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. Listen to the market not the talking heads.
Thursday: Bounced to follow through to the Wednesday move… watching how it unfolds on Friday and letting the opportunities present themselves. Mr. Powell’s comments relative to inflation, interest rates, and the economy continue to have an impact on the investor psyche. More reasons than not for the sellers to stay in control… but, reality sometimes takes a back seat to hope. Watching the action on Friday.
What I am watching:
How does the market respond? We tightened our stops on short side plays. We could see a sympathy bounce. It will all depend on the conviction of the money flow if the buyers do step in. Key areas of interest are… QQQ @ $355 (bounced). SOXX $452 (bounced and followed through). XLE @$89. USO @ $80.60 (tested). TMV as the downside for bonds remains in play. Oversold bounce versus more selling is the question. Makes for interesting days of trading.
Credit Card losses are rising at the fastest pace since the financial crisis. We have started a debt default cycle. The challenge is no one is paying attention to the impact this will have on the financial sector. Throw in higher interest rates and bank stocks could fall another 20-25%.
The FTC sues Amazon for monopoly status. Now the government wants to target the companies they put in the mega-cap status… last time this happened was MSFT and Clinton, markets fell for quite a while.
Congress is debating the new spending bill/budget for the US government… September 30th ends the fiscal year and a new budget has to be passed or the nonessential government shuts down. I know that is all the government! They are flirting with big ramifications if they fail to come to a budget. Keeping our eyes on this issue as well. Only 5 days and nothing is done.
GBTC… upside favored. (Added $18.61.)
Trending concerns:
BTFP hit another record and the size of the loans/gifts was up to $208 million for the week. More borrowing as banks can’t seem to make enough to pay down the underwater assets on their books. The FDIC was out again about the $550+ billion in unrealized losses in the banking system… If I were a betting man it is probably five times that number.
Goldman Sachs stated shorts on stocks and the market are as strong now as they were in March 2020. That makes for an interesting scenario relative to the markets being oversold short term… but what about the longer term view?
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.