The markets moved higher on Thursday led by small caps and crude oil… NASDAQ & SP500 indexes both moved back above the 50-day MA. Volume still remains average overall and the leadership is mixed… while the downside has not been aggressive the bias remains to the sell side. If we find more buyers on Friday that could shift near term, but we have to take into account that the FOMC meeting is next week… maybe it matters, maybe it doesn’t. Scanning the indexes we have another lower high established and that needs to follow through… we remain patient for now. The S&P 500 index closed up 0.8%. The NASDAQ was up 0.8%. The SOXX was up 0.7%. Small Caps (Russell 2000) were up 1.4%. The ten-year treasury yield closed at 4.28% up 3 bps. Crude (USO) was up 1.8%. (UGA) was up 0.1%. Natural gas (UNG) was 0.3%. The dollar was up 0.6%. We are focused on managing the risk and seeing how investors respond to the current situation.
ONE Chart to Watch: QQQ – 1) Tested below the $372.68 mark of support and closed at the 50-day MA. 2) Need to hold support for the uptrend to continue. 3) $379.55 resistance in play. 4) $380 level to clear.
Additional Charts to Watch:
SOXX – Moved below $497.60 support and held… offers a potential downside trade. Watching.
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. Hit Entry $15.25. Stop moved to $15.25 and let it unfold near term. Cup and handle pattern on the chart.
Energy turns higher – Tested support near $86 and bounced… entry $87.80. Stop $90. Crude is marching higher as well. UCO entry $30.72. Stop $35. Letting it run. UGA watching for entry. Added $71.31. Stop $74. The sector is in a short-term uptrend.
Stops Hit: None
Quote of the Day: “Always borrow money from a pessimist. He won’t expect it back.” – Oscar Wilde
The S&P 500 index closed up 37 points to 4505 moving the index up 0.84% with average volume on the day. The index is holding support at 4338 currently. Eleven of the eleven sectors closed higher on the day with utilities as the leader up 1.4%. The worst performer of the day was industrials up 1%. The VIX index closed at 12.8 moving lower with a retest of the July lows. Watching support levels relative to the test lower.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials gave up the majority of the bounce and is looking at the 200-day MA as support. The sector was down 1.3% for the week. No Positions.
XLU – Utilities back to the previous lows and and bounced back to previous support. The sector was up 0.3% for the week. Closed SDP with a nice gain. No Positions. Solid bottom reversal in play.
IYZ – Telecom broke higher from the trading range only to reverse back. Hit stop for breakeven trade. The sector was down 2.6% for the week. No Positions. Back to the top of the trading range.
XLP – Consumer Staples broke below the June lows. Remains in a downtrend. The sector was down 1.4% for the week. No Positions.
XLI – Industrials Tested support at $105.41 establishing a sideways pattern for now… break lower offers short opportunity. The sector was down 2.4% for the week. No Positions.
XLV – Healthcare broke support at $132.64 and tested lower. The sector was up 0.8% for the week. No Positions.
XLE – Energy moving higher on higher oil prices on the production cuts from Russia and Saudi Arabia… Biden administration has painted themselves in a corner relative to the petroleum sector. The sector was up 3.5% for the week. Entry $81.95. Stop $89. Letting it unfold. Moved above the January highs.
IEO – broke higher as offshore interest rose. Entry $85. Stop $97.10.
OIS – break higher on Friday… entry $8.35 Letting it play out. $8 stop.
XLK – Technology The sector is moving sideways as it determines its short-term outlook. The sector was down 1.3% for the week. Entry $167. Stop $170. Moved below the 50-day MA.
XLF – Financials Tested the $33.78 level of support and bounced but testing again. The sector was down 0.2% for the week. Bank downgrades not helping the sector. BAC testing support and a break lower would be negative for the sector overall.
FDIC stated the banking industry reported net income of $70.8 billion in Q2, which was a decline of 11.3% from Q1. The sector is feeling the effects of higher interest rates and a slowing economic picture. That doesn’t very sound and resilient to me… Thus the BTFP is still in place and lending every week… stress in the sector continues with lower interest assets on the balance sheet as the biggest drag for banks. What happens if this all fails? Can you say Central Bank Digital Currency? Watching the sector as KRE, KBE, testing near-term support. KIE has held up the best in the current environment but has its own challenges ahead.
XLY – Consumer Discretionary Bounced off support and watching the outcome. The sector was down 1.1% for the week. No Positions. Taking on a renewed leadership role.
Retail (XRT): Breaking down on the charts… the discount store… DG, DLTR, FIVE, BIG = Ugly. Big box…TJX, ROST, WMT slowing but holding their trends. Specialty… RH, ANF, AEO, DBI, CAL are all trending higher… an interesting picture of the current economic outlook. Interesting move in MCD, YUM, DRI, EAT as well.
IYR – REITs Bounced at support… flattened out as the outlook for commercial real estate isn’t great. The sector was down 1.2% for the week. No Positions.
Summary: The index finally bounced and established a higher lower on the charts and watching how this unfolds near term. Investors may see a recession on the horizon based on the numbers… I believe we are already in one. Eleven of the eleven sectors closed higher with XLU, XLE, XLY leading. The index is looking for direction and the talking heads believe it is lower… no, higher? Let the charts unfold and take what is offered. SPY held $444. $453 next level to clear. 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 112 points to 13,926 as the index was up 0.86% for the day. The index was mixed overall with the mega caps participating but the small caps were the leaders. Support is 13,618 currently… 13,274 previous low. Letting the move unfold as tech and mega-caps find their collective direction. SOXX was up 0.7% and IGV was up 0.5% for the day. Watching support and how the activity unfolds.
NASDAQ 100 (QQQ) was 0.82% for the day as mega caps traded slightly above the 50-day MA. The sector hit resistance and needs to hold the $370.10 level. The sector had a positive bias for the day with 80 of the 100 stocks closing in positive territory for the day.
Semiconductors (SOXX) The sector moved below the $497 level to show negative momentum. The sector was down 3.2% for the week. Closed positions with a modest gain. Lagging overall.
Software (IGV) The sector moved back to the July highs and holding for now. The sector was up 1% for the week. Entry $345.50. Stop $360. Topping pattern on the chart. Topping pattern on chart.
Biotech (IBB) The sector remains in a four-month trading range with a downside bias. The sector was down 1% for the week. No Positions. Back below $128.35 support.
Small-Cap Index (IWM) Tested back to the 200-day MA giving up all the gains. The sector was down 2.5% for the week. No Position. IJH midcaps were equally as bad on the week.
Transports (IYT) Broke below the $247.67 support and $238.80 is the next level to hold. The trend has reversed to a negative short-term. The sector was down 3.2% for the week. No positions.
The Dollar (UUP) The dollar moved back above the June highs and continued higher. The dollar was up 1.5% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Continues trending higher.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.26% down from 4.17% last week. TLT was down 2.3% for the week. Watching how the Fed manages the yield curve. Yields holding below the 4.3% mark for now… Fed wants to keep it there or lower. No Positions.
Crude oil (USO) Crude bounced off support and broke higher. USO was up 4.3% for the week. UCO entry $30.72. Stop $35. Letting it unfold. Moved above the $90 level.
Gold (GLD) The commodity remains in a downtrend from the June highs. The metal was down 1.1% for the week. Letting it unfold. Watching the 200-day MA.
Our longer-term view shifted to neutral as the upside trend from the October lows was challenged but remains in play. 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 the trend higher overall but plenty of volatility along the way. With the trend higher it puts the broad indexes in an intermediate uptrend… of course, the last six weeks’ 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 have found support for now. Looking for a renewal of the uptrend or a break lower offering short side positions… we must have the patience to let it unfold. Taking what is offered short term and managing the risk longer term. The economic data is showing signs of fatigue relative to growth. Sector-driven activity is in play as seen in energy and software. 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.
Friday: Watching the downside pressure give way to some buying on Thursday and watching key support levels near term. Negative data on the economic picture shows some reality… the question is how investors respond to the move. The major indexes testing the 50-day MA again. Letting it play out as we look for directional confirmation on QQQ, SPY, SOXX, and IWM. Thus far we have not had a pivotal move up or down. Looking at how this plays out with a test at support last week. Patience is the key currently. Manage the risk that is and let the current activity play out. Plenty to ponder as we progress in the current environment. It is also options expiration on Friday.
What I am watching:
PPI & CPI were higher than expected, but the talking heads explained it away stating the core numbers were in line with expectations… that is utter BS as to take oil prices out of the equation currently says it has no impact due to the variable nature of oil prices… it had a bigger than expected impact. The cost of goods was up 2%… approximately 60% of that increase was due to oil prices… and they are still rising. We eclipsed $90 per barrel on Thursday. We can all stick our heads in the sand and pretend if we want, but the current administration has done a horrific job of managing our natural resources. Thus, why we own oil… so we can afford to buy things made with it. Watching how this continues to unfold. BTW gasoline prices were up 5.2% in July (official numbers)… up another 8.6% since August. But the headlines and the White House say all is good!
Airlines are cutting profit outlook based on energy prices… crude prices don’t matter, right?
See if the bounce is reality or wishful thinking. SPY did establish a high low technically…
IGV tested lower a concern relative to leadership. GBTC… upside favored. (Added $18.61.) MSFT, XLE, USO are all positive.
Leadership… energy isn’t my favorite as it taxes the consumer… but we own it for the upside move. USO, XLE, OIS, IEO… Oil prices are moving higher? Russia stated it would not increase its oil production cuts. Saudi Arabia has extended its cuts as well… This leads to inflation not just at the pump, but in products that use petroleum in production… This could get ugly looking forward with crude moving over $90.
FOMC meeting next week.
Apple and China issues as iPhone bans could cost them over $250 billion. AAPL retested the August lows… looking at what opportunity unfolds near term in the stock. Throw in the balance of the meg-caps to watch here as they will determine direction overall… GOOG, AMZN, MSFT, META… are they still too big to fail? SOXX is on that watch list as well with the move below $497.
Inflation warnings are popping up again… on May 4th crude was $67. On August 1st crude was $81.96 which is a 22.1% increase in price… where does it go? Correct, into everything we basically touch. We own USO and UGA in order to keep pace with being able to afford gasoline. But it goes further and we should be looking at where to invest to keep pace with the next wave of inflation.
To Quote The Babylon Bee: “Bidenomics is so successful the average American has twice as many jobs as [he] had 2 years ago.”
A new study of PFE’s and mRNA shots demonstrates recipients are more susceptible to other viruses and diseases as a result of the shots. Two years ago warnings were issued about VAIDS (Vaccine Acquired Immune Deficiencies) as doctors actually familiar with viral diseases predicted serious problems with the COVID-19 shots. Of course, both sides are fighting about what the study means and its validity, but the point is, that the issues were predicted based on the type of shots and now there is evidence of the same: Why not investigate further? It is all about health and lives, and if there are legitimate issues, instead of arguing, figure it out. This is why the medical industry’s credibility is swirling in the toilet after the response to the covid. To this point, watching how the biotech and healthcare stocks respond.
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.