The markets showed some volatility throughout the day but managed to close in positive territory. Buyers showed up in the afternoon to push stocks higher overall. The treasury markets continued to be a hot topic with the FOMC meeting concluding on Wednesday and all eyes on the Fed relative to interest rates. The overall consensus is the Fed will not hike rates, what matters is what comments the Fed makes concerning rates and the economic outlook. Bear flag patterns are forming on charts which could offer a change in direction or a continuation of the previous trend. The point being it is consolidation towards a decision. The FOMC is the likely catalyst. Megacap stocks found buyers in the afternoon to erase earlier losses and boost the NASDAQ 100 and the SP500. Banks, REITs, and telecom set the tone for the day. Semiconductors finally close in positive territory helping the technology sector. The 10-year treasury closed at 4.87% flat for the day. The SP500 index climbed back above the 4150 level and closed just shy of the 4200 level. Some of the negative talk has abated with two days of upside for the broad indexes. Employment costs rose again and based on the union strikes are likely to rise more. We all know costs are passed on to the consumer thus inflationary. Consumer confidence was lower but beat expectations… Yes, it was a negative made to sound positive. The volatility index dipped lower as markets bounced pushing SVXY higher. Overall positive day for stocks as buyers remain engaged with stocks. Watching how the first day of the month trades and the response to the FOMC.
Tuesday stocks opened lower and buyers showed up in the afternoon session to push them into positive territory. The telecom, REITS, financials, and utilities led the day. Earnings have been good and bad turning the market into a stock picker market. We concluded the FOMC meeting on Wednesday. The complexity of the outlook for global economics, domestic economics, and uncertainty are alive and well. The major indexes were higher on the day, but we are far from being out of the woods. The S&P 500 index closed up 0.65%. The NASDAQ was up 0.48%. The SOXX was up 0.9%. Small Caps (Russell 2000) were up 0.8%. The ten-year treasury yield was 4.87% flat for the day. Crude (USO) was down 1.3%. (UGA) was down 0.1%. Natural gas (UNG) was up 7.9%. The dollar was up 0.6%. We are focused on managing the risk in the current environment.
Quote of the Day: “My therapist says I’m afraid of success. I guess I could understand that, because after all, fulfilling my potential would really cut into my sitting-around time.” — Maria Bamford
Additional Charts To Watch
KBE/KRE – The banking sector is being challenged by higher rates. Despite the solid earnings from the sector the overhang of rates pushed both the money center banks and the regional banks below the October lows and renewed the concerns over balance sheets. SEF offered an entry signal on the development… watching how this storyline unfolds near term. Entry $13.35. Stop$13.35. Bear flag on the chart and watching near term. $39.86 level to clear for KRE.
Sector Rotation And The S&P 500 Index
The S&P 500 index closed up 27 points to 4193 moving the index up .065% with above-average volume on the day. The index moved back above the 4150 support and looking for a follow-through. Eleven of the eleven sectors closed higher on the day with telecom as the leader up 2%. The worst performer of the day was energy up 0.3%. The VIX index closed at 18.17 moving lower on the day. Plenty to ponder between the headlines and facts. The index is in position to bounce or resume the downtrend.
XLB – Basic Materials broke support at the $77 level. Bear flag pattern brings the $67 level into play on the downside. The sector was down 0.4% for the week. No Positions. Bear flag watching.
XLU – Utilities found support at the $56 level… bounced and faced some resistance at the $59.50 level. No follow-through upside. The sector was up 1.2% for the week. Entry point if breaks above resistance.
IYZ – Telecom reversed lower again and broke support at the $20.50 level. Remains in a downtrend and testing the previous low. The sector was down 4.1% for the week. No Positions. Bounced off the lows.
XLP – Consumer Staples Remains in a downtrend with a bear flag pattern on the chart. The sector was down 1% for the week. No Positions.
XLI – Industrials downtrend remains in play and back to the support at $96. The sector was down 2.2% for the week. No Positions. Small bounce.
XLV – Healthcare downtrend in play with Mach lows current support. Action on Friday clearly shows negative momentum in play. The sector was down 3.8% for the week. No Positions. Doji bounce and follow through.
XLE – Energy moved all the way back to $84.33 support. Earnings were the downside catalyst. The sector was down 6.2% for the week. Small bouce at support.
XLK – Technology The sector renewed the downtrend and remains challenged by the economic picture. The sector was down 1.7% for the week. No Positions. Follow through to Friday.
XLF – Financials The move higher in interest rates impacts the sector on the downside. The sector was down 2.3% for the week. Broke support at $32.26 and offered entry on the short side trade. SEF entry $13.13. Bounced on Monday.
XLY – Consumer Discretionary broke from the consolidation pattern renewing the downtrend and closing below the 200-day MA with $147.11 as next support. The sector was down 1.3% for the week. No Positions. Bottoming pattern.
IYR – REITs trying to hold support at the $73.80 level with worries rising with higher interest rates the downside talk focused on defaults rising in commercial real estate. The sector was down 1.5% for the week. No Positions. Bottoming pattern.
Summary: The index remains challenged by too many issues in too many places. The move on Tuesday set up a decision point along with the FOMC. Watching how this unfolds. On the positive side interest rates were steady. The index moved back towards the 4200 level. Patience is key. 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 62 points to 12,851 as the index was up 0.48% for the day. The index opened lower and managed to bounce in the afternoon to close higher. 12,977 level broken (see chart below). The downtrend from the July highs is still in play. Decision point with upside resistance 12,977 and support 12,246 and watching the bounce from Monday.
NASDAQ 100 (QQQ) was up 0.48% for the day as the mega-caps were positive on money flow. The sector moved back above the $347.55 level of support and added to the move. The sector had a positive bias for the day with 80 of the 100 stocks closing in positive territory for the day. Intraday volatility remains in play.
Semiconductors (SOXX) The sector moved below the $447 support… INTC helped but still lagging. The sector was down 2.8% for the week. SOXS entry $12.55. Stop $13.25. Bounce on Tuesday.
Software (IGV) The sector moved below the $336 support. The break lower could get ugly technically. The sector was down 2.8% for the week. Short side setup. Bounced… watching with move back above $336.
Biotech (IBB) The sector remains in a downtrend and broke support at the $115 level. The sector was down 4% for the week. LABD in play. Entry $24. Stop $27. Bounced… oversold.
Small-Cap Index (IWM) Moved to $162 support and added to the downside. The sector was down 2.5% for the week. No Position. TZA in play. Held support.
Transports (IYT) downtrend remains in play with a break of April lows. Gasoline prices and shipping weighing on the sector. The sector was down 6.3% for the week. No positions. Short side in play. Big bounce-off lows. Watching for follow-through.
The Dollar (UUP) The dollar is showing a bull flag on the chart as it consolidates near the highs. The dollar was up 0.4% for the week. No Positions. Topping pattern.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.84% down from 4.92% last week. TLT was up 1.3% for the week. Watching how the Fed manages the yield curve. No Positions. FOMC meeting on tap. Topping pattern.
Crude oil (USO) Crude sold lower on worries about consumption. An increase in supply for the week was a concern and crude moved back near $85 a barrel. USO was down 2.9% for the week. Up and down activity all week. Closed at key support and decision point.
Gold (GLD) The commodity accelerated higher to end the week on all the geopolitics in play. The metal was up 1.3% for the week. Added positions at $172. Stop $182. Managing the risk. Tested with some volatility.
Our longer-term view to downside bias as the upside trend from the October lows was broken and fell 10% from the July highs. 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. With the short-term trend down and the third leg in play, we have raised cash on our longer-term positions. 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 downtrend… the last eleven weeks’ short-term trend has offered 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. Listen to the market not the talking heads.
Tuesday: Indexes bounced for the second day. The move has set the tone heading into the FOMC meeting on Wednesday. The short side is in play with the third leg lower in play and showing a bear flat. Watching how the bounce unfolds… maybe a relief bounce to balance the selling? There is no lack of issues on the table with each taking their respective turn in the spotlight. There is a lack of leadership overall. 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 upside moves at this point are relief rallies and we will treat them as such until they validate otherwise. The FOMC meeting will be the catalyst of the day.
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.
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.