The market started lower on Friday but then the buyers showed up and pushed the indexes higher. The NASDAQ and the SP 500 finished the day higher on higher volume. Support held the last four days and consolidated and found enough will to push higher to end the week. Is this the start of the year-end rally? Time will tell but for now, it was as expected a move to the upside. A quick look at the charts shows consolidation at support over the last two weeks and a bounce to the upside. The big news on the day was the jobs report coming in higher than expected at 336,000 new jobs added in September. The previous two months were also adjusted higher showing a more robust jobs market over the summer than believed. Thus, the initial drop in indexes as the data is believed to keep the Fed engaged in hiking rates to stem inflation. That aside the buyers wanted a reason to put money to work and a positive jobs market means the consumer will return… right? Whatever rationale you want to assign to the upside move is fine… the bottom line is stocks bounced off support and looked positive throughout the day. Technology led the upside move on the day as seen in the solid move of semiconductors. Other sectors found near-term lows and bounced as well. The VIX index closed lower with intraday activity showing positive sentiment. Treasury yields closed higher on the move. Crude bounced slightly as well. Economic data remains weaker overall but the jobs report sparked some buying. We are willing to take what the market gives both up and down. The week offered some of both… manage your risk accordingly.
Volume was above average on the day. Friday’s activity managed to hold support for another day and bounce. The inside day on Thursday pointed to a positive day on Friday and it did just that. There is still plenty of work to be done for the upside to gain momentum. The S&P 500 index closed up 1.1%. The NASDAQ was up 1.6%. The SOXX was up 2.1%. Small Caps (Russell 2000) were up 1%. The ten-year treasury yield closed at 4.78% up 7 bps. Crude (USO) was up 0.2%. (UGA) was down 0.2%. Natural gas (UNG) was up 4.4%. The dollar was down 0.2%. We are focused on managing the risk in the current environment.
ONE Chart to Watch: QQQ – 1) Tested support at $354.10 again and bounced. 2) Offered entry at $356.80. 3) TQQQ trade $35. Stop $35. 4) Added short-term trade on the bounce.
Additional Charts to Watch:
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.
XRT, IGV, SOXX, XLE, XLB – consolidation patterns in place… looking for a bounce. All three bounced added SOXX.
Stops Hit: None
Quote of the Day: “When a man tells you that he got rich through hard work, ask him: ‘Whose?'” – Don Maquis.
Sector Rotation and the S&P 500 Index:
The S&P 500 index closed up 50 points to 4308 moving the index up 1.18% with above-average volume on the day. The index managed to move back above the 4300 level on the close, holding support. Ten of the eleven sectors closed higher on the day with technology as the leader up 1.8%. The worst performer of the day was consumer staples down 0.5%. The VIX index closed at 17.4 moving lower on the day. Upside bounce in play. Will the buyers continue next week? The index did as expected on the jobs report and now we look to next week for a follow through.
XLB – Basic Materials moved lower and found support at the $77 level. Held and bounced to end the week. The sector was down 0.7% for the week. No Positions.
XLU – Utilities accelerated lower and found support at the $56 level… bounced. Watch for follow-through upside. The sector was down 2.8% for the week.
IYZ – Telecom reversed lower again test support at $20.50 level. Remains in a downtrend. The sector was down 2.4% for the week. No Positions.
XLP – Consumer Staples accelerated lower and added to the losses for the week. Remains in a downtrend. The sector was down 3.1% for the week. No Positions.
XLI – Industrials downtrend remains in play but did find some support at $99. Watching how the bounce plays out. The sector was down 0.6% for the week. No Positions.
XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce the last three days. The sector was up 1% for the week. No Positions. IBB was key to the bounce.
XLE – Energy tested this week back to the 200-day MA. Crude was down sparking profit-taking in the stocks. The sector was down 5.1% for the week. No Positions.
XLK – Technology The sector held support at $161.50… consolidated and bounced to break high. The sector was up 2.6% for the week.
XLF – Financials traded down to $32.30 support held… then bounced. The sector was down 0.4% for the week. Banks struggle with higher interest rates hurting assets on their balance sheet.
XLY – Consumer Discretionary found support at $151.15 and held, remains in a consolidation pattern near the current lows. The sector was down 0.2% for the week. No Positions. Retail (XRT) chart moving lower as stocks show weakness.
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 down 1.7% for the week. No Positions.
Summary: The index held support again on Friday… building a consolidation pattern that favored the upside. The index did bounce and we did add a position in SPXL for the upside move. Watching how this handles the bounce and if the sentiment shifts. There is talk of the market begin ‘broken’. Not really sure of what that means, but the seasonality of the markets is definitely in play. On the other side of the talk is the year-end rally… watching to see what unfolds near term. The index moved to previous lows… tested and bounced. 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 211 points to 13,431 as the index was up 1.6% for the day. Buyers showed up again to bounce off support at 12,977. A move back above the 13,275 mark helps the outlook near term. The downtrend from the July highs is still in play.
NASDAQ 100 (QQQ) was up 1.68% for the day as the mega caps led the day. Testing the $353.80 support and bounced. The sector had a positive bias for the day with 88 of the 100 stocks closing in positive territory for the day. Watching… AAPL bottoming pattern reversal (added $174.35)… AMZN found support and consolidation pattern… GOOG moved above the 50-day MA (added $135.65)… META consolidation pattern (added $307.50)… NFLX closed above $375 support… MSFT consolidating (added $320). Added TQQQ. entry $35. Stop $35.
Semiconductors (SOXX) The sector closed above the $473 level of support and looking for a follow-through on the upside move. The sector was up 1.3% for the week. Added SOXL entry $473.25.
Software (IGV) The sector closed above the $335 support level and added to the upside to end the week. The sector was up 2.1% for the week. Added IGV entry $340.
Biotech (IBB) The sector remains in a downtrend but did find some support at the $119 level. The move was enough to add a position in LABU entry $3.50. The sector was up 0.1% for the week.
Small-Cap Index (IWM) Found support after breaking lower last week and showed a modest bounce. The sector was down 2.1% for the week. No Position.
Transports (IYT) downtrend remains in play and found some support to close back above the $231 support level. Closed below the 200-day MA. The sector was down 0.8% for the week. No positions.
The Dollar (UUP) The dollar moved lower for the week as it remains in the uptrend. The dollar was up 0.03% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.78% up from 4.57% last week. TLT was down 4.4% for the week. Watching how the Fed manages the yield curve. Moved higher on the week which will likely get the Fed in motion behind the scenes. No Positions. Raised stop on TMV.
Crude oil (USO) Crude showed some topping on the chart last week… it followed through moving lower and looking for support near term. USO was down 8.2% for the week. No Positions… watching for the opportunity to buy.
Gold (GLD) The commodity accelerated lower and finally bounced on Friday. The metal was down 1% for the week. Looking for the upside trade near term.
FINAL NOTES:
Our longer-term view remains neutral as the upside trend from the October lows was broken confirming the short-term downside in play and a negative for long-term positions. 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 nine 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 to support. The economic data is showing signs of fatigue relative to growth. Seeing some oversold sectors short term as some found support and tried to bounce. 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.
Friday: Indexes held support after early selling and closed higher on the day. For the week the SP500 was up 0.5%. The NASDAQ was up 1.6%. The key was the bounce on Friday after four days of testing support. It was enough for us to add some trades on the belief the upside near term is a possibility with a low-risk entry point. Sector leaders retested support and bounced as well. Sector laggards broke lower to the next level of support and are still looking for conviction. Interest rates are spooking investors as they inch towards 5% on the ten-year bond. 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 plenty of cash on the sidelines as we look for more clarity up or down. Friday we put some cash to work and we will manage the risk accordingly. Digging into the opportunities over the weekend.
What I am watching:
Gold (GLD/UGL) has been selling and remains in a downtrend from the May highs. $168 support is currently in play and I am looking for some relief in the form of buyers. $175 target on the bounce. Looking to see how this unfolds near term. Finally bounce on Friday… UGL entry $51.25. Stop $50.62… low risk trade.
Crude Oil (USO/UCO) is down 7.1% in the last two days. Broke the uptrend line from the July lows. Looking for a bounce back to $77.30 on USO. Patience as it unfolds. Held Friday continue watching in light of Isreal/Hamas conflict.
Biotech (IBB/LABD) sold to $119 support breaking the March lows in the process. Bounce at the support with MRTX spiking higher on news. Watching to see if this has any follow-through near term with the sector in an oversold state technically. $127 target. Followed through for the bottom reversal. Entry LABU taken $3.50. Stop $3.36.
Seasonal selling? September and October are seasonal periods where selling historically occurs… question being, is this a seasonal sell-off or is there more at play currently? Things are definitely not rosey relative to the data and the economic outlook, but from a pattern perspective, the indexes are still holding support. Small Caps (IWM) is ugly but at the support of the April/May lows. SP500 and NASDAQ at the previous lows as support. Thus patience is called for as the current patterns unfold. A year-end rally is not out of the question no matter how negative things look. Remember logic applies long-term to markets, emotions control the short term.
GBTC… upside favored. (Added $18.61.) Solid upside for the week… need to clear $30.
Trending concerns:
Economic Data: CPI, PPI due next week and they will be watched by the Fed and everyone else.
Geopolitics: Hamas/Isreal conflict will impact the globe with plenty at stake.
Mortgage demand is at the lowest levels since 1996… applications fell 6% last week alone. Bank stocks will get hit by this over time.
Selling in the Airbnb space is rising. Rentals are down and thus, can’t pay the mortgage, so sell the property. ABNBtesting support at $123.50… double top on the chart.
Credit card usage dropped again last week by 11.3% versus down 10.9% the prior week. Think MA, AXP, and V stock prices.
Banks in the US hold unrealized losses on their low-interest assets are rising as rates move higher. Watch the FDIC reports for Q3 estimates… Q2 was $558 billion… that will rise with rates moving up in Q3. What about derivative exposure in large banks? Maybe we shouldn’t think about it…
Congress just keeps the stupid effect alive. They ousted McCarthy as Speaker of the House late Tuesday afternoon… now what? Plenty of speculation and uncertainty around the leadership. The simple question is who is next? Since this has never happened before in history it presents plenty of procedural issues around bills being passed and what about the budget deal that is needed in the next five weeks? Markets will be watching how this unfolds.
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? They were out again on Monday warning about a “financial accident” if rates continue to climb towards 7% Fed Funds Rate. Yes, the leaks of what we have been saying for a while, are finally making the airwaves… not a good situation for investors or consumers. Watching… BAC, GS, JPM, MS… bounce into year-end, and then it could get ugly.
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.