Daily Market Update

Moving the Market – December 20th

The markets were slightly higher most of the day but late afternoon began selling and then picked up momentum closing at the lows of the day. From the headlines, there was not a specific rationale for the selling. Yes, the technical data does indicate the markets are overbought with the NASDAQ trading more than 8% above the 50-day MA. There were some weekly options expirations causing angst, and the Treasury auction was poor, but no glaring issue, just simple selling. Growth stocks were hit harder than the broad indexes with the small caps down 2.3%. The reality of the numbers from earnings, etc. versus the reports from the government are divergent at best. Banks continue to borrow from the Fed’s emergency facilities at record amounts, Wages have been eroded by inflation, the annual cost of living for the average household has risen more than $11k, one-third of working-age adults don’t work as the government provides them enough handouts to get by, and WalMart has an option at checkout for BNPL (buy now pay later). Yes, the divergence between reality and the fairytale numbers from the government is big. Who knows maybe we can start using BNPL to trade stocks. Oh Yeah, banks already do that.

The earnings data from FDX showed slowing in FY24 and fell 12.1% on the day. IYT was down 2.3%. The economic data wasn’t much better with the Weekly Mortgage Applications falling 1.7% versus being up 7.4% last week. Consumer Confidence was 110.7 versus 101 prior… again divergent data point versus the reality of 62% of the population living paycheck to paycheck. Existing Home Sales were 3.82 million versus 3.79 million prior. The activity on Wednesday was of interest as the first challenge to the current upside move is made. Remember you can manage your money but you can’t manage the markets.

Stocks traded higher early and sold late to close negative. The overvalued storyline we have warned about was alive and well during late-day trading. Traders and investors were looking for a reason to tag on the decline, but the reality was just profit-taking and paring risk. Thus, keep your stops in place and manage the risk accordingly. The NASDAQ closed down 1.5%, DIA was down 1.2%, and the SP500 fell 1.4%. The major indexes closed lower for the day receding from the highs. The volume was above average. The SOXX was down 3.1%. Small Caps (Russell 2000) were down 2.3%. The ten-year treasury yield was 3.87% down 5 bps for the day. Crude (USO) was down 0.8%. (UGA) was down 0.8%. Natural gas (UNG) was down 4%. The dollar was up 0.4%. We are focused on managing the risk in the current environment. For more on Inside the Market data, you can click here.

All of the data points are now referenced and compared to the belief of investors that the Fed will cut rates to restart the economy in the first part of next year. The FOMC announcement seemed to confirm that idea… That pushed stocks higher again. However, this week we have seen comments and discussions from Fed Presidents relative to those rate cuts never being discussed. There seems to be confusion about what took place in the meeting. Personally, I find this extremely humorous that a panel of 14 “educated” people don’t remember what was said about something so important to the financial markets. Maybe when they release the minutes of the meeting in a few weeks everyone can read them together. That said, we remain focused on what is working and letting the trends unfold.

Charts to Watch: See Notes on “Reality of the Markets” & “Jim’s Beliefs About the Market” pages…

Quote of the Day: “A diplomat is a man who always remembers a woman’s birthday but never remembers her age.” — Robert Frost.

Additional Charts To Watch

1) IWM moved up to the 200-day MA and tested closing on a tombstone doji candle. watching for a test to the $174.40 level and a move higher. 11/16 Entry on the test $176. Stop $194. Got the test and entry point moving through resistance. 12/1 Offered new entry point at $180.50 and moved above $182.45. 12/13 Rallied higher on FOMC news and playing catch up with other indexes. Raised stop. 12/19 Moved higher from the pennant pattern and eclipsed the July highs. Playing catch up. 12/20 gave up break higher testing the move

2) IYT moved above the 200-day MA… 11/14 entry $236. A test and go was the belief… Entry on the test. Working, moved above the $244.50 mark and adjusted the stop. Offered a new entry point at $244 and $247. Manage the risk and let it run. 12/20 FDX earnings pull down the sector.

3) AAPL is resuming the uptrend and in a position to move above the July highs near term. 12/5 Entry $191.50. Stop $191.50. Solid follow-through. Outlook is improving as they shift their manufacturing and engineering outside of China. Still an issue but steps have been taken to improve the situation. 12/10 test of the break higher… bounced back and watching how it unfolds. 12/13 solid move higher adjusted stop. 12/18 Stopping watch sales on a ruling from the international court of patent infringement. Impacting the stock near term.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed down 70 points to 4698 moving the index down 1.47% with above-average volume. The index moved above the July high and towards the 2021 high. Eleven of the eleven sectors closed lower on the day with energy as the leader down 0.9%. The worst performer of the day was REITs down 2.1%. The VIX index closed at 13.6 higher on the day. Plenty to ponder between the headlines and facts. Selling was broad spread and watching how traders react on Thursday.

XLB – Basic Materials Cleared $77 and $79.50 resistance, moved above the August highs and testing. The sector was up 3.9% for the week. No Positions. Extended the uptrend.

XLU – Utilities moved above the $62.90 resistance. The sector was up 0.8% for the week. Entry $60.15. Stop 62.80 (stop hit). Broke above the downtrend line from the July highs reversing to an uptrend short term. Tested the upside. broke the $62.90 level again… stop hit.

IYZ – Telecom Resumed the uptrend and gap higher. The sector was up 1.9% for the week. September highs a next. No Positions.

XLP – Consumer Staples Added to the move higher with a modest test to end the week. The sector was up 1.6% for the week. No Positions.

XLI – Industrials Cleared resistance and moved above the August highs. The sector was up 3.7% for the week. No Positions. Solid uptrend in play.

XLV – Healthcare Made the move above $132 and to the October highs. The sector was up 1.5% for the week. Entry $129. Stop $132. XBI is moving higher as well. IHI and IHF breaking out as well. Tested to end the week.

XLE – Energy Moved back to the $84.33 level after a bounce in crude oil helped reverse the selling in the sector… watching how this plays out near term with a downside bias in play for crude. The sector was up 2.5% for the week. Moved back above the $84.33 level and tested.

XLK – Technology Reestablished the longer-term uptrend line with some consolidation near the highs on the chart. Solid bounce the last week… The sector was up 2.7% for the week. Entry XLK $166. Stop $186.

XLF – Financials Continued the move higher as interest rates dipped lower. New highs and resumed the uptrend. The sector was up 3.3% for the week. KBE entry $38.45. Stop $43.50.

XLY – Consumer Discretionary resumed the move higher in the trend. Eclipsed the September highs. Retail Sales for November were better than expected helping the upside. The sector was up 3.4% for the week. No Positions.

IYR – REITs Moved above resistance at the $90.50 and resumed the uptrend. The sector was up 5.5% for the week. Entry $83. Stop $87.10. Jumped higher on FOMC.

Summary: The index closed lower with broad selling on above-average volume. There was no specific catalyst just some good old profit-taking or even some program selling from quants. Is the Santa Rally over? Good question as we manage our risk hitting some stops on the day and watching others. The bounce off the October lows remains in play as we remain patient and let it all unfold. Plenty of rhetoric in the headlines as we watch the charts short term for direction. Trendlines are still in place but some were challenged on the day. Remember two things; first, the trend is your friend, and second, don’t fight the Fed… and the Fed showed its weight with the FOMC news.

(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 225 points to 14,777 as the index was down 1.5% for the day. The index tested the extension of the uptrend. The leaders all tested lower on the day as well IGV, SOXX, and QQQ. The chart remains in a positive trend. Managing the risk that is and looking for the opportunities.

NASDAQ 100 (QQQ) was down 1.49% for the day as the mega-caps led the downside selling. The sector tested the move back above the 2022 highs. The sector led the upside it is only fair it leads the downside Wednesday. Manage stops and let it play out. Entry $354.20. Stop $397. Resumed the uptrend as megacaps lead.

Semiconductors (SOXX) The sector moved above the August highs and resumed the uptrend. The sector was up 9.1% for the week. SOXL entry $448. Stop $549. Topping on chart? Negative selling on Wednesday.

Software (IGV) Remains one of the leading sectors with a solid uptrend in place. Broke higher from the pennant pattern on the chart. The sector was up 1.9% for the week. IGV $336. Stop $391.70 (adjusted).

Biotech (IBB) cleared resistance at the $127.06 mark. The sector was up 3.8% for the week. Entry $121.30. Stop $127 Confirmed the break higher and gaining momentum… XBI moving higher as well.

Small-Cap Index (IWM) cleared resistance at $182.40 and gapped higher on the FOMC news. The sector was up 5.4% for the week. Entry $182.40. Stop $187. Cleared $198.65 resistance and the July highs. Gave it back next day.

Transports (IYT) bottom reversal bounce… cleared resistance $247 and renewed the uptrend. The sector was up 4.2% for the week. No positions. Watching the shipping stocks with the issues in the Red Sea. FDX earnings guidance rocked the sector lower.

The Dollar (UUP) The dollar gapped lower on the FOMC news. Modest bounce to end the week but not looking good relative to the trend. The dollar was down 1.2% for the week. ‘V’ bottom on chart. Continues to struggle on the comments from the Fed of late.

12/7 Bank of Japan (BOJ) again threatened to get tough on monetary policy… that threat has been around for more than three years… it has not materialized, but the dollar responded negatively to the threat. Watching how this unfolds into the new year. UUP fell 0.5%… FXY jumped 2.6%. 12/19 Interesting move by BOJ to not raise rates after their earlier comments above. FXY fell on the news.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.92% up from 4.25% last week. TLT was up 4.8% for the week. FOMC news rallied bonds as they resumed the uptrend. Moved to 3.87%

Crude oil (USO) Crude bounced on the FOMC news and holding near the $66 level currently. USO was up 0.9% for the week. The downtrend remains in play as we watch to see how all the speculation around production and consumption pan out. Bounced on Red Sea attacks and rerouting of shipping by companies… watching.

Gold (GLD) The commodity has turned volatile with the dollar reacting to the Fed and trying to decide the course of action they are really taking relative to interest rates. Watching the dollar, yen, interest rates, and economic picture… all are creating volatility within the trend. Watching how it unfolds.

FINAL NOTES

Wednesday: What started as a steady move higher ended with some aggressive selling late in the trading day. We have to take it for what it is and manage our money accordingly. Some stops were hit, and some adjusted, as we remain patient relative to the charts. We discussed the low interest in short positions… maybe they decided it was time? We will follow the charts and manage the risk while waiting for the facts to confirm the belief over time. We have put money to work short term based on the technical moves, and we continue to manage risk with stops and profit-taking where appropriate, as we take what the markets give. Watching for new opportunities.

Our longer-term view shifts as the indexes remain in an uptrend from the October lows. They have moved back to the July and August highs currently… if those levels are cleared we may resume the long-term uptrend from October 2022. The trends resumed higher as the FOMC meeting added a spark from buyers. The short-term uptrend in the last two months is positive, but there is still work to be done from a longer-term perspective and a resumption of the long-term trendline. A look at the weekly chart below shows the uptrend from the October lows, but the trend from the 2020 lows has not resumed. There are always positive and negative swings in a longer-term trend. A look at the daily chart from the October 2022 lows validates that premise with plenty of volatility along the way. Short term the market is in a positive phase… the long-term trend, however, remains neutral. The current bounce is challenged by uncertainty in the economy and geopolitics. Time will tell how this plays out. Current activity raises questions relative to direction and growth as it relates to earnings 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.

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.

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