Daily Market Update

Moving the Market – December 19th

The Bank of Japan held its policy rates unchanged at -0.1% and stuck with its negative interest rate policy. That helped rates dip on US bonds but was seen as a curious move by analysts considering the stronger outlook for Japan’s economy. It was another up day in the US markets as stocks moved higher across the board. The Dow closed at fresh highs and the SP500 edged closer to new highs. Small caps set the pace on the upside moving up nearly 2% and the 10-year note dropped back to 3.92%. The shipping issues in the Red Sea remain as the US moves to protect tankers moving through the area. The Fed continues to backwalk the Powell comments on interest rate cuts in 2024 as two more Presidents essentially say he didn’t say that exactly… an amazing play on words. Taking it all in along with the issues already on the table. The three major indexes moved higher on the day despite the headlines… more FOMO trading. Technically the markets produced a modest upside from mega-caps, and gains from the laggards. Watching the leaders and the laggards as we see some rotation again in play. The uptrend remains with the bias on the upside for now. For more Outside the Market data go here.

The economic data showed housing starts much better than expected with 1.56 million versus 1.36 prior. The single unit activity was on the side with a solid 18% gain versus permits up only 0.7%. This was welcome news relative to all the negative talk around higher mortgage rates. ITB was up 1.4% on the news. Existing Home Sales are due on Wednesday along with weekly mortgage applications. The data remains steady as we inch towards the end of the year.

Stocks traded higher on the day showing more FOMO trading as many expect a broader year-end rally. There are still negative calls for a correction as stocks are overvalued… value is on the side of the buyer, just look at the housing market. Thus, keep your stops in place and manage the risk accordingly. The NASDAQ closed up 0.6%, DIA was up 0.6%, and the SP500 gained 0.6%. The major indexes closed higher for the day with each extending the uptrend and moving towards new highs. The volume was below average. The SOXX was up 0.5%. Small Caps (Russell 2000) were up 1.9%. The ten-year treasury yield was 3.92% up 3 bps for the day. Crude (USO) was up 1.8%. (UGA) was up 1.3%. Natural gas (UNG) was up 0.2%. The dollar was down 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 discussions between 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: “Between tow evils, I always pick the one I never tried before.” — Mae West

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. 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.

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. 12/19 moved towards the July highs.

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 up 27 points to 4768 moving the index up 0.67% with below-average volume. The index moved above the July high and towards the 2021 high. Eleven of the eleven sectors closed higher on the day with energy as the leader up 1.2%. The worst performer of the day was consumer staples up 0.2%. The VIX index closed at 12.5 flat on the day. Plenty to ponder between the headlines and facts. The index shows a resumption of the uptrend… letting it unfold. 0.6% from the previous all-time highs.

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 60.15. Broke above the downtrend line from the July highs reversing to an uptrend short term. Tested the upside. Retesting the $62.90 level again?

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.

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: Stocks closed higher as the upside broadened again with all eleven sectors closing higher. The index is playing out the end of the year with a solid rally. 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. 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 up 98 points to 15,003 as the index was up 0.51% for the day. The index is showing an extension of the uptrend. The leaders are semiconductors, software, and megacaps. The chart remains in a positive trend. Managing the risk that is and looking for the opportunities.

NASDAQ 100 (QQQ) was up 0.6% for the day as the mega-caps moved higher on the day. The sector moved back above the 2022 highs and close to the 2021 highs. The sector remains the leader in the overall market. Adjust 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?

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.

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.

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 felll 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.

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 stop of shipping by companies… watching. Crude is up 3.3% last two days.

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

Tuesday: The Fed remained in the headlines as some misunderstanding about what was really discussed at the FOMC meeting relative to rate cuts. Broader move with all the sectors up on the day. Some FOMO trading remains as investors don’t want to miss out on the rally. Short interest has declined to the lowest point since 2021. 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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