The markets were more volatile on Friday as the deal on the debt ceiling really wasn’t a deal it was stalling the inevitable. The White House declared victory while Mr. McCarthy said things aren’t done as both sides took a break. Thus the index forfeited the early gains and closed slightly lower on the day. The challenge will be what investors come back to on Monday. More indecision on the debt issues? A deal hammered out? More speculation from all? We will see how this unfolds on Monday and what the sentiment is relative to the near-term outlook. Mr. Powell was out talking and stated the Fed may not have to raise rates the balance of the year as inflation curbs… not sure where he is shopping but, prices are still rising. The retail data continues to pile up following the Sales Report and earnings from the big box retailers… it isn’t good. Big-ticket sales have declined along with discretionary purchases. The consumer is spending more on food and services which cuts into discretionary spending. Thus, not sure what Mr. Powell is referring to when he states that inflation has curbed. Mega cap stocks looked good as they led the markets higher for the week. QQQ accelerated above the trend line and broke out of the Bollinger Bands showing they are now overextended technically. The volume however remained below average in the broad indexes. Plenty to ponder over the weekend as we focus on the trend and the news.
The S&P 500 was up 1.7% for the week breaking above resistance. QQQ was up 3.5% for the week and accelerated in the uptrend. The NASDAQ composite index was up 3% for the week breaking above resistance. Breadth increased some for the week but still is a sector-by-sector market. SOXX resumed leadership on a solid continuation move higher. Four of the eleven sectors closed in positive territory on Friday and seven ended the week in positive territory. The S&P 500 index closed down 0.1%. The NASDAQ was down 0.2% with SOXX down 0.5%. Small Caps (Russell 2000) were down 0.6% testing support again. The ten-year treasury yield closed at 3.69% up 5 bps on the day as TLT moved lower. Crude (USO) was down 0.2%… uncertainty remains in the pricing. Gasoline (UGA) was down 0.2%. Natural gas (UNG) was down 0.2% gapping higher Thursday. The dollar was down 0.3% after establishing an uptrend for the week. We are focused on managing the risk and watching how this all unfolds.
ONE Chart to Watch: QQQ – 1) Held the break above $329.77 resistance and breaking above the August highs. 2) Short-term trend is UP… starting from the January low. 3) Accelerated above the trendline showing an extended move short term. 4) Volume finally spiked above average on Thursday. 5) Breakout confirmed and trend established for now. $31.23 resistance was broken on Thursday. 6) TQQQ entry $27.45. stop $30.01. target $32.28. Adjusted the stop and letting it play out. 7) Broke through the top of the Bollinger Bands sign of being overextended. Raised stops and managing the risk near term. May take 1/3 to 1/2 of position off to lock in gains.
Additional Charts to Watch: SPY – cleared resistance $415.20 to break higher… adjusted stop. IWM – gave back gains on Friday and watching. SOXX – reversed the downtrend and moved to the March highs adding to gains. Added SOXL @ $14.65. USO – oversold… gap bounces off the lows offered entry on Wednesday at $63.60. Stop $62.50.
Leadership – NASDAQ, NASDAQ 100, SP500, XLY, XLK… QQQ breaks higher along with the NASDAQ. SPY finds upside momentum. Consumer and technology leading the sectors. Volume was below average on the moves… finally saw some breadth in the move, but still plenty of work to be done. If the debt ceiling issue is off the table the upside has a chance of extending, but we saw what happened on Friday when the deal wasn’t done.
Laggards – SOXX, SP400, RUTX, USO, XLF… All bounced on after growth stocks have lagged overall. If the markets are to run higher we need to see them participate. SOXX posted a positive move IJH finally bounced but still struggling. IWM can’t get out of the bottoming range. XLE, USO reversed the break lower but remains in a downtrend. KBE bounced on positive deposit data.
Interesting Charts: TJX (break from trading range).
Economic Data: 1) Empire State Manufacturing Expected -5. (absolutely ugly report at -31.8…) Philly Fed Factory Survey -20 expected. (-10.4 versus -31.3 previous). 2) Retail Sales +0.8% expected. (0.4% versus -0.7% previous). 3) Industrial Production 0.1% expected. Capacity Utilization 79.7% expected. 4) Housing Starts 1.4 million expected. (up 2.2% versus -4.5% previous). Building Permits 1.43 million expected. (-1.5% versus -3% previous). Existing Home Sales of 4.26 million are expected. (4.28 million versus 4.42 million). -23% year over year. 5) US leading economic indicators -0.6% expected. (-0.6% versus -1.2% previous). 6) Fed presidents were out all week beating the drum against inflation. (Bostic stated he didn’t see a rate cut prior to year-end and Powell stated the possibility of no more rate hikes in the balance of the year).
ON TAP THIS WEEK: 1) Fed out again lobbying prior to the June FOMC meeting. 2) New Home Sales April 665k expected. 3) GDP Q1 second reading 1.1% expected. 4) Pending Home Sales +1.1% expected. 5) Durable Goods Orders -0.9% expected. Minus Transportation -0.3% expected. 6) Personal Income 0.4% expected. Spending 0.4% expected. 7) Consumer Sentiment 57.7 expected.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Earnings 5/4 after-hours beat estimates. Holding. AMZN (bottom reversal) Holding (continued upside on Thursday… raised stop). MCD breakout. Holding. SPXL breakout. Holding. SOXX reversal. Holding. TQQQ breakout. Holding. SRS Holding (big break higher Tuesday). SJB Holding (break higher Tuesday). TGT (descending triangle short setup with Jun Puts). Holding. Holding. LABU (break up from bottoming range). Holding. ARKK (bottom reversal). Holding. EMTY (breakout confirmation). Added 5/8. FNGU (breaking out). Added Tuesday 5/8. GOOG (Channel breakout – raised stop). Added Wednesday 5/9. DLTR (Consolidation breakout). Added on Friday 5/12. MSFT (break from flag pattern). Added 5/18. ON (breakthrough resistance. $83). Added 5/18. AI (break higher… $23 level to hold). Added 5/18. MU (break above resistance). Added 5/19. M(bottom reversal). Added 5/19. CSCO (bottom reversal… good earnings). Added 5/19.
Stops Hit: None
Quote of the Day: “When a man opens a car door for his wife, it’s either a new car or a new wife.” – Prince Phillip.
The S&P 500 index closed down 6 points to 4192 the index was down 0.1% with below-average volume on the day. The index held above the 4160 support. 4173 resistance broken on the upside move. Managing the risk near term. Debt ceiling agreement stalls and stalls markets along with it. Four of the eleven sectors closed higher on the day with energy as the leader up 0.7%. The worst performer of the day was consumer discretionary down 0.8%. The VIX index closed at 16.8 moving slightly higher on the day. The uptrend from the October low remains in play. Plenty to watch as this all unfolds.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials downtrend off the January highs with some volatility along the way. Flirting with the 200-day MA as support. The sector was down 1.2% for the week.
XLU – Utilities trending lower from the December highs. Broke below the 50-day MA and $68 support. The sector was down 4.2% for the week. Hit stop on positions.
IYZ – Telecom downtrend from the February highs. No momentum to speak of and looking for a break lower. The sector was up 1.2% for the week. Bear flag on chart. Moved back to $21.63 previous support.
XLP – Consumer Staples upside trend with flag pattern breaking lower testing the 50-day MA. The sector was down 1.5% for the week. Trend reversal in play.
XLI – Industrials triangle pattern of consolidation on the chart. Looking for a trend to break up or down. The sector was down 1.3% for the week.
XLV – Healthcare drifting lower with support at $130.68. Topping pattern on the chart. The sector was down 0.6% for the week. XBI testing the upside trend.
XLE – Energy broke lower testing the March lows… attempted to bounce to end the week. The sector was up 1.4% for the week. The downtrend is in play from the November highs. Crude is down on global demand speculation relative to slowing economics. Hit stop on short positions with nice gain… watching how the week starts.
XLK – Technology The sector broke from the trading range clearing the $154.42 resistance. The sector was up 4.3% for the week. Providing leadership for the broad index. SOXX moved higher for the week as well as IGV. GOOG running on AI news.
XLF – Financials broke below the $32.36 level and recovered with a modest bounce in the banks. The sector was up 2.1% for the week. The trend is down from the February highs. Double bottom setup.
XLY – Consumer Discretionary Broke higher from the consolidation pattern in play on the chart. Retail got a boost on reports that the consumer is spending. They learned from the government. The sector was up 2.5% for the week.
IYR – REITs remain in a trading range within the downtrend from the February highs. The sector was down 1.9% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising. Own SRS on downside risk. Residential moving up… commercial moving down.
Summary: The index was lower on Friday. It moved higher in the uptrend for the week. Breadth is a matter of interpretation as some say yes… I say it is still split. Remains a sector-driven market. XLK and XLY leading the move higher. KBE bounced on deposit-increasing news. XLE is still on the short side of the chart but it did bounce. XLV, XBI, XLI, IYR, IYZ, and XLU are all struggling to find any momentum. The index remains in an uptrend from the October low. News is the primary driver up and down for the index. Taking what is offered near term and letting it all unfold. 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 down 31 points to 12,657 as the index was down 0.24% for the day. The index moved above resistance and continued in the uptrend. Mega-caps leading along with technology. SOXX was up on the week along with IGV. 12,246 is the level of support to hold.
NASDAQ 100 (QQQ) was 0.23% with the mega caps holding near the highs. Moved above the $329.77 resistance and accelerated in the trend. The support is $329.77. The sector had a negative bias with 34 of the 100 stocks closing in positive territory for the day. Added TQQQ entry $27.45 (raised stop $30.01).
Semiconductors (SOXX) Tested the $400 level of support and finally found some upside momentum. The trend reversed back to the upside and needs to clear the March highs. Added SOXL $13.60. Stop $17.07 (Adjusted). The sector was up 7.8% for the week. Watching how it plays out next week.
Software (IGV) Broke above the $304 resistance adding to the uptrend. Added IGV $291. Stop $310 (adjusted). The sector was up 5.2% for the week. Mega caps leading the sector.
Biotech (IBB) The sector tested back to the $128.35 level and consolidating. The sector was down 0.1% for the week. Large caps are outperforming small and mid-cap stocks. Added IBB $129.50. Added XBI $82.80. Consolidation pattern in a downtrend.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. Established a bottoming range. The sector was up 1.9% for the week. Letting it unfold.
Transports (IYT) negative earnings created a big test lower to support at the $213 level. Established a trading range. The sector was up 1.5% for the week. If the markets are to move higher overall they need transport to be positive.
The Dollar (UUP) The dollar remains volatile but did break higher for the week. What is on the horizon? If the dollar gets stronger watch the ripple effect… but, needs to follow through first. The dollar was up 0.6% for the week.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.69% up from 3.46% last week. Rates climbed all week on Fed talk. Yields trended higher for the week pushing TLT lower. TLT was down 3% for the week.
Crude oil (USO) Bounced and then sold lower… the news states China and US are consuming less on weaker economic data. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. USO was up 2.9% for the week. Bear flag on the chart.
Gold (GLD) The commodity moved lower on the stronger dollar all week. It managed to bounce on Friday… worth watching how this plays out next week. The stronger dollar is weighing on the metal… for now. The metal was down 1.7% for the week.
Questions to Ponder: Navigating Uncertainty
Stagflation – persistent inflation combined with stagnant consumer demand and relatively high unemployment. Do we have this situation currently in the US economy? If it doesn’t exist in a purely technically defined way, it is creating the same economic environment currently in the US, and the current administration is in denial. Thus, we will continue to feel the effects of this until we change course.
Money Supply – Falling at the fastest rate since 1930. M2 fell 2.2% in February and fell 2.4% in March… Contraction in supply should contract liquidity in the system and stifle inflation. Watch bank deposits they are still declining. See the above definition of stagflation… the pressure on the economy is building.
Banking Facts: banks borrowed $8 billion last week down from the $32.6 billion the previous week. 9% decline reported by regional banks in deposits… outflows remain… “sound and resilient”. The Fed is giving just enough money through the BTFP (Bank Term Funding Program) facility to keep from a collapse ($305.4 billion, up $8 billion on the week) but not enough to eliminate the pain. “Sound and resilient” are the words uttered by many… not even close.
Week ending 5/3 – Money Market Funds showed an $18.3 billion increase in deposits. Bank deposits fell $13.8 billion. Doesn’t include the PACW announcement of a 10% decline in deposits… “sound & resilient”!
Consumer credit card debt is on the rise. It totaled $986 billion in the first quarter. This is a negative sign for the economic picture as most consumer debt is attributed to monthly expenses rising due to inflation.
Our longer-term view is still negative, but 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. We remain focused on short-term trades until there is longer-term directional clarity. Trading the volatility has performed better than holding through the cycle. Sector-driven activity is in play short term with narrow leadership. News is in the driver’s seat as we take positions that are technically moving and offering opportunities. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal now is to manage the risk of positions, take what is offered… short or long, and then manage your money.
Friday: Stocks were lower as the debt ceiling agreement stalled and renews uncertainty in the markets for now. The leadership is clearly in XLK and XLY. The balance of the sectors have drifted higher in relief bounces, but they are still lagging overall. Banks (KBE) bounced on deposit news showing some short covering. Energy (XLE) bounced but was still in a downtrend. The question is if the debt ceiling deal isn’t done… how does the market respond moving forward? Four of the eleven sectors closed higher on the day with below-average volume. We see the overall trend is still up from the October lows. NASDAQ is leading, S&P 500 is playing catch up, and Small caps and Dow bounced but still lagging. Got some breadth in the move higher to gain confidence in the move but plenty of issues underlying and nagging investors. Taking what is offered and managing the risk that is.
What I am watching on Monday: Large-cap biotech XBI upside resumption with a test to the previous lows… KBE/KRE follow through on bounce? Continued run higher in GOOG… SOXX and IGV breaking higher… broader leadership coming? GLD bounce? XLE bounce? USO bounce? This market has to be evaluated sector by sector to define the leadership near term. Positive setups are in place… Upside: QQQ, SOXX, SPY. Downside: FAZ, SRS, ERY, TZA.
“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.