Downside pressure remains

The markets remain challenged as investors look for direction. There is both optimism and pessimism about the outlook near term. Some see things improving relative to where we have been and others see recession and inflation heating up again. The reality is somewhere in the middle as the data unfolds. The economic data showed ISM Services slowing slightly to 52.7% versus 53.9 previously. Initial jobless claims were in line and Productivity jumped to 3.7% versus -1.3% previously. After-hours earnings from AMZN and AAPL were a mixed bag. Amazon beat handily and was up 8% plus whiles the vultures picked apart Apple data and the stock was down 2%. They will have an impact on Friday’s direction and sentiment. The July Jobs Report will equally impact the direction on Friday all eyes are fixed to see how good or bad the number is. Bonds sold as the 10-year yield jumped 4.19% which is the highest level since October 2022. This is not good for the Fed and I expect they will do what they need (put more liquidity into the system) to keep rates lower. Crude resumed the upside with the extension of production cuts from OPEC. Taking what is offered in terms of rotation and momentum. Watching Jobs Report to start Friday.

The markets gapped lower at the open and rallied back to even by midday. Plenty of rambling by the talking heads about the outlook and the economic picture. The greater challenge currently is a lack of direction in the markets overall. Data continues to tail-wagging the dog. We adjusted stops on our downside positions. still looking for more testing overall of the upside move. Three of the eleven sectors closed in the green with the leadership coming from energy with crude higher. Volume was average on the day. Scanning the ETFs leadership remains thin with USO, FXI, and XLE positive. The S&P 500 index closed down 0.2%. The NASDAQ was down 0.1%. The SOXX was down 0.2%. Small Caps (Russell 2000) were down 0.3%. The ten-year treasury yield closed at 4.19% up 11 bps. Crude (USO) was up 2.3%. (UGA) was down 0.1%. Natural gas (UNG) was up 3.1%. The dollar was down 0.1%. We are focused on managing the risk and seeing how investors respond to the disappointing data.

187,000 new jobs added in July was below the expected 200,000… 3.5% unemployment rate versus 3.6% last month. roughly 30% of the working-age population isn’t working? Earnings rose 0.4% versus 0.4% in June. 62.6% participation rate vs February 2020 it was 63.3%… those not working.

ONE Chart to Watch: QQQ – 1) Held above the $366.14 mark and closed down on Thursday. 2) Short-term trend is UP… starting from the January low. Topping pattern in play. 3) Moved down to the 30-day MA. 4) Added SQQQ at $17.81. Stop $17.81.

Additional Charts to Watch:

SPY – Moved above the June highs and resumed the uptrend only to test lower again. $453 stop hit on positions to lock in a solid gain. $457.60 target hit on Monday. Watching the current test near the highs for near-term direction. No positions.

IWM – struggled and reversed off support with solid follow-through on the upside clearing the $189 level. TNA entry $36.31. Stop $40 (HIT STOP). Testing the uptrend… watching how it unfolds.

SOXX – moved back above the $497.61 level and above the June highs. Cleared the previous July high. Testing with $508 support currently. No positions and watching how this unfolds near term.

USO – broke above the top of the range with upside pressure coming from the supply data. Hit the entry point at $65. Stop $71.22 (adjusted). Positive for the commodity as our positions post gains, but the impact on the economic picture isn’t as it acts as a tax on individuals. OPEC extending production caps… $100 projections out for crude prices…

IYT transports tested back to the $247.67 level bounced and moved to new highs. Entry $231.20. Stop $260. STOP HIT. A solid uptrend in play. Testing the trend… has my attention. Added to the downside…

DIA reversed the swing trade upside and tested back to the $337.10 support… added a position $339.35. Stop $351.30. An uptrend in play with a rolling top currently.

AAPL – reversal confirmed with higher low and break upside. Added 5/7 $173. Stop $191.70. The uptrend remains. Sold position prior to the close.

Stops Hit: IYT, AAPL

Quote of the Day: “I dream of painting and then I paint my dream.” – Vincent Van Gogh

The S&P 500 index closed down 11 points to 4501 the index was down 0.25% with average volume on the day. The index held the move above the 4400 level. 4585 resistance came into play again and tested back to the 30-day MA. Three of the eleven sectors closed higher on the day with energy as the leader up 1%. The worst performer of the day was utilities down 2.3%. The VIX index closed at 15.9 and still elevated. The uptrend from the October low remains in play but is testing.

Sector Rotation and the S&P 500 Index:

XLB – Basic Materials solid week as the chart holds above the $84 resistance to move higher. The sector was up 1.8% for the week. No Positions. Tested to support.

XLU – Utilities Bottoming range broke higher and tested holding support at $66.85… The sector was down 2% for the week. Entry $67.05. Broke support at $66.85 and then tanked.

IYZ – Telecom In a downtrend from the February highs, bounced at support and back to the top of the current range. Need to clear $22.30 resistance. The sector was up 0.1% for the week. No Position. Stalled at resistance. Moved to resistance at the 200-day MA.

XLP – Consumer Staples broke higher from the consolidation pattern. Entry at $74.72. The sector was 0.6% for the week. Rolling top.

XLI – Industrials The trend broke to the upside breaking above resistance at the $102.40 level. Tested the breakout and moved higher. The sector was up 0.5% for the week. XLI entry $102.40. Rolling top.

XLV – Healthcare Finally broke higher from the consolidation pattern from the March lows. Volatile trading week for the sector. The sector was up 0.3% for the week. Entry.$132.64. Stalled at the highs. Testing lower again with $132.64 support.

XLE – Energy Bounced and cleared the $82.74 level and broke the downtrend from the October highs. The sector was up 1.8% for the week. Entry $81.95. Is it ready to resume a leadership role? Testing the upside move needs to clear $87.54 resistance.

IEO – broke higher as offshore interest rise. Entry $85. Stop $92.

XLK – Technology The sector is testing the move higher closed on the 10-day MA. The sector was up 1% for the week. XLK entry $151.53. Tested but held support. Broke lower tested the 30-day MA.

XLF – Financials holding above $33.35 support and in an uptrend from the March lows. The sector was down 0.1% for the week. KIE broke above resistance. Entry $40.60. Stop $40.60. UYG entry $45.60. Stop $49 (HIT). Continued upside move. Rolling top

XLY – Consumer Discretionary Tested the move higher in the uptrend. The sector was up 1% for the week. Remains in a leadership role. No Positions. Broke down.

IYR – REITs moved above the $85.50 resistance level and tested this week. The sector was down 1.8% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising but money flow has increased to other areas of the sector. No Positions. Watching interest rate near the 4% level again. Broke lower… rate impacting the sector.

REITs on watch with interest rates rising above 4% and the latest round of mortgage data showing a 4.4% decline in applications. That is the first decline in four weeks. 30-year mortgage jumped to 6.85%. IYR and ITB are on watch relative to the downside. Watching the downside risk in commercial properties. Rolling top on the chart.

Summary: The index moved lower on the day as investors rotate and money flow shifted. Watching the data points on Friday to offer some near-term direction. Three of the eleven sectors closed higher on the day with XLE in the leadership role. XLU set the pace on the downside and looking for how plays out near term. The broad index remains in an uptrend from the October lows with some interim testing. 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.)


The NASDAQ index closed down 13 points to 13,959 as the index was down 0.1% for the day. The index remains in the uptrend with some testing. Support is 13,762. Letting the move unfold as tech and mega caps test their respective highs. SOXX was down 0.2% on the day. IGV was down 0.6%. Watching support and how the activity unfolds.

NASDAQ 100 (QQQ) was down 0.16% on the day as mega caps traded lower. Remains above the $366.14 support. The mega-caps, as we have discussed, are/were extended from the May break higher and thus we manage the risk short term. We don’t have any positions currently. Watching for the next directional opportunity. The sector had a negative bias with 49 of the 100 stocks closing in positive territory for the day.

Semiconductors (SOXX) The sector continued higher after testing and remains in an uptrend. Established a higher low followed through in a continuation of the uptrend. The sector was up 4.3% for the week. Down 3.8% on Wednesday testing the uptrend. Watching the reaction to AMZN and AAPL earnings.

Software (IGV) Testing again in the uptrend. The sector remains above the $336 level of support. Added IGV $291. Stop $351 (adjusted). The sector was up 0.1% for the week. Positive upside to start the week turned lower on Wednesday.

Biotech (IBB) The sector broke above the $128.35 resistance level and tested. The sector was down 1.2% for the week. Broke $128.35 support.

Small-Cap Index (IWM) Cleared the $189 resistance level to establish an uptrend. The sector was up 1% for the week. Entry TNA $36.31. Stalled at the current highs. Solid upside to test the March highs… tested lower on Wednesday.

Transports (IYT) Remains in a solid up trend with the 10-day MA as support. The sector was up 2% for the week. IYT Entry $231. Tested on ISM data.

The Dollar (UUP) The dollar tanked retesting the April lows and bounced in ‘V’ bottom pattern. The dollar was up 0.7% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Higher on the week.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.96% up from 3.83% last week. TLT was down 1.9% for the week. Moved above 4% briefly and watching how it impacts the economy. Moved above 4% again as Fitch downgrades bonds.

Crude oil (USO) Broke higher and remains in a solid uptrend. USO was up 4.5% for the week. UCO entry $24.15. Reestablished the uptrend as supply tightens. OPEC keeps pressure on with production cuts.

Gold (GLD) The commodity broke higher from the base and reversed on a stronger dollar. No positions. The metal was down 0.2% for the week. Moving lower on the stronger dollar.


Our longer-term view shifted to neutral as the upside trend from the October lows remains in play. 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. With the trend higher it puts the broad indexes in intermediate uptrend… this is a positive overall for the broad markets. The topping patterns remain in place and we remain cautious about the outlook near term as seen in the selling on Wednesday. The economic data is showing some signs of fatigue relative to growth. Some testing in leaders and some rotation among sectors but overall the trend remains higher. Tightening our stops on intermediate and short-term positions. We locked in some gains on technology positions and added some others as money rotated. Trading the volatility has performed better than holding through the cycle. Sector-driven activity is in play short term with some testing at the highs. 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.

Thursday: Big downside moves on the day with investors leary about the outlook. Plenty of data for July and it is having an impact based on the current moves. Letting it play out as we look for directional confirmation on QQQ, SPY, SOXX, and TLT. We have added positions in sectors showing positive momentum and exited those hitting our stops. We see the overall trend is still up from the October lows. Watching where money is going near term for clues of what is on the horizon. Manage the risk that is and let the current trend plays out. Plenty to ponder as we progress in the current environment.

What I am watching on Thursday: 1) SPY, QQQ, SOXX, directional decision. 2) TLT reaction to downgrade. The issues are just beginning relative to the spending spree of the current administration. The debt has increased $2 Trillion in 2023 and we still have 5 months to go. 10-Year yield moved above 4% again… watching how this plays out. TBT added to our positions. 3) Jobs Report. 4) AI, SOXX, IGV, XLF… are a few to watch. 5) AAPL earnings reaction and any opportunity.

Trending concerns:

1) Elimination of the debt ceiling by Congress has sent the administration on a spending spree… no big surprise when you can’t bounce checks you keep writing them for undisclosed favors. TLT fell 1.9% Tuesday and we added TBT to our positions. Watching how this storyline unfolds as Fitch downgrades the Treasury Bond to AA+.

2) Inflation warnings are popping up again… on May 4th crude was $67. On August 1st crude was $81.96 which is a 22.1% increase in price… where does it go? Correct, into everything we basically touch. We own USO and UGA in order to keep pace with being able to afford gasoline. But it goes further and we should be looking at where to invest to keep pace with the next wave of inflation.

3) Climate Emergency? If this executive order is enacted by the Biden Administration bar the doors as spending will escalate to levels not seen since WWII. The draconian measures will mirror those seen during the pandemic lockdowns. They want to eliminate anything gas or electric in the name of “clean energy”. Another storyline that has our attention.

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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