The market reacted positively to the earnings and buybacks from Tesla and Chevron. Let’s face it the earnings announcements to this point have been lackluster along with plenty of warnings relative to the future. The good news helped push stocks higher to start the day. The elephant in the room was GDP and durable goods, both were on the positive side raising concerns about the Fed staying engaged with interest rates. The markets did test the move higher moving slightly negative prior to lunch… but the buyers stepped in and closed higher on the day posting nice gains. The resilience in stocks remains and the bias remains on the upside… for now. As we have discussed many times… don’t fight the Fed and the Fed is in full marketing mode relative to the Feb 1st meeting. There have been nine of the presidents out talking about their position on inflation over the last two weeks. They don’t want markets to be surprised by their continued hikes in rates. The challenge looking forward is the underlying belief the Fed will stop hiking rates soon based on improving data relative to inflation… remember inflation is only part of the equation. Tackling inflation is slowing the economy and in turn that will slow earnings… which translates into lower stock prices. All said patience is what we have to have for now as we take it one day at a time. The volume was above average, the VIX closed the week at 18.7 as the sentiment leaned toward positive. The S&P 500 index closed up 1.19% for the day. The NASDAQ was up 1.7%. Small Caps (Russell 2000) were up 0.6% and lagging. The ten-year treasury yield closed at 3.49% up 3 bps as TLT remains in an uptrend consolidation pattern. Important to note the dip near the 3.4% support level for the bond… if the break holds this gets interesting for stocks. Crude (USO) was up 0.6% and showing a consolidation pattern. Gasoline (UGA) was up 0.7% and testing near the November highs. Natural gas (UNG) was down 1.9% and back near the April 2021 lows. The dollar was flat trying to find near-term support. The goal is to see how this plays out as we move forward. We are taking what the market gives and managing the risk.
Things to Watch This Week: 1) The indices fought back versus falling back to the October lows… upside bias remains. 2) Earnings. 3) Watch resistance 4086 SPX… if we get through August highs are the target.
Economic Data: 1) Real Disposable Income Dec. (3.2% previous). Real Consumer Spending Dec. (0.1% previous). 2) PCE Price Index Dec. (0.1% previous). 3) Core PCE (0.2% previous. 0.3% expected). 4) University of Michigan Consumer Sentiment Jan. (64.6 previous. 64.6 expected). 5) Pending Home Sales (-4% previous. -1% expected).
Charts to Watch: SPY $399.50 resistance (broke higher Thursday), QQQ $282.80 resistances (broke hgiher Wednesday), SOXX $390.40 resistance (broke higher Monday), IWM $186.60 resistance (broke higher Thursday). All tested lower… All bounced… thus, be aware of the upside bias still in play. Watching how investors respond to news and earnings going forward.
SOXX/XLK offering leadership is another positive for the indices.
FXB the British pound is in an interesting pattern. The cup and handle pattern over the last six months is in a position to break higher. The dollar has been weakening of late and thus the move above the August highs.
Metals & Mining: XME (hit entry), SLX (hit entry), GDX, SCCO, PAAS testing but holding up well. JJM shows the trend.
Energy: XLE, IEO holding up well along with individual stocks FANG, COP. (all moving higher).
Previous Charts of Interest Still in Play: FCX (test support, raised stop as hit resistance), KWEB (breaking higher “V” bottom, hitting resistance). UGA (double bottom, broke above the 50 DMA). Adjusted stops as necessary. GOLD (saucer breakout, hit stop). RIG (cup and handle breakout, big move adjusted stop). SOXX (break upside through resistance, hit stop). SPY (reversal, reentered). QQQ (reversal, adjusted stop). SOXX (back above $380=add).
Stops Hit: None
Quote of the Day: “Why can’t you hear a pterodactyl go to the bathroom?… Because the “P” is silent!” — Anonymous.
The S&P 500 index closed up 44.2 points to 4060 the index was up 1.1% with above-average volume. The index broke above near-term resistance and watching 4086 as level to clear. Ten of the eleven sectors closed higher on the day with energy as the leader up 3.1%. The worst performer of the day was consumer staples down 0.35%. The VIX index closed at 18.7 as sentiment shifts toward positive. Managing the risk.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials broke from the trading range back to the previous highs and tested the move. The sector was down 1.2% for the week. Entry $79. Reverse head and shoulder pattern on the chart.
XLU – Utilities broke support and tested lower. Watching how it unfolds going forward. The sector was down 3.2% for the week.
IYZ – Telecom broke above the previous highs then tested the move. The sector was down 1.8% for the week. Watching how it unfolds. Entry $22.50. Cup and handle pattern.
XLP – Consumer Staples broke lower adding to the weakness of the sector. The sector was down 2.8% for the week. Looking for a decision on direction.
XLI – Industrials sold back to support giving up all the gains from last week. The sector was down 3.4% for the week. Tested the December lows.
XLV – Healthcare Struggling to find direction needs to clear $136.50 resistance. The sector was down 1.1% for the week. Broke support but trying to rebound.
XLE – Energy established a trading range and broke higher. The sector was up 0.6% for the week. Entry hit $89. USO and UGA are in play currently. Moved to $92.95 resistance. upside in play.
XLK – Technology The sector reversed off the lows finally breaking through the $127 level. This will be a key component if the upside is to continue. The sector was up 0.6% for the week. Entry at $127.50. $137 resistance in play – remains the leader.
XLF – Financials established a bottom reversal and tested the move. Positive moves to end the week. The sector was down 2.1% for the week. Entry $34.50. C (break above resistance). Broke above $35.85 resistance.
XLY – Consumer Discretionary bottom reversal in play. The sector was down 0.6% for the week. After leading the downside see solid upside bounce. Entry $132. AMZN ($98 resistance). Upside breakout from cup and handle pattern.
IYR – REITs bottom reversal in play. The sector was down 0.6% for the week. Lower interest rates could offer some upside to the sector near term. 12/30/22 10-year treasury yield peaked… IYR +6.2% since then.
Summary: The index was up 1.1% for the day. It has established a bottom reversal that tested and added to the upside move. 4086 level to watch on Friday. Trading what the market gives as positive bias remains resilient in the face of data, earnings, and the Fed. 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 199 points to 11,512 as the index was up 1.76% for the day. The bounce off the October lows resumed and now testing the December highs. The positive momentum remains with investors willing to buy. 11,475 broken on the close… need to hold and advance. Technology and semiconductors are the keys…. watching how they play out.
NASDAQ 100 (QQQ) was up 1.95% with the large caps adding to the upside move. Broke above $284.35 resistance… $293.35 next. Buyers remain in control for now. The sector had a positive bias with 79 of the 100 stocks closing in positive territory for the day. The chart shows a test of the positive momentum and continuation. AAPL ($137.20 level to clear/hit entry). AMZN (hitting resistance). GOOG (bottoming pattern/hit entry). MSFT (bottom reversal/hit entry).
Semiconductors (SOXX) made a move higher to break from the bottoming range and added nicely to the upside then tested the move and bounced back on Friday to end the week higher. The sector was down 0.3% for the week. $390.40 next level of resistance. Entry $355. NVDA entry $171.95. Stop $166. AVGO (cup & handle). RMBS (broke above previous highs). SWKS solid break higher). Moved above $390.40 resistance and added to the position. $420 next level to watch.
Software (IGV) Attempted a bottom reversal on the week but still needs some upside momentum. The sector was up 1.5% for the week. Watching how the week begins. CRM (sup and handle/hit entry). Tested and continued higher clearing the December highs… August highs next?
Biotech (IBB) The sector remains in a trading range with a positive bias of late. The sector was down 0.6% for the week. Entry $134.10. Back to the top of the trading range… looking for break higher.
Small-Cap Index (IWM) bottom reversal with leadership overall showing a positive trend. Tested the move higher and bounce on Friday. The sector was down 1.1% for the week. Entry $177. Cup and Handle pattern in play.
Transports (IYT) Bottom reversal and positive upside momentum with cup and handle pattern. The sector was down 0.6% for the week. Need to clear $234 resistance. Entry $218. ODFL, UAL, RYAAY. Reverse head and shoulder pattern… showing some weakness of late.
The Dollar (UUP) The dollar moved lower on economic data and broke the previous lows. The dollar was down 1% for the week. The outlook remains negative. Building a bottoming range.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.48% down from 3.51% last week. The yields reversed the last month adding to the upside trade in bonds. TLT was up 2.1% for the week. Entry TLT $102.35. Stop $105.50. Cup and handle setup. Consolidating.
Crude oil (USO) Reversal in trend for crude the last few weeks pushing back to the previous highs. Supply-demand speculation as China opens its economy and borders. USO was up 3.7% for the week. Entry $67. Stop $69. OIS (uptrend/hit entry). XOM (at resistance/hit entry). CVX (breaking higher from consolidation pattern/hit entry). Double bottom pattern needs to clear resistance at the $72 level.
Gold (GLD) The commodity has been trading higher as the dollar declines. The metal was up 3% for the week. GLD entry $154.90. Stop $176. Cleared resistance at $174.30 and got the break higher. Letting it run and adjusting stops. GDX entry$31.50.
Put/Call ratio was 0.89 on Thursday… Bias remains positive.
Questions to Ponder: Navigating Uncertainty
With all the sanctions on Russian oil, they are still the largest provider of crude to Europe… interesting!
Remember the infrastructure spending bill that Congress passed last year? $1 trillion is to be spent on refurbishing and establishing new infrastructure… it has started impacting stocks like Caterpillar (CAT) and Freeport McMoRan (FCX)… This is a sector that will be a benefactor in years to come. We own FCX and watching others as opportunities relative to the spending unfold. URI, TEX, RIO, BHP, DE… some to track.
Thursday: The market remains challenged by data versus hope. The data is weakening relative to earnings, growth, and outlook. The hope is the Fed will slow the rate of hiking interest rates… the hope is not likely to happen near term as we will see on Feb 1st. In the meantime, we will take what is offered and avoid the speculation that is. Stops raised. Eyes open. Emotions removed. Thursday offered data from the GDP and durable transports that were positive. We will see how the Fed interprets that next week. Earning finally get some good news from TSLA and CVX helping the upside for the day. Watching how this unfolds relative to sentiment and outlook. We are a far way from seeing growth… my opinion. Managing our risk as we add and subtract trading positions based on the charts. The dollar remains flat. Interest rates hold near the 3.5% level on the ten-year bond. Optimism remains in play for now as we approach key resistance points on the charts. We could see a test of the move near term… and the FOMC meeting is next week. Take what is offered and manage the risk accordingly. Volatility closed at 18.7 as anxiety levels dissipate. The money supply shifted towards positive as the money remains cautious despite the headlines. Volume moved above average. Stay focused and follow the money. Follow the Fed. Don’t assume anything and manage the risk that is. Watch for the volume, direction, sentiment, and volatility levels to lead you to what takes place. There are plenty of moving parts, we have to understand that truth/reality eventually plays out in the markets. Until then we will continue to take what is offered and manage the risk that is.
As stated above we continue to watch and take what is offered. 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. Recession talks are turning towards stagflation of late which could be worse for consumers as it tends to last longer with a slow negative effect. We remain focused on short-term trades until there is directional clarity. The charts are showing a short-term trend reversal… technology and consumer discretionary have led the move. Financials reversed along with major indexes as earnings helped… along with lower interest rates. 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 the risk.
“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.