The market was up and down throughout the day as the charts held support and at the end of the day closed higher. The upside was led by large caps, consumer discretionary, and technology. The downside came from energy which gapped lower and never really found any buyers. As a result, the NASDAQ and the SP 500 finished the day positive on higher volume. The 4200 level is in play for the SP500 and 12,977 for the NASDAQ both held and posted solid gains on the day. A quick look at the charts shows consolidation at support over the last two weeks as we continue to watch this current activity unfold. XLK and XLY both tested the previous lows and bounced. Other sectors found near-term lows and bounced. The VIX index closed lower with intraday activity still showing uncertainty from investors. Treasury yields closed down slightly after hitting a sixteen-year high. Crude fell on the domestic and global economic outlook. Economic data is nothing short of ugly as ADP was weaker, ISM Services lower, and credit card usage fell more than expected… not a great picture overall. With the activity on Wednesday, we still ask does September selling lead to October bottoms? We are willing to take what the market gives both up and down. Yesterday was mostly up… manage your risk accordingly.
Volume was above average on the day. Wednesday’s activity managed to hold support and bounce. There is still plenty of work to be done for the upside to gain momentum. The S&P 500 index closed up 0.8%. The NASDAQ was up 1.3%. The SOXX was up 1.3%. Small Caps (Russell 2000) were up 0.1%. The ten-year treasury yield closed at 4.73% down 7 bps. Crude (USO) was down 5.4%. (UGA) was down 6.8%. Natural gas (UNG) was up 1.7%. The dollar was down 0.3%. We are focused on managing the risk in the current environment.
ONE Chart to Watch: QQQ – 1) Tested support at $354.10 again and bounced. 2) Consolidating at support.
Additional Charts to Watch:
Retail Stores – EMTY breaking higher as commercial real estate for retail stores struggles with plenty of distressed sales and bankruptcy issues in play. Short side entry was taken. Entry $15.25. Stop moved to $16.85.
Stops Hit: None
Quote of the Day: “It is not length of life, but depth of life.” – Ralph Waldo Emerson.
The S&P 500 index closed up 34 points to 4263 moving the index up 0.81% with above-average volume on the day. The index failed to move back above the 4300 level on the close but held support. Eight of the eleven sectors closed higher on the day with consume discretionary as the leader up 1.9%. The worst performer of the day was energy down 3.1%. The VIX index closed at 18.5 moving lower on the day. Downside holds support. Will the buyers show up again on Thursday?
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials broke below the August lows and found some support this week. The sector was up 0.2% for the week. No Positions. Attempting to find support.
XLU – Utilities accelerated lower for the week and broke below the $60 level. The sector was down 6.9% for the week. Accelerated lower on higher interest rates. Small bounce Tuesday at support.
IYZ – Telecom reversed lower again test support at the $21 level. The sector was down 1.8% for the week. No Positions. Moved below the May lows.
XLP – Consumer Staples broke below the March lows and added to the losses this week. Remains in a downtrend. The sector was down 1.9% for the week. No Positions.
XLI – Industrials downtrend remains in play but did find some support during the week. The sector was down 0.4% for the week. No Positions.
XLV – Healthcare downtrend in play with $128.50 near-term support. The sector was down 1% for the week. No Positions. Broke support and moving lower.
XLE – Energy tested this week with the large-cap stocks showing some profit-taking on Friday. The sector was up 1.2% for the week. No Positions. Moved to the 200 day MA… looking for opportunity.
XLK – Technology The sector has turned lower and broke support at $169.50… a negative short-term outlook but bounces modestly to end the week. The sector was down 0.3% for the week. Bottom reversal on the chart testing.
XLF – Financials downside accelerated on higher interest rates. Found some support. The sector was down 1.4% for the week. Bank downgrades not helping the sector. Downside resumes.
XLY – Consumer Discretionary found support after breaking lower. The sector was up 0.1% for the week. No Positions. Retail (XRT) chart moving lower as stocks show weakness. Testing support.
IYR – REITs Broke $82.96 support accelerated lower on higher interest rate worries and downside talk on defaults rising in commercial real estate. The sector was down 2.5% for the week. No Positions. Accelerating downside with higher interest rates.
Summary: The index found support on Wednesday… watching how this unfolds and what opportunities are presented. Watching how this handles support and if the sentiment shifts. There is talk of the market begin ‘broken’. Not really sure of what that means, but the seasonality of the markets is definitely in play. On the other side of the talk is the year-end rally… watching to see what unfolds near term. The index moved to previous lows… tested and bounced. 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 176 points to 13,236 as the index was up 1.35% for the day. Buyers showed up and bounced off support at 12,977. A move back above the 13,275 mark would help the outlook. Watching how the near-term move unfolds. The downtrend from the July highs is still in play.
NASDAQ 100 (QQQ) was up 1.36% for the day as the mega caps led the day. Testing the $353.80 support and bounced. The sector had a positive bias for the day with 89 of the 100 stocks closing in positive territory for the day. Watching… AAPL bottoming pattern… AMZN found support… GOOG moved above the 50-day MA… META consolidation pattern… NFLX moved to $375 support… MSFT consolidating.
Semiconductors (SOXX) The sector closed at the $473 level of support and remained negative overall. The sector was up 1.6% for the week. Below $473… needs to hold support.
Software (IGV) The sector closed above the $335 support level. The sector was up 0.2% for the week. Back above $336 support.
Biotech (IBB) The sector remains in a downtrend but did find some support at the $122 level. The sector was down 0.2% for the week. No Positions. Broke support at $121.30… downside back in play.
Small-Cap Index (IWM) Found support after breaking lower last week. The sector was up 0.1% for the week. No Position. The downside is back in play.
Transports (IYT) downtrend remains in play and found some support at the $231 level. Closed at the 200-day MA. The sector was down 0.2% for the week. No positions. Back below $231 support.
The Dollar (UUP) The dollar moved higher for the week as it remains in the uptrend. 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 again.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.57% up from 4.43% last week. TLT was down 3% for the week. Watching how the Fed manages the yield curve. Moved higher on the week which will likely get the Fed in motion behind the scenes. No Positions. 4.73% on Wednesday.
Crude oil (USO) Crude showing some topping on the chart, but more likely a pause before moving higher. USO was up 0.3% for the week. No Positions… watching for the opportunity to buy. Broke $80.20 support watching if it confirms a downside move.
Gold (GLD) The commodity accelerated lower on the week with $170 support nearby. The metal was down 4% for the week. Down again.
Our longer-term view remains neutral as the upside trend from the October lows was broken confirming the downside in play for long-term positions. 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 plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate limbo awaiting confirmation… the last eight weeks’ the micro-trend has tested the longer-term trend and we need to manage stops accordingly on longer-term positions. The topping patterns broke short-term support to create micro-term downtrends that moved lower this week. The economic data is showing signs of fatigue relative to growth. Seeing some oversold sectors short term as some found support and tried to bounce. We look to next week 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.
Wednesday: Indexes held support and bounced modestly. Sector leaders retested support. Sector laggards broke lower to the next level of support. Interest rates are spooking investors. Economic data is confirming the ugly outlook. I would expect the data to remain negative with the only real caveat being how negative it will be. We have plenty of cash on the sidelines as we look for more clarity up or down. I would expect an accelerated sell-off followed by some buying near term. Taking what is offered and remaining focused on short-term activity for direction.
What I am watching:
Seasonal selling? September and October are seasonal periods where selling historically occurs… question being, is this a seasonal sell-off or is there more at play currently? Things are definitely not rosey relative to the data and the economic outlook, but from a pattern perspective, the indexes are still holding support. Small Caps (IWM) is ugly but at the support of the April/May lows. SP500 and NASDAQ at the previous lows as support. Thus patience is called for as the current patterns unfold. A year-end rally is not out of the question no matter how negative things look. Remember logic applies long-term to markets, emotions control the short term.
GBTC… upside favored. (Added $18.61.) Solid upside Tuesday.
Mortgage demand is at the lowest levels since 1996… applications fell 6% last week alone. Bank stocks will get hit by this over time.
Credit card usage dropped again last week by 11.3% versus down 10.9% the prior week. Think MA, AXP, and V stock prices.
US Banks unrealized losses on their low-interest assets are rising as rates move higher. Watch the FDIC reports for Q3 estimates… Q2 was $558 billion… that will rise with rates moving up in Q3. What about derivative exposure in large banks? Maybe we shouldn’t think about it…
Congress just keeps the stupid effect alive. They ousted McCarthy as Speaker of the House late Tuesday afternoon… now what? Plenty of speculation and uncertainty around the leadership. The simple question is who is next? Since this has never happened before in history it presents plenty of procedural issues around bills being passed and what about the budget deal that is needed in the next five weeks? Markets will be watching how this unfolds.
Goldman Sachs stated shorts on stocks and the market are as strong now as they were in March 2020. That makes for an interesting scenario relative to the markets being oversold short term… but what about the longer term view? They were out again on Monday warning about a “financial accident” if rates continue to climb towards 7% Fed Funds Rate. Yes, the leaks of what we have been saying for a while, are finally making the airwaves… not a good situation for investors or consumers.
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.