Jim’s Notes Market Summary

Moving the Market – Last Trading Day 2023

The markets saw some mild profit-taking to end the year. It is that time of year when everyone is celebrating and enjoying some downtime before we kick off the new year. The so-called Santa Rally looks more like Santa went home to hang out and relax as well. Looking forward we see risk elevated based on activity the last nine weeks as the indexes bounced on hope around the Fed cutting rates in 2024. That hope and thought process has played out well on the upside, but now come the reality as we begin 2024 and hints of inflation rekindling in the headlines. Don’t forget all the issues we will deal with in the coming year. Geopolitics are heated and at the top of our list. Election year and plenty of drama will unfold from the debates of who should lead the country and the Senate. The Fed and interest rates as well as a looming banking issue should inflation return.Those are just front and center from my view and each has a very negative ramification and thin margin for error. Have Happy New Year as look forwar to what 2024 holds for the markets.

Stocks traded lower on the day as volume remains on the light side. Lack of conviction from either side but the sellers had the upper hand. We will keep our stops in place and manage the risk accordingly. The NASDAQ closed down 0.5%, DIA was down 0.04%, and the SP500 was down 0.2%. The major indexes maintain their respective uptrend. The volume was below average. The SOXX was down 0.7%. Small Caps (Russell 2000) were down 1.6%. The ten-year treasury yield was 3.86% up 1 bps for the day. Crude (USO) was down 0.8%. (UGA) was up 0.2%. Natural gas (UNG) was down 1.3%. The dollar was up 0.2%. We are focused on managing the risk in the current environment and the start of the new year.

For the year the SP500 was up 24.2%, the NASDAQ gained 43.4%, Small Caps 15.1%, and the Dow up 13.7%.

Charts to Watch: See Notes on “Reality of the Markets” & “Jim’s Beliefs About the Market” pages…

Quote of the Day: “I love mankind; it’s people I can’t stand.” — Charles M. Schulz.

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. Stop $194. 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. Cleared the 198.65 level and tested to end the year.

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. FDX earnings pull down the sector. Holding at resistance.

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. Tested support again…

Sector Rotation And The S&P 500 Index

The S&P 500 index closed down 13 points to 4769 moving the index down 0.28% with below-average volume. The index gained 24.2% in 2023. The index moved above the July high and towards the 2021 high. Two of the eleven sectors closed higher on the day with consumer staples as the leader up 0.2%. The worst performer of the day was REITs down 1.2%. The VIX index closed at 12.4 lower on the day. Plenty to ponder between the headlines and facts. Patience.

XLB – Basic Materials Cleared $77 and $79.50 resistance, moved above the August highs and sideways week. The sector was up 0.5% for the week. No Positions. Extended the uptrend.

China banned the export of technology to extract and separate rare earths and protect its dominance in several strategic metals. China accounted for 70% of the world’s mine production of rare earths in 2022. Stocks to watch: MP, FCX, BHP – ETFs to Watch: REMX

XLU – Utilities moved back above the $62.90 resistance. The sector was up 1.4% for the week. Broke above the downtrend line from the July highs and testing the trend. Patience.

IYZ – Telecom Remains inan uptrend and holding near the current highs. The sector was up 2.1% for the week. September highs are next level to clear.

XLP – Consumer Staples Resumed the move higher with solid week of gains. The sector was up 1.9% for the week. No Positions.

XLI – Industrials Moved above the August highs and holding. The sector was up 1.2% for the week. No Positions. Solid uptrend in play.

XLV – Healthcare Made the move above September highs in a solid up trend from the October lows. Picked up some volatility of late but closed higher for the week. The sector was up 1.5% for the week. Entry $129. Stop $133.29. XBI is moving higher as well. IHI and IHF breaking out as well.

XLE – Energy Moved back below the $84.33 level after a bounce in crude oil helped reverse the selling in the sector… Trading in a consolidation range currently and watching how this unfolds. The sector was down 1% for the week.

XLK – Technology Consolidation near the highs on the chart. The sector was up 0.3% for the week. Entry XLK $166. Stop $188.

XLF – Financials Trading sideways near the highs. Uptrend remains in play as we manage the risk. The sector was up 0.9% for the week. KBE entry $38.45. Stop $44.50.

XLY – Consumer Discretionary consolidating near the highs. Eclipsed the September highs. Retail Sales for the holidays are said to be better than last year? Watching how it unfolds in the new year. The sector was down 1.1% for the week. We own XRT.

IYR – REITs Moved above resistance at the $90.50 and stalled moving sideways. The sector was up 1% for the week. Entry $83. Stop $89.28. Jumped higher on FOMC news.

Summary: The index traded lower with some early profit taking. Ready to start the new year as investors look for answers to nagging economic questions. 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. Trendlines are still in place but some were challenged on the day. 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 down 84 points to 15,011 as the index was down 0.56% for the day. The index tested the extension of the uptrend to close out the year. The leaders are IGV, SOXX, and QQQ on the upside. The chart remains in a positive trend. Managing the risk that is and looking for opportunities.

NASDAQ 100 (QQQ) was down 0.43% for the day as the mega-caps maintain the uptrend. The sector is seeing some juggling in leadership. Manage stops and let it play out. Entry $354.20. Stop $400.

Semiconductors (SOXX) The sector moved above the August highs and remains in an uptrend. The sector was up 1.4% for the week. SOXL entry $448. Stop $549. Topping on the chart?

Software (IGV) Showing a rounding top on the chart. Remains in an uptrend and watching how this unfolds. The sector was down 0.2% for the week. IGV $336. Stop $396 (adjusted).

Biotech (IBB) cleared resistance at the $127.06 mark with solid upside gaines. The sector was up 3.7% for the week. Entry $121.30. Stop $132. Confirmed the break higher… XBI moving higher as well.

Small-Cap Index (IWM) cleared resistance at $198.60 and tested to end the week. The sector was up 0.5% for the week. Entry $182.40. Stop $198.

Transports (IYT) Uptrend remains in play with rounding top near the highs. The sector was down 0.2% for the week. No positions. Watching the shipping stocks with the issues in the Red Sea.

Container rates hit $10,000 as ocean freight prices jump from Red Sea issues. 158 ships carrying approximately $105 billion in ocean freight have been diverted away from the Red Sea… inflation anyone? BDRY continues to climb on the news.

The Dollar (UUP) The dollar was lower on the week with a modest bounce to end the year. The downtrend remains in play. The dollar was down 0.2% for the week. Continues to struggle with the new comments from the Fed.

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 fell on the news.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.86% down from 3.9% last week. TLT was down 0.05% for the week. Watching the trend and resistance at the 99.60 level.

Crude oil (USO) Crude bounced for two weeks on speculation. This week it fell back near $66.23 support as the outlook remains cloudy at best. USO was down 3.4% for the week. The downtrend remains in play as we watch to see how all the speculation around production and consumption pan out.

Natural Gas (UNG) bottoming pattern in play. Hit entry point at $5.02 with a target of 5.87 short term. BOIL is the trade with 2X leveraged ETF. Be patient and expect some volatility in the move.

Gold (GLD) The commodity is showing volatility with the dollar reacting to the Fed as they try to decide the course of action they are taking relative to interest rates. Watching the dollar, yen, interest rates, and economic picture… all are creating volatility within the trend. Moved higher this week on a weaker dollar. GLD was up 0.9% for the week.

FINAL NOTES

Friday: 2023 was a record year for stocks as the gains posted were impressive. As we end the year and begin a new we are focused on the risk in the current environment. Since the October lows the SP500 is up 15.2%, NASDAQ is up 19.1%, DIA is up 14.9% and SOXX is up 31%. Thus the risk is elevated short term and something we need to consider as the new year begins. I am not speculating about a correction, but I do believe a shift the trend is a logical progression based on historical data. We will manage our risk and take what is offered. We continue to put money to work short term based on the technical moves, and we continue to manage risk with stops and profit-taking where appropriate. Watching for new opportunities up or down.

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 pluls 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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