Jim’s Notes Market Summary

Moving the Market – December 28th

The markets spent the day in a narrow range sprinting at the close to end in positive territory. Volume was higher on the day as a result of end-of-the-year house cleaning. The 5 year Treasury auction went well selling $58 billion. Keep the presses going. The interesting stat to go with the Treasury auction is the 10-year bond closed where it started the year despite all the Fed rate hikes… seems appropriate doesn’t it? No real economic data to sway investors just some rumblings in geopolitics and pre-New Year’s shuffling. The ups and downs kept everything in check as the S&P 500 Index set a new closing high. All the major indexes are up double digits for the year and everyone is happy. The liquidity provided by the Fed is a beautiful thing for stocks.

Stocks traded higher on Wednesday as volume remains on the light side. Lack of conviction from either side on the day. We will keep our stops in place and manage the risk accordingly. The NASDAQ closed up 0.1%, DIA was down 0.3%, and the SP500 was up 0.1%. The major indexes closed higher maintaining the uptrend. The volume was below average. The SOXX was up 0.2%. Small Caps (Russell 2000) were up 0.3%. The ten-year treasury yield was 3.79% down 9 bps for the day. Crude (USO) was down 1.8%. (UGA) was down 0.4%. Natural gas (UNG) was up 0.4%. The dollar was down 0.5%. We are focused on managing the risk in the current environment.

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

Quote of the Day: “Expert: a man who makes three correct guesses consecutively.” — Laurence J. Peter.

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 moving higher.

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 and held…

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 20 points to 4774 moving the index up 0.42% with below-average volume. The index moved above the July high and towards the 2021 high. Eleven of the eleven sectors closed higher on the day with energy as the leader up 0.8%. The worst performer of the day was healthcare up 0.2%. The VIX index closed at 13.0 lower on the day. Plenty to ponder between the headlines and facts. Start off positive.

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.

Thursday 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 below the $62.90 resistance. The sector was down 2.1% for the week. Broke above the downtrend line from the July highs reversing to an uptrend short term. Tested the upside.

IYZ – Telecom Resumed the uptrend and holding near the current highs. The sector was up 0.2% for the week. September highs next level to clear.

XLP – Consumer Staples Testing the move higher to end the week. The sector was down 0.03% for the week. No Positions.

XLI – Industrials Cleared resistance and moved above the August highs and holding. The sector was up 0.1% for the week. No Positions. Solid uptrend in play.

XLV – Healthcare Made the move above $132 and to the October highs. Picked up some volatility of late. The sector was up 0.6% for the week. Entry $129. Stop $132. XBI is moving higher as well. IHI and IHF breaking out as well. Tested to end the week.

XLE – Energy Moved back to the $84.33 level after a bounce in crude oil helped reverse the selling in the sector… watching how this plays out near term with a downside bias in play for crude. The sector was up 0.8% for the week. Top of the consolidation range and looking for direction.

XLK – Technology Reestablished the longer-term uptrend line with some consolidation near the highs on the chart. The sector was up 0.2% for the week. Entry XLK $166. Stop $186. holding near the highs.

XLF – Financials Continued the move higher as interest rates dipped lower. Consolidating hear the highs in an uptrend. The sector was down 0.03% for the week. KBE entry $38.45. Stop $43.50. Holding near the highs.

XLY – Consumer Discretionary consolidating near the highs. Eclipsed the September highs. Retail Sales for November were better than expected helping the upside. NKE dampened the mood with poor earnings. The sector was up 0.1% for the week. We own XRT.

IYR – REITs Moved above resistance at the $90.50 and stalled. The sector was down 0.3% for the week. Entry $83. Stop $87.10. Jumped higher on FOMC.

Summary: The index traded in a narrow range as the volume remains on the low side. Inching towards the New Year as the upside continues. The bounce off the October lows remains in play as we remain patient and let it all unfold. Hit new closing high on Wednesday. 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 up 24 points to 15,099 as the index was up 0.16% for the day. The index tested the extension of the uptrend and bounced back in a positive fashion. The leaders are back with 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 up 0.15% for the day as the mega-caps remained in an 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 resumed the uptrend. The sector was up 0.1% for the week. SOXL entry $448. Stop $549. Topping on the chart? Solid upside for the week.

MU was up predicting a strong recovery in supply-demand for memory and flash storage in 2024.

Software (IGV) Remains one of the leading sectors with a solid uptrend in place. Broke higher from the pennant pattern on the chart. The sector was up 1.4% for the week. IGV $336. Stop $396 (adjusted).

Biotech (IBB) cleared resistance at the $127.06 mark. The sector was up 2.1% for the week. Entry $121.30. Stop $127 Confirmed the break higher… XBI moving higher as well. Pennant on the chart broke higher and resumed the uptrend. Leader on Wednesday

Small-Cap Index (IWM) cleared resistance at $198.60 and showed resilience. The sector was up 2.2% for the week. Entry $182.40. Stop $192.90. Upside follows through to continue the uptrend.

Transports (IYT) bottom reversal bounce… cleared resistance $247 and renewed the uptrend. The sector was down 0.1% for the week. No positions. Watching the shipping stocks with the issues in the Red Sea. FDX earnings guidance rocked the sector lower.

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 gapped lower on the FOMC news. The downtrend remains in play. The dollar was down 0.7% for the week. Continues to struggle with the new comments from the Fed. Bad day for the buck as to the July lows.

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 3.9% down from 3.92% last week. TLT was down 0.7% for the week. Watching the trend and resistance at the 99.60 level. Falls 10 bps and TLT breaks above resistance to continue the uptrend.

Crude oil (USO) Crude bounced on the FOMC news and holding near the $69 level currently. USO was up 2.2% for the week. The downtrend remains in play as we watch to see how all the speculation around production and consumption pan out. Bounced on Red Sea attacks and rerouting of shipping by companies… watching. Geopolitics drove the price higher on Tuesday… fell on Wednesday.

In the energy sector, Angola pulled out of OPEC… wants to sell more oil to the West. Interesting development. In the natural gas sector, Russia seized the joint venture shares of Wintershell Dea… geopolitics at its best.

Gold (GLD) The commodity has turned volatile 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. Watching how it unfolds. Moved back to resistance on a weaker dollar. GLD was up 1.7% for the week. Geopolitics driving the price higher breaks above resistance and is ready to climb higher.

FINAL NOTES

Wednesday: Stocks add to the seasonal uptrend as volume is lower. 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, as we take what the markets give. Watching for new opportunities.

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 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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