Stock Market Update

Moving the Market – December 12th

Stocks started the session with muted activity following the release of the CPI data which was interpreted as less friendly relative to the Fed and interest rates. But the buyers were still engaged enough to push markets higher on the day. Treasure bonds were lower helping along with continued gains in the megacaps. The CPI data was generally in line with expectations with the core CPI hanging around the 4% mark. year-over-year. There was talk throughout the day about how the FOMC meeting on Wednesday would deal with the results. Markets have resumed the uptrend with all three major indexes closing higher. For more Outside the Market data go here.

The CPI was the news of the day as the index rose 0.1% for November versus the 0.0% expected. The Core was 0.2% versus the 0.0% expected. Both data points showed a slight increase over October and thus the sticky nature of inflation currently… albeit the number is lower from the peak but if the core inflation rate is 4% year-over-year the consumer is still being impacted directly every day at a level that decreased purchasing power and interest rates remain elevated. We will look at the FOMC meeting on Wednesday to see exactly how the Fed views the data.

The day was a steady move higher with financials, megacaps, and technology leading the day. There were more signs of improvement overall. The NASDAQ closed up 0.7%, DIA was up 0.4%, and the SP500 gained 0.4%. All three major indexes closed slightly higher for the day with each resuming the uptrend moving back above the November highs. The volume was below average. There was increased activity in the megacaps and technology stocks as they moved higher. We are looking to the charts for answers going forward as we adjust our stops to account for unseen risks. The SOXX was up 0.7%. Small Caps (Russell 2000) were down 0.1%. The ten-year treasury yield was 4.20% down 3 bps for the day. Crude (USO) was down 3.8%. (UGA) was down 2.9%. Natural gas (UNG) was down 6%. The dollar was down 0.3%. We are focused on managing the risk in the current environment. For more on Inside the Market data, you can click here.

All of the data points are now referenced and compared to the belief of investors that the Fed will cut rates to restart the economy in the first part of next year. CPI data on Tuesday doesn’t confirm that idea… could raise some questions moving forward. There are some consolidation patterns in sectors that remain, but the major indexes have resumed the uptrend. There is some juggling for leadership with the megacaps making a move higher the last few days led by technology and financials. We remain focused on what is working and letting the trends unfold.

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

Quote of the Day: “There is nothing new in the world except the history you do not know.” – Harry S. Turman

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. Got the test and entry point moving through resistance. 12/1 Offered new entry point at $180.50 and moved above $182.45.

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.

3) AAPL is resuming the uptrend and in a position to move above the July highs near term. 12/5 Entry $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.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 21 points to 4643 moving the index up 0.46% with below-average volume on the day. The index moved above resistance at the 4386 level and the July high. Eight of the eleven sectors closed higher on the day with financials as the leader up 0.7%. The worst performer of the day was energy down 1.3%. The VIX index closed at 12.1 lower on the day. Plenty to ponder between the headlines and facts. The index shows a resumption of the uptrend… letting it unfold.

XLB – Basic Materials Cleared $77 and $79.50 resistance, moving toward the August highs and testing. The sector was down 1.7% for the week. No Positions. Resumed the uptrend.

XLU – Utilities moved above the $62.90 resistance. The sector was down 0.2% for the week. Entry $60.15. Stop 60.15. Broke above the downtrend line from the July highs reversing to an uptrend short term.

IYZ – Telecom Moved back above the $21.30 level. The sector was up 0.3% for the week. Inched above the 200-day MA. No Positions.

XLP – Consumer Staples Added to the move above resistance at $69.30 with a modest test to end the week. The sector was down 1.1% for the week. No Positions.

XLI – Industrials Cleared resistance and moved to the August highs. The sector was up 0.2% for the week. No Positions. Solid uptrend in play.

XLV – Healthcare Made the move above $129 and to the October highs. The sector was up 0.2% for the week. Entry $129. Stop $129. XBI is moving higher as well. IHI and IHF breaking out as well. Cleared next resistance at $132.

XLE – Energy Moved below $84.33 support and tested the $82 level… watching how this plays out near term with a downside bias in play for crude. The sector was down 3.2% for the week. Moved below the $82 support.

XLK – Technology Reestablished the longer-term uptrend line with some consolidation near the highs on the chart. Solid bounce the last four days… ready to resume upside? The sector was up 1.2% for the week. Entry XLK $166. Stop $180. Resumed the uptrend.

XLF – Financials Continued the move higher as interest rates dipped lower. Cleared the July highs and $35.83 resistance. The sector was down 0.1% for the week. KBE entry $38.45. Stop $41.50. Resumed the uptrend.

XLY – Consumer Discretionary resumed the move higher in the trend. Near the September highs. Retail data was very mixed on earnings with plenty of warnings about the state of the consumer. The upside remains in play but cautious. The sector was up 1.2% for the week. No Positions. Resumed the uptrend.

IYR – REITs Moved above resistance at the $83 level to the August highs. The sector was down 0.3% for the week. Entry $83. Stop $83.

Summary: Steady move higher on the day with SPY, XLI, XLB, XLF, and XLK resuming their respective uptrends. The index is positioned to end the year with a solid rally… that said this week’s data will go a long way in that effort. 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. 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 101 points to 14,533 as the index was up 0.7% for the day. The index is showing a resumption of the uptrend. The leaders are semiconductors, software, and megacaps. The chart remains in a positive trend. Managing the risk that is and looking for the opportunities.

NASDAQ 100 (QQQ) was up 0.8% for the day as the mega-caps helped lead the day. The sector moved back above the July highs… it is now testing the 2022 highs. The sector remains the leader in the overall market. Adjust stops and let it play out. Entry $354.20. Stop $391. Resumed the uptrend as megacaps lead.

Semiconductors (SOXX) The sector moved above the August highs testing and building a trading range near term. The sector was up 1.1% for the week. SOXL entry $448. Stop $531.60. Gapped higher eclipsed the July highs. Adjusted stop.

Software (IGV) Remains one of the leading sectors with a solid uptrend in place. The sector was down 0.9% for the week. IGV $336. Stop $385.50 (adjusted). Resumed the uptrend.

Biotech (IBB) cleared resistance at the $121.30 mark. The sector was up 1% for the week. Entry $121.30. Stop $119. Confirmed the break higher and gaining momentum… XBI moving higher as well. Remains in uptrend.

Small-Cap Index (IWM) cleared resistance at $182.40. The sector was up 1% for the week. Entry $182.40. Stop $179. Confirmed the break higher. Testing.

Transports (IYT) bottom reversal bounce… cleared resistance $247 and renewed the uptrend. The sector was up 1% for the week. No positions. Confirmed the break higher.

The Dollar (UUP) The dollar remains challenged by the belief the Fed will cut rates. Bounced as the yields settled in and the Fed still not talking rate cuts… yet. The dollar was up 0.9% for the week. ‘V’ bottom on chart.

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%.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.25% up from 4.22% last week. TLT was up 1.6% for the week. Watching how the Fed manages the belief of rate cuts while they say none coming near term…

Crude oil (USO) Crude broke lower from the trading range technically with support at $66. OPEC agreed to voluntary cuts from the members… like letting the inmates run the asylum. USO was down 3.9% for the week. It is down 19.7% since the peak in September. Watching how this unfolds looking forward. Started a relief bounce to end the week. Fell 3.8% on worries about inflation curtailing demand… Throw in COP28 striking a deal to transition away from fossil fuels.

OPEC was supposed to meet concerning production levels among members… but, they decided not to meet and just let there be voluntary supply cuts. Normally you would see prices rise at the threat of cuts, however, the price fell on Friday breaking below the 200-day MA. USO has set up another short entry on the chart… $69 is the level to hold.

Gold (GLD) The commodity broke and hit our stop and exited with a modest gain. Watching the dollar, yen, interest rates, and economic picture… all are creating volatility within the trend. Watching how it unfolds. Back to the $183 support area.

FINAL NOTES

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 bounce for the SP 500 closed Friday at the July highs. There was some consolidation this week, but Friday made a push to the highs. The short-term uptrend in the last five weeks is positive, but there is still work to be done from a longer-term perspective and a resumption of the long-term trendline. The activity for the week was mixed with some modest upside in the laggards… the megacaps made some progress to end the week, but still not showing a lot of conviction in either direction. As we all know, 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 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.

Tuesday: CPI took center stage with the data showing some stickiness relative to the Core Inflation. The FOMC meeting is on Wednesday and will offer some insight into the Fed’s interpretation of the news along with PPI data before the FOMC announcement. Technology and megacaps led overall and some sectors resumed the move higher. Watching how the current consolidation unfolds… the breadth of the move is not great, but taking what is offered. QQQ, SOXX, IGV, XLF, and XLK all resumed uptrends. We will follow the charts and manage the risk while waiting for the facts to confirm the belief over time. There is no lack of issues on the table with each taking their respective turn in the spotlight. We have 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. One day at a time is all I am willing to deal with as the trends build and the facts validate. Watching for opportunities.

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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