Moving the Market – December 14th
The market’s continued momentum from the Fed’s dovish move in the FOMC rate outlook helped stocks continue higher. Small caps, commodities, financials, and bonds led the day. Megacaps showed some signs of struggles on the day after leading the move higher. The S&P 500 Equal Weight ETF (RSP) was up 1.4% showing the broader move for the index. Friday is options expiration and we could see some key rebalancing based on the activity over the last week on the upside. Markets have resumed the uptrend with all three major indexes closing higher. For more Outside the Market data go here.
The weekly jobless claims fell showing based on the data a solid unemployment picture. Retail Sales were solid and some even said strong and XRT was up 2.4%. Yields fell below 4% on the 10-year bond helping bank stocks as KBE rose 4.3%. The megacap weakness showed up as QQQ closed down 0.1%. Overall positive data, positive moves, and worries subside along with the VIX.
Stocks traded cautiously despite the positive close for the broad indexes. There were more signs of improvement overall in the broad markets but there seems to be some rumblings about the markets being overbought… time will tell. Thus, keep your stops in place and manage the risk accordingly. The NASDAQ closed up 0.2%, DIA was up 0.4%, and the SP500 gained 0.2%. All three major indexes closed higher for the day with each extending the uptrend and moving towards new highs. The volume was above average ahead of options expiration. The laggards showed the best gains in an effort to catch up. The SOXX was up 2.7%. Small Caps (Russell 2000) were down 2.7%. The ten-year treasury yield was 3.93% down 10 bps for the day. Crude (USO) was up 2.8%. (UGA) was up 4.4%. Natural gas (UNG) was up 3.4%. The dollar was down 0.9%. 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. The FOMC announcement seemed to confirm that idea… That pushed stocks higher again. Uptrends in the major indexes extended their gains and sectors like IWM, IJH, IYR, and TLT all played catch-up with solid gains. There is some juggling for leadership with a broader move higher on Thursday. We remain focused on what is working and letting the trends unfold.
Quote of the Day: “In real life, I assure you, there is no such thing as algebra.” — Fran Lebowitz
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. 12/13 Rallied higher on FOMC news and playing catch up with other indexes. Raised stop.
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. 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.
Sector Rotation And The S&P 500 Index
The S&P 500 index closed up 12 points to 4719 moving the index up 0.26% with above-average volume ahead of options expiration. The index moved above the July high and towards the 2021 high. Seven of the eleven sectors closed higher on the day with energy as the leader up 2.9%. The worst performer of the day was consumer staples down 1.4%. The VIX index closed at 12.4 higher on the day. Plenty to ponder between the headlines and facts. The index shows a resumption of the uptrend… letting it unfold. Closed on a doji candle Thursday.
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. extended 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. Tested the upside.
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. Gapped higher.
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 and extended the upside move.
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 back above the $82 support. Added to the move above $84.33.
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. Jumped higher on FOMC.
Summary: Stocks continued to react to the Fed announcement moving the index higher and extending the second phase of the current trend. The index is playing out the end of the year with a solid rally… that said this week’s data has helped along with the Fed. 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… 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 27 points to 14,761 as the index was up 0.19% for the day. The index is showing an extension 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 down 0.09% for the day as the mega-caps lagged on 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 $393.35. 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 and tested on Thursday.
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 and gapped higher.
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. Jumped higher on FOMC.
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. Gapped 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. Dollar tanked on FOMC news… watching how it impacts GLD, XLF, etc.
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%. Big benefactor ot the FOMC news.
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… FOMC news tanks yields to 3.93% and bonds rally.
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. 12/13 modest bounce. Followed by a gap higher back above the $66.23 mark.
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. FOMC tanks the dollar and gold rallies.
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.
Thursday: The Fed remained in the headlines as the move higher broadened. Stocks rallied again, but megacaps struggled on the day. Bond yields fell again as bonds and banks rallied. The dollar tanked on the news and precious metals were a benefactor. The uptrend has been resuming all week and the Fed gave it a good dose of FOMO on Wednesday and added to it on Thursday. We will follow the charts and manage the risk while waiting for the facts to confirm the belief over time. 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. Watching for new 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.