Market Update December 1st

The SP500 index closed at its best level since March 2022. The NASDAQ was up 0.6%, DIA was up 0.8% and IWM gained 3%. The markets took their cue from the economic data and Powell’s comments about the future relative to interest rates. Treasury bonds rose as yields dipped to 4.22% taking that as positive buyers stepped into stocks. The bond market continues to show belief that the Fed will cut rates… opposite of what Mr. Powell said in his speech earlier in the day. The economic data was not positive as the ISM Manufacturing numbers show the sector remains soft and in the contraction zone. The production index equally fell into the contraction zone following a slight bump higher last month. All things considered, the market put in an attempt to clear the July highs. The underlying belief is driving the markets not the reality of the data. All 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. Anything opposed to that belief isn’t good for the current move-up. Mega caps were a drag on the markets again… they did manage to bounce closing up just 0.3%. Consolidation of the last four weeks has been the theme all week. Friday did show some upside in the laggards as small and midcap stocks set the tone on the upside. The Fed was out again as noted, and the comments were more towards the slowing economic picture as a result of inflation… they have been discussing a weaker economic picture more of late… worthy of attention as it could be the move towards being done with rate hikes if, only if, inflation shows signs of slowing the coming months. The charts are still looking extended near term and they show consolidation patterns near the highs. There is some juggling for leadership and we will watch how this unfolds. Looking for another leg to the upside before this is over. Patience is a must.

The volume was above average as money flow picked up. Some charts are in consolidation patterns while others continue to inch higher. Four weeks of higher moves for the market but this week has been an overall challenge for the leaders. The moves in the laggards help lift the markets on Friday and we will watch how this unfolds in the coming week. We are looking to the charts for answers going forward as we adjust our stops to account for unseen risks. Any selling would relate to profit-taking based on the activity. Earnings continue to be good and bad, but the focus is on the Fed not the economy or earnings… reality always finds a way of showing up on the charts eventually. Money has been chasing the belief the Fed is done with interest rates despite all the FOMC member’s comments. We now enter a new phase of what investors believe to be true… The Fed will cut rates to generate a stimulus to reset the economy on a growth track, but several Fed officials have said 2nd half of 2024 at best… not what the markets believe… thus, the battle for stocks. If this belief is true it will take several quarters before it is seen in the data to convince the Fed. The S&P 500 index closed up 0.5%. The NASDAQ was down 0.3%. The SOXX was down 0.4%. Small Caps (Russell 2000) were up 2.9%. The ten-year treasury yield was 4.22% down 13 bps for the day. Crude (USO) was down 1.2%. (UGA) was down 1.2%. Natural gas (UNG) was down 1.2%. The dollar was down 0.3%. 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: “Common sense is the collection of prejudices acquired by age eighteen.” — Albert Einstein

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. Entry on the test. Got the test… looking for a bounce and entry point moving through resistance Hit the entry point on Friday.

2) IYT moved above the 200-day MA and a tombstone doji candle on Wednesday… test and go is the belief… Entry on the test. Working, moved above the $244.50 mark on Thursday. Hit the entry point on Friday.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 29 points to 4594 moving the index up 0.59% with above-average volume on the move. The index moved above resistance at the 4386 level and the October high. The next hurdle is the August highs. Eleven of the eleven sectors closed higher on the day with transports as the leader up 2.8%. The worst performer of the day was technology up 0.2%. The VIX index closed at 12.6 lower on the day. Plenty to ponder between the headlines and facts. The index moves to the next resistance level and is in a position to move higher… letting it unfold.

XLB – Basic Materials Cleared $77 and $79.50 resistance, moving toward the August highs. The sector was up 2.7% for the week. No Positions.

XLU – Utilities moved above the $62.90 resistance. The sector was up 1.7% for the week. Entry $60.15. Stop 60.15. Broke the downtrend line from the July highs.

IYZ – Telecom Moved back above the $21.30 level. The sector was up 1.9% for the week. No Positions.

XLP – Consumer Staples Added to the move above resistance at $69.30. The sector was up 0.7% for the week. No Positions.

XLI – Industrials Cleared resistance and accelerated higher to end the week. The sector was up 2.2% for the week. No Positions.

XLV – Healthcare Made the move above $129 and to the October highs. The sector was up 0.5% for the week. No Positions. Entry $129. Stop $129. XBI is moving higher as well. IHI breaking out as well.

XLE – Energy holding near $84.33 support and held above $82… watching how this plays out near term with a downside bias in play for crude. The sector was up 0.1% for the week.

XLK – Technology Reestablished the longer-term uptrend line with some consolidation near the highs on the chart. Taking a rest or ready for a test? The sector was up 0.6% for the week. Entry XLK $166. Stop $180.

XLF – Financials Continued the move higher as interest rates dipped lower. Cleared the July highs and $35.83 resistance. The sector was up 2.2% for the week. KBE entry $38.45. Stop $39.

XLY – Consumer Discretionary consolidating near $168 and attempting to move higher. 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 1.7% for the week. No Positions.

IYR – REITs Moved to resistance at the $83 level and watching. The sector was up 4.8% for the week. Entry $83. Stop $83.

Summary: The investor has been buying into the rhetoric of the Fed being done… all is well scenario being played out in the media. Four weeks of moves to the upside validate that belief. A week trading sideways is testing investor patience and belief… a solid move in the laggards on Friday… watching how next week unfolds. place currently. The index moved to the 4600 level led by large-cap stocks. Extended upside… consolidation without a real test thus far. The focus is on the Fed… 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 78 points to 14,305 as the index was up 0.55% for the day. The index held near the July highs. The leaders remain the semiconductor and software stocks but small caps led on Friday. The 14,040 level cleared as investors put money to work. The index is up 13.2% from the October lows. Manage your risk accordingly.

NASDAQ 100 (QQQ) was up 0.29% for the day as the mega-caps were flat on the day. The sector broke above the July highs to lead the markets but has stalled of late. The sector remains the leader in the overall market. Adjust stops and let it play out. Entry $354.20. Stop $383.

Semiconductors (SOXX) The sector moved above the August highs with a rounding top on the chart. The sector was up 0.1% for the week. SOXL entry $448. Stop $507.

Software (IGV) Remains one of the leading sectors with a solid uptrend in place. The sector was up 4.4% for the week. IGV $336. Stop $385.50 (adjusted).

Biotech (IBB) cleared resistance at the $121.30 mark. The sector was up 2.7% for the week. Entry $121.30. Stop $119.

Small-Cap Index (IWM) cleared resistance at $182.40. The sector was up 3.1% for the week. Entry $182.40. Stop $179.

Transports (IYT) bottom reversal bounce… cleared resistance $247 and renewed the uptrend. The sector was up 3.2% for the week. No positions.

The Dollar (UUP) The dollar remains challenged by the belief the Fed will cut rates. Bounced as the Fed continued to state no rate cuts near term. The dollar was down 0.03% for the week.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.22% up from 4.47% last week. TLT was up 3.5% for the week. Watching how the Fed manages the issues with banks and treasury auctions.

Crude oil (USO) Crude is in a trading range technically with support at $69. OPEC delayed a meeting on production cuts and offered up voluntary cuts. USO was down 2.2% for the week. It is down 16.5% since the peak in September. Watching how this unfolds looking forward.

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 above the October highs on a lower dollar. $183.72 resistance was cleared. The metal was up 3.5% for the week. UGL Entry $182.57. Stop $186.

FINAL NOTES

Our longer-term view shifts as the indexes confirm the bottom reversal. They have moved back to the July and August highs currently… if those levels are cleared we may resume the long-term uptrend. 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 upside move 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 led by the laggards playing catch up. IWM moved 3% for the week and broke from the current trading range. 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.

Friday: Lack of clarity created some intraday volatility resulting in above-average volume. As we push to the end of November and start the final trading month of the year, plenty to consider as we manage the current risk. Economic data was mixed and PCE pushed the dollar higher along with interest rates. Earnings again are mixed. The retail outlook for the holidays is not great with plenty of comments relative to the consumer. Watching how the current consolidation unfolds… the breadth of the move is not great, but taking what is offered. The reality is the move is predicated on the Fed being done with rate hikes… if it doesn’t materialize we will turn to reality… a weak economic picture. 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. The leadership remains narrow with some sectors attempting to join the party like small caps… 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 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. Leaders continue to lead XLK, QQQ, SOXX, IGV watching for the next leg higher.

Today: GLD, SLV, DLTR, AAPL, USO, UNG

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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