All three major indexes were down on Monday. The NASDAQ was down 0.8%, DIA was down 0.1% and SP500 shed 0.5%. The losses were higher earlier in the day but managed to rally back in the afternoon trading. Bonds reversed on the day with TLT closing lower. HYG tested the current run higher as well. Economic data showed ugly Factory Orders down 3.6% versus a 2.3% gain prior. That was the largest contraction since the 2020 shutdowns. Crude oil was lower as concerns rose over excess supply versus demand. All things considered, the market held up from early stress. The underlying belief is driving the markets not the reality of the data. 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. Anything opposed to that belief isn’t good for the current move-up. Mega caps were a drag again on the markets as technology struggled. Consolidation of the move higher remains the theme. Monday showed more 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 with mixed trading on the day. Some charts are in consolidation patterns while others continue to inch higher. Watching the leadership of late with IWM, IJH, IYT, and other laggards post solid moves. The moves in the laggards helped lift the markets again on Monday. We are looking to the charts for answers going forward as we adjust our stops to account for unseen risks. 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 down 0.5%. The NASDAQ was down 0.8%. The SOXX was down 1.1%. Small Caps (Russell 2000) were up 1%. The ten-year treasury yield was 4.28% up 6 bps for the day. Crude (USO) was down 1.1%. (UGA) was down 1.3%. Natural gas (UNG) was down 2%. The dollar was up 0.4%. We are focused on managing the risk in the current environment.
Quote of the Day: “Even a true artist does not always produce art.” – Carroll O’Connor
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 down 24 points to 4569 moving the index down 0.54% with above-average volume on the day. The index moved above resistance at the 4386 level and the October high. The next hurdle is the August highs. Five of the eleven sectors closed higher on the day with transports as the leader up 1%. The worst performer of the day was technology down 1.2%. The VIX index closed at 13.1 higher 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: There was a modest test at the end of the day… still plenty of juggling over direction currently as money flow shifts to the laggards. Bonds took a break, precious metals remain near the highs, bitcoin rallied on SEC set to approve spot coin ETFs, and the dollar bounced again. 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 down 119 points to 14,185 as the index was down 0.84% for the day. The index is showing a rolling top as the leadership remains in limbo. The previous leaders were semiconductors and software and still show a positive chart overall. Managing the risk that is and looking for the opportunities.
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. Doji candle on the close.
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. Confirmed the break higher.
Small-Cap Index (IWM) cleared resistance at $182.40. The sector was up 3.1% for the week. Entry $182.40. Stop $179. Confirmed the break higher.
Transports (IYT) bottom reversal bounce… cleared resistance $247 and renewed the uptrend. The sector was up 3.2% 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 Fed continued to state no rate cuts near term. The dollar was down 0.03% for the week. Bounced Monday.
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. Testing lows from 11/16.
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. Moved lower but still near the highs.
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.
Monday: Lack of clarity created some intraday volatility resulting in above-average volume. Watching how the current consolidation unfolds… the breadth of the move is not great, but taking what is offered. IWM, IYT, and XLI showed positive upside moves as the laggards moved higher for the second day. 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. 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. Leadership rotation or money just looking for a home? Watching the week unfolds.
Today: Long side – GLD, SLV, DLTR, AAPL Downside – 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.