Moving the markets on Thursday was a sharp move lower in crude. Treasury yields dipped again. Gold and silver jumped higher. Earnings from WMT, CSCO, and PANW offered a negative reaction. The pocket of strength in the mega-caps remains. But, overall it was a consolidation day similar to Wednesday with more volatility. The markets have moved up significantly in the last three weeks and some consolidation would be a normal course of action. As usual, we will take what is offered and manage the risk accordingly. The laggards led with XLU and IYR up nicely on the day. The banks, KRE and KBE both posted solid gains and rates remain near the 4.5% level. The major question remains how the Fed responds going forward relative to interest rates. There were officials out again on Thursday spreading the news that the fight against inflation isn’t over… and they are right, but convincing investors of that is another issue. Investors have shifted their attention to the Fed offering stimulus to put the economy back on a positive track. That process will grow in voice as we move through the first quarter of 2024. The Senate passed the stop-gap budget approved by Congress on Tuesday and is expected to be signed by the President on Friday. This would push the budget to January and yet more discussions about the fiscal budget. Technically the markets are extended and we will see how it performs heading into the holiday week. The economic data remains questionable at best as seen in the releases on Thursday, but optimism springs eternal. Just look at the headlines and listen to the financial talking heads. The indexes are at the next resistance levels and will either test or break higher… let it unfold, don’t assume you know what is going to happen. We continue to take it one day at a time.
Thursday the data gave more indication of weak growth in the economy. The Philly Fed Manufacturing Survey posted -5.9 versus -9 previously… yes it improved, but still not pretty at all. The action was negative at the open but found some support to close flat on the day. The charts show a ‘V’ bottom reversal followed through with a gap back to the August highs. Three weeks of higher moves for the market as the buyers remain engaged. 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. The complexity of the outlook for global economics, domestic economics, geopolitics, and uncertainty remains in the background. Money has been chasing the belief the Fed is done with interest rates despite Mr. Powell’s comments. We now enter a new phase of what investors believe to be true… The Fed will cut rates to generate stimulus to reset the economy on a growth track. If this belief is true it will take quarters of data before that is true. The major indexes were flat closing at the next resistance points. The S&P 500 index closed up 0.1%. The NASDAQ was up 0.1%. The SOXX was up 0.05%. Small Caps (Russell 2000) were down 1.6%. The ten-year treasury yield was 4.45% down 9 bps for the day. Crude (USO) was down 4.6%. (UGA) was down 4.5%. Natural gas (UNG) was down 2.9%. The dollar was up 0.1%. We are focused on managing the risk in the current environment.
Quote of the Day: “What I don’t like about office Christmas parties is looking for a job the next day.” – Phyllis Diller
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 Thursday… looking for a bounce and entry point.
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.
3) SLV broke below the bottom of the trading range and moved back to the top of the same range on Wednesday and moved above the 200-day MA. Test and go is the belief with a weaker dollar… Entry on the test. No test, but it did gap higher for a 1.4% gain.
Sector Rotation And The S&P 500 Index
The S&P 500 index closed up 5 points to 4508 moving the index up 0.12% 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. Six of the eleven sectors closed higher on the day with utilities as the leader up 0.5%. The worst performer of the day was telecom down 2.5%. The VIX index closed at 14.3 moving slightly higher on the day. Plenty to ponder between the headlines and facts. The index moves to the next resistance level and either it tests or moves higher… letting it unfold.
XLB – Basic Materials broke support at the $77 level and reversed to end the week. Needs to clear resistance at $79.50. The sector was down 1.8% for the week. No Positions. Gapped above the $77 level. Left a doji on Wednesday.
XLU – Utilities moved back to support at the $60.15 mark. The sector was down 2.5% for the week. Watching for the opportunity if it breaks higher. Moved back above the $60.15 support again. Added to the upside on Thursday.
IYZ – Telecom bottom reversal negated with the break below $21.30. The sector was down 3% for the week. No Positions. Moved back below the $21.30 level…
XLP – Consumer Staples Moved higher from the consolidation pattern to resistance at $69.30. Need to break above the resistance near term. The sector was up 0.3% for the week. No Positions. Moved above the $69.30 resistance. Added to the move on Wednesday.
XLI – Industrials bottom reversal in play $102.41 level cleared and needs to confirm the upside. The sector was up 0.9% for the week. No Positions. Cleared $102.41 resistance. Test back to the $69.30 level on Thursday.
XLV – Healthcare sold lower mid-week, not showing much upside potential. The sector was down 0.9% for the week. No Positions. $129 level to clear.
XLE – Energy moved below $84.33 support and held above $82… watching how this plays out near term with a downside bias in play. The sector was down 3.7% for the week. Made the move above the $84.33 mark reversed on lower crude prices on Thursday.
XLK – Technology bottom reversal and solid upside move to lead for the week. The sector was up 4.5% for the week. Entry XLK $166. Stop $175. Cleared the July highs and reestablished the longer-term uptrend line.
XLF – Financials relief in interest rates moving lower sparks rally off the bottom. Holding near the $33.64 level is a positive. Still needs to find momentum to continue higher. The sector was up 0.4% for the week. Confirmed the move above the $33.64 mark. Upside in play
XLY – Consumer Discretionary bottom reversal needs to clear resistance at the $163 level. The sector was up 0.7% for the week. No Positions. Gapped higher above the $163 resistance. Upside remains in play with modest test.
IYR – REITs bottom reversal moved to resistance and bond yields continue to plague the sector for now. Watching as reverse head and shoulder pattern on the chart. The sector was down 2.3% for the week. No Positions. Gapped higher as interest rates fall below 4.5% on the ten-year bond.
Summary: The investor has been buying into the rhetoric of the Fed being done… all is well scenario being played out in the media. Three weeks of moves to the upside validate that belief. The index moved above the 4386 resistance level led by large-cap stocks. On Tuesday the indexes gapped higher as CPI was flat… consolidation of the move last two days. The next hurdle is the August highs. Watching how the balance of the week unfolds. The near-term move extended the upside and watching how it unfolds with our stops in place. 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 9 points to 14,113 as the index was up 0.07% for the day. The index consolidated again on Thursday digesting the move from Tuesday. The leaders remain the semiconductor and software stocks. The 13,618 level cleared and the move to the August highs is in play. The index is up 11.9% from the October lows in 15 trading days. Manage your risk accordingly.
NASDAQ 100 (QQQ) was up 0.07% for the day as the mega-caps held the move higher. The sector broke above the downtrend line in July. Cleared $366.15 resistance. Now faces the July highs. The sector had a positive bias for the day with 57 of the 100 stocks closing in positive territory for the day. Adjust stops and let it play out. Entry $354.20. Stop $380.
Semiconductors (SOXX) The sector moved above $490 resistance leading the week. The sector was up 4.1% for the week. SOXL entry $448. Stop $489. Gapped higher on Tuesday. Held the move.
Software (IGV) bottom reversal moved above the $345 resistance to post a positive week. The sector was up 4.1% for the week. Added IGV $336. Stop $364 (adjusted). Gapped to a new high on Tuesday. Holding steady.
Biotech (IBB) tough week for the sector reversing back to the $115 level. The sector was down 3.5% for the week. No Positions. Gapped higher still has plenty of work to reverse the tend.
Small-Cap Index (IWM) Bounced off the lows… sold off again… weakness in the sector remains for now. The sector was down 3.1% for the week. No Position. Played catchup gaining 5.5% on Tuesday and cleared resistance at $174.40. Left a doji on Wednesday and lower on Thursday.
Transports (IYT) bottom reversal bounce… all too many reasons for this to fail. Needs to clear resistance and reverse the downtrend. Letting it unfold and take what is given. The sector was up 0.5% for the week. No positions. Gapped higher clearing $231.15 resistance. Solid upside on Wednesday.
The Dollar (UUP) The dollar bounced back on the week. Holding in a trading range. The dollar was down 0.8% for the week. No Positions. Tanked on the CPI numbers falling 1.6%. Reversal in play short term. Small bounce on Wednesday & Thursday.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.62% down from 4.66% last week. TLT was up 0.4% for the week. Watching how the Fed manages the issues with banks and treasury auctions. Falls 19 bps on the yield to 4.44% as TLT jumps up 2.2%. 4.45% on Thursday…
Crude oil (USO) Crude sold lower on worries about consumption. An increase in supply for the week was a concern. USO was down 4.1% for the week. Up and down activity all week. Downtrend on the chart. Didn’t clear $73.26 resistance… tested… tanked on Thursday… Watching for a bounce.
Gold (GLD) The commodity broke lower on a higher dollar for the week. $180.85 support broke and we banked some solid gains hitting our stop. The metal was down 2.8% for the week. Bounced back from selling on Friday… gapped higher on Tuesday with a weaker dollar. Small test of the move on Wednesday and moved to resistance on Thursday.
Our longer-term view shifts with the break above the downtrend line from the July highs. The bounce cleared 4386 first and the down trendline from the July highs second. Tuesday pushed the index back to the August highs showing more buyers engaged. The short-term upside move in the last two-plus weeks is good 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 technology and consumer discretionary. Nothing, as we all know, 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 lows validates exactly that premise with plenty of volatility along the way. With the October trend broken, it puts the broad indexes in an intermediate downtrend… the last twelve weeks’ short-term trend has offered downside trades… with the reversal two weeks ago upside trades short term… question remains how well this bounce will unfold? 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. 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: Indexes showed some intraday volatility starting lower and moving back to even at the close. Economic data was not impressive. Earnings again are mixed. Watching how this ‘V’ bottom bounce continues to unfold… you have your pick of theories being offered by the talking heads. The reality is the move is predicated on the Fed being done with rate hikes… CPI gave them hope and the buyers showed up along with some short covering. PPI added to the belief. The fact remains to follow the charts and manage the risk while waiting for the facts to confirm the belief over time. Tuesday & Wednesday offered some facts (CPI & PPI) but they weren’t as clear as the headlines would like to make them out. Plenty of inflation on the consumer still underlying in the numbers… energy offset those numbers and if energy were to move higher before food and housing data declines… it will show inflation in the data. We will be patient and take what is offered but not be naive enough to believe all is well on the inflation front. There is no lack of issues on the table with each taking their respective turn in the spotlight. The leadership is narrow albeit they broadened on Tuesday… 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 offering 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.
Explore the following links for new pages that dig into data both In & Outside the markets. Jim’s insights highlight potential opportunities emerging from the current market environment. The pages also discuss the Reality of closed opportunities, whether they proved profitable or fell short of our expectations.