Moving the markets on Monday was strength in megacaps and the FOMO trade. Tis the season trade and we don’t want to miss out on the run higher. The charts are looking extended near term but we take what it offers and manage the risk accordingly. Semiconductors were the leader along with software as MSFT and NVDA posted solid gains on the day. Treasury yields dipped again to 4.42%. Earnings remain a mixed bag as the good separate themselves from the bad. NVDA reports earnings on Tuesday after the close and will be watched by all as an indication for the AI sector. The three days of consolidation moved to the upside starting the next leg higher. The markets have moved up significantly in the last three weeks and with it comes risk… risk we have to manage. The laggards were up nicely on the day. The XLF continued higher benefitting from lower interest rates. The Fed officials were out again 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 economic data remains an issue with the LEI data posting negative data for the 19th straight month. Treasury Secretary Yellen was on the financial networks stating all was well again… The drugs in DC must be really good. Solid day for stock overall and we continue to take it one day at a time.
Monday the activity was slower in volume with the start of the holiday week. XLK, XLF, XLI showed posted upside on the charts… the balance are still in consolidation patterns. 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 a stimulus to reset the economy on a growth track. If this belief is true it will take several quarters of data before it is seen in the data. The S&P 500 index closed up 0.7%. The NASDAQ was up 1.1%. The SOXX was up 1.4%. Small Caps (Russell 2000) were up 0.5%. The ten-year treasury yield was 4.42% down 2 bps for the day. Crude (USO) was up 2.19%. (UGA) was up 2%. Natural gas (UNG) was down 2.7%. 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: “I haven’t spoken to my wife in years. I didn’t want to interrupt her.” —Rodney Dangerfield
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. Now testing at the 200-day MA.
Sector Rotation And The S&P 500 Index
The S&P 500 index closed up 33 points to 4547 moving the index up 0.74% with below-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. Nine of the eleven sectors closed higher on the day with technology as the leader up 1.4%. The worst performer of the day was utilities down 0.3%. The VIX index closed at 13.4 moving lower 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 Cleared $77 and $79.50 resistance and consolidated near $80. The sector was down 1.8% for the week. No Positions.
XLU – Utilities moved back above the $60.15 mark, need to clear $62.90. The sector was up 3.2% for the week. Entry $60.15. Stop 60.15.
IYZ – Telecom Tested back below the $21.30 level. The sector was up 0.6% for the week. No Positions. Back above the $21.30 level.
XLP – Consumer Staples Moved above resistance at $69.30. Tested the break higher. The sector was up 0.7% for the week. No Positions. Testing the break higher.
XLI – Industrials Cleared $102.41 resistance. Test back to the $69.30 level. The sector was up 2.9% for the week. No Positions. Added to the upside move.
XLV – Healthcare Tested all week with $129 as the level to clear. The sector was up 1.5% for the week. No Positions.
XLE – Energy holding near $84.33 support and held above $82… watching how this plays out near term with a downside bias in play. The sector was up 1.5% for the week.
XLK – Technology Cleared the July highs and reestablished the longer-term uptrend line. The sector was up 4.5% for the week. Entry XLK $166. Stop $178.50. Added to the upside.
XLF – Financials Cleared the $33.64 level tested and continued the move higher as interest rates dipped lower. The sector was up 3.2% for the week. Added to the upside.
XLY – Consumer Discretionary Gapped higher above the $163 resistance. Upside remains in play with a modest test. The sector was up 0.7% for the week. No Positions.
IYR – REITs reverse head and shoulder pattern breaks higher. The sector was up 4.4% for the week. No Positions.
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 4500 level led by large-cap stocks. Monday continued the upside run and cleared the August highs. Watching how the holiday week unfolds. The near-term move extended the upside and risk is elevated 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 159 points to 14,284 as the index was up 1.13% for the day. The index moved back near the July highs. The leaders remain the semiconductor and software stocks. The 14,040 level cleared as investors put money to work. The index is up 13.8% from the October lows. Manage your risk accordingly.
NASDAQ 100 (QQQ) was up 1.22% for the day as the mega-caps moved higher. The sector broke above the July highs to lead the markets. The sector had a positive bias for the day with 89 of the 100 stocks closing in positive territory for the day. Adjust stops and let it play out. Entry $354.20. Stop $383. The sector was up 2% for the week.
Semiconductors (SOXX) The sector moved above $490 resistance and gapped higher leading the week. The sector was up 4.2% for the week. SOXL entry $448. Stop $497. Cleared the August highs adding t the uptrend.
Software (IGV) bottom reversal moved above the $345 resistance gapping higher. The sector was up 2.6% for the week. IGV $336. Stop $367.25 (adjusted). Added to the uptrend.
Biotech (IBB) tough week for the sector reversing back below the $119 level. The sector was up 1.2% for the week. No Positions. $119 back in play.
Small-Cap Index (IWM) Played catchup gaining 5.5% on Tuesday and clearing resistance at $174.40. The sector was up 5.4% for the week. No Position. Cleared resistance offering entry point.
Transports (IYT) bottom reversal bounce… cleared resistance and reversed the downtrend. Letting it unfold and take what is given. The sector was up 4.9% for the week. No positions.
The Dollar (UUP) The dollar tanked on the CPI numbers falling 1.6%. Broke support short term. The dollar was down 1.8% for the week. Short side in play UDN. Continued lower.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.44% down from 4.62% last week. TLT was up 2.3% for the week. Watching how the Fed manages the issues with banks and treasury auctions.
Crude oil (USO) Crude sold lower on worries about consumption. An increase in supply for the week was a concern. USO was down 1.4% for the week. Downside activity all week. Took the bounce trade on Friday… Entry $69.57. Stop $68.57. Moved to resistance and closed on a doji candle.
Gold (GLD) The commodity broke lower on a higher dollar… and reversed on a lower dollar. $183.72 resistance to clear. The metal was up 2.3% for the week. Entry $182.57. Stop $180.05. Tested the move higher.
FINAL NOTES
Our longer-term view shifts as the indexes confirm the bottom reversal with them looking at the July and August highs currently… if those levels are cleared it may resume the long-term uptrend. The bounce cleared 4386 first and the down trendline from the July highs second. There has been some consolidation in the last four trading days to digest the upside move. The short-term upside move in the last three 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 and the short-term downtrend broken from the July highs… the market’s short-term 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: Indexes posted solid upside move throughout the day. Economic data was not impressive again. Earnings again are mixed. Watching how this new leg higher 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 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.
