Market Update November 17th

Moving the markets on Friday was a hint of the “FOMO” trade. There is a smell in the air of investors not wanting to miss out on what they believe is the end of the market’s downside risk. The perception comes from the FOMC meeting and the Fed stepping back on interest rate hikes to see if they have done enough. The reality is, that inflation remains above 2% which is the Fed target. Food and housing costs are still rising, and energy is in a temporary correction phase tempering near-term inflation. Reality is a bitch and one to be respected when managing your money. Yes, you can follow the charts and take what the markets offer, but you always have to be aware of what is the reality. Thus, stepping back and looking at the markets overall, the question becomes, are stocks stalling or gearing up for more gains?

Treasury yields dipped again to 4.4%. Gold and silver jumped higher on a weaker dollar. Earnings remain a mixed bag as the good separate themselves from the bad as seen in the retail sector last week. The pocket of strength in the mega-caps remains. But, overall it was three days of consolidation following the upside move on Tuesday following the CPI data. 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 XLE up nicely on the day. The banks, KRE and KBE both posted solid gains as a benefactor to lower rates. The major question remains how the Fed responds going forward relative to interest rates. There were officials out again on Friday 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 and the President signed it 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 all week, but optimism springs eternal. Just look at the headlines and listen to the financial talking heads. The indexes are at the next resistance levels with some solid patterns setting up on the charts. We continue to take it one day at a time.

Friday the data gave more indication of weak growth in the economy. The housing sector continues to show sluggish growth due to interest rates and prices. The action was flat at the open but held 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 several quarters of data before that is true. The S&P 500 index closed up 0.1%. The NASDAQ was up 0.1%. The SOXX was up 0.7%. Small Caps (Russell 2000) were up 1.3%. The ten-year treasury yield was 4.44% down 1 bps for the day. Crude (USO) was up 3.9%. (UGA) was up 3.9%. Natural gas (UNG) was down 3.3%. The dollar was up 0.5%. 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: “If you do not conquer self, you will be conquered by self.” – Napoleon Hill

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 4514 moving the index up 0.13% 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. Eight of the eleven sectors closed higher on the day with energy as the leader up 2.1%. The worst performer of the day was technology down 0.2%. The VIX index closed at 13.8 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. Gapped above the $77 level. Left a doji on Wednesday.

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.

XLP – Consumer Staples Moved above resistance at $69.30. Tested the break higher. The sector was up 0.7% for the week. No Positions.

XLI – Industrials Cleared $102.41 resistance. Test back to the $69.30 level. The sector was up 2.9% for the week. No Positions.

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 $175.

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.

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 4386 resistance level led by large-cap stocks. On Tuesday the indexes gapped higher as CPI was flat… consolidation of the move last four days. The next hurdle is 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 11 points to 14,125 as the index was up 0.08% for the day. The index consolidated again on Friday 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 16 trading days. Manage your risk accordingly.

NASDAQ 100 (QQQ) was up 0.02% 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 627 of the 100 stocks closing in positive territory for the day. Adjust stops and let it play out. Entry $354.20. Stop $380. 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.

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).

Biotech (IBB) tough week for the sector reversing back below the $119 level. The sector was up 1.2% for the week. No Positions.

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.

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.

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.

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.


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.

Friday: Indexes showed some intraday volatility starting lower and moving back to even at the close. Economic data was not impressive again, but it showed some stabilizing. 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. Data 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 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.

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