Moving the markets last week was the continued belief that the Fed will provide stimulus through rate cuts as early as the first quarter of 2024. The economic data is acting as a motivation for that belief… with the data continuing to show weakness across all the sectors. Some selling but no real conviction from that side of the market and most could be contributed to some profit taking. The charts are looking extended near term but we take what it offers and manage the risk accordingly. Both the NASDAQ and the SP 500 indexes closed up 1% for the week. Leadership was from the downtrodden XLV, XLE, and XLF. Treasury yields dipped again to 4.47%. Retail sales data and earnings were very mixed with winners and losers in the sector. The upside remains in play as money flow favors the mega-cap stocks. The markets have moved up significantly in the last four weeks and with it comes risk… risk we have to manage. The laggards were up, leaders testing. XLF continued higher benefitting from lower interest rates. The concern about the consumer is growing both in the data and the comments from corporations in earnings reports. The Fed also discussed that inflation has an upside bias still in place. Market participants are not buying into the Fed’s concern as they believe they are done hiking rates. Only time will tell as we take it one day at a time.
The activity was slower in volume with the holiday week but closed higher nonetheless. Some charts are still in consolidation patterns while others continue to inch higher. Four weeks of higher moves for the market as the buyers remain engaged. 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. 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 to convince the Fed. The S&P 500 index closed up 0.1%. The NASDAQ was down 0.1%. The SOXX was up 0.1%. Small Caps (Russell 2000) were up 0.6%. The ten-year treasury yield was 4.47% up 8 bps for the day. Crude (USO) was down 1.1%. (UGA) was down 1.5%. Natural gas (UNG) was down 1.1%. The dollar was down 0.4%. We are focused on managing the risk in the current environment.
Quote of the Day: “Love does not consist of gazing at each other but in looking outward together in the same direction.”
— Antoine de Saint-Exupéry
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.
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.
Sector Rotation And The S&P 500 Index
The S&P 500 index closed up 2 points to 4559 moving the index up 0.06% 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. Ten of the eleven sectors closed higher on the day with healthcare as the leader up 0.5%. The worst performer of the day was technology down 0.2%. The VIX index closed at 12.4 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 moved toward the August highs. The sector was up 1.2% for the week. No Positions.
XLU – Utilities moved back above the $60.15 mark, need to clear $62.90. The sector was up 0.9% for the week. Entry $60.15. Stop 60.15.
IYZ – Telecom Moved back above the $21.30 level. The sector was up 1.5% for the week. No Positions.
XLP – Consumer Staples Tested the move above resistance at $69.30. The sector was up 1.1% for the week. No Positions.
XLI – Industrials Cleared resistance to inch higher. The sector was up 1.3% for the week. No Positions.
XLV – Healthcare Made the move above $129 and to the October highs. The sector was up 2% for the week. No Positions. Entry $129. Stop $129.
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 2.3% for the week.
XLK – Technology Reestablished the longer-term uptrend line with some topping on the chart. Taking a rest or ready for a test? The sector was up 0.6% for the week. Entry XLK $166. Stop $178.50.
XLF – Financials Continued the move higher as interest rates dipped lower. At the July highs currently and extended on the chart. The sector was up 1.5% for the week.
XLY – Consumer Discretionary consolidating near $168 and holding. Retail data was very mixed on earnings with plenty of warnings about the state of the consumer. The upside remains in play. The sector was up 1.3% for the week. No Positions.
IYR – REITs Moved to resistance at the $83 level and watching. The sector was up 0.8% 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. Four weeks of moves to the upside validate that belief. The index moved above the 4500 level led by large-cap stocks. Extended upside… watching how the current risk unfolds. Holiday week with Black Friday and weekly sales data ahead along with the end of the month. 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 15 points to 14,250 as the index was down 0.11% for the day. The index moved held 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 13.1% from the October lows. Manage your risk accordingly.
NASDAQ 100 (QQQ) was down 0.14% for the day as the mega-caps were flat on the day. The sector broke above the July highs to lead the markets. A small test as the sector remains the leader in the overall market. Adjust stops and let it play out. Entry $354.20. Stop $383. The sector is up 0.9% for the week.
Semiconductors (SOXX) The sector moved above the August highs with a rounding top on the chart. The sector was up 0.6% 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 2.1% for the week. IGV $336. Stop $373 (adjusted).
Biotech (IBB) more consolidation for the sector hovering around the $119 level. The sector was up 1.9% for the week. No Positions.
Small-Cap Index (IWM) consolidating near the 200-day MA. The sector was up 1.9% for the week. No Position.
Transports (IYT) bottom reversal bounce… cleared resistance and reversed the downtrend. plodding higher. The sector was up2.2% for the week. No positions.
The Dollar (UUP) The dollar remains challenged by the belief the Fed will cut rates. Broke support short term. The dollar was down 0.8% for the week. Short side in play UDN.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.47% up from 4.44% last week. TLT was up 0.2% for the week. Watching how the Fed manages the issues with banks and treasury auctions.
Crude oil (USO) Crude is very mixed with supply data showing big builds in inventory in the last two weeks. OPEC delayed a meeting on production cuts adding to the downside risk. USO was up 4% for the week. Bouncing back from last week’s sell-off. Took the bounce trade on Friday… Entry $69.57. Stop $68.57.
Gold (GLD) The commodity moved to the October highs on a lower dollar. $183.72 resistance was cleared. The metal was up 1% for the week. Entry $182.57. Stop $182.
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 in the SP 500 cleared 4500 and looking at the July highs. There has been some consolidation in the last four trading days to digest the upside move. The short-term upside move in the last four 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 the laggards playing catch up. 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 20022 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 posted some modest modest moves with the half-day of trading. 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 not impressive again. Earnings again are mixed. Retail earnings are very mixed with plenty of comments relative to the consumer. BBY stated that consumer demand is “unpredictable and inconsistent.” Watching how the current 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.