The markets spent the day running in place without much change relative to the major indexes. Consolidation of the last four weeks seemed to be the theme of the day. With Cyber Monday filling up email boxes it was hard to hear much more than how the holiday season was expected to unfold. As we discussed last week the data points and comments from the retail sector are very subdued with lower expectations from consumer spending. 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 flat for the day. Treasury yields dipped again to 4.38%. New Home Sales fell 5.6% month-over-month in October showing the impact of interest rates. The markets have moved up significantly in the last four weeks and with it comes risk… risk we have to manage. There is some juggling for leadership and we will watch how this unfolds. Interesting to note how boring the day was the S&P 500 index traded in a 14-point range all day. We remain patient for now.
The activity was slower in volume following the holiday week. Some charts remain in consolidation patterns while others continue to inch higher. Four weeks of higher moves for the market questions started to raise concerns about a test. 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. 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 down 0.2%. The NASDAQ was down 0.1%. The SOXX was down 0.1%. Small Caps (Russell 2000) were down 0.3%. The ten-year treasury yield was 4.38% down 9 bps for the day. Crude (USO) was up 1.1%. (UGA) was down 0.2%. Natural gas (UNG) was down 1.8%. The dollar was down 0.2%. We are focused on managing the risk in the current environment.
Quote of the Day: “Behind every great man is a woman rolling her eyes.” – Jim Carrey
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 down 9 points to 4550 moving the index down 0.2% 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. Two of the eleven sectors closed higher on the day with REITs as the leader up 0.3%. The worst performer of the day was transportation down 1%. The VIX index closed at 12.7 moving 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 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… consolidation without a test thus far. The focus is on the holiday shopping season and thus far not impressive… expected sales are similar to ten years ago… we will see how all the banter unfolds. 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 10 points to 14,241 as the index was down 0.07% 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 0.09% 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.
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 up 2.2% 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. Tested to support again.
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. Nice break higher.
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 were subdued on lower volume to start the week. 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. The retail outlook for the holidays is not great with plenty of comments relative to the consumer. BBY stated that consumer demand is “unpredictable and inconsistent.” Watching how the current consolidation… 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 watching for the next leg.
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.