Markets at decision point again

The markets maintain a positive tone for the week as they follow through on the bounce from the low two weeks ago. A look at the chart shows the bounce at support, a test, and move higher. While the move isn’t impressive overall it has helped the markets maintain the uptrend from the October lows. The Jobs Report was mostly in line with expectations at 187k new jobs added in August versus 157k expected. Unemployment bumped up to 3.8% versus 3.5% previous on a higher participation rate. Hourly earnings were up 0.2% versus 0.4% prior. The participation rate was 62.8% versus 62.6%… however, in 2/2020 it was 63.3%. Interesting how we forget to look further back than last month. All said investors liked the data, but overall the markets drifted more than traded on Friday. With the exception of energy, the sectors were lethargic… maybe it was the three-day weekend or the start of football season that had them distracted. Not an impressive start to the month of September. The charts show another decision point for the market near term… continue higher and eclipse the previous highs or retest the previous support… If volume is an indicator near term… testing would be my view. Manage your risk accordingly.

The markets moved modestly higher to end the week of trading. Volume was below average on the day. Scanning the indexes we see a move to support and a modest bounce… it continues to play out and the cycle of the trend will unfold… thus patience for now. The S&P 500 index closed up 1.2%. The NASDAQ was down 0.1%. The SOXX was up 0.2%. Small Caps (Russell 2000) were up 0.9%. The ten-year treasury yield closed at 4.17% up 8 bps. Crude (USO) was up 2.5%. (UGA) was up 0.9%. Natural gas (UNG) was down 0.8%. The dollar was up 0.6%. We are focused on managing the risk and seeing how investors respond to the current situation.

Markets are closed on Monday for the Labor Day Holiday.

ONE Chart to Watch: QQQ – 1) The Chart broke below the $366.14 support… reversed to resume the uptrend. 2) Short-term downtrend reversed. 3) $379.55 resistance in play. 4) Entry $370. Stop $370.

Additional Charts to Watch:

SOXX – Tested to support at $473.23. Bounced off the low offered entry $497. Stop $501. Letting it unfold.

Retail Stores – EMTY breaking higher as the short side of commercial real estate for retail stores struggles with plenty of distressed sales and bankruptcy issues in play. Hit Entry $15.25. Stop moved to $15.25 and let it unfold near term.

Energy turns higher – Tested support near $86 and bounced… entry $87.80. Stop $88.50. Crude marching higher again as well. UCO entry $30.72. Stop $31.30. Letting it run. UGA watching for entry hasn’t followed crude higher yet.

Stops Hit: NONE

Quote of the Day: “I have the simplest tastes. I am always satisfied with the best.” – Oscar Wilde

The S&P 500 index closed up 8 points to 4511 moving the index up 0.18% with below-average volume on the day. The index held support again at 4338 and bounced keeping the uptrend in play. Seven of the eleven sectors closed higher on the day with energy as the leader up 2%. The worst performer of the day was consumer staples down 0.8%. The VIX index closed at 13.1 moving lower as sentiment shifted away from the negative outlook. The bounce at support remains in place and resumed the previous uptrend.

Sector Rotation and the S&P 500 Index:

XLB – Basic Materials Reversed to the 200-day MA and bounced. The sector was up 1.1% for the week. No Positions. XME broke higher looking for entry point.

Metals – Moving higher again and worthy of attention. NUE, STLD, X, FCX, SCCO…

XLU – Utilities back to the previous lows and looking ugly near term. Short entry hit. The sector was down 0.2% for the week. SDP entry.

IYZ – Telecom broke higher from the trading range offer upside position. Entry $22.50. The sector was up 3.7% for the week. Manage the risk.

XLP – Consumer Staples moved back to the June lows. The sector was down 0.4% for the week. No Positions.

XLI – Industrials Tested support at $105.41 and bounced. Looking for upside follow through. The sector was up 2.1% for the week. No Positions.

XLV – Healthcare Moved back to support at $132.64. The sector was up 0.1% for the week. No Positions

XLE – Energy tested to support with lower crude prices… then bounced on higher prices to resume the uptrend. Big and small caps are moving higher on the cuts from Russia and Saudi Arabia… Biden administration has painted themselves in a corner relative to the petroleum sector. The sector was up 3.6% for the week. Entry $81.95. Stop $85.05. Back above the previous high.

IEO – broke higher as offshore interest rise. Entry $85. Stop $97.10.

OIS – break higher on Friday… entry $8.35 if holds the move higher.

XLK – Technology The sector broke lower found support at $165 and bounced. The sector was up 4.4% for the week. Entry $167. Stop $170.

XLF – Financials Tested the $33.78 level of support and bounced. The sector was up 2% for the week. Bank downgrades not helping the sector. BAC consolidation pattern on chart.

XLY – Consumer Discretionary Bounced off support and watching the outcome. The sector was up 3% for the week. No Positions.

Retail: Break down the charts of the discount store… DG, DLTR, FIVE, BIG = Ugly. TJX, ROST, WMT slowing but holding their trends. RH, ANF, AEO, DBI, CAL are all trending higher… an interesting picture of the current economic picture.

IYR – REITs Bounced at support… watching how it unfolds. The sector was up 1.9% for the week. No Positions.

Summary: The index moved modestly higher on the day closing out a positive week. The market participants continue to believe the Fed is done hiking rates… and they well maybe if a recession is on the horizon based on the numbers… I believe we are already in one. Seven of the eleven sectors closed higher on the day with XLE in the leadership role. The index is looking for direction and the talking heads believe it is lower… no, higher? let the charts unfold and take what is offered. 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 3 points to 14,031 as the index was down 0.02% for the day. The index showed buyers at support and moved throughout the week. Support is 13,274. Letting the move unfold as tech and megacaps find their collective direction. SOXX was up 0.2% on the day. IGV was up 0.5%. Watching support and how the activity unfolds.

NASDAQ 100 (QQQ) was down 0.11% on the day as mega caps traded flat to end the week. Bounced back from the test lower and watching how it unfolds. Positive week for the index up 3.7%. The sector had a positive bias with 69 of the 100 stocks closing in positive territory for the day.

Semiconductors (SOXX) The sector held support at $473.23 and bounced. Moved back above the $497 level to show momentum. The sector was up 5.4% for the week. Entry $497. Stop $501.

Software (IGV) The sector tested below the $336 level of support and bounced. The sector was up 4.6% for the week. Entry $345.50. Stop $355.

Biotech (IBB) The sector remains in a four-month trading range. The sector was up 1.9% for the week. No Positions.

Small-Cap Index (IWM) Tested back to the 200-day MA and bounced showing some near-term leadership. The sector was up 3.7% for the week. No Position.

Transports (IYT) Tested below the $247.67 and bounced modestly but still not showing much strength. Consolidation pattern on the chart near the lows. The sector was up 1.8% for the week. No positions.

The Dollar (UUP) The dollar moved back above the June highs with a wild week of trading… The dollar was up 0.2% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.17% down from 4.23% last week. TLT was down 0.4% for the week. Watching how the Fed manages the yield curve.

Crude oil (USO) Crude bounced off support and broke higher. USO was up 6.1% for the week. UCO entry $30.72. Letting it unfold.

Gold (GLD) The commodity found support and offered entry at $57.46 UGL. Stop $57.46. The metal was up 1.4% for the week. Letting it unfold.

FINAL NOTES:

Our longer-term view shifted to neutral as the upside trend from the October lows was challenged but remains in play. Nothing 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 the trend higher overall but plenty of volatility along the way. With the trend higher it puts the broad indexes in an intermediate uptrend… of course, the last three weeks’ micro-trend tested the longer-term trend and we need to manage stops accordingly on longer-term positions. The topping patterns broke short-term support to create micro-term downtrends that have found support and bounced. Taking what is offered short term and managing the risk longer term. The economic data is showing signs of fatigue relative to growth. We added some short-term positions this week and letting them play out. Sector-driven activity is in play as seen in energy and software. 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: With the long weekend ahead traders were content to hold and see what unfolds. Letting it play out as we look for directional confirmation on QQQ, SPY, SOXX, and IWM. We continue to follow the trends as they play out. Micro-term trends found support prompting entries on leading sectors. Looking at how this bounce plays out with resistance ahead. Patience is the key currently. Manage the risk that is and let the current activity play out. Plenty to ponder as we progress in the current environment.

What I am watching on Tuesday: 1) The reaction to the current bounce in play. 2) Leadership… energy isn’t my favorite as it taxes the consumer… but we own it for the upside move. 3) The dollar’s recent volatility. 4) Previous highs/resistance. 5) Oil prices are moving higher? Russia stated it would increase its oil production cuts. Saudi Arabia has extended its cuts as well… This leads to inflation not just at the pump, but in products that use petroleum in production… This could get ugly looking forward.

Trending concerns:

1) Elimination of the debt ceiling by Congress has sent the administration on a spending spree… no big surprise when you can’t bounce checks you keep writing them for undisclosed favors. TLT fell 1.9% Tuesday and we added TBT to our positions. Watching how this storyline unfolds as Fitch downgrades the Treasury Bond to AA+.

2) Inflation warnings are popping up again… on May 4th crude was $67. On August 1st crude was $81.96 which is a 22.1% increase in price… where does it go? Correct, into everything we basically touch. We own USO and UGA in order to keep pace with being able to afford gasoline. But it goes further and we should be looking at where to invest to keep pace with the next wave of inflation.

3) Climate Emergency? If this executive order is enacted by the Biden Administration bar the doors as spending will escalate to levels not seen since WWII. The draconian measures will mirror those seen during the pandemic lockdowns. They want to eliminate anything gas or electric in the name of “clean energy”. Another storyline that has our attention.

4) To Quote The Babylon Bee: “Bidenomics is so successful the average American has twice as many jobs as [he] had 2 years ago.”

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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