The markets closed higher as debt ceiling discussions are moving forward… according to Mr. Biden. The mega-caps took another leg higher led by NFLX, MU, NVDA, and SNPS. SOXX moved to the March highs showing some renewed leadership for the broad index. The result was a continuation of the upside move for the NASDAQ. The S&P 500 moved through resistance. Small caps reversed off the lows and added to their gains. And as they say in the movies, everyone lived happily ever after. Banks held their move higher from Western Alliance stating deposits have increased. All said it was a fairytale ending and all is well. The Fed was out talking again about inflation and reiterating they don’t see a rate decrease prior to the end of the year. That is old news, however, all the attention is on the negotiation to raise the debt ceiling. The weekly jobless claims were better than expected at 242k versus 264k previous. Continuing claims fell to 1.799 million versus 1.807 million previous. That is the first dip below 1.8 million since March 1st. Mega cap stocks looked good on the day accelerating above the trend line and breaking out of the Bollinger Bands and showing they are now overextended technically. The volume however remained below average. We will take what is offered and manage the risk that is.
The S&P 500 broke higher from the current range. QQQ accelerated in the uptrend. The NASDAQ composite index equally moved higher. Breadth increased in afternoon trading. SOXX resumed leadership on a solid continuation move higher. Seven of the eleven sectors closed in positive territory. The S&P 500 index closed up 0.9%. The NASDAQ was up 1.5% with SOXX up 3.1%. Small Caps (Russell 2000) were up 0.6% adding to upside bounce. The ten-year treasury yield closed at 3.64% up 6 bps on the day as TLT moved lower. Crude (USO) was down 0.8%… uncertainty remains in the pricing. Gasoline (UGA) was down 0.07%. Natural gas (UNG) was up 8.4% gapping higher. The dollar was up 0.7% establishing an uptrend for the week. We are focused on managing the risk and watching how this all unfolds.
ONE Chart to Watch: QQQ – 1) Continued the move higher breaking above $329.77 resistance and breaking above the August highs. 2) Short-term trend is UP… starting from the January low. 3) Accelerated above the trendline showing an extended move short term. 4) Volume finally spiked above average on Thursday. 5) Breakout confirmed and trend established for now. $31.23 resistance was broken on Thursday. 6) TQQQ entry $27.45. stop $30.01. target $32.28. Adjusted the stop and letting it play out. 7) Broke through the top of the Bollinger Bands sign of being overextended. Raised stops and managing the risk near term. May take 1/3 to 1/2 of position off to lock in gains.
Additional Charts to Watch: SPY – cleared resistance $415.20 to break higher… adjusted stop. IWM – bounced again… moving toward the top of the range. SOXX – reversed the downtrend and moved to the March highs adding to gains. Added SOXL @ $14.65. USO – oversold… gap bounces off the lows offered entry on Wednesday at $63.60. Stop $62.50.
Leadership – NASDAQ, NASDAQ 100, SP500, XLY, XLK… QQQ breaks higher along with the NASDAQ. SPY finds upside momentum. Consumer and technology leading the sectors. Volume was below average on the moves… finally saw some breadth in the move Wednesday, but still plenty of work to be done. If the debt ceiling issue is off the table the upside has a chance of extending.
Laggards – SOXX, SP400, RUTX, USO, XLF… All bounced on Wednesday after growth stocks have lagged overall. If the markets are to run higher we need to see them participate. SOXX posted a positive move IJH finally bounced but still struggling. IWM can’t get out of the bottoming range but did move to the upper end of the range. XLE, USO reversed the break lower but remains in a downtrend. KBE bounced on positive deposit data.
Interesting Charts: TJX (break from trading range).
ON TAP THIS WEEK: 1) Empire State Manufacturing Expected -5. (absolutely ugly report at -31.8…) Philly Fed Factory Survey -20 expected. (-10.4 versus -31.3 previous). 2) Retail Sales +0.8% expected. (0.4% versus -0.7% previous). 3) Industrial Production 0.1% expected. Capacity Utilization 79.7% expected. 4) Housing Starts 1.4 million expected. (up 2.2% versus -4.5% previous). Building Permits 1.43 million expected. (-1.5% versus -3% previous). Existing Home Sales of 4.26 million are expected. (4.28 million versus 4.42 million). -23% year over year. 5) US leading economic indicators -0.6% expected. 6) Fed presidents are out all week beating the drum against inflation. (Bostic stated he didn’t see a rate cut prior to year-end). 7) Resistance needs to be broken if the uptrend is to continue.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Earnings 5/4 after-hours beat estimates. Holding. AMZN (bottom reversal) Holding (continued upside on Thursday… raised stop). MCD breakout. Holding. SPXL breakout. Holding. SOXX reversal. Holding. TQQQ breakout. Holding. SRS Holding (big break higher Tuesday). SJB Holding (break higher Tuesday). TGT (descending triangle short setup with Jun Puts). Holding. Holding. LABU (break up from bottoming range). Holding. ARKK (bottom reversal). Holding. EMTY (breakout confirmation). Added 5/8. FNGU (breaking out). Added Tuesday 5/8. GOOG (Channel breakout – raised stop). Added Wednesday 5/9. DLTR (Consolidation breakout). Added on Friday 5/12. MSFT (break from flag pattern). Added 5/18. ON (breakthrough resistance. $83). Added 5/18. AI (break higher… $23 level to hold). Added 5/18. MU (break above resistance). Added 5/19. M(bottom reversal). Added 5/19. CSCO (bottom reversal… good earnings). Added 5/19.
Stops Hit: CL
Quote of the Day: “You can lead a man to Congress, but you can’t make him think” – Milton Berle.
The S&P 500 index closed down 39 points to 4198 the index was up 0.94% with below-average volume on the day. The index held above the 4160 support. 4173 resistance broken on the upside move. Managing the risk near term. Debt ceiling news/rumors gave the catalyst to the upside. Seven of the eleven sectors closed higher on the day with technology as the leader up 2.1%. The worst performer of the day was consumer staples down 0.5%. The VIX index closed at 16.1 reversing lower on the day. The uptrend from the October low remains in play. Plenty to watch as this all unfolds.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials downtrend off the January highs with some volatility along the way. Flirting with the 200-day MA as support. The sector was down 2% for the week. Back below the 200-day MA and bounced back.
XLU – Utilities trending lower from the December highs. 200-day MA is resistance on the chart. $68 is the support. The sector was flat for the week. Entry $68. Stop $67.80 HIT STOP. Fourth-day lower breaking support.
IYZ – Telecom downtrend from the February highs. No momentum to speak of and looking for a break lower. The sector was down 1.6% for the week. Bear flag on chart. Moved back to $21.63 previous support.
XLP – Consumer Staples upside trend with flag pattern last few weeks showing a pause. The sector was down 0.1% for the week. The trend is up from the March lows. Rolling top. Broke support.
XLI – Industrials triangle pattern of consolidation on the chart. Looking for a trend to break up or down. The sector was down 1% for the week.
XLV – Healthcare drifting lower with support at $130.68. Topping pattern on the chart. The sector was down 1% for the week. XBI solid upside trend. Testing support?
XLE – Energy broke the $82.74 support… attempted to bounce but resumed the downside. The sector was down 2.1% for the week. The downtrend is in play from the November highs. Crude is down on global demand speculation relative to slowing economics. Short-side trade entry hit $82.70 (XLE). ERY entry $30.50. Stop $33.50. Broke lower and bounced.
XLK – Technology The sector remains in a trading range. Closed at the top of the range… need to clear $151.53. The sector was down 0.2% for the week. Need some leadership from the sector if markets are going higher. SOXX lagging. GOOG running on AI news. Cleared the $154.42 new highs with SOXX bounce.
XLF – Financials broke below the $32.36 level… banks are still a challenge for the sector overall. The sector was down 1.3% for the week. The trend is down from the February highs. KBE & KRE up on deposit increases… watching the propaganda.
XLY – Consumer Discretionary consolidation pattern in play on the chart with an attempted break higher during the week. Retail got a boost on reports that the consumer is spending. They learned from the government. The sector was up 0.4% for the week. Broke from the trading range… need to follow through. Cleared $147.11 resistance added to the upside and gapped higher on Thursday.
IYR – REITs remain in a trading range within the downtrend from the February highs. The sector was down 1.1% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Own SRS on downside risk. Residential moving up… commercial moving down. Broke support at $82.96… bounced and watching.
Summary: The index was higher on the day. It is moving higher in the uptrend. Breadth is a matter of interpretation as some say yes… I say it is still split. Remains a sector-driven market. XLK and XLY leading the move higher. KBE bounced on deposit-increasing news. XLE is still on the short side of the chart but it did bounce. XLV, XBI, XLI, IYR, IYZ, and XLU are all struggling to find any momentum. The index remains in an uptrend from the October low. News is the primary driver up and down for the index. Taking what is offered near term and letting it all unfold. 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 1887 points to 12,688 as the index was up 1.51% for the day. The index moved above resistance and continued in the uptrend. Mega-caps leading along with technology. SOXX is up 5.5% last two days to contribute. 12,246 is the level of support to hold.
NASDAQ 100 (QQQ) was up 1.86% with the mega caps pushing to new highs. Moved above the $329.77 resistance and accelerated in the trend. The support is $329.77. The sector had a positive bias with 78 of the 100 stocks closing in positive territory for the day. Added TQQQ entry $27.45 (raised stop $30.01).
Semiconductors (SOXX) Tested the $400 level of support and struggling to find any upside momentum. Still trading below the 50-day MA. A downtrend is in play from the March highs. Added SOXL $13.60. Stop $17.07 (Adjusted). The sector was down 1% for the week. Watching how it plays out next week. Resumed the bottom reversal with $447.47 next level to clear… Watching for the run.
Software (IGV) Tested to the $289 support level and bounced. Added IGV $291. Stop $310 (adjusted). The sector was up 1.3% for the week. Mega caps leading the sector. Accelerated to new highs leading the technology sector.
Biotech (IBB) The sector tested back to the $128.35 level and consolidating. The sector was down 1.3% for the week. Large caps are outperforming small and mid-cap stocks. Added IBB $129.50. Added XBI $82.80. Consolidation pattern in a downtrend. Retesting the $128.35 support and bounced.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. Established a bottoming range. The sector was down 1% for the week. Letting it unfold. Bounced again? Watching for an upside follow through if the trend is to reverse.
Transports (IYT) negative earnings created a big test lower to support at the $213 level. Established a trading range. The sector was down 1.6% for the week. If the markets are to move higher overall they need transport to be positive. Downside momentum building again… bounced back to the top of the range.
The Dollar (UUP) The dollar remains volatile but did break higher to end the week. What is on the horizon? If the dollar gets stronger watch the ripple effect… but, needs to follow through first. The dollar was up 1.6% for the week. Bounced again?
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.46% up from 3.44% last week. Mixed reactions all week reacting to the news. Consolidation range for yields & TLT. TLT was down 0.6% for the week. 3.64% up 6 basis points. TLT was lower on the day.
Crude oil (USO) Bounced and then sold lower… the news states China and US are consuming less on weaker economic data. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. USO was down 1.5% for the week. Bounced and looking for direction… Bear flag on the chart.
Gold (GLD) The commodity is consolidating near the highs and testing this week. The stronger dollar is weighing on the metal… for now. The metal was down 0.3% for the week. Watching for the upside to resume. Big downside with the dollar moving higher.
Questions to Ponder: Navigating Uncertainty
Stagflation – persistent inflation combined with stagnant consumer demand and relatively high unemployment. Do we have this situation currently in the US economy? If it doesn’t exist in a purely technically defined way, it is creating the same economic environment currently in the US, and the current administration is in denial. Thus, we will continue to feel the effects of this until we change course.
Money Supply – Falling at the fastest rate since 1930. M2 fell 2.2% in February and fell 2.4% in March… Contraction in supply should contract liquidity in the system and stifle inflation. Watch bank deposits they are still declining. See the above definition of stagflation… the pressure on the economy is building.
Banking Facts: banks borrowed $8 billion last week down from the $32.6 billion the previous week. 9% decline reported by regional banks in deposits… outflows remain… “sound and resilient”. The Fed is giving just enough money through the BTFP (Bank Term Funding Program) facility to keep from a collapse ($305.4 billion, up $8 billion on the week) but not enough to eliminate the pain. “Sound and resilient” are the words uttered by many… not even close.
Week ending 5/3 – Money Market Funds showed an $18.3 billion increase in deposits. Bank deposits fell $13.8 billion. Doesn’t include the PACW announcement of a 10% decline in deposits… “sound & resilient”!
Consumer credit card debt is on the rise. It totaled $986 billion in the first quarter. This is a negative sign for the economic picture as most consumer debt is attributed to monthly expenses rising due to inflation.
Our longer-term view is still negative, but 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. We have to remain focused on short-term trades until there is longer-term directional clarity. Sector-driven activity is in play short term with narrow leadership. News is in the driver’s seat as we take positions that are technically moving and offering opportunities. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal now is to manage the risk of positions, take what is offered… short or long, and then manage your money.
Thursday: Stocks were higher as the NASDAQ mega-caps accelerated in the uptrend. The leadership is clearly in XLK and XLY. The balance of the sectors have added some upside in relief bounces, but they are still lagging overall. Banks (KBE) bounced on deposit news showing some short covering. Energy (XLE) bounced but was still in a downtrend. The question is if the debt ceiling deal is done… how does the market respond moving forward? Seven of the eleven sectors closed higher on the day with below-average volume. We see the overall trend is still up from the October lows. NASDAQ is leading, S&P 500 is playing catch up, and Small caps and Dow bounced but still lagging. Got some breadth in the move higher to gain confidence in the move but plenty of issues underlying and nagging investors. Taking what is offered and managing the risk that is.
What I am watching on Thursday: Large-cap biotech XBI upside resumption with a test to the previous lows… KBE/KRE follow through on bounce? Continued run higher in GOOG… SOXX breaking higher… broader leadership coming? This market has to be evaluated sector by sector to define the leadership near term. Positive setups are in place watching the Thursday acceleration… real of news driven. Upside: QQQ, SOXX. Downside: FAZ, SRS, ERY, TZA.
“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.