Earnings from the mega-caps pushed the markets higher for the week. META, CMG, MSFT, GOOG, and AMZN all pushed higher on earnings and set the tone for the week. The NASDAQ was higher along with the S&P 500 index as both bounced back from the recent struggles. The volume was above average with plenty of give and take. The economic data showed personal income up 0.3% versus 0.3% previous. Personal spending was flat at 0% versus 0.1% previous. PCE index was up 0.1% versus 0.3% previous… better than expected on the inflation front. Core PCE index was up 0.3% versus 0.3% previous. PCE Y/Y was up 4.2% versus 5.1% previous… impressive drop. The data was mostly ignored by investors, but I am sure that information will sink in eventually. The FOMC meeting is next Wednesday and will also bring some interesting data from the Fed. The markets continue to find reasons to move higher and continue trend higher from the October lows. The S&P 500 moved above the 4160 resistance and QQQ moved above $320.92 resistance keeping the uptrend alive from the January lows. Overall positive week for stocks with six of the eleven sectors closing higher on the week.
The market used earnings as the catalyst this week and with the FOMC meeting next week and the expectation of 25 basis point hike still on the table will set the tone. The S&P 500 index closed up 0.8% as buyers ruled the day. The NASDAQ was up 0.7% with SOXX up 1.8%. Small Caps (Russell 2000) were up 0.8% adding to the bounce. The ten-year treasury yield closed at 3.45% down 7 bps showing volatility the last few days. Crude (USO) was up 2.5%… economic strain putting pressure on prices. Gasoline (UGA) was up 1%. Natural gas (UNG) was up 1.8% as volatility remains. The dollar was up 0.1% and struggling globally. We are focused on managing the risk and watching how this all unfolds.
ONE Chart to Watch: QQQ – 1) Broke above $320.92 resistance and offered upside trade (TQQQ). 2) Short-term trend is UP… starting from the January low. 3) $330 next resistance to watch. 4) Uptrend line in play with test at $292 and $310.80. 5) Break higher on Friday still needs to confirm the upside move.
Additional Charts to Watch: SPY – broke to a new near-term high (SPXL). IWM – solid upside move off the low. SOXX – finally had a good day on Friday.
Leadership – NASDAQ, NASDAQ 100, SP500, Dow… All moved back near the recovery highs of February. The major indexes are led by the mega caps and taking the overall markets higher for the week.
Laggards – SOXX, SP400, RUTX… struggling despite the bounce to end the week. The growth stocks are still not showing the needed leadership if the markets are to run higher.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added to the position. AMZN (bottom reversal) Added. PG – trading range break as part of the consumer staples money rotation. Earnings gapped higher. Added. MCD breakout. Added. WMT ‘V’ bottom breakout. Added. WES reversal. Added. TSLS. Added. SPXL breakout. Added. SOXX reversal. Added. TQQQ breakout. Added.
Stops Hit: SRS, SOXS
Quote of the Day: “For every complex problem there is an answer that is clear, simple, and wrong.” – H. L. Mencken.
The S&P 500 index closed up 34 points to 4170 the index was up 0.84% with above-average volume on the day. The index broke the 4160 resistance on Friday. The bounce puts the index close to a new eight-month high. Ten of the eleven sectors closed higher on the day with telecom as the leader up 2%. The worst performer of the day was utilities down 0.1%. The VIX index closed at 15.9 as anxiety fell and hope sprang eternal on the day. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials hit resistance at $81.75 and tested lower holding above the 200-day MA. Solid bounce to end the week. The sector was down 0.2% for the week.
XLU – Utilities trading range developing on the chart with resistance at the 200-day MA. The sector was down 0.9% for the week. Entry $68.
IYZ – Telecom gapped down to $21.63 support and held with a bounce to end the week. The sector was down 0.5% for the week.
XLP – Consumer Staples upside trend continues as money rotates to the “safe” haven of defensive stocks. The sector was up 1.1% for the week.
XLI – Industrials moving sideways with some volatility showing on the chart. The sector was down 0.6% for the week.
XLV – Healthcare made a move through two resistance points. $136.30 next resistance as it held $131.40 support. Topping pattern on the chart. The sector was down 0.6% for the week.
XLE – Energy rolling top as hits resistance at the $86.85 level and held the $82.74 support. The sector was down 2.4% for the week. Crude moving lower impacting stocks short term but solid bounce on Friday.
XLK – Technology The sector cleared the $144.10 resistance and retested with a bounce back to resistance… trading range is in play. The sector was up 1.4% for the week. Need some leadership from the sector if markets are going higher.
XLF – Financials breaks above resistance at the $32.36 test the move and bounced to keep the uptrend in play off the Mach lows. Testing the short-term leadership. The sector was down 0.1% for the week. Banks will be the key short-term as they continue to struggle with regional banks reporting weaker earnings.
XLY – Consumer Discretionary $147.11 resistance in play again. Retail is struggling as consumer debt rises to record levels. They learned from the government. The sector was up 0.3% for the week.
IYR – REITs broke from the trading range on Friday. Cleared $85 and watching as commercial property remains a challenge overall. The sector was up 1.5% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising.
Summary: The index made a move higher on Thursday and Friday to resume the upside trend. The uptrend from the October low remains intact with three higher lows keeping the trend in place. Earnings pushed the index back above support and offered some optimism to investors. The 4160 resistance was broken and needs to follow through on Monday for confirmation. Volume has been above average this week with some back-and-forth in direction. All the issues facing the index were forgotten as earnings take center stage. FOMC on Wednesday will come into focus next week. We will remain patient for now as data versus hope play out. 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 85 points to 12,226 as the index was up 0.7% for the day. The index held the moved to resistance at the 12,227 level. The bounce was positive and watching to see if the uptrend can gain momentum. Technology is the key… up on earnings the last two days with the finally joining in on Friday.
NASDAQ 100 (QQQ) was up 0.69% with the mega caps earnings leading the move. The bounce pushed the sector above the $320.92 resistance point. The break needs to confirm on Monday. The sector had a positive bias with 76 of the 100 stocks closing in positive territory for the day. Added TQQQ on the upside move.
Semiconductors (SOXX) Tested the $400 level of support and bounced with follow-through on Friday. Still trading below the 50-day MA. Added SOXL Friday on the confirmation. The sector was down 1.1% for the week. Watching how it plays out next week.
Software (IGV) Tested to the $289 support level and bounced. Added IGV. The sector was down 1.4% for the week. Mega caps leading the sector.
Biotech (IBB) The sector tested back to the $128.35 level and bounced. The sector was down 2.2% for the week. Added IBB on the bounce at support.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. The bottom reversal offered an entry for an upside bounce. The sector was down 1.3% for the week. Letting it unfold.
Transports (IYT) negative earnings created a big test lower to support at the $213 level. Nice bounce on Friday and watching how it unfolds. The sector was down 2.6% for the week. If the markets are to move higher overall they need transport to be positive.
The Dollar (UUP) The dollar remains volatile as more countries are willing to trade outside the dollar. Held steady for the week… watching how it unfolds. The dollar was up 0.1% for the week.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.45% down from 3.57% last week. Mixed reactions all week reacting to the news. TLT was up 1.9% for the week.
Crude oil (USO) Tough week for oil as 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. Nice bounce on Friday to end the week. USO was down 1% for the week.
Gold (GLD) The commodity is showing a rolling top. The metal was up 0.3% for the week. Watching for upside to resume.
Put/Call ratio was 0.98 on Fruday… back to neutral.
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.
Semiconductors – China announced a national security review into US chipmaker – and one of three memory chip market leaders – Micron. MU fell on the news. This battle between the US and China over chips has been going on for some time… caught in the crossfire are South Korea and Taiwan.
Friday: Stocks bounced on earnings to end the week in positive territory. The positive reaction on Thursday and Friday was due to what some deem a resilient economic picture based on earnings production in the first quarter. Not sure what numbers they are looking at but the data is pointing to stagflation not growth. There is still plenty ahead for investors to ponder relative to the economy, earnings, the Fed, debt ceiling, and inflation. But for 48 hours they are reveling in the earning data. Ten of the eleven sectors closed higher on the day with above-average volume with mega caps driving the activity. We see opportunities setting up both on the downside and the upside on the charts. The key is to let it unfold and take the opportunities as they are presented. There are some positive setups for the broad indexes and larger sectors but we will need to see confirmation next week. That could be a challenge with the FOMC meeting midweek.
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. We have to remain focused on short-term trades until there is longer-term directional clarity. 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.
“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.