The markets closed out the quarter moving through resistance and posting a higher high on the NASDAQ 100. Money flow into mega caps has been the leading driver for the upside move. Large-cap technology and money market funds have been the clear path for money as it is seen as too big to fail by investors. Liquidity and the Fed are the drivers currently giving cause/rationale for the current reversal. Thus, the Fed is the official backstop to the markets, and in turn, the free markets won’t and can’t work as they should. The day started with a solid gap higher and a modest test of the move but stocks closed higher. The SOXX broke above the $432 resistance and added to the move back toward the August highs. The VIX moved below 19 showing a lack of anxiety on the day. The S&P 500 and NASDAQ traded higher on below-average volume for the sixth straight day. The economic data remains weak and the attack on the dollar by… everyone now isn’t a good sign either. Friday showed February income and spending were lower… real spending was negative. Saving rates jumped to 4.6% highest in more than a year. None of that is good news for the economic picture. Next week will offer plenty of economic data from March and the first quarter. There are still plenty of questions to be addressed as we move forward… not the least of which is how the next bank run unfolds.
The recent leaders headed higher with SOXX up 0.6% and the NASDAQ 100 up 1.7%. The markets have had every reason to sell lower but manages to fight and move higher. Plenty of questions remain about the current market environment, the Fed liquidity play, and the Treasury regulation check… the cat is out of the bag and things are progressively getting worse as regulators look to assign blame. The liquidity game is back with the Fed adding $500+ billion to its balance sheet over the last two-plus weeks. This is the opposite of what they were attempting to do over the last year… shows you how big the problem really is and that unwinding it will take much longer than the Fed thought and or planned for. The S&P 500 index closed up 1.4% with intraday volatility. The NASDAQ was up 1.7%. Small Caps (Russell 2000) were up 1.8% bouncing back from selling. The ten-year treasury yield closed at 3.49% down 6 bps on the day. Bonds have had a volatile ride of late as well, but they are likely to remain in the 3.4.-3.7% range for the near term. Crude (USO) was up 1.7%… $65.70 is the key level of support for crude. Gasoline (UGA) was up 2.1%. Natural gas (UNG) was up 3.8%… interest note is France bought 65K tons from China in yuan. The dollar was up 0.3% and in a downtrend of late. Overall crazy markets. We are focused on managing the risk and watching how this all unfolds. The sentiment has shifted overall but… patience is the key.
NEWS: Biden is obviously a rock band fan… Another embarrassing mistake!
Charts to Watch: FCX, SCCO, GLD, GDX
Previous Charts of Interest Still in Play: LSCC (testing uptrend). Added uptrend in play. SOXX (upside follow-through) Added – Adjusted stop. AAPL (reversal confirmed) Added to the position. GBTC (trading range breakout). Added. AMZN (bottom reversal) Added. GDX (bottom reversal) Added. PG – trading range break as part of the consumer staples money rotation. Added. MCD breakout. Added. WMT ‘V’ bottom breakout. Added. WES reversal. Added. SCCO resuming an upside move. Added. UJB Added.
Stops Hit: Sold XRT puts.
Quote of the Day: “Here cometh April again, and as far as I can see the world hath more fools in it than ever.” — Charles Lamb
The S&P 500 index closed up 58 points to 4109 the index was up 1.66% with the below-average volume on the day. The index closed above the 4086 resistance and showed little signs of retreat. Eleven of the eleven sectors closed higher on the day with consumer discretionary as the leader up 2.6%. The worst performer of the day was energy up 0.7%. The VIX index closed at 18.7 as anxiety subsided along with the intraday volatility. The index close up 3.4% for the month and up 7% for the quarter… not bad for an index that was predicted to sell off based on inflation cutting the economic growth. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials found support at the $75 mark and bounced. As one of the defensive sectors, it moved higher. The sector was up 5% for the week. FCX bottom reversal. SCCO.
XLU – Utilities retested the lows at $64 and bounced nicely to end the week at resistance. Need to clear $67.95. The sector was up 3% for the week. Trading range in a double bottom pattern.
IYZ – Telecom double bottom pattern breaks higher offering entry. Cleared $22.35 entry. The sector was up 4.3% for the week.
XLP – Consumer Staples downtrend reversal offer entry at the 200 DMA. The sector was up 2.4% for the week. Another defensive sector leading.
XLI – Industrials moved to the 200 DMA as support and reversed to the upside. The sector was up 4.4% for the week. Another defensive sector leading.
XLV – Healthcare Made a move back above the $127.50 mark. Biotech (IBB) equally moved higher on Friday. The sector was up 1.7% for the week.
XLE – Energy broke support at $82.74 and moved back as resistance… watch to see if it breaks or moves lower. The sector was up 6.3% for the week.
XLK – Technology The sector bounced off support at $135. Maintaining leadership with IGV and SOXX leading. The sector was up 3.4% for the week. Back to the August highs.
XLF – Financials pressure in banks continues pushing the sector lower. Bear flag pattern on the chart. The sector was up 3.7% for the week. KBE puts remain in play. FAZ hit stop and solid gain. Watching how this unfolds. S&P lowers ratings on JPM, BAC, PNC, and TFC… happened after the close on Friday… watching how it impacts them on Monday.
XLY – Consumer Discretionary bottom reversal in play clearing $147.11 resistance. The sector was up 5.6% for the week. TGT bottom reversal.
IYR – REITs ‘V’ bottom reversal in play… cleared $82.96 level and $87.63 target. The sector was up 5.2% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Letting this unfold.
Summary: The index posted a follow-through move on Thursday followed by a break higher on Friday. The Fed putting money into play is the rationale… take what is offered but manage the risk accordingly. The financial liquidity issues aren’t over despite what the talking heads are saying. Volume was below average again… something we continue to watch. Money flow is of interest as remains below 50… QQQ leading… crude higher… treasury bonds were steady… SOXX higher… still plenty of issues and data on the way next week. The charts show reversals in most sectors that were in downtrends… the index cleared the 4086 resistance. We will remain patient for now as investors sort out their collective thoughts about what is fear and what is real. We continue to manage our positions accordingly. 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 208 points to 12,221 as the index was up 1.74% for the day. The 10,941 support held and the index moved back above the 11,474 previous support and now faces the February highs. Technology and semiconductors are the keys… SOXX was higher again on Friday adding to the bounce. The index was up 5.8% for March and up 16.7% for the quarter.
NASDAQ 100 (QQQ) was up 1.66% with the mega caps leading again with a move above $312.13 resistance and looking at the August highs. The sector had a positive bias with 92 of the 100 stocks closing in positive territory for the day. Watching how sentiment plays out near term. Volume is lagging despite the move higher. The index was up 9.2% for March and 20.5% for the quarter.
Semiconductors (SOXX) broke higher from the sideways trading range clearing $432.27 resistance. Showing leadership overall. The sector was up 3.5% for the week. Lagged on Friday but was higher nonetheless.
Software (IGV) broke through $293.50 resistance adding to the leadership in the technology sector. The sector was up 4.7% for the week. Mega caps leading the sector. AI & IONQ were up 21% Friday.
Biotech (IBB) The sector moved above the 200 DMA and attempting a trend reversal clearing $128.35. The sector was up 2.6% for the week. IBB entry $127.35. Broke higher from consolidation pattern.
MRNA – Moderna cancer vaccine results could drive the company higher longer term. Despite the tough week for the stock, it is worth keeping on our watch list. Entry $142. Added to the position and looking to move to $165.
Small-Cap Index (IWM) working on a bottom reversal from a bear flag pattern. The sector was up 3.8% for the week. Money flow turned higher on Friday.
Transports (IYT) bottom reversal in play. The sector was up 5.4% for the week. BDRY showing a topping pattern.
The Dollar (UUP) The dollar was down all week with the Fed and interest rates. The bounce on Friday was a plus… watching how it unfolds. The dollar was down 0.6% for the week. Plenty happening globally to undermine the dollar and replace it as the currency of trade. Very negative overall if and when this happens.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.49 up from 3.38% last week. Big shift in the last two weeks as the fear of the bank fallout impacts investors’ risk tolerance. TLT was down 0.4% for the week. Entry TLT $102.90. Stop $105.50
Crude oil (USO) Tested lower bounced and moved higher. Economic speculation is impacting supply-demand globally. USO was up 8.9% for the week. The longer-term trend is still down. The $65 level is key for crude relative to the downside support.
Gold (GLD) The commodity bounced and is in a bull flag pattern currently. The metal was down 0.2% for the week. Entry $169.50. UGL in play. SLV ‘V’ pattern back to the January highs.
Put/Call ratio was 1.04 Friday… some hedging in place.
Questions to Ponder: Navigating Uncertainty
SEC Chair Gensler requests more funding to fight bitcoin non-compliance. The government is making its move in the name of “protecting its citizens from a highly speculative asset class”. Of course, they are working on having one controlled by the government.
Social media getting the blame for the run on banks. FDIC noted that social media created a demand for almost 100% of deposits in two days. Barclays came out on Thursday and stated the second run has already started with money moving from smaller banks to larger banks and money market funds. Money market funds hit $5.3 trillion in March.
Saudi Aramco is investing $12 billion in new refining and petrochemical in China’s Liaoning province. In addition, they bought a 10% stake in one of China’s oil refining firms for $3.6 billion. Another shot at the current administration’s strained relationship with Saudi Arabia.
Friday: Stocks added to the bounce to follow through on the upside move that started on March 13th. There are plenty of reasons the markets should be heading lower but there is one big reason it is heading higher… liquidity and the Fed. The move in mega-cap technology stocks has set the tone for the broad markets overall. Defensive stocks have looked good as well breaking higher from consolidation patterns. Economic data remains on the downside and with the end of the quarter last Friday there will be plenty of news starting next week along with earnings beginning soon. Volume remains below average. Money flow remains below the 50 level. The breadth of the move isn’t great. But, we have to take what is offered and manage the risk that is. The Fed is back in the liquidity game for now and walking a thin line with inflation. Worthy of watching just how much liquidity makes its way into the system.
Downtrending sectors are sporting bottom reversal patterns with some breaking higher on Friday. Treasury yields move to 3.49%… the dollar is heading lower… crude jumped the last week by over 12%… precious metals rebounded and are in a flag pattern. Eyes open. Emotions removed. It is a time for patience as the storylines unfold and the direction is determined. Don’t assume anything and manage the risk that is. Watch for the volume, direction, sentiment, and volatility levels to lead you to what takes place. There are plenty of moving parts, we have to understand that truth/reality eventually plays out in the markets. Until then we will continue to take what is offered and manage the risk that is.
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 the risk.
“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.