The market continued in a selling mode to end the week. Despite the downside move the SP500 index ended week up 0.4%. Energy was the leading sector up 4.5% as crude bounced again with concerns over Isreal and Hamas war. Plenty of banter about the direction the last two days as the bounce from the September low tests the move higher. The intraday activity was clear from the open as the selling continued throughout the day. Treasury bonds bounced as yields moved lower. Bank earnings were better than expected with JPM, WFC, C all beating expectations… at the end of the day, the sector was down 1.4%. Weakness was present in the mega-cap sector as well with QQQ down 1.2%. The small-cap sector continued selling as well retesting last week’s low. The upside came from the defensive sectors led by energy. Both the NASDAQ and the SP500 index struggled as they moved back below the 50-day MA. The volume was above average given the intraday selling. A look at the charts shows some technical setbacks as the downtrend lines from the July highs were tested and retreated. The geopolitical landscape is front and center as Israel demands that the Gaza strip be evacuated immediately. Plenty of headlines around that action as well as Russia, Iran, and others making comments. The VIX index closed higher showing more anxiety about the current activity. Economic data remains weaker overall with CPI and PPI both higher than expected. Consumer sentiment fell as the survey showed higher inflation expected near term. That put pressure on stocks as it keeps the Fed question alive and at the forefront of investor’s minds. We are willing to take what the market gives both up and down. As I stated early this week a test of the initial move higher and then a resumption of the year-end rally. Patience and risk management remain the priority.
Volume was above average due to the selling intraday. Friday’s activity followed the economic data lower along with geopolitical issues in the headlines. This only adds to the complexity of the outlook for global economics, domestic economics, and uncertainty. There is still plenty of work to be done for the upside to gain momentum. The S&P 500 index closed down 0.5%. The NASDAQ was down 1.2%. The SOXX was down 2.7%. Small Caps (Russell 2000) were down 0.8%. The ten-year treasury yield was 4.62% down 9 bps. Crude (USO) was up 4.7%. (UGA) was up 3.7%. Natural gas (UNG) was down 3.8%. The dollar was up 0.1%. We are focused on managing the risk in the current environment.
ONE Chart to Watch: QQQ – 1) Tested support at $354.10 and bounced. 2) Offered entry at $356.80. 3) TQQQ trade $35. Stop $38.4) Tested at the trendline Thursday. 5) Closed above the first resistance at $366. Let it play out with stops in place. $376 Target.
Additional Charts To Watch
Retail Stores – EMTY breaking higher as commercial real estate for retail stores struggles with plenty of distressed sales and bankruptcy issues in play. A short side entry was taken. Entry $15.25. Stop moved to $16.85.
Stops Hit: IGV, SOXX
Quote of the Day: “You know you’ve reached middle age when you’re cautioned to slow down by your doctor, instead of by the police.” – Joan Rivers.
Sector Rotation And The S&P 500 Index
The S&P 500 index closed down 21 points to 4327 moving the index down 0.5% with above-average volume on the day. The index held above 4300 after testing the last two days. Five of the eleven sectors closed higher on the day with energy as the leader up 2.2%. The worst performer of the day was consumer discretionary down 1.5%. The VIX index closed at 19.3 moving higher on the day as anxiety moves up. Upside bounce is being tested. Will the buyers follow through or more testing? Plenty to ponder over the weekend.
XLB – Basic Materials moved back to support at the $77 level. Consolidation pattern in place. The sector was up 0.4% for the week. No Positions. Bottom reversal… failed.
XLU – Utilities found support at the $56 level… bounced and faced some resistance at the $59.50 level. Watch for follow-through upside. The sector was up 3.5% for the week. Bottom reversal in play.
IYZ – Telecom reversed lower again test support at the $20.50 level. Remains in a downtrend. The sector was up 0.6% for the week. No Positions.
XLP – Consumer Staples Remains in a downtrend with a bear flag pattern on the chart. The sector was up 0.2% for the week. No Positions. Bottom reversal… Failed.
XLI – Industrials downtrend remains in play but did find some support at $99. The bounce moved back below the $102.40 level and the 200-day MA. The sector was up 0.9% for the week. No Positions. Bottom reversal… tested.
XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce and watch how it unfolds. The sector was up 0.1% for the week. No Positions.
XLE – Energy gapped higher as the war in Gaza unfolds. letting the volatility settle, but expect the upside to resume. The sector was up 4.5% for the week after falling 5% last week. No Positions.
XLK – Technology The sector is in a bottom reversal pattern with a test of the move on Friday. The sector was up 0.2% for the week. Hit stops on some positions on Friday.
XLF – Financials bottom reversal pattern is in play with the sector up 0.5% for the week. Banks posted solid earnings to end the week.
XLY – Consumer Discretionary bottoming pattern on the chart with resistance at $163.10. The sector was down 1% for the week. No Positions.
IYR – REITs found support at the $75 level and bounced slightly. Higher interest rate worries and downside talk on defaults rising in commercial real estate. The sector was up 1.7% for the week. No Positions.
Summary: The index struggled the last two days with uncertainty around the economic outlook as well as geopolitical issues. Earnings kicked off with banks showing some positive results. Bounce-off support was tested and watching how it unfolds next week. The talk is the year-end rally… watching to see what unfolds near term. The index moved to previous lows… tested and bounced and tested again. 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 167 points to 13,407 as the index was down 1.23% for the day. Sellers controlled the day and brought questions relative to the bounce. Tested the move above the 13,618 mark closing below and below the 50-day MA. The downtrend from the July highs is still in play as the index retreats.
NASDAQ 100 (QQQ) was 1.26% for the day as the mega caps struggled. After testing the $353.80 support the sector bounced. Cleared $366.14 resistance only to retest it on Friday. The sector had a negative bias for the day with 31 of the 100 stocks closing in positive territory for the day. Intraday volatility closed lower. Watching…
AAPL bottoming pattern reversal (added $174.35)… Tested.
AMZN found support and consolidation pattern needs to clear $131.86… (added $131.90) Tested.
GOOG moved above the 50-day MA (added $135.65)… Tested.
META consolidation pattern (added $307.50)…
MSFT consolidating (added $320). Tested.
TQQQ. entry $35. Stop $38.40. Tested.
Semiconductors (SOXX) The sector closed above the $473 level of support after selling lower on Friday. The sector was down 0.7% for the week. Hit stops and let this unfold.
Software (IGV) The sector moved above $345 resistance validating the bounce at support. The sector was up 0.1% for the week. Added IGV entry $340. Stop $349.
Biotech (IBB) The sector remains in a downtrend with support at the $119 level. Looking for a follow-through upside. The sector was down 0.7% for the week.
Small-Cap Index (IWM) Found support bounced and retreated back to support. The sector was down 1.5% for the week. No Position. Growth outlook weighing on the sector.
Transports (IYT) downtrend remains in play with a consolidation pattern emerging on the chart. Closed below the 200-day MA. The sector was down 1.3% for the week. No positions.
The Dollar (UUP) The dollar bounced back from early week selling to close near the current highs. The dollar was up 0.6% for the week. No Positions. Challenges with the 10 and 30 year treasury auction brings more questions about the future of the buck.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.62% up from 4.78% last week. TLT was up 3.3% for the week. Watching how the Fed manages the yield curve. No Positions. Locked in solid gains on TMV.
Crude oil (USO) Crude sold lower on worries about consumption. OPEC and others saying lower production is needed… data versus vested interest is the challenge. USO was 6.5% for the week gapping on the Gaza war. Gapped higher on Friday.
The Hamas/Isreal war is adding to the speculation around oil prices and the alignment of countries in the Middle East. Has my attention with the belief that oil will rise above the $100 mark moving forward. UCO looking for an entry point.
Gold (GLD) The commodity accelerated higher this week on all the geopolitics in play. The metal was 5.3% for the week. Added positions at $172. Managing the risk. See notes below.
FINAL NOTES
Our longer-term view remains neutral as the upside trend from the October lows was broken. The short-term downtrend from the July highs is where our attention resides. If the longer-term trend is to resume the short-term downtrend needs to reverse… soon. 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 lows validates exactly that premise with plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate limbo awaiting confirmation… the last ten weeks’ the micro-trend has short-term downside trades. The current bounce off the lows has given us reason to bank profits from the downside trade. Now we look at the bounce and if it can materialize into an opportunity. Friday’s activity raises questions on the geopolitical front as well as economic data raising issues about 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 tested the bounce with some rotation to energy and other defensive sectors. The SP500 and NASDAQ closed lower on the day. CPI and PPI rattle investor confidence along with the geopolitical issues. Banks started earnings with some positive data. Plenty of issues on the table each taking their respective turn in the spotlight. We will be patient to let this unfold as the pattern and consolidation still show an upside bias with specific weaknesses. For the week nine of the eleven sectors closed in positive territory. The leadership came from energy and utilities. Watching how technology and consumer discretionary unfold as they didn’t have the best of weeks. Sector laggards remain the same with several tests intraday again and several moving back near support. Interest rates retreated for the week helping bonds bounce. 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 and take what the markets give. Remember all moves at this point are relief rallies and we will treat them as such until they validate otherwise.
What I Am Watching
XLE – Energy is struggling as crude struggles on the outlook for demand flattening. The sector tested lower, bounced on the war outbreak, and tested again… watching how it unfolds but the weakness isn’t universal in the sector. OIH has held up on the bounce… IEO has equally held. FANG broke higher. Still, opportunities here if you are willing to put in the work. ESTE nice consolidation set up on the chart. Got the upside bounce Thursday and Friday offering trading opportunities.
SOXX leadership looking forward? Upside day on Monday… looking for a show of strength. Added the position on Friday and looking to add to that position on follow-through… need to clear $490. Moved to $490 Thursday and reversed on Friday…
Gold (GLD/UGL) has been selling and remains in a downtrend from the May highs. $168 support is currently in play and I am looking for some relief in the form of buyers. $180 target on the bounce. Looking to see how this unfolds near term. Finally bounce… UGL entry $51.25. Stop $55.40 (adjusted)… low-risk trade. Speculation bounce on Monday helped the cause. Another inside day on Tuesday followed by a gap higher on Wednesday and we raised the stop. Small test on Thursday and gap higher on Friday… managing risk with the target in sight.
Crude Oil (USO/UCO) is down 7.1% in the last two days. Broke the uptrend line from the July lows. Looking for a bounce back to $77.30 on USO. Patience as it unfolds. Entry $$75.50. Stop $$76.50. Held Friday continue watching in light of Isreal/Hamas conflict. Gapped higher on Monday by 4%. Flat to down on Tuesday as everyone digests the move. Friday gapped higher on war concerns in Middle East.
GBTC… upside favored. (Added $18.61.) Need to clear $20.60. Testing at resistance. Willing to add to the position if it breaks higher.
Trending Concerns
Economic Data: CPI and PPI are hotter than expected… markets react but hang on to the upside move for now.
LVMH (Moet, Hennessy, Louis Vutont) reported sales in luxury banks up 9% versus up 17% Q2 year-over-year… that is a negative data point for the economy. The belief is, that luxury items are the last to fall as the economy moves towards a recession. Hello recession? The wine and spirits division was worse at -14% for the quarter. The stock has declined 27.2% since the high in July.
Geopolitics: Hamas/Isreal conflict will impact the globe with plenty at stake.
Mortgage demand is at the lowest levels since 1996… applications fell 6% last week alone. Bank stocks will get hit by this over time.
Selling in the Airbnb space is rising. Rentals are down and thus, can’t pay the mortgage, so sell the property. ABNBtesting support at $123.50… double top on the chart.
Credit card usage dropped again last week by 11.3% versus down 10.9% the prior week. Think MA, AXP, and V stock prices.
Banks talk ‘financial accident’. Goldman Sachs stated shorts on stocks and the market are as strong now as they were in March 2020. That makes for an interesting scenario relative to the markets being oversold short term… but what about the longer term view? They were out again on Monday warning about a “financial accident” if rates continue to climb towards 7% Fed Funds Rate. Yes, the leaks of what we have been saying for a while, are finally making the airwaves… not a good situation for investors or consumers. Watching… BAC, GS, JPM, MS… bounce into year-end, and then it could get ugly. Surprise upside earnings from WFC, JPM, C… watching how next week unfolds.
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.