The markets move higher post-FOMC meeting aided by better than expected retail sales report. The NASDAQ, QQQ, SP500, DJ30, DJ20, and SP400 all hit recovery highs off the October lows. One would assume the answer to the Fed being hawkish from investors is to keep moving higher. The SP500 cleared the 4400 mark and is now eyeing the highs of last April near the 4585 mark. The level for the NASDAQ would be 14,600. Not even the Fed is going to derail the current enthusiasm for large-cap stocks. Scanning the best-performing sectors on Thursday we see UNG, WEAT, IEO, ITB, KRE, IYT, IGV, FXI, and TAN… a very interesting crowd of stocks moving versus previous. This shows more breadth in the move but equally, we are seeing commodities, industrials, and materials moving higher. The charts do show the leading sectors in overbought territory technically, but the markets can remain irrational longer than you can remain solvent fighting the trend. Treasury yields fell 7 bps on the 10-year bond. Economic data was full of key data points some better some worse but they were mostly ignored with the exception of retail sales. The jobless claims were up to 262k equal to last week but ahead of expectations. Empire State manufacturing survey was better at 6.6 versus -31.8 previous. Philly fed manufacturing survey was -13.7 versus -10.4 previous. Industrial production fell 2% and capacity utilization was steady at 79.6%. We continue to take what the market gives and manage the risk.
The positive move was steady, with average volume, good breadth, and higher highs on the charts. The ability to ignore things that should cause angst among investors is interesting as always which is why looking at the trend is equally as important as looking at the fundamentals. XLK led the day with IGV moving higher. XLV bounced back from selling on Wednesday. IWM, IJH, XLE, moved back from the downside. Some rotation into commodities was seen on the day. Eleven of the eleven sectors closed in positive territory. The S&P 500 index closed up 1.2%. The NASDAQ was up 1.1% with SOXX down 0.8%. Small Caps (Russell 2000) were up 0.8%. The ten-year treasury yield closed at 3.72% down 7 bps on the day. Crude (USO) was up 2.5%. (UGA) was up 3.2%. Natural gas (UNG) was up 8.8%. The dollar was down 0.5% as comments from Yellen continue to weigh on the buck. We are focused on managing the risk and seeing how investors respond to the revised outlook from the Fed.
ONE Chart to Watch: QQQ – 1) Moved above $366.14 breaking through the resistance from the April 2022 highs. 2) Short-term trend is UP… starting from the January low. 3) Accelerated above the trendline with verticle move. Tested the move and resumed the uptrend. 4) Responded to the FOMC with a break higher. 5) TQQQ $37.15 Monday. Stop $40.29.
Additional Charts to Watch: SPY – Moved to new highs from March lows resuming the uptrend. Manage your stops. IWM – broke from the trading range moving higher with entry at $178.95 (stop $184.45 adjusted)… need to clear $188.58. SOXX – cleared $497.61 resistance leading upside move. Entry $492.65. Stop $510. Some selling on Thursday… USO – oversold… gapped lower testing bottom end of the trading range… bounced again… volatility on speculation about consumption. OPEC+ still weighing on the commodity and Goldman Sachs downgraded the commodity price outlook. Supply and demand at work… watching how it unfolds.
Leadership – NASDAQ, NASDAQ 100, SP500, XLY, XLK, SOXX… QQQ – All resumed the upside trend with a break from consolidation and follow-through. Manage the risk accordingly. Technology has been the leading sector. Consumers (XLY) remain a leader. IGV adding to XLK move higher following the Fed news.
Laggards – SP400, RUTX, USO, XLF, XLI… all made positive moves of late with a solid reversal on the charts. IJH, IWM, XLI, XLE, and XLF all made moves to confirm a bounce from their respective consolidation patterns. They responded positively to the FOMC announcement surprisingly. The small caps bounced back on Thursday and watching for a move above resistance. XLP posted a positive day and we will see how it moves going forward.
Interesting Charts: USO (testing the bottom of the range).
ON TAP TODAY: 1) Crude oil… up or down setting up for a move. $75 is the key resistance point for oil. 2) Breakouts… XME, YINN, FCX 3) Breakdown… UUP, GLD… 4) Watching how cyclical stocks react to the Fed as a signal for the markets overall along with rotation.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added 5/7. Holding. AMZN (bottom reversal) Added 5/7. SOXX reversal. Added 5/17 reversal. TQQQ breakout. Added 5/17. Holding. SRS Added 5/17. SJB Added 5/17. LABU (break up from bottoming range). Added 5/17. ARKK (bottom reversal). Added 5/18. FNGU (breaking out). Added Tuesday 5/8. GOOG (Channel breakout). Added 5/9. Added to position 6/6. MSFT (break from flag pattern). Added 5/18. CSCO (bottom reversal… good earnings). Added 5/19. NFLX (test to $350 and bounce?). Added 5/24. AMD (consolidation top from a move higher). Added 6/6. AI (on test move lower). Added 6/6. DIA (break from consolidaiton). Added 6/8. TGT (bear flag). Added puts 6/9. HON (trading range breakout). Added 6/13. FCX (bottom reversal). Added position 6/13. KSS (breakout above resistance). Added 6/15.
Stops Hit: None
Quote of the Day: “No one appreciates the very special genius of your conversation as the dog does.” – Christopher Morley.
The S&P 500 index closed up 53 points to 4425 the index was up 1.22% with above-average volume on the day. The index held the move above 4400 with 4585 next level to clear. Managing the risk of extended move near term. Eleven of the eleven sectors closed higher on the day with healthcare as the leader up 1.5%. The worst performer of the day was REITs up 0.5%. The VIX index closed at 14.5 as it moved higher despite the upside move in the index. The uptrend from the October low remains in play.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials attempting to reverse the downtrend off the January highs following a bounce at support. Moved back above the 200-day MA The sector was up 0.4% for the week. Trend reversal in play. Need to break above $81.70 resistance. Watching XLB, STLD, FCX, SCCO, X
XLU – Utilities bear flag on the chart sports a reversal. The longer-term trend from the December highs remains down. The sector was up 1.9% for the week. Struggling near the lows.
IYZ – Telecom downtrend from the February highs and trading in a bottoming range. The sector was down 0.3% for the week. Cleared $21.63 resistance.
XLP – Consumer Staples downtrend from the April highs and consolidating near support. Need to clear $73.50. The sector was up 0.6% for the week. Needs to move above the 200-day MA. Cleared resistance at $73.30 and added to the upside… TGT, CL, PM, WBA bottom reversals.
XLI – Industrials broad trading range from the March lows. The trend broke to the upside hitting resistance at the $102.40 level. The sector was up 1.4% for the week. Broke above resistance and accelerated. HON, IR, ITW, ETN, EMR look good.
XLV – Healthcare Bottom reversal in play $130.68 level to clear. The sector was up 0.1% for the week. XBI, IHE, IHF, and IHI all bounced. Tried to break higher through resistance… patience. Cleared $130.68 resistance and attempted to break the down trendline. IBB needs to clear resistance at $132.
XLE – Energy bounced at the lows along with crude. The sector was up 0.4% for the week. The downtrend is in play from the November highs. Needs to clear $82.70 on the upside. Trying to move higher… DO, RIG, PTEN, SWN, RRC to name a few movers.
XLK – Technology The sector broke from the trading range clearing the $154.42 resistance and going vertical. Posted a flag pattern this week and watching how it unfolds. Could test before resuming upside. The sector was down 0.5% for the week. Providing leadership for the broad index. Hit new highs with SOXX jumping higher Wednesday. IGV gave it another boost on Thursday.
XLF – Financials consolidation pattern needs to clear the April highs. The sector was up 1% for the week. The trend is down from the February highs. Banks are the key to the outlook. In a position to move higher, KRE is helping the sector currently.
XLY – Consumer Discretionary Broke higher from the consolidation pattern in play on the chart. The sector continues to find positive data points to keep the trend alive. One of the key leaders for the broad index. The sector was up 2.6% for the week. Hit new highs. KSS, JWN, WMT, TGT all posted solid moves.
**Citigroup warned that credit card spending trends are slowing… they noted that travel and entertainment are slowing more than other areas. That is something to watch in the trendlines of those sectors. PEJ.
IYR – REITs broke lower from the trading range and tested the March lows with a bottom reversal in play. The sector was up 0.1% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising. Own SRS on downside risk. Residential moving up… commercial moving down. Big challenges in San Francisco, Chicago, Seattle, Portland as major real estate given back to the banks. Despite commercial… residential helps the upside as it moves to the top of the range.
Summary: The index posted a positive day taking into consideration the FOMC meeting news. Economic data helped the cause as investors remain positive overall. Eleven sectors closed higher on the day… breadth moved higher on the day and taking what is offered. Remains a sector-driven market. XLK led on the day. XLY led on the day. KRE needs to clear $44.75. XLE needs to clear $82.74. XLV, XBI, XLI, IYR, IYZ, and XLU breaking through resistance. The broad index remains in an uptrend from the October low showing stronger money flow from investors and rotation based to lagging sectors. 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 up 156 points to 13,782 as the index was up 1.15% for the day. The index remains in the uptrend and clears resistance at the 13,620 level. Support is 13,274. Watching how the trend unfolds short term. SOXX was lower on the day. IGV moved higher helping the cause. Taking what is offered long and short.
NASDAQ 100 (QQQ) was up 1.19% with the mega caps leading on the day. The move is overextended but moving higher nonetheless. The sector had a positive bias with 84 of the 100 stocks closing in positive territory for the day. TQQQ reentry in play.
Semiconductors (SOXX) broke above the previous highs and broke from the flag pattern. The sector was up 0.6% for the week. Watching how it unfolds and the next opportunity. Broke higher from the flag pattern to continue the uptrend despite the FOMC news Wednesday. They closed lower on Thursday on what some say is profit-taking.
Software (IGV) Broke above the $318 resistance adding to the uptrend. Added IGV $291. Stop $322.80 (adjusted). The sector was up 0.02% for the week. Big test midweek and manage to bounce back… managing our stop. Moved above $355.96 resistance resuming leadership role. Added 2% on Thursday with MSFT most impressive.
Biotech (IBB) The sector moved back above the $128.35 level. Remains in a downtrend from the January highs. The sector was down 0.1% for the week. Moved higher entry $130. Tested on Wednesday, resumed upside on Thursday.
Small-Cap Index (IWM) lagging overall but did manage to break from the trading range… looking for follow through to the move. The sector was up 1.6% for the week. Letting it unfold. Resumed upside and tested on Wednesday, resumed on Thursday.
Transports (IYT) Made a break higher from the trading range and needs to clear the $234 resistance. The sector was up 0.8% for the week. If the markets are to move higher overall they need transport to be positive. Cleared the $233.95 resistance in play and added to the upside move.
Thursday: Tentative agreement on the west coast port stoppage and strikes. The challenge is getting $5.2 billion of backed-up cargo in containers and trucks to start moving again. 14 days doesn’t sound like much but to clear the backlog it could take months. IYT was up 1.2% on the news. Watching the break higher.
The Dollar (UUP) The dollar remains volatile but produced an uptrend back to the March highs. What is on the horizon? If the dollar gets stronger watch the ripple effect… The dollar was down 0.3% for the week. FOMC meeting results will have an impact on the dollar. Broke support fell 0.5% on the FOMC. Added another 0.5% on Thursday.
Yellen says to expect a gradual decline in the dollar’s share of global reserves… amazing how between Obama and Biden the dollar has deteriorated.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.74% up from 3.69% last week. Rates are looking at the FOMC meeting and the decision the Fed makes along with guidance. TLT was down 0.07% for the week. Yields down to 3.72% from 3.83% on FOMC.
Crude oil (USO) Remains in a short-term downtrend but it did manage to bounce off the lows. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. USO was down 1.9% for the week. OPEC+ voluntary cuts up to 1 million barrels per day… oil moved up slightly then sold lower on economic news from China. Fell to support at the bottom of the current range. Bounced Tuesday… tested Wednesday… bounced on Thursday… watching.
Gold (GLD) The commodity moved sideways with the dollar indecisive on the week. letting this unfold with the trend higher from the October lows. The metal was up 0.5% for the week. Tested support… watching.
Questions to Ponder: Navigating Uncertainty
Stagflation – is defined as 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. Layoffs from early 2022 to current continue… Bankruptcy filings are not slowing as the hit the fastest pace since 2010. War – Costs… Ukrain/Russia endless war isn’t good for the US economy. Inflation is here 1970’s style. Markets are giving the Fed cover to hike again with the surge in technology stocks. Although the leadership is narrow. Things are not as good as they seem on the surface.
Port of Los Angeles and ports up the west coast staging strikes… watch the supply chain issues this creates looking forward… that will equally impact inflation. Strikes were settled on Wednesday… now we see what ramifications it will cause from the stoppage.
Janet Yellen has been on the financial stations talking about more “consolidation” in the banking sector. Under normal circumstances we would view that as mergers and acquisitions… but, it seems like she is talking about a takeover relative to the failure of more banks. Despite that outlook, banks have rallied more than 12% in the last week. Take what is offered but manage your risk accordingly.
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 with the trend higher overall but plenty of volatility along the way. With the trend higher for more than six months it puts the broad indexes in intermediate uptrend… this is a positive overall for the broad markets. We remain focused on short-term trades based on the short-term volatility and until there is longer-term directional clarity we remain with our current approach. Trading the volatility has performed better than holding through the cycle. Sector-driven activity is in play short term with narrow leadership. The breadth did improve over the last few weeks, but we will need to see follow-through on the moves. 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: The charts broke from the consolidation patterns to start the week. Technology remains the leader along with consumer discretionary. SOXX and IGV moved higher to lead the sectors. Trading the trends on sectors showing strength. We see the overall trend is still up from the October lows. Major indexes have moved higher on the mega-cap moves and technology. We introduced some speculation and uncertainty on the FOMC announcement, but the response has been positive as the breadth widens bringing commodities into the uptrend. Watching how that unfolds going forward. Manage the risk that is as we add some rotation.
What I am watching on Friday: 1) Profit-taking ahead of a long weekend? 2) SOXX response to selling on Thursday. 3) DBA, XLB, XLI making moves to the top of their respective ranges… 4) GLD, SLV, lagging… weaker dollar on the chart could spark an upside in the metals. 5) XME attempting to break higher. 6) Looking for signs of rotation… cyclical especially. 4) SCCO, X, UGL, DPST, SOUN,
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.