The markets moved higher on Thursday despite the headlines that would normally impact the markets. Thus, the Fed is the official backstop to the markets, and thus the free markets won’t and can’t work as they should. We discussed the need for leadership to resume leading… and they did, with the large-cap technology stocks breaking from the consolidation pattern along with precious metals. The day started with a solid gap higher and a test of the move but it managed to close higher. We got a follow-through to the Wednesday move and now watch to see how long before another test. The SOXX broke above the $432 resistance and added to the move on Thursday. The VIX moved below 20 showing a lack of anxiety on the day. The S&P 500 and NASDAQ traded higher on below-average volume for the fifth straight day. The economic data remains weak and the attack on the dollar by… everyone now isn’t a good sign either. Jobless were in line with expectations as well as continuing claims. 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 1.65% and the NASDAQ 100 up 0.9%. 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 0.5% with intraday volatility. The NASDAQ was up 0.7%. Small Caps (Russell 2000) were down 0.1%. The small caps turned lower showing rotation from growth again. The ten-year treasury yield closed at 3.55% down 1 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 1.8%… $65.70 is the key level of support for crude. Gasoline (UGA) was down 0.3%. Natural gas (UNG) was down 3.2%… interest note is France bought 65K tons from China in yuan. The dollar was down 0.4% and in a downtrend of late. Overall crazy markets. We are focused on managing the risk and watching how this all unfolds. The sentiment is still negative overall but showed a glimpse of hope… patience is the key.
News to follow: COIN was down 8% on Wednesday following a notice from the SEC (Wells Notice) of potential violations of securities laws. It fell another 14% on Thursday. This is a key issue as it relates to Crypto and how it is regulated or not regulated by the government. CNBC story link. Holding support and watching the outcome in the sector.
NEWS: The hits keep coming: Fisher Investments Moving Headquarters to Texas After Tax Ruling
Charts to Watch: UJB, TZA, NUGT, UVXY (doji @ support)
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. XRT (Apr 06 65 put). Added. Sold half. 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.
Stops Hit: NONE
Quote of the Day: “America is a land of taxation that was founded to avoid taxation.” — Laurence J. Peter
The S&P 500 index closed up 23 points to 4050 the index was up 0.57% with the below-average volume on the day. Held above the 3930 level and 3804 support. Ten of the eleven sectors closed higher on the day with REITs as the leader up 1.3%. The worst performer of the day was financials down 0.2%. The VIX index closed at 19.1 as anxiety subsided with the intraday volatility. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials Moved below the 200 DMA. Broke support and short-term downtrend in play with some bottoming on the chart. The sector was up 1.7% for the week. Bear flag on the chart broke to the upside and followed through.
XLU – Utilities retested the lows at $64 and bounced nicely to end the week. The sector was down 1.9% for the week. Trading range in double bottom pattern.
IYZ – Telecom bottoming pattern on the chart and letting it unfold. Need to move above $22.35 to have a chance at the upside. The sector was down 0.5% for the week. Moved above $22.35.
XLP – Consumer Staples downtrend from the December highs remains in play. The sector was up 1.2% for the week. Letting it unfold. $73.75 level to clear on the upside. Broke upside from the trading range.
XLI – Industrials moved to the 200 DMA as support. The sector was up 0.2% for the week. Double bottom breaking higher from the 200 DMA.
XLV – Healthcare downtrend in play with a break below the $127.50 mark. Found some support at the October lows. The sector was up 1.1% for the week. Back above $127.50.
XLE – Energy broke support at $82.74 and moved to $76 support… watch to see if it holds or moves lower. The sector was up 1.2% for the week. ERY entry $32.40. Stop $32.40. Bear Flag on the chart broke higher.
XLK – Technology The sector bounced off support at $135. Maintaining leadership but struggling with the rest of the market. The sector was up 1.7% for the week. Watching for direction and opportunity near term. Broke above $143.45 resistance. Tested to start the week and resumed leadership breaking above resistance.
XLF – Financials pressure in banks continues pushing the sector lower. Downtrend accelerated on the news and watching how this unfolds. The sector was up 01% for the week. KBE puts in play. FAZ entry hit $18.35. Stop $23. Bear flag on the chart.
XLY – Consumer Discretionary short-term downtrend in play. The sector was up 0.2% for the week. Bottom reversal?
IYR – REITs $82.96 support was broken and tested the October lows. The sector was down 1.7% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Short-side trade opportunity. SRS entry $17.95. Stop $19. Solid bounce and bottom reversal.
Summary: The index posted a follow-through move on Thursday but is still not out of the woods yet. The financial liquidity issues aren’t over despite what the talking heads are saying. Volume was below average again… something to watch. Money flow is of interest as remains below 50… QQQ bounced… crude bounced… treasury bonds were steady… SOXX bounced… still plenty of issues and taking what is offered. The charts are a mess for the last few weeks with indecision and increased volatility… Support is 3804 moved back above the 3930 level and held. Eight of the sectors have established a short-term downtrend… several have established bottom reversal patterns worth trading… volume remains low… 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 87 points to 12,013 as the index was up 0.73% for the day. The 10,941 support held and the index moved back above the 11,474 previous support. Technology and semiconductors are the keys… SOXX was higher again on Thursday adding to the bounce.
NASDAQ 100 (QQQ) was up 0.95% with the mega caps leading again with a move above $312.13 resistance. The sector had a positive bias with 80 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.
Semiconductors (SOXX) sideways trading range with $432.27 resistance. Showing leadership overall. The sector was up 0.9% for the week. If breaks higher offers some sign of hope for stocks near term. Cleared $432.27 resistance and added to the upside move.
Software (IGV) bounced at $273.40 support. Trying to offer some leadership in the technology sector. The sector was up 1.7% for the week. Need to clear resistance $293ish level. Broke above resistance $294 and added to the upside.
Biotech (IBB) The sector moved below the 200 DMA and remains in a downtrend from the February highs. The sector was up 1.1% for the week. LABD entry $18.26. Stop $21.50. 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 a small position and looking to move above $153.
Small-Cap Index (IWM) downtrend accelerated to support at the December lows. The sector was up 0.3% for the week. Money flow turned negative. Entry TZA $29.20. Stop $34.30. Watching Friday’s bounce? Bear flag on the chart. Failed breakout on Thursday.
Transports (IYT) established a downtrend from the January highs. $214 is the support level. The sector was down 1.6% for the week. BDRY showing a topping pattern. Oversold bounce trying to clear the 200 DMA resistance.
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. Moved lower. 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 3.38 down from 3.39% last week. Big shift in the last two weeks as the fear of the bank fallout impacts investors’ risk tolerance. TLT was up barely for the week. Entry TLT $102.90. Stop $105.50 Settling following the bank issues.
Crude oil (USO) Tested lower and bounced but not showing much upside currently. Economic speculation is impacting supply-demand globally. USO was up 3.9% for the week. The weekly chart shows the downtrend building in crude. $65 level is key for crude relative to the downside support. up 11.3% off the lows.
Gold (GLD) The commodity bounced this week as the dollar waffled and fear rose. The metal was down 0.1% for the week. Entry $169.50. UGL in play. Dipped on the SIV news then bounced. Bull flag pattern.
Put/Call ratio was 0.95 Thursday… remains neutral.
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.
Retail sector (XRT) is lagging of late… but the White House says the economy is strong. Scanning the stocks shows WMT, TGT, JWN, KSS, M, etc are all slowing of late. Watching how this unfolds moving forward. The short side has played out well. CTRN earnings data addressed the lower income households struggle… no money and lower spending expected in the first half.
Thursday: Stocks added to the bounce to follow through on the upside move that started on March 13th. There is still plenty of work to be done but taking what is offered. The move in growth stocks showed a bounce from oversold conditions but struggled on Thursday as IWM gave up early gains. Leaders followed suit finally… Economic data remains on the downside. 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.
Eight of the eleven sectors that created short-term downtrends on the charts are sporting bottom reversal patterns. Treasury yields move to 3.54%… the dollar heading lower… crude jumped the last week… 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.