Monday was a pause day following two days of buying to end last week. Economic data was softer than expected with the ISM Services falling to 50.3% well off last month’s 51.9%. The economy continues to flirt with recession and slowing as a result of the Fed rate hikes and inflation. Factory Orders equally disappointed falling to 0.4% versus 0.9% previously. The S&P 500 index was flat after an attempt to break above 4300 level. The NASDAQ equally struggled on the day making it briefly above resistance before closing even on the day. Oil production cuts from OPEC+ were decided over the weekend with up to 1 billion barrels per day to keep prices higher. Crude jumped to start the day but like most sectors closed slightly lower. Energy moved to resistance and faded to close lower on the day. Overall a day of consolidation and juggling with nothing really changing overall.
The bottom bounce from the end of last week remains in play as most sectors held their ground. Utilities broke higher from the bear flag and looking for a follow-through. XLV moved above resistance. We will see how this unfolds on Tuesday as the markets look to next week’s FOMC meeting. Three of the eleven sectors closed in positive territory on Tuesday with the balance showing some consolidation. The S&P 500 index closed down 0.2%. The NASDAQ was down 0.1% with SOXX down 1.5%. Small Caps (Russell 2000) were down 1.3%. The ten-year treasury yield closed at 3.69% flat on the day. Crude (USO) was down 0.2% giving up early gains. (UGA) was up 0.7%. Natural gas (UNG) was up 3.3% bouncing off the lows. The dollar was down 0.2% and holding steady. We are focused on managing the risk and letting stocks run for now.
ONE Chart to Watch: QQQ – 1) Held $347.55 and cleared $352.39 resistance. 2) Short-term trend is UP… starting from the January low. 3) Accelerated above the trendline with verticle move. Watching the overextended move for a test. 4) TQQQ entry $27.45. stop $35.61 (adjusted). target $32.28 (hit letting it run). Adjusted the stop and sold 1/2 of the position at $31.65. Letting it run for now.
Additional Charts to Watch: SPY – Moved above the resistance $420.51 holding the move on Monday. Trendline off the March lows is in play. IWM – finally made a move from the trading range breaking higher and offering entry at $178.95… then gave up some of the gains on Monday. SOXX – is overextended. Tested lower $473.23 level and showing a flag pattern currently with a negative day on Monday. Manage the risk. Watch for entry. USO – oversold… bounced off the lows… confirmed bounce. OPEC+ offered a gap up open to start the day but faded to negative territory by the close… watching how it unfolds.
Leadership – NASDAQ, NASDAQ 100, SP500, XLY, XLK, SOXX… QQQ – All resumed upside on Thursday and added on Friday, consolidated on Monday. Manage the risk accordingly. Technology is the leading sector. Consumers (XLY) added to the uptrend. SOXX is showing some fatigue.
Laggards – SP400, RUTX, USO, XLF, XLI, XLE… all made positive moves on Thursday with follow-through on Friday. Some testing on Monday. If the markets are to run higher the added participation from these sectors is a positive. IJH bounced off the lows. IWM finally bounced from the trading range. 7 of the 11 sectors in the S&P 500 index are supporting downtrends short term but five have now bounced off the lows… has my attention.
Interesting Charts: AMD (consolidation top from a move higher). AI (on move lower). GOOG (pennant consolidation pattern). USO (bounce off the lows).
ON TAP TODAY: 1) Crude oil… up or down setting up for a move. 2) Breakouts… XHB, XLF, KRE, RCL, PAVE… Reversals… XME, XLV
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Earnings 5/4 after-hours beat estimates. Holding. AMZN (bottom reversal) Holding (continued upside on Thursday… raised stop). SOXX reversal. Holding. TQQQ breakout. Holding. SRS Holding (big break higher Tuesday). SJB Holding (break higher Tuesday). LABU (break up from bottoming range). Holding. ARKK (bottom reversal). Holding. FNGU (breaking out). Added Tuesday 5/8. GOOG (Channel breakout – raised stop). Added Wednesday 5/9. MSFT (break from flag pattern). Added 5/18. MU (break above resistance). Added 5/19. CSCO (bottom reversal… good earnings). Added 5/19. NFLX (test to $350 and bounce?). Added 5/24.
Stops Hit: None
Quote of the Day: “I never knew whether to pity or congratulate a man on coming to his senses.” – William Makepeace Thackeray.
The S&P 500 index closed down 8 points to 4273 the index was down 0.2% with below-average volume on the day. The index attempted to move above 4300 but faded later in the day. Managing the risk of extended move near term. Three of the eleven sectors closed higher on the day with utilities as the leader up 0.5%. The worst performer of the day was industrials down 0.7%. The VIX index closed at 14.7 moving lower showing hope and faith in growth. The uptrend from the October low remains in play.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials downtrend off the January highs bounced at support. Moved back above the 200-day MA The sector was up 3.5% for the week. Trend reversal in play.
XLU – Utilities bear flag on the chart as the sector continues to show weakness. The sector was up 0.8% for the week.
IYZ – Telecom downtrend from the February highs and trading in a bottoming range. The sector was up 2.4% for the week.
XLP – Consumer Staples downtrend from the April highs. Bounce off the lows to end the week and watching for an upside follow-through. The sector was up 0.6% for the week.
XLI – Industrials broad trading range from the March lows. Looking for a trend to break up or down with a solid upside move to end the week. The sector was up 3.4% for the week.
XLV – Healthcare accelerated lower to start the week. Bottom reversal in play $130.68 level to clear. The sector was up 2% for the week. XBI, IHE, IHF, and IHI all bounced. Tried to break higher through resistance.
XLE – Energy bounced at the lows along with crude. The sector was up 1% for the week. The downtrend is in play from the November highs. Needs to clear $80.70 on the upside. Gave up early gains.
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 up 4.1% for the week. Providing leadership for the broad index. SOXX moved higher for the week as well as IGV.
XLF – Financials consolidation pattern near the current lows with a positive move to end the week. The sector was up 3% for the week. The trend is down from the February highs. Banks are the key to the outlook.
XLY – Consumer Discretionary Broke higher from the consolidation pattern in play on the chart. Retail got a boost on reports that the consumer is spending. One of the key leaders for the broad index. The sector was up 5.7% for the week.
IYR – REITs broke lower from the trading range and tested the March lows with a bottom reversal in play. The sector was up 4.4% 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.
Summary: The index was slightly lower on the day with some consolidation following two up days. Three sectors closed higher on the day… watching the laggards and if they follow through. Remains a sector-driven market. XLK testing highs. XLY solid day. KRE bounced through the $40 level resistance, tested on Monday. XLE is attempting to reverse directions. XLV, XBI, XLI, IYR, IYZ, and XLU found support and bounced off the lows. Even XLP managed to bounce off the lows. The broad index remains in an uptrend from the October low and the breadth is widening showing stronger money flow from investors. News has been the primary mover of stocks, but starting to see economic and financial data have an influence. 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 down 11 points to 13,229 as the index was down 0.1% for the day. The index remains in the uptrend and extended technically. Mega-caps leading along with technology. SOXX was negative on the day. IGV posted a modest gain on the day. Taking what is offered long and short.
NASDAQ 100 (QQQ) was up 0.1% with the mega caps consolidating on the day. The move is overextended and could see some testing like Monday and consolidation allowing other sectors to catch up. The sector had a positive bias with 55 of the 100 stocks closing in positive territory for the day. Added TQQQ entry $27.45 (raised stop $34.50) Sold 1/2 of the position.
Semiconductors (SOXX) broke above the previous highs on NVDA earnings. Took nice profits on SOXL and watching how the flat pattern unfolds. The sector was up 5.2% for the week. Well ahead of itself manage the risk. Lost 1.5% on the day as it tests back to support… looking for the opportunity here.
Software (IGV) Broke above the $318 resistance adding to the uptrend. Added IGV $291. Stop $322.80 (adjusted). The sector was up 4.4% for the week. Mega caps leading the sector. Solid day for the sector.
Biotech (IBB) The sector moved back above the $128.35 level. Remains in a downtrend from the January highs. The sector was up 1.7% for the week. Added to bounce.
Small-Cap Index (IWM) lagging overall and did manage to break from the trading range… looking for follow through to the move. The sector was up 0.02% for the week. Letting it unfold. Gave up half of last week’s gains… watching.
Transports (IYT) Established a trading range and move to the top of the range. The sector was up 2.2% for the week. If the markets are to move higher overall they need transport to be positive.
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 0.1% for the week. Consolidating at the highs.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.69% down from 3.81% last week. Rates fell on worries over the debt ceiling not passing. The FOMC meeting is on deck and rates are projected to move higher on the data. TLT was up 1.7% for the week.
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 up 0.1% for the week. Warning from the Saudi energy minister to speculators… pushed the agenda of another production cut. EIA showed a big drawdown in supply… OPEC+ meeting over the weekend. OPEC+ voluntary cuts up to 1 million barrels per day? Watching how it unfolds relative to demand.
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.
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.
Banking Facts: Money market inflows surged again… outflows remain from banks to money market funds… they gained $31.7 billion to a new record $5.42 trillion… 6th straight week of increasing flows… “sound and resilient”. The Fed is giving just enough money through the BTFP (Bank Term Funding Program) facility to keep from a collapse (lending rose to $97.6 billion from $91 billion last week). “Sound and resilient” are the words uttered by many… not even close.
H.8 Fed report showed some more wizardry numbers… seasonally adjusted bank deposits jumped $102 billion… interestingly enough without the adjustment, bank deposit flows fell $28 billion. Changing numbers on a sheet of paper doesn’t change reality.
Interest Rates: Fed Funds Rate currently stands at 5.25%… Jamie Diamon (JP Morgan) stated in a presentation he believes rates go to at least 6% and possibly 7% before inflation breaks. Think about what that means for the financial markets if that is true.
Volatility Index (VIX–X) Tested down to the 16 level the last month showing little anxiety from investors despite all the news surrounding the markets. Short-term belief is they are focused on the Fed over the debt ceiling issues. Still an underlying belief the Fed will cut rates prior to the end of the year… despite what all the Fed folks say. The CBOE has added a 1-day Volatility Index (VIX1D) you can now track the volatility daily versus the rolling 30-day in the regular VIX. Note Monday’s volatility actually dropped despite the debt-ceiling deal not getting done. Worth tracking and learning more.
Consumer credit card debt is on the rise. It totaled $986 billion in the first quarter. This is a negative sign for the economic picture as most consumer debt is attributed to monthly expenses rising due to inflation.
Data is not supporting a Fed pause in rates. PCE was higher, core PCE was higher, personal income higher, personal spending higher, durable goods higher, jobs higher, and capital investments higher… FOMC meeting is one week away and the pressure will be on the Fed to hike rates based on the data.
FINAL NOTES:
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 days, 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.
Monday: Stocks traded flat on the day offering some consolidation from the move higher. This is expected as investors digest what happened and what is on the horizon. Interest rates have flattened out as we move toward the FOMC meeting. Technology remains the leader along with consumer discretionary. We see the overall trend is still up from the October lows. Major indexes have moved higher on the mega-cap moves and AI, but we did get some help from XBI, XLI, XLF, and XLE. Manage the risk as see how this unfolds near term. Showing extended moves in technology.
What I am watching on Tuesday: 1) More consolidation and juggling from the bounce… Inflation worries and the Fed… extended moves in XLK, SOXX, IGV, QQQ… more testing ahead. 2) Bounce off the lows in 5 of the eleven sectors all held but watching the activity relative to breadth, volume, and depth of a test. 3) Supply Chain worries from LA to Seattle as workers strike… not going to be pretty for inflation data.
“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.