Markets post big move to end the week

The ups and downs of the overall markets over the last few weeks have been challenging and require patience to navigate. The last day of the first week of trading ended with a positive boost as it closed at the next resistance point. Why the sudden shift in sentiment? Simply put a shift in the belief the Fed will be able to stop hiking rates sooner due to the slowing economic picture… talk about an oxymoron. If the economy slows so do earnings… which translates into lower stock prices. We will have to see how this unfolds… eventually, reality plays out, but in the meantime, we will be happy to make money going with the momentum and the trend. The economic news all week continued to show a slowing in growth with the ISM Manufacturing falling below 50 showing contraction in a key component of the economy. All said the close was not bad on Friday as investors put money to work as money flow was higher. The volume was higher, the VIX dropped, and the sentiment was positive. The downtrend remains in play and the activity was better to end the week… this begs the question, will it continue. The NASDAQ moved down to 10,350 support again and bounced the last hour as well. The S&P 500 index closed up 2.3% and the NASDAQ was up 2.5% for the day. The ten-year treasury yield closed at 3.57% down 15 bps on the day as TLT bounced higher on the lower rates. The volatility index moved to 21.1 on the day as investors were more active on the day. Crude was flat on the day, and natural gas was equally flat after moving back to the lows of December 2021. The dollar was down 1.5% failing to reverse the downtrend. The goal is to see how this plays out as we move forward. We took profits on short side trades and added some long side trades on the move Friday… watch and manage the immediate risk daily.

Things to Watch on This Week: 1) Resistance for SPY @ $392 and QQQ @ $270. 2) TLT continuation with TMF. 3) SOXX entry $358. test of break offering to add to the position.

Charts to Watch: SPY, QQQ, SOXX, IWM – need the sector to establish the reversal effectively with a follow through.

Previous Charts of Interest Still in Play: FCX (test support, raised stop), KWEB (breaking higher “V” bottom). UGA (double bottom). Adjusted stops as necessary. GOLD (saucer breakout). RIG (cup and handle breakout).

Stops Hit: SQQQ, SPXS

This Week’s Data Reports:

Quote of the Day: “I try to live within my income so that I can pay taxes to a government that cannot live within its income.” – Mark Twain.

The S&P 500 index closed up 86.9 points to 3895 the index was up 2.28% with above-average volume. The index managed to hold support at 3805 and bounce to resistance at the 3895 level. The shift from a negative sentiment will need to follow through. Eleven of the eleven sectors closed higher on the day with basic materials as the leader up 0.9%. The worst performer of the day was energy up 3.44%. The VIX index closed at 21.2 lower as money flow picks up. The Index closed at resistance and looking for a follow-through. 50 DMA just above.

Sector Rotation and the S&P 500 Index:

XLB – Basic Materials broke lower breaking 200 DMA. The sector was down 0.2% for the week. Closed at the 50 DMA.

XLU – Utilities moved below the 200 DMA putting the uptrend in question. The sector was down 0.7% for the week. Letting it play out.

IYZ – Telecom bottom reversal follow through. The sector was up 5% for the week. Solid break on the upside for the week. $23.75 resistance.

XLP – Consumer Staples double bottom breakout. The sector was up 1.65% for the week. Held support to $75.80 resistance.

XLI – Industrials broke resistance at $99 and looking for follow-through. The sector was up 2.7% for the week.

XLV – Healthcare Tested the 50-day EMA. The sector was down 0.1% for the week. Remains in a trading range.

XLE – Energy established a trading range with some volatility as crude prices move up and down. The sector was up 0.1% for the week. USO and UGA are in play currently.

XLK – Technology The sector found support but remains in a trading range. This will be a key component if the upside is to continue. The sector was up 3.5% for the week. Sold reversal needs to follow through.

XLF – Financials established a bottom reversal and moved through resistance at $35.20. The sector was up 3.4% for the week. Upside momentum on lower interest rates.

XLY – Consumer Discretionary bottom reversal in play. The sector was up 2.3% for the week. Watching for follow through… sector has led the downside.

IYR – REITs bottom reversal in play. The sector was up 2.2% for the week. Lower rates could offer some upside to the sector near term.

Summary: The index was up 1.45% for the week. It has established a bottom reversal with some positive momentum near term… the big question is can it follow through on the rally. We will watch how trading unfolds next week, but the downside remains the bias despite the bounce. Held above the 3805 support level through resistance at 3890. We have positions on both sides and trade them as they 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 264 points to 10,569 as the index was up 2.56% for the day. The chart found support at the October lows again and bounce again. Technology remains the key question if the upside is going to continue near term. XLK bounced but needs to clear $126 resistance.

NASDAQ 100 (QQQ) was up 2.76% with the large caps holding the October lows and bouncing to resistance. Technically the downside momentum is still on the chart… watching to see if we bounce further or reverse. The sector had an upside bias with 92 of the 100 stocks closing in positive territory for the day. The chart saw the money flow move above 50 and needs to find more momentum short term.

Semiconductors (SOXX) made a move higher to break from the bottoming range. The sector was up 4.5% for the week. $364 next level of resistance.

Software (IGV) Downtrend is in play on the chart with the October lows tested and bounced Friday. The sector was down 0.9% for the week. Watching how the week begins.

Biotech (IBB) The sector broke the downtrend line and watching for a follow-through if this is going to shift. The sector was up 1.3% for the week.

Small-Cap Index (IWM) trading in a range and making a move higher is the next step. The sector was up 1.8% for the week.

Transports (IYT) Bounced off $210 support and are in a reversal pattern currently. The sector was up 4.3% for the week.

The Dollar (UUP) The dollar moved higher during the week but then dumped on Friday dropping 1.3% and retesting the previous lows. The dollar was up 0.3% for the week. The outlook remains negative.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.57% up from 3.83% last week. The yields reversed giving an upside trade to bonds. TLT was up 5.6% for the week.

Crude oil (USO) volatility in oil prices as speculation ramps up on economics. Supply-demand speculation as China opens its economy and borders. USO was down 7.7% for the week. Watching how support plays out relative to the downside.

Gold (GLD) The commodity has been trading higher as the dollar declines. The metal was up 2.4% for the week. GLD entry $154.90. Stop $168. The move to resistance and got the break higher. Entry AGQ $23.50. Stop $31. Hit resistance and testing.

Put/Call ratio was 0.99 on Friday… SVXY trade setup ($57.50 entry, stop $57.50).

Questions to Ponder: Navigating Uncertainty

AAPL: More cuts for iPhone sales outlook. Murata Manufacturing expects a downward revision from Apple orders. MS cut its production estimates for Q4 as well. The stock was down 1.4% Wednesday… down 4.7% for the week. Needs to hold support at $137.20. Broke lower… puts in play. Sold 1/2 of position. Sold balance of the position.

WMT: At a decision point with the rolling top on the chart. Indicator for the retail sector. Added Puts adjusted stops… Wednesday broke key support. Stopped out of puts.

Energy (XLE): Watching the downside momentum in the sector with crude moving below $80 bbl. Added UCO and ERX.

FINAL NOTES:

Friday: The markets managed to bounce to end the week. The economic data remains in a downtrend. The hope is for the Fed to rest relative to rates and maybe offer stimulus looking forward… this is a long and winding road that will take time to resolve. In the meantime, we will take what is offered and manage the day-to-day activity accordingly. Watching how this unfolds relative to sentiment and outlook. We are a far way from seeing growth… my opinion. Plenty to ponder and watch daily. The dollar broke below the 200 DMA as lower rates help the global financial markets ease. The word “stagflation” is something to watch moving forward as well. The October lows are in sight and watching how this unfolds. Volatility closed at 21.1 as anxiety levels remain elevated, and money supply and volume weak. Stay focused and follow the money. Follow the Fed. 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.

As stated above we continue to watch and take what is offered. 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. Recession talks are turning towards stagflation of late which could be worse for consumers as it tends to last longer with a slow negative effect. We remain focused on short-term trades until there is directional clarity. The charts are showing a negative trend… with a potential reversal… technology and consumer discretionary show negative trends. Financials reversed along with major indexes. 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.

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