The market bounced back from Friday’s selling with major indexes closing higher on the day. Geopolitics subsided some over the weekend giving some hope to the markets. Crude was lower, interest rates bounced, volatility dipped, and buyers were in control. The leading sectors were telecom and consumer discretionary helping restore some confidence for the day. Reading over the weekend held plenty of banter about the direction looking forward as the charts attempt to confirm the bounce off the September lows. The activity was clear in the premarket as they moved higher with the markets opening higher. They maxed out however by 11 am and traded sideways the balance of the day. Treasury bonds bounced as yields moved back above the 4.7% mark pushing bonds lower. Earnings data remained in a positive mood posting better-than-expected results overall. The mega-cap sector was higher as well with QQQ up more than one percent. LULU let the sector with a 10.3% gain as it will be added to the S&P 500 index. The small-cap sector bounced back from strong selling last week. Both the NASDAQ and the SP500 index were positive as they moved back above the 50-day MA. The volume was above average barely. A look at the charts shows a technical recovery as they challenge the downtrend lines from the July highs again. The geopolitical landscape died down some but it remains front and center as Israel renews demands that the Gaza Strip be evacuated immediately. Plenty of headlines around that action as well as Russia, Iran, and others in the mix. Economic data remains weaker overall as we prepare for more data this week not the least of which will be Retail Sales. We are willing to take what the market gives both up and down. As I stated early last week we expected a test of the initial move higher and then a resumption of the year-end rally. We will see how it plays out on Tuesday. Patience and risk management remain the priority.
Volume was above average with the buyers in control early. Monday was about less banter in geopolitics, more positive earnings, and The White House saying everything is good… must be reading different data than I am. The complexity of the outlook for global economics, domestic economics, and uncertainty are alive and well. There is still plenty of work to be done for the upside to gain momentum. The S&P 500 index closed up 1%. The NASDAQ was up 1.2%. The SOXX was up 1.4%. Small Caps (Russell 2000) were up 1.6%. The ten-year treasury yield was 4.71% up 9 bps. Crude (USO) was down 0.7%. (UGA) was up 0.9%. Natural gas (UNG) was down 2.9%. The dollar was down 0.4%. 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) No Position. 4) The Down trendline is in play from the July highs. 5) Closed above the first resistance at $366. Let it play out with stops in place. $376 Target.
Quote of the Day: “Doing nothing is very hard to do… you never know when you’re finished.” – Leslie Nielsen.
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.
Retail sales data is out prior to the market opening Tuesday.
Stops Hit: NONE
Sector Rotation And The S&P 500 Index
The S&P 500 index closed up 46 points to 4373 moving the index up 1.06% with above-average volume on the day. The index held above 4300 after testing last week. Eleven of the eleven sectors closed higher on the day with telecom as the leader up 2.2%. The worst performer of the day was energy up 0.6%. The VIX index closed at 17.2 moving lower on the day as anxiety subsides. Upside bounce tested and bounced back. Will the buyers follow through or do more testing? Plenty to ponder from the headlines and facts.
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. Need to clear $59.85.
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. Need to clear $21.30.
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… back in play.
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. Need to clear $132.
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. Bottom reversal… cleared $89.45… closed on doji candle Monday.
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. Need some leadership here.
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. Need to clear $33.60.
XLY – Consumer Discretionary bottoming pattern on the chart with resistance at $163.10. The sector was down 1% for the week. No Positions. Bottoming consolidation pattern.
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. Bottoming pattern.
Summary: The index struggled for two days with uncertainty around the economic outlook as well as geopolitical issues. It bounced on perceived ease in geopolitical news… economic outlook is the real key moving forward. Earnings kicked off with banks showing some positive results. More out Tuesday. Bounce-off support was tested and watching how it unfolds balance of the 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 and bounced. 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 160 points to 13,567 as the index was 1.2% for the day. Buyers were in control for the most part. Closed with an inside day on the chart. Still need to move back above the 13,618 mark and below the 50-day MA. The downtrend from the July highs is still in play.
NASDAQ 100 (QQQ) was up 1.13% for the day as the megacaps bounced back from Friday. After testing the $353.80 support the sector bounced. Cleared $366.14 and held above it on Monday. The sector had a positive bias for the day with 89 of the 100 stocks closing in positive territory for the day. 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.
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. Need some leadership here.
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. Need some leadership here.
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. Nice upside Monday… still a lot of work to be done.
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. Retreated some on the day.
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. Back above the 4.7% mark.
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. Small retreat in price.
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. Inside day Monday.
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.
Monday: Indexes bounced back on Monday but they will need to follow through if the upside is to gain any real momentum. The SP500 and NASDAQ closed higher on the day. Banks started earnings with some positive data with plenty more on Tuesday. There is no lack 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 day eleven of the eleven sectors closed in positive territory. The leadership came from telecom. Watching how technology and consumer discretionary unfold as they need to provide leadership. Sector laggards remain the same with bouncing on Monday and several holding near support. Interest rates above 4.7% again. 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.
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.
