The markets spent a second day in a state of limbo trading lower early and higher later to close basically flat on the day again. Investors remain complacent heading into the FOMC meeting on Wednesday. The downside was led by the energy and utilities sectors. The upside was led by digital currency and commodities. Bond yields rose on worries the Fed won’t skip hiking rates in this meeting… if they don’t TLT will look attractive for a trade opportunity. More talk of no recession in the headlines… not sure what they are reading or what pair of glasses they bought. Issues worthy of attention from the day… crude oil fell slightly after an early jump Tuesday… might see some profit taking the near term with a return higher as the tightening supply remains an issue. Housing starts fell 11+% the lowest level in three years. Mortgage rates are above 7% and people are postponing purchases. Permits on the other hand were higher… time will tell the outcome, but this is yet another area of weakness in the economy raising its head. Eventually, the truth will be told it is just a matter of time.
The NASDAQ & SP500 indexes both traded flat on the day basically unchanged. Volume was below average with mixed action on the day. While the downside has not been aggressive the bias remains to the sell side. Attention turns to the FOMC meeting on Wednesday and Powell’s comments. Worries around another rate hike… the anticipation is they will skip and then hike prior to the end of the year. All will be known at 2 p.m. The S&P 500 index closed down 0.2%. The NASDAQ was down 0.2%. The SOXX was down 0.8% and remains problematic short term. Small Caps (Russell 2000) were down 0.6%. The ten-year treasury yield closed at 4.36% up 1 bps. Crude (USO) was up 0.1%. (UGA) was down 1%. Natural gas (UNG) was up 1.1%. The dollar was up 0.1%. We are focused on managing the risk and seeing how investors respond to the current situation.
ONE Chart to Watch: QQQ – 1) Tested below the $372.68 mark of support and closed below the 50-day MA. 2) Holding support in the uptrend from the August low. 3) $380 level to clear. $366.15 level to hold.
Additional Charts to Watch:
SOXX – Showing weakness currently but has managed to hold support above the $473.23 level. Tested $473.23 support and watching. SOXS added $10.35. Stop $10.72.
Retail Stores – EMTY breaking higher as commercial real estate for retail stores struggles with plenty of distressed sales and bankruptcy issues in play. Short side entry was taken. Entry $15.25. Stop moved to $16.37 and let it unfold near term. Cup and handle pattern on the chart.
Energy turns higher – Tested support near $86 and bounced… entry $87.80. Stop $91.02. Crude is marching higher as well. UCO entry $30.72. Stop $35. Letting it work. The sector is in a short-term uptrend but testing near the highs currently.
Stops Hit: UGA posted a gain. OIS broke even.
Quote of the Day: “We owe to the Middle Ages the two worst inventions of humanity – romantic love and gunpowder.” – Andre Maurois.
The S&P 500 index closed down 9 points to 4443 moving the index down 0.22% with below-average volume on the day. The index is holding support at 4338 currently. Two of the eleven sectors closed higher on the day with healthcare as the leader up 0.1%. The worst performer of the day was energy down 0.9%. The VIX index closed at 14.1 moving higher after a retest of the July lows. Watching support levels relative to the test lower.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials gave up the majority of the bounce and is looking at the 200-day MA as support. The sector was down 0.1% for the week. No Positions. Moved to the 200 day MA.
XLU – Utilities back to the previous lows and bounced moving above the $64.11 level for entry at $64.15. Stop $64.15. The sector was up 2.8% for the week.
IYZ – Telecom reversed back into the trading range and tested the bottom of the range again. The sector was flat for the week. No Positions.
XLP – Consumer Staples broke below the June lows. Remains in a downtrend. The sector was down 1.4% for the week. No Positions. Back to the previous lows.
XLI – Industrials established low and bounced… trying to reverse but still not looking healthy. The sector was 0.5% for the week. No Positions. Broke support $102.40 next level to hold.
XLV – Healthcare broke support at $132.64 again after an attempt to move higher. The sector was up 0.1% for the week. No Positions. Need to hold $124.60.
XLE – Energy moving higher on higher oil prices on the production cuts from Russia and Saudi Arabia… Biden administration has painted themselves in a corner relative to the petroleum sector. The sector was down 0.1% for the week. Entry $81.95. Stop $89. Letting it unfold. Resistance at $92.94 in play. Topping pattern on the chart.
IEO – broke higher as offshore interest rose. Entry $85. Stop $98. Tested support.
OIS – break higher on Friday… entry $8.35 hit stop at $8.40.
XLK – Technology The sector has turned lower and broke support at the $169.50… negative short-term outlook. The sector was down 2.2% for the week. Moved below the 50-day MA.
XLF – Financials Tested the $33.78 level of support and bounced. The sector was up 1.5% for the week. Bank downgrades not helping the sector. BAC testing support and a break lower would be negative for the sector overall.
FDIC stated the banking industry reported net income of $70.8 billion in Q2, which was a decline of 11.3% from Q1. The sector is feeling the effects of higher interest rates and a slowing economic picture. That doesn’t eco-like, sound, and resilient to me… Thus the BTFP is still in place and lending every week… stress in the sector continues with lower interest assets on the balance sheet as the biggest drag for banks. What happens if this all fails? Can you say Central Bank Digital Currency? Watching the sector as KRE, KBE, test near-term support. KIE has held up the best in the current environment but has its own challenges ahead.
XLY – Consumer Discretionary Bounced off support and watching the outcome. The sector was up 1.8% for the week. No Positions. Led downside Monday and confirmed move lower on Tuesday.
Retail (XRT): Breaking down on the charts… the discount store… DG, DLTR, FIVE, BIG = Ugly. Big box…TJX, ROST, WMT, RH slowing but holding their trends. Specialty… ANF, AEO, DBI, CAL are all trending higher… an interesting picture of the current economic outlook. Interesting moves in MCD, YUM, DRI, EAT as well.
Good thing Yellen stated, “no sign that the US economy is in a downturn.” Ostrich
IYR – REITs Bounced at support… flattened out as the outlook for commercial real estate isn’t great. The sector was up 0.3% for the week. No Positions. Retest of the August lows.
Summary: The index closed flat for the second day. Housing starts were well off expectations. Higher interest rates into the FOMC meeting. Semiconductors on the watch list relative to the downside. Retail turning lower. Fed meeting on tap and only two of the eleven sectors closed higher. The index is looking for direction nothing definitive yet, but the downside is showing a bias. Let the charts unfold and take what is offered. SPY closed back below the $444 support. Watching how that plays out. Remember two things; first, the trend is your friend, and second, don’t fight the Fed. The Fed will be on display on Wednesday! Listen closely to what Powell and his 12 minions have to say.
(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 32 points to 13,678 as the index was down 0.23% for the day. mega-caps continue to struggle. Support is 13,618 currently… 13,274 previous low. Letting the move unfold as tech and mega-caps find their collective direction. SOXX was down 0.8% and IGV was down 0.1% for the day. Watching support and how the activity unfolds.
NASDAQ 100 (QQQ) was down 0.21% for the day as mega caps traded back to support at the $366 level. The sector had a negative bias for the day with 36 of the 100 stocks closing in positive territory for the day.
Semiconductors (SOXX) The sector moved below the $497 level and accelerated lower on Friday. The sector was down 2.6% for the week. SOXS entered. Tested support.
Software (IGV) The sector broke lower on the week $345 is the support level to hold. The sector was down 1.9% for the week. Exit hit at $360 with solid gain. Traded below the 50 day MA.
Biotech (IBB) The sector remains in a four-month trading range with a downside bias. The sector was down 0.2% for the week. No Positions. Back below $128.35 support. Broke lower.
Small-Cap Index (IWM) Tested back to the 200-day MA as support. The sector was down 0.2% for the week. No Position. IJH midcaps were equally as bad on the week. Negative day – head and shoulder pattern on the chart.
Transports (IYT) Broke below the $247.67 support and $238.80 is the next level to hold. The trend has reversed to negative short-term. The sector was up 0.3% for the week. No positions. Airlines warning about higher fuel prices… go figure. Broke lower
The Dollar (UUP) The dollar moved back above the June highs and continued higher. The dollar was up 0.3% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Some topping on the chart.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.32% up from 4.26% last week. TLT was down 1.5% for the week. Watching how the Fed manages the yield curve. Yields holding at the 4.3% mark for now… Fed wants to keep it there or lower. No Positions. FOMC meeting Wednesday.
Tuesday’s 20-year note action showed again a lack of interest from foreign buyers. Rationale… the increase in US debt by more than 1 trillion dollars over the last three months is worrisome. This issue is not going away and the ripple effect will be determined looking forward.
Crude oil (USO) Crude bounced off support and broke higher. USO was up 3.8% for the week. UCO entry $30.72. Stop $35. Letting it unfold. Moved above the $90 level. Watching for near-term test, and then moving higher.
Gold (GLD) The commodity remains in a downtrend from the June highs. The metal was up 0.1% for the week. Letting it unfold. Watching the 200-day MA. Bounced… watching the setup. SLV hit entry. If inflation rises as expected precious metals will look attractive.
Our longer-term view remains neutral as the upside trend from the October lows was challenged but remains in play. 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 it puts the broad indexes in an intermediate uptrend… of course, the last seven weeks’ the micro-trend has tested the longer-term trend and we need to manage stops accordingly on longer-term positions. The topping patterns broke short-term support to create micro-term downtrends that have found support for now. Looking for a renewal of the uptrend or a break lower offering short side positions… we must have the patience to let it unfold. The economic data is showing signs of fatigue relative to growth. Sector-driven activity is in play as seen in energy. 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.
Wednesday: Watching the downside pressure with key support levels near. Mixed data on the economic picture pushes investors towards negative as we approach the FOMC meeting. The major indexes moved below the 50-day MA again. Letting it play out as we look for directional confirmation on QQQ, SPY, SOXX, and IWM. Thus far we have not had a pivotal move up or down. Patience is the key currently. Percentages are against a hike from the Fed… a pause until the next meeting… key will be how the market reacts on Wednesday and Thursday… could see a relief bounce and then some more downside. That is the belief… the reality is what we will trade.
What I am watching:
Congress is debating the new spending bill/budget for the US government… September 30th ends the fiscal year and a new budget has to be passed or the nonessential government shuts down. I know that is all the government! They are flirting with big ramifications if they fail to come to a budget. Keeping our eyes on this issue as well.
PPI & CPI were higher than expected, but the talking heads explained it away stating the core numbers were in line with expectations… that is utter BS as to take oil prices out of the equation currently says it has no impact due to the variable nature of oil prices… it had a bigger than expected impact. The cost of goods was up 2%… approximately 60% of that increase was due to oil prices… and they are still rising. We eclipsed $90 per barrel on Thursday. We can all stick our heads in the sand and pretend if we want, but the current administration has done a horrific job of managing our natural resources. Thus, why we own oil… so we can afford to buy things made with it. Watching how this continues to unfold. BTW gasoline prices were up 5.2% in July (official numbers)… up another 8.6% since August. But the headlines and the White House say all is good!
Airlines are cutting profit outlook based on energy prices… crude prices don’t matter, right?
IGV tested lower a concern relative to leadership. GBTC… upside favored. (Added $18.61.) Nice bounce Tuesday in GBTC.
Leadership… energy isn’t my favorite as it taxes the consumer… but we own it for the upside move. USO, XLE, OIS, IEO… Oil prices are moving higher? Russia stated it would not increase its oil production cuts. Saudi Arabia has extended its cuts as well… This leads to inflation not just at the pump, but in products that use petroleum in production… This could get ugly looking forward with crude moving over $90. Should see some testing of the move higher and then a resumption of the upside.
FOMC meeting Wednesday.
BTFP hit another record and the size of the loans/gifts was up to $208 million for the week. More borrowing as banks can’t seem to make enough to pay down the underwater assets on their books. The FDIC was out again about the $550+ billion in unrealized losses in the banking system… If I were a betting man it is probably five times that number.
Inflation warnings are popping up again… on May 4th crude was $67. On August 1st crude was $81.96 which is a 22.1% increase in price… where does it go? Correct, into everything we basically touch. We own USO and UGA in order to keep pace with being able to afford gasoline. But it goes further and we should be looking at where to invest to keep pace with the next wave of inflation.
A new study of PFE’s and mRNA shots demonstrates recipients are more susceptible to other viruses and diseases as a result of the shots. Two years ago warnings were issued about VAIDS (Vaccine Acquired Immune Deficiencies) as doctors actually familiar with viral diseases predicted serious problems with the COVID-19 shots. Of course, both sides are fighting about what the study means and its validity, but the point is, that the issues were predicted based on the type of shots and now there is evidence of the same: Why not investigate further? It is all about health and lives, and if there are legitimate issues, instead of arguing, figure it out. This is why the medical industry’s credibility is swirling in the toilet after the response to the covid. To this point, watching how the biotech and healthcare stocks respond.
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.