The market indexes sold lower on the day as investors pushed more money to the sidelines. The losses mounted as the day progressed with the major indexes moving gradually lower on the day. Worries over the Fed’s stance on inflation continue to mount. Jamie Diamon stated the Fed would need to move to 7% on the Fed rates to curb inflation and the damage to banks, investors, and consumers would be a necessary side effect. The elephant in the room is out and now we all know where we stand relative to collateral damage. We have talked about this in our notes, but now bank leaders are saying are stating it publically and the sad part is many still don’t understand the damage that is coming. Now is the time to protect your assets if you have not already done so and focus on the short-term views of the market versus the longer term. All eleven sectors closed lower on the day and broke key support levels. Watching how this unfolds as some believe the bounce higher is coming… a bounce relative being oversold may transpire… but the downside risk is growing by the day.
Volume was lower on the day. Cash levels are rising meaning money isn’t rotating it is exiting the market’s perceived risk. The S&P 500 index closed down 1.4%. The NASDAQ was down 1.5%. The SOXX was down 2.1%. Small Caps (Russell 2000) were down 2%. The ten-year treasury yield closed at 4.55% up 1 bps. Crude (USO) was up 0.6%. (UGA) was up 0.9%. Natural gas (UNG) was down 1.9%. The dollar was up 0.3%. We are focused on managing the risk and seeing how investors respond to the current situation.
ONE Chart to Watch: QQQ – 1) Broke support $366.14. Broke the next level of support at $355. 2) Broke the uptrend from the August low. Reestablished the downtrend from the July highs with a lower high. 3) Added short side trade with SQQQ entry $18.62. Stop $20.60.
Additional Charts to Watch:
SOXX – weakness remains with the sector breaking support at the $473.23 level. The head and shoulder pattern breaks lower and was confirmed. SOXS entry $10.35. Stop $11.89. The “bounce” was short-lived as selling resumed. Watching how this unfolds near term.
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 $16.85 and let it unfold near term.
Energy – Tested support near $86 and bounced… Looking for reentry into positions. Crude tested lower as well and bounced on Tuesday. UCO entry $30.72. Stop $35. Letting it work. Rolling top. Expect some testing but a return to the upside. Watching opportunities.
Stops Hit: None
Quote of the Day: “The young man knows the rules, but the old man knows the exceptions.” – Oliver Wendell Holmes.
The S&P 500 index closed down 64 points to 4273 moving the index down 1.4% with below-average volume on the day. The index broke support at 4338 and added to the downside. Eleven of the eleven sectors closed lower on the day with energy as the leader down 0.5%. The worst performer of the day was utilities down 3%. The VIX index closed at 18.9 moving higher on the day. Uncertainty remain in play as investors move money to the sidelines.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials broke below the August lows and now looking at the June lows. The sector was down 4% for the week. No Positions. Added to the downside.
XLU – Utilities moved to the $63 level of support as interest rates weakened the outlook again. The sector was down 2.5% for the week. Down 3% on interest rate worries.
IYZ – Telecom reversed lower again test support. The sector was down 2.4% for the week. No Positions. Broke support at $21.63 and gapped lower.
XLP – Consumer Staples broke below the March lows. Remains in a downtrend. The sector was down 2.6% for the week. No Positions. Added to the downside.
XLI – Industrials downtrend accelerated. The sector was down 3% for the week. No Positions. Continued lower.
XLV – Healthcare downtrend in play with $129 near-term support. The sector was down 1.5% for the week. No Positions.
XLE – Energy tested this week with the large-cap stocks showing some profit-taking. The sector was down 2.9% for the week. No Positions. Bounced and looking for reentry.
XLK – Technology The sector has turned lower and broke support at the $169.50… negative short-term outlook. The sector was down 2.6% for the week. Broke the August lows.
XLF – Financials downside accelerated on higher interest rates. The sector was down 3.3% for the week. Bank downgrades not helping the sector. Broke support with negative interest rate impacting the sector.
XLY – Consumer Discretionary accelerated lower on data and the outlook from the Fed. The sector was down 6.3% for the week. No Positions. Led downside all week. Retail (XRT) chart moving lower as stocks show weakness.
Retail – the sector is moving lower overall (XRT) but WMT held up on Tuesday.
IYR – REITs Broke $82.96 support as higher interest rates take a toll. The sector was down 5.1% for the week. No Positions. Bottom falls out on worries around the Fed and rates. SRS playing out well.
Summary: The index closed lower on worries. The impact of Powell’s comments remains in play. The downside on Tuesday was led by XLU, IYR, IYZ. Treasury yields creep higher taking bonds lower. The index remained below the August lows and continues with a negative bias. Remember two things; first, the trend is your friend, and second, don’t fight the Fed. The Fed proves once again they are in control.
(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 207 points to 13,063 as the index was down 1.57% for the day. Mega-caps led the downside. Support at 13,618 broken… 13,274 support broken… 12,977 now in play. Watching how stocks respond near term… some oversold sectors could bounce helping the overall indexes bounce. SOXX was down2.1% and IGV was down 1.6% for the day. Watching how the near-term move unfolds.
NASDAQ 100 (QQQ) was down 1.5% for the day as mega caps broke below support at the $355 level opening the downside risk further. The sector had a negative bias for the day with 17 of the 100 stocks closing in positive territory for the day. Watching… AAPL breaks a key level of support… AMZN gapped lower… GOOG moved below to the 50-day MA… META consolidation pattern… NFLX moved to $375 support.
Semiconductors (SOXX) The sector moved below the $473 level of support and remained negative overall. The sector was down 3.1% for the week. SOXS entered. Added to the downside move.
Software (IGV) The sector broke lower on the week $335 is the support level to hold. The sector was down 3.2% for the week. Breaks $355 level of support.
Biotech (IBB) The sector accelerated lower and remains in a downtrend. The sector was down 3.2% for the week. No Positions. Touched $121.30 support?
Small-Cap Index (IWM) Broke below $182.40 support accelerating the downtrend. Equally broke support of the head and shoulder pattern. The sector was down 3.7% for the week. No Position. IJH midcaps were equally as bad on the week. Breaks lower.
Transports (IYT) downtrend remains in play and looking for support. Closed at the 200 day MA. The sector was down 3.3% for the week. No positions. Breaks $231 support.
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. Moved higher.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.43% up from 4.32% last week. TLT was down 1.6% for the week. Watching how the Fed manages the yield curve. Yields holding at the 4.4% mark for now… Fed wants to keep it there or lower. No Positions. 11 bps rise to 4.54%… raised stop on TMV
Crude oil (USO) Crude bounced off support and broke higher as supply cuts remained and speculation rose. USO was down 0.8% for the week. UCO entry $30.72. Stop $35.44. Held the 10-day MA and consolidating… upside is still in play.
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. Gapped lower? Not looking good near term.
Our longer-term view remains neutral as the upside trend from the October lows was broken on Thursday… if this confirms on the downside long-term positions will hit their stops near term. 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 plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate limbo awaiting confirmation… the last eight 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 moved lower this week. The economic data is showing signs of fatigue relative to growth. Seeing some oversold sectors short term and looking at how it impacts the longer term view. 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: More downside pressure on Tuesday as the worries relative to the Fed and interest rates mount. Mr. Powell’s comments relative to inflation, interest rates, and the economy continue to have an impact on the investor psyche. Selling lower is the answer for now as we adjust our stops on downside trades. The question is will buyers step in to reverse the selling? Letting it play out as we look for opportunities in the current activity. This is getting interesting as the talking heads turn somewhat negative.
What I am watching:
How does the market respond? We tightened our stops on short side plays. We could see a sympathy bounce. It will all depend on the conviction of the money flow if the buyers do step in. Key areas of interest are… QQQ @ $355 (broke lower). SOXX $452 test lower. XLE @$89. USO @ $80.60. TMV as the downside for bonds remains in play. Oversold versus more selling is the question. Makes for interesting days of trading. FAZ break above $18.41 offered an entry point and continues.
Credit Card losses are rising at the fastest pace since the financial crisis. We have started a debt default cycle. The challenge is no one is paying attention to the impact this will have on the financial sector. Throw in higher interest rates and bank stocks could fall another 20-25%.
The FTC sues Amazon for monopoly status. Now the government wants to target the companies they put in the mega-cap status… last time this happened was MSFT and Clinton, markets fell for quite awhile.
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. Only 5 days and nothing is done.
GBTC… upside favored. (Added $18.61.)
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.
Goldman Sachs stated shorts on stocks and the market are as strong now as they were in March 2020. That makes for an interesting scenario relative to the markets being oversold short term… but what about the longer term view?
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.