The market was rattled by the CPI data creating some intraday volatility. It ultimately closed slightly lower but managed to hold its own. There was a 30-year treasury auction that was ugly, raising plenty of questions about the US debt situation. There were plenty of reasons for stocks to sell off Thursday, but there was enough leadership to keep the upside game alive on the charts. The day started with CPI data higher than expected on both the top line and the core. After being flat for several hours the indexes fell into negative territory dropping more than 1.3% intraday. They managed a modest bounce off the intraday lows and closed in negative territory for the day. Small and midcap sectors showed the most weakness down more than 2% on the day thanks to the economic outlook. Technology and energy both managed to close essentially even on the to lead the upside. Both the NASDAQ and the SP500 index struggled to stay above the 50-day MA. The volume was above average given the intraday volatility. The uptrends off the recent low remains and taking all things into consideration technically, the markets are poised to attempt a year-end rally. Bond yields rose 11 bps on the 30-year bond auction weakness. That noise didn’t help stocks either. We will look at how the balance of the week plays out, but it isn’t out of the question. The NASDAQ 100 index held above the first level of resistance closing above $366. It is important to note the downtrend line off the July highs came into play for QQQ. The index moves to the line and reverses in the first attempt to break the trendline. That is something to watch moving forward. The SP 500 remained above the 4300 and tested at the 50-day MA. Watching both on Friday and how they respond. Crude was lower on Thursday as buyers settled down relative to the war with Israel/Hamas. Russia is still rattling on about production cuts. A quick look at the charts shows consolidation at support over the last few weeks and a bounce upside with buying… bottom reversal in play. It was a distribution day with only two sectors closing in positive territory. The VIX index closed higher showing some anxiety. Economic data remains weaker overall with CPI and PPI both higher than expected. We are willing to take what the market gives both up and down. I would look for a test of the initial move higher and then a resumption of the year-end rally. Expect some volatility relative to geopolitics and economic outlook.
Volume was above average due to the selling intraday. Thursday’s activity followed the economic data lower along with the negative 30-year bond auction. This only adds to the complexity of the outlook for global economics, domestic economics, and uncertainty. There is still plenty of work to be done for the upside to gain momentum. The S&P 500 index closed down 0.6%. The NASDAQ was down 0.6%. The SOXX was up 0.2%. Small Caps (Russell 2000) were down 2.2%. The ten-year treasury yield was 4.71% up 11 bps. Crude (USO) was down 0.3%. (UGA) was down 1.7%. Natural gas (UNG) was down 1.2%. The dollar was up 0.8%. We are focused on managing the risk in the current environment.
FYI – Friday the 13th!
ONE Chart to Watch: QQQ – 1) Tested support at $354.10 and bounced. 2) Offered entry at $356.80. 3) TQQQ trade $35. Stop $38.4) Tested at the trendline Thursday. 5) Closed above the first resistance at $366. Let it play out with stops in place. $376 Target.
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. Short side entry was taken. Entry $15.25. Stop moved to $16.85.
XRT, IGV, SOXX, XLE, XLB – consolidation patterns in place… looking for a bounce. XLE gapped open and didn’t add position on added risk. IGV bounced and added $346.50 on Monday. Stop $352. SOXX added $475 on Friday. Stop $481.75.
Stops Hit: XRT
Quote of the Day: “A camel makes an elephant feel like a jet plane.” – Jackie Kennedy.
Sector Rotation and the S&P 500 Index:
The S&P 500 index closed down 27 points to 4349 moving the index down 0.62% with above-average volume on the day. The index held the move above 4300 and hit resistance at 4378 with a test. Two of the eleven sectors closed higher on the day with energy as the leader up 0.1%. The worst performer of the day was REITs down 1.5%. The VIX index closed at 16.6 moving higher on the day as anxiety moves up. Upside bounce in play. Will the buyers follow through or more testing at resistance? Plenty to ponder as we end the week.
XLB – Basic Materials moved lower and found support at the $77 level. Held and bounced to end the week. The sector was down 0.7% for the week. No Positions. Bottom reversal… failed.
XLU – Utilities accelerated lower and found support at the $56 level… bounced. Watch for follow-through upside. The sector was down 2.8% for the week. Bottom reversal… tested on Thursday.
IYZ – Telecom reversed lower again test support at $20.50 level. Remains in a downtrend. The sector was down 2.4% for the week. No Positions. Bottom reversal… Tested.
XLP – Consumer Staples accelerated lower and added to the losses for the week. Remains in a downtrend. The sector was down 3.1% for the week. No Positions. Bottom reversal… Failed.
XLI – Industrials downtrend remains in play but did find some support at $99. Watching how the bounce plays out. The sector was down 0.6% for the week. No Positions. Bottom reversal… tested on Thursday.
XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce the last three days. The sector was up 1% for the week. No Positions. IBB was key to the bounce. Bottom reversal… Tested on Thursday..
XLE – Energy tested this week back to the 200-day MA. Crude was down sparking profit-taking in the stocks. The sector was down 5.1% for the week. No Positions. Gapped higher on crude oil prices, but has struggled the last few days.
XLK – Technology The sector held support at $161.50… consolidated and bounced to break high. The sector was up 2.6% for the week. Bottom reversal… doji candle on Thursday.
XLF – Financials traded down to $32.30 support held… then bounced. The sector was down 0.4% for the week. Banks struggle with higher interest rates hurting assets on their balance sheet. Bottom reversal… Added upside on Wednesday.
XLY – Consumer Discretionary found support at $151.15 and held, remains in a consolidation pattern near the current lows. The sector was down 0.2% for the week. No Positions. Retail (XRT) chart moving lower as stocks show weakness. Bottom reversal… tested on Thursday.
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 down 1.7% for the week. No Positions. Bottom reversal… tested on Thursday.
Summary: The index struggled all day with higher CPI data and an ugly treasury auction. The war continues and leaves plenty of questions for discussion as to how long and what geopolitics arise. Bounce-off support was tested on Thursday. Watching how the push to resistance unfolds. 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. 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 85 points to 13,574 as the index was down 0.63% for the day. Sellers controlled the day but the bounce is still in play. Tested the move above the 13,618 mark closing below and below the 50-day MA. The downtrend from the July highs is still in play but it was challenged on Thursday.
NASDAQ 100 (QQQ) was 0.35% for the day as the mega caps did better than others on the day. Tested the $353.80 support and bottom reversal in play. Cleared $366.14 resistance with a small test on Thursday. The sector had a negative bias for the day with 29 of the 100 stocks closing in positive territory for the day. Intraday volatility closed lower. Watching…
AAPL bottoming pattern reversal (added $174.35)…
AMZN found support and consolidation pattern needs to clear $131.86… (added $131.90)
GOOG moved above the 50-day MA (added $135.65)…
META consolidation pattern (added $307.50)…
MSFT consolidating (added $320).
TQQQ. entry $35. Stop $38.40.
Semiconductors (SOXX) The sector closed above the $473 level of support and looking for a follow-through on the upside move. The sector was up 1.3% for the week. Added SOXL entry $19.15. Stop $19.53. Moved $490 resistance and tested.
Software (IGV) The sector closed above the $335 support level and added to the upside to end the week. The sector was up 2.1% for the week. Added IGV entry $340. Stop $349. Solid upside testing at resistance.
Biotech (IBB) The sector remains in a downtrend but did find some support at the $119 level. The move was enough to add a position in LABU entry $3.50. The sector was up 0.1% for the week. Struggled Thursday moved back below the $121.30 level.
Small-Cap Index (IWM) Found support after breaking lower last week and showed a modest bounce. The sector was down 2.1% for the week. No Position. Bottom reversal… Failed on Thursday.
Transports (IYT) downtrend remains in play and found some support to close back above the $231 support level. Closed below the 200-day MA. The sector was down 0.8% for the week. No positions. Bottom reversal… failed.
The Dollar (UUP) The dollar moved lower for the week as it remains in the uptrend. The dollar was up 0.03% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Topping pattern… jumped on CPI data Thursday.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.78% up from 4.57% last week. TLT was down 4.4% for the week. Watching how the Fed manages the yield curve. Moved higher on the week which will likely get the Fed in motion behind the scenes. No Positions. Raised stop on TMV. CPI and 30-year treasury auction push yields higher agian.
Crude oil (USO) Crude showed some topping on the chart last week… it followed through moving lower and looking for support near term. USO was down 8.2% for the week. No Positions… watching for the opportunity to buy. Crude gapped higher on war and OPEC comments. Testing lower.
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 lower and finally bounced on Friday. The metal was down 1% for the week. Looking for the upside trade near term. Gapped higher on global worries. Inside day on Tuesday. Gapped higher on Wednesday. Tested on Thursday.
FINAL NOTES:
Our longer-term view remains neutral as the upside trend from the October lows was broken confirming the short-term downside in play and a negative for long-term positions. 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 nine 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 to support. The economic data is showing signs of fatigue relative to growth. Seeing some oversold sectors short term as some found support and tried to bounce. 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.
Thursday: Indexes added to the bounce moving to resistance with a test intraday. The SP500 and NASDAQ closed lower on the day. CPI and PPI rattle investor confidence but still managed to keep bottom reversal in play. Plenty 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. Sector leaders were slim pickings on Thursday as nine of the eleven sectors closed in negative territory. Watching how technology and consumer discretionary unfolds. Sector laggards remain the same with several tests intraday again and several moving back near support. Interest rates move higher on CPI. 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.
What I am watching:
XLE – Energy is struggling as crude struggles on the outlook for demand flattening. The sector tested lower, bounced on the war outbreak, and tested again… watching how it unfolds but the weakness isn’t universal in the sector. OIH has held up on the bounce… IEO has equally held. FANG broke higher. Still, opportunities here if you are willing to put in the work. ESTE nice consolidation set up on the chart.
SOXX leadership looking forward? Upside day on Monday… looking for a show of strength. Added the position on Friday and looking to add to that position on follow-through… need to clear $490.
Gold (GLD/UGL) has been selling and remains in a downtrend from the May highs. $168 support is currently in play and I am looking for some relief in the form of buyers. $175 target on the bounce. Looking to see how this unfolds near term. Finally bounce on Friday… UGL entry $51.25. Stop $53.25 (adjusted)… low-risk trade. Speculation bounce on Monday helps the cause. Another inside day on Tuesday followed by a gap higher on Wednesday and raised stop. Small test on Thursday.
Crude Oil (USO/UCO) is down 7.1% in the last two days. Broke the uptrend line from the July lows. Looking for a bounce back to $77.30 on USO. Patience as it unfolds. Held Friday continue watching in light of Isreal/Hamas conflict. Gapped higher on Monday by 4%. Flat to down on Tuesday as everyone digests the move. Added to the downside… watching patiently.
GBTC… upside favored. (Added $18.61.) Need to clear $30. Testing at resistance. Willing to add to the position if it breaks higher. Wednesday tested lower watching how it unfolds.
Trending concerns:
Economic Data: CPI and PPI are hotter than expected… markets react but hang on to the upside move for now.
LVMH (Moet, Hennessy, Louis Vutont) reported sales in luxury banks up 9% versus up 17% Q2 year-over-year… that is a negative data point for the economy. The belief is, that luxury items are the last to fall as the economy moves towards a recession. Hello recession? The wine and spirits division was worse at -14% for the quarter. The stock has declined 27.2% since the high in July.
Geopolitics: Hamas/Isreal conflict will impact the globe with plenty at stake.
Mortgage demand is at the lowest levels since 1996… applications fell 6% last week alone. Bank stocks will get hit by this over time.
Selling in the Airbnb space is rising. Rentals are down and thus, can’t pay the mortgage, so sell the property. ABNBtesting support at $123.50… double top on the chart.
Credit card usage dropped again last week by 11.3% versus down 10.9% the prior week. Think MA, AXP, and V stock prices.
Banks talk ‘financial accident’. 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? They were out again on Monday warning about a “financial accident” if rates continue to climb towards 7% Fed Funds Rate. Yes, the leaks of what we have been saying for a while, are finally making the airwaves… not a good situation for investors or consumers. Watching… BAC, GS, JPM, MS… bounce into year-end, and then it could get ugly.
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.