Markets struggle with Retail Sales data

The market reacted to stronger-than-expected retail sales data prior to the opening. The hotter-than-expected number impacted the belief the Fed could come back and change its mind relative to interest rate hikes. Thus the initial reaction was to trade lower. After 30 minutes everyone determined the data was fake news. The 0.7% rise in sales was more impacted by inflation and higher gasoline prices than more sales. When you peel back the onion it almost makes you want to cry. Retail Sales adjusted were up 0.7%… unadjusted they were down 5.4%. Not as rosy of a picture as some would want us to believe. Thus, the markets returned to the hype of the Fed being done… interpreted as stimulus. Crude was higher, interest rates bounced, volatility was higher on the directional change intraday, and buyers remained motivated. The leading sectors were energy and basic materials as money continued to rotate. There remains plenty of banter and opinions about a market that still lacks clarity and direction. The activity was clear in the premarket as they moved lower on the sales data. The solid bounce was tested in the last couple of hours of trading with the SP500 closing flat and the NASDAQ was slightly lower on the day. Treasury bonds bounced as yields moved back above the 4.8% mark pushing bonds lower. Earnings data remained in a positive mood posting better-than-expected results overall… but like Retail Sales Reports something isn’t right. Banks borrowed plenty of money through new Fed bailout programs and made money on it… thus, earnings looked better than expected. Their balance sheets remain one giant question mark. The mega-cap sector was lower on the day as money looked for a home. DLTR let the sector with a 4.8% gain breaking from a bottom reversal pattern. The volume was above average on mixed trading. A look at the charts shows a technical recovery as they challenge the downtrend lines from the July highs again. The geopolitical landscape remained in check 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 are in the mix. Economic data remains weaker overall as we prepare for more data Wednesday from housing starts and permits. 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 Wednesday. Patience and risk management remain the priority.

Volume was above average with intraday volatility. Tuesday saw some back and forth as investors tried to read below the headlines for the reality of data being released. 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 down 0.1%. The NASDAQ was down 0.2%. The SOXX was down 0.7%. Small Caps (Russell 2000) were up 1.1%. The ten-year treasury yield was 4.84% up 13 bps. Crude (USO) was up 0.5%. (UGA) was up 0.3%. Natural gas (UNG) was down 1.3%. The dollar was up 0.1%. We are focused on managing the risk in the current environment.

ONE Chart to Watch: QQQ – 1) Tested support at $352.39 and bounced. 2) Moved back above $366.14 resistance. 3) The down trendline is in play from the July highs. 4) Let it play out $376 Target.

Quote of the Day: “A good rule to remember for life is that when it comes to plastic surgery and sushi, never be attracted by a bargain.” – Graham Norton.

Additional Charts To Watch

XRT – Retail showing a consolidation pattern at the near-term lows. Cleared $60.45 as an entry point and confirmed yesterday on solid upside. The Retail Sales data showed better than expected results… watching to see if it tests or runs higher.

Stops Hit: EMTY – locked in a solid gain.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed down 1 point to 4373 moving the index down 0.01% with above-average volume on the day. The index held above 4300 after testing last week. Seven of the eleven sectors closed higher on the day with energy as the leader up 1.1%. The worst performer of the day was technology down 0.4%. The VIX index closed at 17.8 moving higher on the day as anxiety was mixed. The downside start to the day was met with buyers, but closed flat on the day. 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. Bottoming consolidation pattern.

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. Consolidating.

XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce and watching 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. Cleared $91 resistance on Tuesday.

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. Bank earnings are solid, but really helping the sector as interest rates jumped the last two days.

BAC – up 2.3% on earnings… bottom reversal pattern worthy of watching near term.

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 to work through the earnings and economic data thus far. Some up and down activity in play resulting in plenty of consolidation patterns on the charts. Earnings kicked off with banks showing some positive results. The bounce-off support was tested and watching how it unfolds balance of the week. The talk is the year-end rally remains… but there are a lot of hurdles to jump to get there. 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 down 34 points to 13,533 as the index was down 0.25% for the day. Intraday volatility in play and a lack of leadership from technology isn’t helping the cause. Closed lower and consolidating. Still need to move back above the 13,618 mark. The downtrend from the July highs is still in play.

NASDAQ 100 (QQQ) was down 0.33% for the day as the megacaps traded in a range. After testing support, the sector bounced. Cleared $366.14 and held for now. The sector had a mixed bias for the day with 51 of the 100 stocks closing in positive territory for the day. Intraday volatility in play.

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)… Tested

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. Tested back to $473 support and bounced intraday.

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. Trading sideways for now.

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. Consolidation pattern.

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 & Tuesday… 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. Consolidation pattern.

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 bring more questions about the future of the buck. Retreated some on the day, consolidation near the highs.

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 4.8% 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. Watching for more upside.

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. Holding near the highs.


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.

Tuesday: Indexes were mixed and they will need to follow through if the upside is to gain any real momentum. The SP500 and NASDAQ closed flat to lower on the day. Banks started earnings with some positive data. 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 seven of the eleven sectors closed in positive territory. The leadership came from energy. Watching how technology and consumer discretionary unfold as they need to provide leadership. Sector laggards remain with some testing near support. Interest rates above 4.8% 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.

Explore the following links for new pages that dig into data both In & Outside the markets. Jim’s insights highlight potential opportunities emerging from the current market environment. The pages also discuss the Reality of closed opportunities, whether they proved profitable or fell short of our expectations.

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.

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