The market opened lower and then bounced on news that hedge fund manager Bill Ackman posted on X that he was closing his short bond trade on risk in the current global environment. Treasury yields on the 10-year bond pushed near 5% before and retreated to 4.84%. Stocks rallied but failed to hold the gains closing slightly lower on the day… The question raised, was it enough for the bottom to be established on this current leg lower? Time will tell but worth watching how some of the patterns play out. Both the NASDAQ and the SP500 tested lower and closed on a doji candle. Worries about the war with Israel heating up didn’t help the cause as China sent carrier ships to the Middle East. Plenty of geopolitics in the news. Weakness in the banking sector added to the downside led by worries over rising yields impacting the bank’s balance sheets. Two of the sectors closed positive as negative sentiment hangs over the markets. Energy led to the downside. The SP500 index remained below the 4300 support level confirming the break lower. There wasn’t any economic data on the day only the Fed leaders out pontificating their brilliance. The Congress Speaker of the House void remains an issue with plenty of looming deadlines to be dealt with. As we have discussed several times of late there is uncertainty in the air and one thing markets don’t like is uncertainty. Looking forward, watch how indexes respond to the downside Monday and the doji candle… continuation or reversal? $354.22 for QQQ key. $420.66 SPY key. $457.26 for SOXX key. Decision time for all three.
Monday created some intraday volatility with rumors, news, and speculation led to intraday volatility ending the day with a doji candle and pointing towards a decision. As stated above it is a decision point for stocks… rally off the low or head lower. The complexity of the outlook for global economics, domestic economics, and uncertainty are alive and well. The major indexes are at key levels of support. The S&P 500 index closed down 0.1%. The NASDAQ was up 0.2%. The SOXX was down 0.5%. Small Caps (Russell 2000) were down 0.8%. The ten-year treasury yield was 4.4.83% down 9 bps. Crude (USO) was down 2.2%. (UGA) was up 1.7%. Natural gas (UNG) was up 0.4%. The dollar was up 0.5%. We are focused on managing the risk in the current environment.
ONE Chart to Watch: QQQ – 1) Added to the move below the $366.14 level and tested support at $354. 2) The down trendline is in play from the July highs. 3) Patience as the consolidation pattern plays out.
* All Charts in the update are provided by TC2000
Quote of the Day: “I love being married. It’s so great to find that one special person you want to annoy for the rest of your life.” – Rita Rudner.
Additional Charts To Watch
KBE/KRE – The banking sector is being challenged by higher rates. Despite the solid earnings from the sector this week the overhang of rates pushed both the money center banks and the regional banks below the October lows and renewed the concerns over balance sheets. SEF offered an entry signal the last two days… watching how this storyline unfolds near term. Entry $13.35. Stop$13.11.
FXI – China broke lower and opened to door to test the November lows. They have been selling treasury bonds from the US. Depending on your view some say it is to get back at the US… or it could be the yields were 2.5% on those bonds and some have lost up to 50% of their face value due to rising rates. Short-side play is in effect based on the break lower. YANG entry $12.50. Stop 12.
Stops Hit: None
Sector Rotation And The S&P 500 Index
The S&P 500 index closed down 7 points to 4217 moving the index down 0.17% with above-average volume on the day. The index remained below the 4300 support and looking squarely at 4200 support. Two of the eleven sectors closed higher on the day with consumer discretionary as the leader up 0.1%. The worst performer of the day was energy down 1.6%. The VIX index closed at 20.3 moving slightly lower on the day as anxiety intraday was alive and well. A retest of the October lows/support raises plenty of questions as we watch the outcome on Tuesday. Plenty to ponder between the headlines and facts. Below a look at the weekly chart shows key support levels to watch moving forward.
XLB – Basic Materials broke support at the $77 level. Consolidation pattern breaks lower bringing the $67 level into play on the downside. The sector was down 3.4% for the week. No Positions. Moved below the June lows… the accelerated downside is oversold technically.
XLU – Utilities found support at the $56 level… bounced and faced some resistance at the $59.50 level. No follow-through upside. The sector was down 2.1% for the week. Bottom reversal is testing. Retesting the downside.
IYZ – Telecom reversed lower again test support at the $20.50 level. Remains in a downtrend and testing the previous low. The sector was down 0.8% for the week. No Positions. Back to the previous lows.
XLP – Consumer Staples Remains in a downtrend with a bear flag pattern on the chart. The sector was up 0.7% for the week. No Positions.
XLI – Industrials downtrend remains in play and back to the support at $99. The sector was down 3% for the week. No Positions. $97 next level of support.
XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce but reversed to retest support. The sector was down 1.6% for the week. No Positions.
XLE – Energy gapped higher as the war in Gaza broke out. letting the volatility settle as the upside resumes. The sector was up 0.7% for the week with some testing on Friday. More selling on the downside… watching.
XLK – Technology The sector renewed the downtrend and remains challenged by the economic picture. The sector was down 2.7% for the week. No Positions. Doji candle.
XLF – Financials The move higher in interest rates impacts the sector on the downside. The sector was down 3% for the week. Banks posted solid earnings but worry wins. SEF entry $13.13. More downside.
XLY – Consumer Discretionary broke from the consolidation pattern renewing the downtrend closing below the 200-day MA. The sector was down 4.6% for the week. No Positions.
IYR – REITs returned to support at the $75 level with worries rising with higher interest rates the downside talk focused on defaults rising in commercial real estate. The sector was down 4.3% for the week. No Positions. Broke below $75.
Summary: The index remains challenged by too many issues in too many places. Some up-and-down activity intraday but closed slightly lower testing the previous lows. Earnings continue with a hit-and-miss theme. No real clarity to the rationale and comments from companies in the same sector one beating one missing earnings. The return to previous support is not a positive near term as the uncertainty grew on multiple fronts. A break lower would bring 4150 into play. Patience is key. 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 34 points to 13,018 as the index was up 027% for the day. Intraday volatility in play and a lack of leadership from technology isn’t helping the cause. Remained below the 13,275 level of support. Back below the 50-day MA. The downtrend from the July highs is still in play. A break of the current support opens the way to 12,246.
NASDAQ 100 (QQQ) was up 0.3% for the day as the megacaps treaded water. The sector broke back below the $366.14 support as a negative. $354.22 level to hold. The sector had a negative bias for the day with 45 of the 100 stocks closing in positive territory for the day. Intraday volatility remains in play.
Semiconductors (SOXX) The sector moved back to the $457 support… TSM earnings hurting the outlook. The sector was down 4.1% for the week. Closed below support setting up short side trade with confirmation.
Software (IGV) The sector moved back to the $356 support. A break lower would get ugly technically. The sector was down 3% for the week.
Biotech (IBB) The sector remains in a downtrend and broke support at the $119 level. The sector was down 3.6% for the week. More downside.
Small-Cap Index (IWM) Broke support at the $170 level and added to the downside. The sector was down 2.2% for the week. No Position. More downside
Transports (IYT) downtrend remains in play with a break of support. Gasoline prices and shipping weighing on the sector. Closed below the 200-day MA. The sector was down 1.4% for the week. No positions. More downside.
The Dollar (UUP) The dollar is showing a bull flag on the chart as it consolidates near the highs. The dollar was down 0.3% for the week. No Positions. Reacted to yields dropping.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.92% up from 4.62% last week. TLT was down 5% for the week. Watching how the Fed manages the yield curve. No Positions. TMV was back in play. Dropped 9 basis points on Bill Ackman covering short positions.
Crude oil (USO) Crude sold lower on worries about consumption. Drawdowns in supply last week refuted that concern and crude moved back near $90 a barrel. USO was up 2.1% for the week. Down 2.2% on the day…
The Hamas/Isreal war is adding to the speculation around oil prices and the alignment of countries in the Middle East. Iran called for an embargo on Israel over the war. Has my attention with the belief that oil will rise above the $100 mark moving forward. UCO entry $34.
Gold (GLD) The commodity accelerated higher this week on all the geopolitics in play. The metal was 2.6% for the week. Added positions at $172. Managing the risk. See notes below. Tested on lower bond yields.
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. With the short-term trendlines at key support, a break would hit stops on our longer-term positions. 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 offered short-term downside trades. The current bounce off the lows is being challenged by uncertainty in the economy and geopolitics ramping up. Current activity raises questions relative to direction and 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. Stops are a must currently on longer-term holdings. Listen to the market not the talking heads.
Monday: Indexes were mixed overall with some sectors in an oversold state and some holding support. This raises the question if we are going to bounce or accelerate lower. There is no lack of issues on the table with each taking their respective turn in the spotlight. We will be patient to let this unfold as the pattern and consolidation move to key levels. For the day two of the eleven sectors closed in positive territory. The leadership is fading 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.
