The markets were mixed and traded in a tight range as traders weighed news relative to the debt ceiling and Federal Reserve comments on the future of interest rates. The two parties were set to meet Monday evening with the promise of being productive. The NASDAQ did manage to close at new highs while the Dow traded in negative territory. There was talk of a recession in the headlines as well… just another day in Washington. Regional banks (KRE) were up 3.1% on the day led by PacWest up 20% on news they sold $2.6 billion in bundled real estate loans. Meta was fined $1.3 billion by European regulators for sending user information to the U.S. The stock still rose 1.1% on the day. Mega cap stocks looked good as they led the markets higher on the day. QQQ accelerated above the trend line and broke out of the Bollinger Bands showing they are now overextended technically. The volume however remained below average in the broad indexes.
The small-cap stocks were up 1.2% trying again to show some upside opportunity, but they still need to break through resistance. SOXX were on the upside with the exception of MU which was banned by China to sell to major corporation accusing them of faulty chips. The stock declined 2.8% weighing down the sector. Six of the eleven sectors closed in positive territory on Monday. The S&P 500 index closed up 0.02%. The NASDAQ was up 0.5% with SOXX up 0.3%. Small Caps (Russell 2000) were up 1.2% bouncing at support again. The ten-year treasury yield closed at 3.71% up 2 bps on the day as TLT moved lower. Crude (USO) was down 0.02%… uncertainty remains in the pricing. Gasoline (UGA) was up 1.5%. Natural gas (UNG) was down 6.1% gapping lower. The dollar was up 0.02% after establishing an uptrend last week. We are focused on managing the risk and watching how this all unfolds.
ONE Chart to Watch: QQQ – 1) Held the break above $329.77 resistance and breaking above the August highs. 2) Short-term trend is UP… starting from the January low. 3) Accelerated above the trendline showing an extended move short term. 4) TQQQ entry $27.45. stop $30.01. target $32.28. Adjusted the stop and letting it play out. 5) Broke through the top of the Bollinger Bands sign of being overextended. Raised stops and managing the risk near term. May take 1/3 to 1/2 of position off to lock in gains.
Additional Charts to Watch: SPY – cleared resistance $415.20 to break higher… adjusted stop. IWM – bounced on Monday but remains in the range. SOXX – reversed the downtrend and moved to the March highs adding to gains. Added SOXL @ $14.65. USO – oversold… gap bounces off the lows offered entry at $63.60. Stop $62.50.
Leadership – NASDAQ, NASDAQ 100, SP500, XLY, XLK, SOXX… QQQ breaks higher showing mega-cap strength. SPY finds upside momentum. Consumer and technology leading the sectors. Volume was below average on the moves… finally saw some breadth in the move, but still plenty of work to be done. If the debt ceiling issue is resolved the upside has a chance of extending, but we saw what happened on Friday when the deal wasn’t done.
Laggards – SP400, RUTX, USO, XLF, XLI, XLE… all mixed in trading as sectors have lagged overall. If the markets are to run higher we need to see them participate. IJH finally bounced but still struggled. IWM can’t get out of the bottoming range. XLE, and USO reversed the break lower but remain in a downtrend. KRE bounced on positive news. XLI remains in a trading range.
Interesting Charts: TJX (break from trading range). UBER (break higher $39.20 level to clear). PFE (bottom reversal on a new drug). ZM (bottom reversal extends). DAL (break higher follow through. $36.25 entry).
Economic Data: 1) Fed out again lobbying prior to the June FOMC meeting. 2) New Home Sales April 665k expected. 3) GDP Q1 second reading 1.1% expected. 4) Pending Home Sales +1.1% expected. 5) Durable Goods Orders -0.9% expected. Minus Transportation -0.3% expected. 6) Personal Income 0.4% expected. Spending 0.4% expected. 7) Consumer Sentiment 57.7 expected.
ON TAP TODAY: 1) Bumbling into default. Neither side is willing to give in on what they deem are important issues… thus they bumble along. 2) Watch the testing in some of the mega-caps… AMZN, NFLX, NVDA, AMAT…
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Earnings 5/4 after-hours beat estimates. Holding. AMZN (bottom reversal) Holding (continued upside on Thursday… raised stop). SPXL breakout. Holding. SOXX reversal. Holding. TQQQ breakout. Holding. SRS Holding (big break higher Tuesday). SJB Holding (break higher Tuesday). TGT (descending triangle short setup with Jun Puts). Holding. Holding. LABU (break up from bottoming range). Holding. ARKK (bottom reversal). Holding. EMTY (breakout confirmation). Added 5/8. FNGU (breaking out). Added Tuesday 5/8. GOOG (Channel breakout – raised stop). Added Wednesday 5/9. DLTR (Consolidation breakout). Added on Friday 5/12. MSFT (break from flag pattern). Added 5/18. ON (breakthrough resistance. $83). Added 5/18. AI (break higher… $23 level to hold). Added 5/18. MU (break above resistance). Added 5/19. M (bottom reversal). Added 5/19. CSCO (bottom reversal… good earnings). Added 5/19.
Stops Hit: MCD locked in nice gains.
Quote of the Day: “Yield to temptation. It may not pass your way again.” – Robert A. Heinlein.
The S&P 500 index closed up 1 point to 4192 the index was up 0.02% with below-average volume on the day. The index held above the 4160 support. 4173 resistance broken on the upside move. Managing the risk near term. Debt ceiling agreement stalls and stalls markets along with it. Six of the eleven sectors closed higher on the day with REITs as the leader up 0.6%. The worst performer of the day was consumer staples down 1.5%. The VIX index closed at 17.2 moving slightly higher on the day. The uptrend from the October low remains in play. Plenty to watch as this all unfolds.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials downtrend off the January highs with some volatility along the way. Flirting with the 200-day MA as support. The sector was down 1.2% for the week.
XLU – Utilities trending lower from the December highs. Broke below the 50-day MA and $68 support. The sector was down 4.2% for the week. Hit stop on positions.
IYZ – Telecom downtrend from the February highs. No momentum to speak of and looking for a break lower. The sector was up 1.2% for the week. Bear flag on chart. Moved back to $21.63 previous support.
XLP – Consumer Staples upside trend with flag pattern breaking lower testing the 50-day MA. The sector was down 1.5% for the week. Trend reversal in play. Gapped lower breaking support.
XLI – Industrials triangle pattern of consolidation on the chart. Looking for a trend to break up or down. The sector was down 1.3% for the week.
XLV – Healthcare drifting lower with support at $130.68. Topping pattern on the chart. The sector was down 0.6% for the week. XBI testing the upside trend.
XLE – Energy broke lower testing the March lows… attempted to bounce to end the week. The sector was up 1.4% for the week. The downtrend is in play from the November highs. Crude is down on global demand speculation relative to slowing economics. Hit stop on short positions with nice gain… watching how the week starts.
XLK – Technology The sector broke from the trading range clearing the $154.42 resistance. The sector was up 4.3% for the week. Providing leadership for the broad index. SOXX moved higher for the week as well as IGV. GOOG running on AI news.
XLF – Financials broke below the $32.36 level and recovered with a modest bounce in the banks. The sector was up 2.1% for the week. The trend is down from the February highs. Double bottom setup. KRE rose 3.1% on news.
XLY – Consumer Discretionary Broke higher from the consolidation pattern in play on the chart. Retail got a boost on reports that the consumer is spending. They learned from the government. The sector was up 2.5% for the week.
IYR – REITs remain in a trading range within the downtrend from the February highs. The sector was down 1.9% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising. Own SRS on downside risk. Residential moving up… commercial moving down.
Summary: The index was flat on Monday. It moved in a tight range void of news and waiting on White House to make a deal on debt. Breadth is a matter of interpretation as some say yes… I say it is still split. Remains a sector-driven market. XLK and XLY leading the move higher. KRE bounced on the news. XLE is still on the short side of the chart but it did bounce. XLV, XBI, XLI, IYR, IYZ, and XLU are all struggling to find any momentum. XLP accelerated lower on Monday. The index remains in an uptrend from the October low. News is the primary driver up and down for the index. Taking what is offered near term and letting it all unfold. 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 62 points to 12,720 as the index was up 0.5% for the day. The index moved above resistance and continued in the uptrend. Mega-caps leading along with technology. SOXX was up along with IGV. 12,246 is the level of support to hold.
NASDAQ 100 (QQQ) was 0.34% with the mega caps holding near the highs. Moved above the $329.77 resistance and accelerated in the trend. The support is $329.77. The sector had a positive bias with 56 of the 100 stocks closing in positive territory for the day. Added TQQQ entry $27.45 (raised stop $30.01).
Semiconductors (SOXX) Tested the $400 level of support and finally found some upside momentum. The trend reversed back to the upside and needs to clear the March highs. Added SOXL $13.60. Stop $17.07 (Adjusted). The sector was up 7.8% for the week. Watching how it plays out next week.
Software (IGV) Broke above the $304 resistance adding to the uptrend. Added IGV $291. Stop $310 (adjusted). The sector was up 5.2% for the week. Mega caps leading the sector.
Biotech (IBB) The sector tested back to the $128.35 level and consolidating. The sector was down 0.1% for the week. Large caps are outperforming small and mid-cap stocks. Added IBB $129.50. Added XBI $82.80. Consolidation pattern in a downtrend. Nice upside Monday.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. Established a bottoming range. The sector was up 1.9% for the week. Letting it unfold. Bounced back to the top of the range.
Transports (IYT) negative earnings created a big test lower to support at the $213 level. Established a trading range. The sector was up 1.5% for the week. If the markets are to move higher overall they need transport to be positive.
The Dollar (UUP) The dollar remains volatile but did break higher for the week. What is on the horizon? If the dollar gets stronger watch the ripple effect… but, needs to follow through first. The dollar was up 0.6% for the week.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.69% up from 3.46% last week. Rates climbed all week on Fed talk. Yields trended higher for the week pushing TLT lower. TLT was down 3% for the week.
Crude oil (USO) Bounced and then sold lower… the news states China and US are consuming less on weaker economic data. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. USO was up 2.9% for the week. Bear flag on the chart.
Gold (GLD) The commodity moved lower on the stronger dollar all week. It managed to bounce on Friday… worth watching how this plays out next week. The stronger dollar is weighing on the metal… for now. The metal was down 1.7% for the week.
Questions to Ponder: Navigating Uncertainty
Stagflation – persistent inflation combined with stagnant consumer demand and relatively high unemployment. Do we have this situation currently in the US economy? If it doesn’t exist in a purely technically defined way, it is creating the same economic environment currently in the US, and the current administration is in denial. Thus, we will continue to feel the effects of this until we change course.
Money Supply – Falling at the fastest rate since 1930. M2 fell 2.2% in February and fell 2.4% in March… Contraction in supply should contract liquidity in the system and stifle inflation. Watch bank deposits they are still declining. See the above definition of stagflation… the pressure on the economy is building.
Banking Facts: banks borrowed $8 billion last week down from the $32.6 billion the previous week. 9% decline reported by regional banks in deposits… outflows remain… “sound and resilient”. The Fed is giving just enough money through the BTFP (Bank Term Funding Program) facility to keep from a collapse ($305.4 billion, up $8 billion on the week) but not enough to eliminate the pain. “Sound and resilient” are the words uttered by many… not even close.
Money Market Funds showed an $18.3 billion increase in deposits. Bank deposits fell $26.4 billion for week of 5/10. Third week of outflows… “sound & resilient”! Small banks are at the lowest deposits since 5/2021 with 5 consecutive weeks of outflows and declines. The picture isn’t improving and Treasury Secretary Janet Yellen said to expect more bank mergers going forward… i.e. failures.
Volatility Index (VIX–X) Tested down to the 16 level the last month showing little anxiety from investors despite all the news surrounding the markets. Short-term belief is they are focused on the Fed over the debt ceiling issues. Still an underlying belief the Fed will cut rates prior to the end of the year… despite what all the Fed folks say. The CBOE has added a a 1-day Volatility Index (VIX1D) you can now track the volatility daily versus the rolling 30-day in the regular VIX. Note Monday’s volatility actually dropped despite the debt-ceiling deal not getting done. Worth tracking and learning more.
Consumer credit card debt is on the rise. It totaled $986 billion in the first quarter. This is a negative sign for the economic picture as most consumer debt is attributed to monthly expenses rising due to inflation.
Our longer-term view is still negative, but 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. We remain focused on short-term trades until there is longer-term directional clarity. Trading the volatility has performed better than holding through the cycle. Sector-driven activity is in play short term with narrow leadership. News is in the driver’s seat as we take positions that are technically moving and offering opportunities. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal now is to manage the risk of positions, take what is offered… short or long, and then manage your money.
Monday: Stocks traded in a tight range awaiting the news on the debt ceiling. The leadership is clearly in XLK and XLY. The balance of the sectors have drifted higher in relief bounces, but they are still lagging overall. Banks (KBE) bounced on news showing more short covering. Energy (XLE) bounced but was still in a downtrend. The question is if the debt ceiling deal isn’t done… how does the market respond moving forward? Six of the eleven sectors closed higher on the day with below-average volume. We see the overall trend is still up from the October lows. NASDAQ is leading, S&P 500 is playing catch up, and Small caps bounced but still lagging. Dow was lower on the day. Still, very questionable breadth in the move higher. Confidence in the move seems to have momentum in the mega caps but plenty of issues underlying and nagging investors. Taking what is offered and managing the risk that is.
What I am watching on Tuesday: Large-cap biotech XBI resumed the upside momentum following a test to the previous lows… KBE/KRE follow through on bounce? Continued run higher in GOOG… SOXX and IGV breaking higher… broader leadership coming? GLD bounce? XLE bounce? USO bounce? This market has to be evaluated sector by sector to define the leadership near term. Positive setups are in place… Upside: QQQ, SOXX, SPY. Downside: FAZ, SRS, ERY, TZA, DIA.
“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.