Midcaps lead the day

The market leaders moved higher and the midcaps put in a solid day to lead. IJH moved above the previous highs and is in a position to surpass the February highs. For the last week, we are seeing the laggards make stronger moves. The S&P 500 index was up 0.6% while the S&P equal weight ETF (RSP) was up 1.1% showing how laggards performed better on the day. The mega-cap Vanguard Growth ETF (MGK) ended up 0.4% after being down 0.4% earlier in the day showing some rotation in leadership. All said, it was a positive day overall on the charts but all eyes will be focused on the CPI data released on Wednesday. The higher low is in play on the major indexes and we have used that to add some positions. The greatest challenge will be data and earnings starting… on the CPI front 0.3% is the expected number with the core estimates the same. Year over year 3.1% overall with the core at 5%. I expect the number will be better as the core costs have been falling with a few exceptions. We have our stops in place in the event the news is disappointing but it could be the story of the three bears… the data will be just right. That said, I don’t expect the data to dissuade the Fed from hiking interest rates in July.

The move on Tuesday started higher and continued higher throughout the day with some intraday volatility. Most of the key indexes closed higher on the day with the SOXX closing flat. Mid and small caps led the day for the indexes with the energy sector pushing higher. Eleven of the eleven sectors closed in the green. Scanning the key sectors there was definitely tentative moves in some while others made solid advances. Inflation, earnings growth, economic conditions, and geopolitical issues remain the obstacle to clarity and investor confidence. Volume remained below average. XLK and XLY are the only two sectors outperforming the S&P 500 index since the March lows. XLE, XLU, and IYZ are the worst performers since the March lows. That said, XLE is making a solid move off the current test of the lows. The S&P 500 index closed up 0.6%. The NASDAQ was up 0.5%. The SOXX was up 0%. Small Caps (Russell 2000) were up 1%. The ten-year treasury yield closed at 3.98% down 3 bps. Crude (USO) was up 2.2%. (UGA) was up 1.8%. Natural gas (UNG) was up 2.6%. The dollar was down 0.2%. We are focused on managing the risk and seeing how investors respond to the revised outlook for global economics.

ONE Chart to Watch: QQQ – 1) Moved back above the $366.14 mark after testing support once again. Watching $352 level of support. 2) Short-term trend is UP… starting from the January low. 3) Push back to the previous highs and up 0.5% on Tuesday. 4) TQQQ $39.55 Entry. Stop $39.55 adjusted. Reentered position. 4) Watching as it stalled at the previous highs. Put in a higher low to keep the uptrend in play.

Additional Charts to Watch:

SPY – Moved to new highs from March lows and tested the move. Manage your stops accordingly. Gapped lower and holding $438.15 level.

IWM – struggling and reversed off support with solid follow-through on Monday and Tuesday clearing the $189 level. TNA entry $36.31.

SOXX – moved back above the $497.61 level forming a double top on the chart. Friday established a higher lower and Monday followed through. Entry $497.60. Unchanged on Tuesday.

USO – holding at the top of the range with upside pressure coming from the supply data. Hit the entry point on Friday at $65. Stop $63.20. A solid move higher on Tuesday.

TSLA downgraded… watching the reaction to the extended stock. Last week announced deliveries of automobiles were the highest ever… stock jumped 6.9%. Added short entry $275 July 28 puts.

IYT transports tested back to the $247.67 level. The inside day on Wednesday led to selling on Thursday. Bounced back on Friday… hit a high on Monday followed by a big move on Tuesday.

DIA reversed the swing trade upside and tested back to the $337.10 support… added a position $339.35. Stop $337.10. Solid gains on Monday with follow-through on Tuesday.

DIS – double bottom pattern. Entry $89.60. Bounced at support on Tuesday.

Gold (GLD/GDX) bottoming pattern in play. Watching the dollar in relation to this. $179.60 level to clear. UGL leveraged ETF. GDX – will trade higher if gold moves up. Entry UGL $58.80.

ON TAP TODAY: 1) Need to clear the June highs. 2) Leadership testing. 3) Tuesday bounce… IWM, IJH, DIA, XLE, XLI… do they continue with the previous leadership XLY, XLK? Broader moves overall?

Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added 5/7. Holding. AMZN (bottom reversal) Added 5/7. MSFT (break from flag pattern). Added 5/18. NFLX (test to $350 and bounce?). Added 5/24. HON (trading range breakout). Added 6/13. TQQQ (reversal) Added 6/27. DIA (technical entry) Added 6/29.

Stops Hit: None

Quote of the Day: “We have, I fear, confused power with greatness.” – Stewart Udall.

The S&P 500 index closed up 29 points to 4439 the index was up 0.67% with below-average volume on the day. The index added to the move above the 4400 level. Managing the risk as the upside remains challenged. Eleven of the eleven sectors closed higher on the day with energy as the leader up 2.2%. The worst performer of the day was healthcare up 0.02%. The VIX index closed at 14.8 slightly lower with intraday volatility in play. The uptrend from the October low remains in play.

Point of Interest: The S&P 500 index’s top 2 holdings of AAPL and MSFT now account for 14.4% of the overall weighting of the index. That is the highest combination in the history of the index. The previous high was IBM & T at 10.9%. Something to think about in trading SPY. The top 5 stocks make up 24.1%… starting to invalidate the index as a benchmark for the broad markets.

Sector Rotation and the S&P 500 Index:

XLB – Basic Materials chart is a mess as indecision takes over. $81.75 is the level to clear and move higher. The sector was down 1.9% for the week. No Positions.

XLU – Utilities Bottom reversal fails as the downtrend remains in play, but could establish a double bottom. The sector was down 0.2% for the week. No Positions. Bounced.

IYZ – Telecom In a downtrend from the February highs but bounced at support and trying to reverse the trend. Need to clear $22.30 resistance. The sector was down 0.2% for the week. IYZ entry $21.63. Attempting to break higher?

XLP – Consumer Staples messy consolidation pattern in play and moved back to the 50-day MA. The sector was down 0.9% for the week. No Positions.

XLI – Industrials The trend broke to the upside breaking above resistance at the $102.40 level. Tested the breakout and moved higher. The sector was down 1% for the week. XLI entry $102.40. Solid upside continuation.

XLV – Healthcare Remains in a consolidation pattern from the March lows. Tough week as it traded lower in the pattern. The sector was 2.8% for the week. No Positions.

XLE – Energy Bounce attempt from the test of the lows yet again. The sector was down 0.5% for the week. The downtrend is in play from the November highs. Needs to move above the $82.74 level. Bounced and cleared resistance… added ERX $55.95.

XLK – Technology The sector tested the move higher consolidating. The sector was down 1.5% for the week. Need to resume the leadership for the broad index. XLK entry $151.53.

XLF – Financials holding above $33.35 support and in an uptrend from the March lows. The sector was down 0.3% for the week. No Positions. KIE breaking above resistance. Entry $40.60. Cleared the previous highs.

XLY – Consumer Discretionary broke higher from the consolidation pattern at the highs. Tested on the week. The sector was down 0.2% for the week. Remains in a leadership role. XLY Entry $147.10.

IYR – REITs moved above the $85.50 resistance level and looking for a follow-through moving forward. The sector was up 0.1% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising but money flow has increased to other areas of the sector. No Positions.

REITs on watch with interest rates rising above 4% and the latest round of mortgage data showing a 4.4% decline in applications. That is the first decline in four weeks. 30-year mortgage jumped to 6.85%. IYR and ITB are on watch relative to the downside. Added to upside move.

Summary: The index made a move to establish a higher low in the uptrend. The struggles the last few days come from a lack of clarity relative to the Fed… the data points remain mixed at best, but the upside remains in play. Eleven of the eleven sectors closed higher on the day as we watch how the index responds. Remains a sector-driven market as we look for short-term direction. The broad index remains in an uptrend from the October lows with some interim testing. 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.)


The NASDAQ index closed up 75 points to 13,760 as the index was up 0.55% for the day. The index remains in the uptrend with a higher low in play. Support is 13,274. Watching how the trend unfolds short term. SOXX was up 0% on the day. IGV was up 1.5%. Taking what is offered in the current trend.

NASDAQ 100 (QQQ) was up 0.49% on the day. Moved back above the $366.14 support and the 10-day MA. The mega-caps remain extended from the May break higher and thus we need to manage the risk short term. The sector had a positive bias with 70 of the 100 stocks closing in positive territory for the day.

Special Rebalance – The NASDAQ exchange operator is set to rebalance the NASDAQ 100. An announcement will be made on July 14th with the change taking place on July 24th. Since we invest in QQQ regularly it will be news of interest relative to the asset’s future growth. Link to article.

Semiconductors (SOXX) The sector remains in a consolidation pattern. Established a higher low on Friday and need to see it follow through if the upside is to continue. The sector was down 2.7% for the week. Watching how it unfolds and the next opportunity. No Positions. Solid reversal on Monday.

Software (IGV) Consolidation pattern on the chart. Testing the uptrend as the sector remains above the $336 level support. Added IGV $291. Stop $335.90 (adjusted). The sector was down 1.8% for the week. Similar to the SOXX need to put in a higher lower to keep the trend alive. Solid upside with a double bottom pattern.

Biotech (IBB) The sector broke support at the $125.50 level. Setting up ad short side trade based on the negative sentiment. The sector was down 2% for the week. No Positions. Solid bounce of the new low.

Small-Cap Index (IWM) Tested lower and bounced… very volatile with an uptrend in place from the May lows. The sector was down 1.3% for the week. No Positions. Higher low established… solid follow through.

Transports (IYT) Made a break above the January highs and showed solid momentum as it tests near the highs. The sector was down 0.04% for the week. IYT Entry $231. Added to the highs

Worry: UPS is going on strike if they don’t get a new contract by July 31st. Supply chain disruption will be a challenge for the economic picture.

The Dollar (UUP) The dollar remains volatile with a cup and handle pattern on the chart. What is on the horizon? Weak dollar policy from the current administration. The dollar was up 0.4% for the week. More chatter about losing dollar status globally. No Positions. Four days moving lower.

Yellen says to expect a gradual decline in the dollar’s share of global reserves… amazing how between Obama and Biden the dollar has deteriorated.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.05% up from 3.81% last week. Rates are reacting to the Fed talk on hiking rates… big move up in rates. TLT was down 3.7% for the week. TMV entry $119.35. Tested back to 3.98%.

Crude oil (USO) Broke higher from the consolidation pattern showing positive momentum based on supply data during the week. USO was up 3.6% for the week. UCO entry $24.15. Breaking higher on Tuesday.

Gold (GLD) The commodity is in a downtrend from the May highs but establishing a base. Entry if we break above $179.36. UGL is the trade. Letting this unfold and opportunities presented. The metal was up 0.4% for the week. Added UGL

Questions to Ponder: Navigating Uncertainty

Bank Stress Test – Wednesday the Fed said that all 23 major financials passed their annual stress tests, with sufficient levels of capital to get through a severe recession. Interesting considering that just four months ago the sky was falling. And let’s not forget the Fed continues to provide liquidity to banks in short-term loans. KBE continues to trade laterally following the big downside move in March. Worthy to see how this unfolds in light of this news.

Bidenomics – The president rolled out his newly revised plan that has created the greatest economy ever… 14% inflation, -3.1% hourly earnings growth, trillions added to the debt, etc. greatest presidency ever.

Stagflation – is defined as 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. Layoffs from early 2022 to current continue… Bankruptcy filings are not slowing as the hit the fastest pace since 2010. War – Costs… Ukrain/Russia endless war isn’t good for the US economy. Inflation is here 1970’s style. Markets are giving the Fed cover to hike again with the surge in technology stocks. Although the leadership is narrow. Things are not as good as they seem on the surface.


Our longer-term view is shifting to neutral as the upside trend from the October lows remains in play. 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. With the trend higher it puts the broad indexes in intermediate uptrend… this is a positive overall for the broad markets. However, the last two weeks have shown resistance at the current level with increased intraday volatility. Tightening our stops on intermediate and short-term positions. Trading the volatility has performed better than holding through the cycle. Sector-driven activity is in play short term with some testing at the highs. If the uptrend resumes following the recent test it will be the fifth stage higher. News has been 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. Listen to the market not the talking heads.

Tuesday: The Fed and interest rates remain a torn in the market’s side, but investors are looking past that and putting money to work. Don’t forget the sudo stimulus in the form of the Fed’s bank rescue funds… that money is making its way into the markets to offset underperforming assets on banks’ balance sheets from a low-interest rate environment. Thus, the need to pass the stress test from the Fed… one hand washes another. CPI data out on Wednesday prior to the opening and it will set the tone for good or bad. Either way, it creates an opportunity. If markets test on the news we will look for support and entry points. If it rallies further on the data look for the leaders and laggards on the move. The question is will it be good enough to deter the Fed from hiking rates? Unlikely but we will see how it unfolds. Trading the trends in sectors showing strength and weakness… We see the overall trend is still up from the October lows. Watching where money is going near term for clues of what is on the horizon. Manage the risk that is and let the current trend play out.

What I am watching on Wednesday: 1) IWM, DIA, QQQ & SPY all established a higher low. 2) Leadership that isn’t divided. 3) GLD, SLV, lagging… GLD setting up to break higher. 4) Intraday volatility. 5) Earnings for the second quarter start soon!

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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