The market indexes posted modest gains on the day, but a look at the sectors shows a mixed outcome. Long-term treasury bonds remain a challenge for stocks as yields continue to move higher. The 10-year bond moved to 4.54%. The ETF TLT fell 2.4% on the day as investors exit bonds at rapid rates. The S&P 500 index dipped below key support at 4305 triggering some buying as the index entered an oversold zone technically. The NASDAQ moved below the 13,274 level and closed below it as the index broke support. It did manage to bounce off the lows of the day and close in positive territory. Thus raises the question, is the market ready for a relief bounce? While I would like to join the positive camp and say yes, I still lean towards a negative bias. A gap lower would be of interest on the buy side, but without more selling or a wash-out near term, patience is the key. VIX faded modestly as well to 16.4 still elevated from previous levels. Our focus is to find the opportunities in what is happening.
Volume was lower on the day. Cash levels are rising meaning money isn’t rotating it is exiting the market’s perceived risk. The S&P 500 index closed up 0.4%. The NASDAQ was up 0.4%. The SOXX was up 0.7%. Small Caps (Russell 2000) were up 0.4%. The ten-year treasury yield closed at 4.54% up 11 bps. Crude (USO) was down 0.3%. (UGA) was down 0.9%. Natural gas (UNG) was up 0.6%. The dollar was up 0.3%. We are focused on managing the risk and seeing how investors respond to the current situation.
ONE Chart to Watch: QQQ – 1) Broke support $366.14. Testing the next level of support at $355. 2) Broke the uptrend from the August low. Reestablished the downtrend from the July highs with a lower high. 3) Added short side trade with SQQQ entry $18.62. Stop $20.07.
Additional Charts to Watch:
SOXX – weakness remains with the sector breaking support at the $473.23 level. The head and shoulder pattern breaks lower and was confirmed. SOXS entry $10.35. Stop $11.89. Watching the modest bounce as the sector is technically oversold. Got a small lift from the Commerce Department setting final guidelines for receiving federal CHIPS and Science funding. More free government spending.
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 $16.56 and let it unfold near term. Cup and handle pattern on the chart.
Energy – Tested support near $86 and bounced… Looking for reentry into positions. Crude tested lower as well. UCO entry $30.72. Stop $35. Letting it work. Rolling top. Expect some testing but a return to the upside. Watching opportunities.
Stops Hit: None
Quote of the Day: “Love is only a dirty trick played on us to achieve continuation of the species.” – W. Somerset Maugham.
The S&P 500 index closed up 17 points to 4337 moving the index up 0.4% with below-average volume on the day. The index broke support at 4338 and watching how it unfolds. Lower high established and downside risk is elevated. Seven of the eleven sectors closed higher on the day with energy as the leader up 1.2%. The worst performer of the day was telecom down 0.7%. The VIX index closed at 16.4 moving lower on the day. Looking for conviction from buyers if a bounce is to materialize.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials broke below the August lows and now looking at the June lows. The sector was down 4% for the week. No Positions. Found some support on Monday?
XLU – Utilities moved to the $63 level of support as interest rates weakened the outlook again. The sector was down 2.5% for the week.
IYZ – Telecom reversed lower again test support. The sector was down 2.4% for the week. No Positions. Broke support at $21.63.
XLP – Consumer Staples broke below the March lows. Remains in a downtrend. The sector was down 2.6% for the week. No Positions. Added to the downside.
XLI – Industrials downtrend accelerated. The sector was down 3% for the week. No Positions.
XLV – Healthcare downtrend in play with $129 near-term support. The sector was down 1.5% for the week. No Positions.
XLE – Energy tested this week with the large-cap stocks showing some profit-taking. The sector was down 2.9% for the week. No Positions. Bounced and looking for reentry.
XLK – Technology The sector has turned lower and broke support at the $169.50… negative short-term outlook. The sector was down 2.6% for the week.
XLF – Financials downside accelerated on higher interest rates. The sector was down 3.3% for the week. Bank downgrades not helping the sector. Held support but watching negative interest rate impact on the sector.
XLY – Consumer Discretionary accelerated lower on data and the outlook from the Fed. The sector was down 6.3% for the week. No Positions. Led downside all week. Retail (XRT) chart moving lower as stocks show weakness.
IYR – REITs Broke $82.96 support as higher interest rates take a toll. The sector was down 5.1% for the week. No Positions.
Summary: The index closed modestly higher to start the week. The impact of Powell’s comments remains in play. The leadership Monday came from XLE, XLB, XLY. Treasury yields creep higher taking bonds lower. The index remained below the August lows and continues with a negative bias. Remember two things; first, the trend is your friend, and second, don’t fight the Fed. The Fed proves once again they are in control.
(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 60 points to 13,271 as the index was up 0.45% for the day. Mega-caps led the upside. Support at 13,618 broken… 13,274 support broken… 12,977 now in play. Watching how stocks respond near term… some oversold sectors could bounce helping the overall indexes bounce. SOXX was up 0.7% and IGV was down 0.1% for the day. Watching how the near-term move unfolds.
NASDAQ 100 (QQQ) was up 0.47% for the day as mega caps remained below support at the $366 level and watching $355 now. The sector had a positive bias for the day with 63 of the 100 stocks closing in positive territory for the day. Watching… AAPL at a key level of support… AMZN gapped lower… GOOG gapped to the 50-day MA… META consolidation pattern… NFLX moved to $375 support.
Semiconductors (SOXX) The sector moved below the $473 level of support and remained negative overall. The sector was down 3.1% for the week. SOXS entered.
Software (IGV) The sector broke lower on the week $335 is the support level to hold. The sector was down 3.2% for the week.
Biotech (IBB) The sector accelerated lower and remains in a downtrend. The sector was down 3.2% for the week. No Positions. Touched $121.30 support?
Small-Cap Index (IWM) Broke below $182.40 support accelerating the downtrend. Equally broke support of the head and shoulder pattern. The sector was down 3.7% for the week. No Position. IJH midcaps were equally as bad on the week.
Transports (IYT) downtrend remains in play and looking for support. Closed at the 200 day MA. The sector was down 3.3% for the week. No positions.
The Dollar (UUP) The dollar moved back above the June highs and continued higher. The dollar was up 0.3% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Moved higher.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.43% up from 4.32% last week. TLT was down 1.6% for the week. Watching how the Fed manages the yield curve. Yields holding at the 4.4% mark for now… Fed wants to keep it there or lower. No Positions. 11 bps rise to 4.54%… raised stop on TMV
Crude oil (USO) Crude bounced off support and broke higher as supply cuts remained and speculation rose. USO was down 0.8% for the week. UCO entry $30.72. Stop $35.44. Held the 10-day MA and consolidating… upside is still in play.
Gold (GLD) The commodity remains in a downtrend from the June highs. The metal was up 0.1% for the week. Letting it unfold. Watching the 200-day MA. Lower remains in a consolidation pattern.
Our longer-term view remains neutral as the upside trend from the October lows was broken on Thursday… if this confirms on the downside long-term positions will hit their stops near term. 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 eight 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 this week. The economic data is showing signs of fatigue relative to growth. Seeing some oversold sectors short term and looking at how it impacts the longer term view. 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: Some relief to the downside pressure on Monday or just wishful thinking? Mr. Powell’s comments relative to inflation, interest rates, and the economy had an impact on the investor psyche. Do we get a relief bounce? Do we continue to sell lower? The question is will buyers step in to reverse the selling? Not enough buying Monday to be convincing. Letting it play out as we look for opportunities in the current activity. This is getting interesting as the talking heads turn somewhat negative.
What I am watching:
How does the market respond? We tightened our stops on short side plays. We could see a sympathy bounce. It will all depend on the conviction of the money flow if the buyers do step in. Key areas of interest are… QQQ @ $355. SOXX $447 test lower. XLE @$89. USO @ $80.60. TMF back to $5.60 (broke lower on higher rates Monday). Oversold versus more selling is the question. Makes for interesting days of trading. FAZ break above $18.41 offered an entry point.
Credit Card losses are rising at the fastest pace since the financial crisis. We have started a debt default cycle. The challenge is no one is paying attention to the impact this will have on the financial sector. Throw in higher interest rates and bank stocks could fall another 20-25%.
Russia initiated an indefinite ban on diesel fuel and gasoline exports. The sector just keeps finding ways to push prices higher.
Congress is debating the new spending bill/budget for the US government… September 30th ends the fiscal year and a new budget has to be passed or the nonessential government shuts down. I know that is all the government! They are flirting with big ramifications if they fail to come to a budget. Keeping our eyes on this issue as well.
GBTC… upside favored. (Added $18.61.)
BTFP hit another record and the size of the loans/gifts was up to $208 million for the week. More borrowing as banks can’t seem to make enough to pay down the underwater assets on their books. The FDIC was out again about the $550+ billion in unrealized losses in the banking system… If I were a betting man it is probably five times that number.
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?
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.