The market traded lower from the opening bell and then found buyers to push back to even on the day. Plenty of speculation of late about the state of the economy along with some negative projections from the talking heads. With the jobs report out Friday prior to the open everyone seemed to be picking sides on how the market will respond. A small edge went to the sellers and we will see how it works out. That said, the markets closed mixed with just four sectors closing in positive territory. The NASDAQ and the SP 500 finished the day slightly negative on higher volume. The 4200 level is in play for the SP500 and 12,977 for the NASDAQ both held on very similar intraday activity. A quick look at the charts shows consolidation at support over the last two weeks as we continue to watch this current activity unfold. XLK and XLY both tested the previous lows and bounced. Other sectors found near-term lows and bounced. The VIX index closed lower with intraday activity still showing uncertainty from investors. Treasury yields closed down slightly after hitting a sixteen-year high. Crude fell on the domestic and global economic outlook. Economic data remains weaker overall and jobless claims were in line with expectations. We are willing to take what the market gives both up and down. Yesterday offered some of both… manage your risk accordingly.
Volume was above average on the day. Thursday’s activity managed to hold support for another day with the chart showing a doji candle on an inside trading day… basically stating Friday is likely a decision day on direction. 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 0.1%. The SOXX was down 0.4%. Small Caps (Russell 2000) were up 0.1%. The ten-year treasury yield closed at 4.71% down 2 bps. Crude (USO) was down 2.1%. (UGA) was down 0.3%. Natural gas (UNG) was up 6.1%. The dollar was down 0.3%. We are focused on managing the risk in the current environment.
ONE Chart to Watch: QQQ – 1) Tested support at $354.10 again and bounced. 2) Consolidating at support.
Additional Charts to Watch:
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 $16.85.
XRT, IGV, SOXX, XLE, XLB – consolidation patterns in place… looking for a bounce.
Stops Hit: None
Quote of the Day: “Nobody ever forgets where he buried the hatchet.” – Kin Hubbard.
The S&P 500 index closed down 5 points to 4258 moving the index down 0.13% with above-average volume on the day. The index failed to move back above the 4300 level on the close but held support. Four of the eleven sectors closed higher on the day with REITs as the leader up 0.7%. The worst performer of the day was consumer staples down 2%. The VIX index closed at 18.4 moving lower on the day. Downside holds support. Will the buyers show up on Friday? Expectations are for the jobs report to be in line with expectations and for the market to close higher into the weekend.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials broke below the August lows and found some support this week. The sector was up 0.2% for the week. No Positions. Attempting to find support.
XLU – Utilities accelerated lower for the week and broke below the $60 level. The sector was down 6.9% for the week. Accelerated lower on higher interest rates. Attempting to find support.
IYZ – Telecom reversed lower again test support at the $21 level. The sector was down 1.8% for the week. No Positions. Moved below the May lows.
XLP – Consumer Staples broke below the March lows and added to the losses this week. Remains in a downtrend. The sector was down 1.9% for the week. No Positions. Added to the downside.
XLI – Industrials downtrend remains in play but did find some support during the week. The sector was down 0.4% for the week. No Positions.
XLV – Healthcare downtrend in play with $128.50 near-term support. The sector was down 1% for the week. No Positions. Trying to hold support $127.
XLE – Energy tested this week with the large-cap stocks showing some profit-taking on Friday. The sector was up 1.2% for the week. No Positions. Moved to the 200 day MA… looking for an opportunity.
XLK – Technology The sector has turned lower and broke support at $169.50… a negative short-term outlook but bounces modestly to end the week. The sector was down 0.3% for the week. Bottom reversal on the chart testing.
XLF – Financials downside accelerated on higher interest rates. Found some support. The sector was down 1.4% for the week. Bank downgrades not helping the sector. Downside resumes… $32.36 support.
XLY – Consumer Discretionary found support after breaking lower. The sector was up 0.1% for the week. No Positions. Retail (XRT) chart moving lower as stocks show weakness. Testing support.
IYR – REITs Broke $82.96 support accelerated lower on higher interest rate worries and downside talk on defaults rising in commercial real estate. The sector was down 2.5% for the week. No Positions. Accelerating downside with higher interest rates. Looking at support.
Summary: The index held support again on Thursday… building a consolidation pattern that currently favors the upside. Watching how this handles support and if the sentiment shifts. There is talk of the market begin ‘broken’. Not really sure of what that means, but the seasonality of the markets is definitely in play. On the other side of the talk is the year-end rally… watching to see what unfolds near term. The index moved to previous lows… tested 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 16 points to 13,219 as the index was down 0.12% for the day. Buyers showed up again to bounce off support at 12,977. A move back above the 13,275 mark would help the outlook. Watching how the near-term move unfolds. The downtrend from the July highs is still in play.
NASDAQ 100 (QQQ) was down 0.29% for the day as the mega caps led the day. Testing the $353.80 support and bounced. The sector had a negative bias for the day with 27 of the 100 stocks closing in positive territory for the day. Watching… AAPL bottoming pattern reversal… AMZN found support… GOOG moved above the 50-day MA… META consolidation pattern… NFLX closed below $375 support… MSFT consolidating.
Semiconductors (SOXX) The sector closed at the $473 level of support and remained negative overall. The sector was up 1.6% for the week. Below $473… needs to hold support. The downtrend remains in play.
Software (IGV) The sector closed above the $335 support level. The sector was up 0.2% for the week. Back above $336 support.
Biotech (IBB) The sector remains in a downtrend but did find some support at the $122 level. The sector was down 0.2% for the week. No Positions. Broke support at $121.30… moved back above on Thursday.
Small-Cap Index (IWM) Found support after breaking lower last week. The sector was up 0.1% for the week. No Position. The downside is back in play.
Transports (IYT) downtrend remains in play and found some support at the $231 level. Closed at the 200-day MA. The sector was down 0.2% for the week. No positions. Back below $231 support.
The Dollar (UUP) The dollar moved higher for the week as it remains in the uptrend. The dollar was up 0.7% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Testing at the highs.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.57% up from 4.43% last week. TLT was down 3% for the week. Watching how the Fed manages the yield curve. Moved higher on the week which will likely get the Fed in motion behind the scenes. No Positions. 4.71% on Thursday.
Crude oil (USO) Crude showing some topping on the chart, but more likely a pause before moving higher. USO was up 0.3% for the week. No Positions… watching for the opportunity to buy. Broke $80.20 support accelerated lower on speculation.
Gold (GLD) The commodity accelerated lower on the week with $170 support nearby. The metal was down 4% for the week. Down again.
Our longer-term view remains neutral as the upside trend from the October lows was broken confirming the short-term downside in play for long-term positions. 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 nine 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 to support. The economic data is showing signs of fatigue relative to growth. Seeing some oversold sectors short term as some found support and tried to bounce. 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.
Thursday: Indexes held support after early selling. Sector leaders retested support. Sector laggards broke lower to the next level of support. Interest rates are spooking investors. 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 plenty of cash on the sidelines as we look for more clarity up or down. Friday is the jobs report for September… will set the tone prior to the opening bell. In line data report could offer some upside relief to the markets overall.
What I am watching:
Gold (GLD/UGL) has been selling and remains in a downtrend from the May highs. $168 support is currently in play and I am looking for some relief in the form of buyers. $175 target on the bounce. Looking to see how this unfolds near term.
Crude Oil (USO/UCO) is down 7.1% in the last two days. Broke the uptrend line from the July lows. Looking for a bounce back to $77.30 on USO. Patience as it unfolds.
Biotech (IBB/LABD) sold to $119 support breaking the March lows in the process. Bounce at the support with MRTX spiking higher on news. Watching to see if this has any follow-through near term with the sector in an oversold state technically. $127 target.
Seasonal selling? September and October are seasonal periods where selling historically occurs… question being, is this a seasonal sell-off or is there more at play currently? Things are definitely not rosey relative to the data and the economic outlook, but from a pattern perspective, the indexes are still holding support. Small Caps (IWM) is ugly but at the support of the April/May lows. SP500 and NASDAQ at the previous lows as support. Thus patience is called for as the current patterns unfold. A year-end rally is not out of the question no matter how negative things look. Remember logic applies long-term to markets, emotions control the short term.
GBTC… upside favored. (Added $18.61.) Solid upside Tuesday.
Mortgage demand is at the lowest levels since 1996… applications fell 6% last week alone. Bank stocks will get hit by this over time.
Selling in the Airbnb space is rising. Rentals are down and thus, can’t pay the mortgage, so sell the property. ABNBtesting support at $123.50… double top on the chart.
Credit card usage dropped again last week by 11.3% versus down 10.9% the prior week. Think MA, AXP, and V stock prices.
Banks in the US hold unrealized losses on their low-interest assets are rising as rates move higher. Watch the FDIC reports for Q3 estimates… Q2 was $558 billion… that will rise with rates moving up in Q3. What about derivative exposure in large banks? Maybe we shouldn’t think about it…
Congress just keeps the stupid effect alive. They ousted McCarthy as Speaker of the House late Tuesday afternoon… now what? Plenty of speculation and uncertainty around the leadership. The simple question is who is next? Since this has never happened before in history it presents plenty of procedural issues around bills being passed and what about the budget deal that is needed in the next five weeks? Markets will be watching how this unfolds.
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? They were out again on Monday warning about a “financial accident” if rates continue to climb towards 7% Fed Funds Rate. Yes, the leaks of what we have been saying for a while, are finally making the airwaves… not a good situation for investors or consumers. Watching… BAC, GS, JPM, MS… bounce into year-end, and then it could get ugly.
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.