The market was mixed but overall positive on the day. The biggest moves on the day came from the energy and commodities sectors. The price of crude continues to climb on the shrinking crude supply thanks to OPEC+ cuts several months ago. Russian crude shipments fell to a six-month low. This is a busy week of data and events for investors with the FOMC meeting Wednesday, the ECB on Thursday, and BOJ on Friday. June Personal Spending report will be on Friday. On Monday the Manufacturing and Services PMI were both lower month-over-month. Consumer Credit shows tightening as credit applications dropped with auto apps down 11.9%, credit card limit requests down 12.5%, credit card apps up 24.8%, rejection rates rose 14.2% versus 9.1%… specifically mortgages 13.2% and refinance 20.8%. Credit scores are down to 620 (fair) from 680 (good)… Life in the credit markets is getting tighter as rates rise along with inflation. This is not good news for the markets looking forward.
The markets traded in a narrow range on the day with the VIX index creeping slightly higher with below-average volume. Calm before the storm? Could be some juggling looking toward the FOMC decision on Wednesday. Energy and financials were the leading sectors with the semiconductors flat on the day. Five of the eleven sectors closed in the green the leadership came from XLF, XLE, IYR, and XLY. Volume was below average on the day. Scanning the ETFs The leaders were KRE, WEAT, FXI, XBI, CORN, USO, and XLE. The S&P 500 index closed up 0.4%. The NASDAQ was up 0.2%. The SOXX was up 0%. Small Caps (Russell 2000) were up 0.2%. The ten-year treasury yield closed at 3.85% up 2 bps. Crude (USO) was up 2.4%. (UGA) was up 3.5%. Natural gas (UNG) was down 0.4%. The dollar was up 0.3%. We are focused on managing the risk and seeing how investors respond to the optimism relative to the outlook.
ONE Chart to Watch: QQQ – 1) Held above the $366.14 mark little change. 2) Short-term trend is UP… starting from the January low. 3) Tested below the 10-day MA. 4) Watching for entry up or down?
Additional Charts to Watch:
SPY – Moved above the June highs and resumed the uptrend. Manage your stops accordingly. $457.60 target on the current move. Watching the current test near the highs.
IWM – struggled and reversed off support with solid follow-through on the upside clearing the $189 level. TNA entry $36.31. Resumed upside and tested at resistance.
SOXX – moved back above the $497.61 level and above the June highs. Testing the latest move higher. No positions and watching how this unfolds near term.
USO – broke above the top of the range with upside pressure coming from the supply data. Hit the entry point at $65. Stop $67.70 (adjusted). $66.23 support in play with downside pressure from China. Broke higher on Monday.
IYT transports tested back to the $247.67 level bounced and moved to new highs. Entry $231.20. Stop $255. Solid uptrend in play with rounding top.
DIA reversed the swing trade upside and tested back to the $337.10 support… added a position $339.35. Stop $350. Letting it play out.
Gold (GLD/GDX) bottoming pattern in play. Watching the dollar in freefall on Wednesday. $179.60 level to clear. UGL leveraged ETF. GDX – will trade higher if gold moves up. Entry UGL $58.80. Entry GDX $30.90. Watching the dollar move higher.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added 5/7. Holding. MSFT (break from flag pattern). Added 5/18. HON (trading range breakout). Added 6/13. DIA (technical entry) Added 6/29.
Stops Hit: None
ON TAP TODAY: 1) Earnings. 2) Economic data. 3)DBA, CORN, SOYB, WEAT grain issues in Ukraine/Russia conflict 4) QQQ, XLK, SOXX do they bounce or sell further? 5) MARA, HAL, SPWR
Quote of the Day: “Freedom of the press is guaranteed only to those who own one.” – A. J. Liebling
The S&P 500 index closed up 18 points to 4554 the index was up 0.4% with below-average volume on the day. The index held the move above the 4400 level. 4585 next resistance level to watch. Five of the eleven sectors closed higher on the day with energy as the leader up 1.6%. The worst performer of the day was utilities down 0.2%. The VIX index closed at 13.9 and remains at the previous lows. The uptrend from the October low remains in play.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials solid week as the chart holds above the $81.75 resistance to move higher. The sector was up 0.6% for the week. No Positions.
XLU – Utilities Bottoming range broke higher on Friday and looking for follow-through to the move… The sector was up 2.4% for the week. Entry $67.05.
IYZ – Telecom In a downtrend from the February highs, bounced at support and back to the top of the current range. Need to clear $22.30 resistance. The sector was up 3.4% for the week. No Position.
XLP – Consumer Staples broke higher from the consolidation pattern. Added at $74.72. The sector was 1.8% for the week.
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 up 0.8% for the week. XLI entry $102.40.
XLV – Healthcare Finally broke higher from the consolidation pattern from the March lows. Solid trading week for the sector. The sector was up 3.4% for the week. Entry.$132.64.
XLE – Energy Bounced and cleared the $82.74 level and trying to break the downtrend from the October highs. The sector was up 3.5% for the week. Entry $81.95. Broke above the 200-Day MA. Set to return to leader?
IEO – broke higher as offshore interest rise. Entry $85. Stop $89.
XLK – Technology The sector is testing the move higher closed on the 10-day MA. The sector was up 0.08% for the week. XLK entry $151.53. Tested with weakness in SOXX.
XLF – Financials holding above $33.35 support and in an uptrend from the March lows. The sector was up 2.9% for the week. KIE breaking above resistance. Entry $40.60. Stop $40.60. Earnings mixed in the sector. UYG entry $45.60. Continued upside move. Added to the uptrend.
XLY – Consumer Discretionary Tested the move higher in the uptrend. The sector was down 2.2% for the week. Remains in a leadership role. XLY Entry $147.10. Sold @ $173.27. Big test… locked in solid gain.
IYR – REITs moved above the $85.50 resistance level with the target now $90.47. The sector was down 0.01% 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. Pushed higher on the day.
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. Watching the downside risk in commercial properties. Rolling top on the chart.
Starwood (STWD) defaulted on $212+ million office tower in Atlanta… stock is back near the February highs? Interesting times.
Summary: The index was subdued on the day and watching how the week unfolds with plenty of data and news to come. Five of the eleven sectors closed higher on the day with some rotation in leadership with energy breaking higher. Watching how the week unfolds. 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.)
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
The NASDAQ index closed up 26 points to 14,058 as the index was up 0.19% for the day. The index remains in the uptrend with some testing. Support is 13,762. Letting the test unfolds as tech and mega caps test their respective highs. SOXX was up 0% on the day. IGV was down 0.3%. Watching support and how the activity unfolds.
NASDAQ 100 (QQQ) was up 0.16% on the day. Remains above the $366.14 support. The mega-caps, as we have discussed, are/were extended from the May break higher and thus we manage the risk short term. We don’t have any positions currently. Watching for the next directional opportunity. The sector had a negative bias with 48 of the 100 stocks closing in positive territory for the day. Watching how the rebalancing on 7/24 impacts the returns.
Semiconductors (SOXX) The sector broke higher from the consolidation pattern. Established a higher low followed through in a continuation of the uptrend. The sector was down 1.4% for the week. Sold position for a solid gain. $497.61 level to hold.
Software (IGV) Broke higher from the consolidation pattern on the chart. The sector remains above the $336 level of support. Added IGV $291. Stop $351 (adjusted). The sector was up 0.08% for the week.
Biotech (IBB) The sector broke above the $128.35 resistance level. The sector was up 2.5% for the week. Entry $129.10.
Small-Cap Index (IWM) Cleared the $189 resistance level to establish an uptrend. The sector was up 1.5% for the week. Entry TNA $36.31.
Transports (IYT) Made a break above the January highs and showed solid momentum as it tests near the highs. The sector was up 2.7% for the week. IYT Entry $231.
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 tanked retesting the April lows and bounced. The dollar was up 1.3% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.83% up from 3.81% last week. TLT was up 0.4% for the week. Moved back in the 3.7-3.85% range.
Crude oil (USO) Broke higher from the consolidation pattern showing positive momentum based on supply data during the week. USO was up 2.2% for the week. UCO entry $24.15. Reestablished the uptrend as supply tightens. Continues to climb on supply tightening.
Gold (GLD) The commodity broke higher from the base. Entry $179.36. UGL entry $59. GDX entry $31. Letting this unfold. The metal was up 0.45% for the week. Watching the dollar bounce.
Questions to Ponder: Navigating Uncertainty
Banks passed their respective stress tests two weeks ago. The treasury yields fell 20 bps following a strong auction Monday… Fed was buying to help banks with lower interest rates. Bank earnings showed positive results… Everything is good… right? Dig into the earnings reports and you will see plenty of questions concerning the future as it relates to nonperforming loans, higher reserves, etc. KBE was up 2% in the premarket on Friday it closed down 2% after solid earnings… maybe we aren’t the only ones believing there could be problems on the horizon.
Our longer-term view shifted 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. The week started solid but some testing to end the week is in play. The FOMC meeting is on Wednesday and all eyes and ears will be focused on the Fed comments following the meeting. Some rotation to the defensive sectors the last few days has our attention as well looking forward. Tightening our stops on intermediate and short-term positions. We locked in some gains on technology positions and added some others as money rotated. 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. 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.
Monday: The markets were mixed as we looked toward a week full of data. Some of the juggling is ahead of the FOMC meeting on July 26th looms. Locked in some good gains last week and added some new sectors moving higher. 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 plays out. Plenty to ponder as we progress in the current environment.
What I am watching on Tuesday: 1) SPY, QQQ, SOXX, directional decision. 2) Commodities reacting to the Russia/Ukraine issue for grain exports. WEAT and CORN higher. 3) Earnings.
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.