Tuesday was a negative day for stocks as banks were back in the headlines as FRC stock fell 49% on earnings that showed a huge drop in deposits. The worry factor rose as seen in the VIX moving up 11% on the day. UPS also missed earnings dragging down the transports (IYT) by 4.2%. Thus the NASDAQ and S&P 500 index close down more than 1%. That is the first 1% move in 22 days up or down showing how lethargic the markets have been the last month. The volume was above average for the first time in 27 days. This is the busiest week for earnings and they are making the most of it as the mixed signals continued after-hours with MSFT, CMG, and GOOG beating expectations and are expected to have a positive influence on stocks Wednesday. Tech has lagged the last month and this could be the news the mega caps need to resume leadership. The breadth of the downside was solid as nine of the eleven sectors closed down more than 1%. Semiconductors broke support and fell 3.3% testing the February lows. Economic data was of interest for the housing sector as the S&P Case-Shiller home price index fell 0.4% in February versus +2.6% in January. New Homes sales increased 9.6% in March as interest rates were more favorable. There is still plenty of indecision in place as you would expect in a news-driven market. None of the news is painting a positive outlook, especially in the banking sector… thus, we proceed with caution watching for clarity. The belief would be at some point the markets/investors will have to accept the bad news for what it is… reality. We saw some of that on Tuesday, but hope springs eternal after-hours with earnings. We are an optimistic society when it comes to stocks.
Earnings are the storyline for the week with plenty of the mega caps reporting. MSFT, CMG, and GOOG showed positive results Tuesday night. The market is awaiting the next catalyst and with earnings, the FOMC meeting, and banks losing liquidity again, there will be plenty provided and it could expand the volatility. The S&P 500 index closed down 1.6% as intraday volatility remained. The NASDAQ was down 1.9% with SOXX leading the downside move. Small Caps (Russell 2000) were down 2.5% breaking lower. The ten-year treasury yield closed at 3.39% down 12 bps on the day and pushing TLT higher. Crude (USO) was down 2.3%… economic strain putting pressure on prices. Gasoline (UGA) was down 1.9%. Natural gas (UNG) was down 2.6% as volatility remains. The dollar was up 0.4% and struggling globally. We are focused on managing the risk and watching how this all unfolds.
NEWS: Futures rise on big tech earnings from MSFT and GOOG.
ONE Chart to Watch: QQQ – 1) Broke the three-week sideways range and broke support at $312.78. 2) Short-term trend is UP… starting from the January low and testing. 3) $320 resistance and level to clear for upside trade opportunity. (TQQQ) 4) $312.78 support and level to hold… if it breaks it creates a downside trading opportunity. (SQQQ)… needs to follow through on Wednesday.
Additional Charts to Watch: SPY, QQQ, IWM, SOXX. All broke lower from their respective consolidation patterns on Tuesday. Watching how they play out on Wednesday as they need to confirm the downside move.
Previous Charts of Interest – Still in Play: LSCC (testing uptrend). Added uptrend in play. AAPL (reversal confirmed). Added to the position. AMZN (bottom reversal) Added. PG – trading range break as part of the consumer staples money rotation. Earnings gapped higher. Added. MCD breakout. Added. WMT ‘V’ bottom breakout. Added. WES reversal. Added. SRS Added. SRS (buy the dip). Added. SOXS. Added. TSLS. Added. UCO.
Stops Hit: LSCC
Quote of the Day: “By all means, marry. If you get a good wife, you’ll become happy; if you get a bad one, you’ll become a philosopher.” – Socrates
The S&P 500 index closed down 65 points to 4071 the index was down 1.58% with above-average volume on the day. The index broke below 4086 support and offers a short side opportunity with a follow-through Wednesday. The up-trend line was broken last week… continuing the negative slide on higher volume. Eleven of the eleven sectors closed lower on the day with utilities as the leader down 0.1%. The worst performer of the day was basic materials down 2.1%. The VIX index closed at 18.7 as anxiety ticked up on the day. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials hit resistance at $81.75 and tested lower holding at the 50-day MA. Some rotation is in play short term. The sector was down 0.2% for the week. Broke lower negating the uptrend off the March lows.
XLU – Utilities Flag pattern hitting resistance at the 200-day MA. The sector was up 1% for the week. Entry $68.
IYZ – Telecom gapped down to $21.63 support watching and short signal if it breaks support. The sector was down 3.7% for the week. Broke $21.63 support adding to the downside.
XLP – Consumer Staples upside trend continues as money rotates to the “safe” haven of defensive stocks. The sector was up 1.8% for the week.
XLI – Industrials bounced back to the previous highs. The sector was up 0.8% for the week. Broke lower and remains in a triangle pattern.
XLV – Healthcare Made a move through two resistance points. $136.30 next resistance to get through. Topping pattern on the chart. Biotech (IBB) equally moved higher. Entry $127.57. The sector was down 0.2% for the week. Testing. Showing a trading range near the current highs.
XLE – Energy rolling top with resistance at the $86.85 level. The sector was down 2.6% for the week. Crude moving lower impacting stocks short term. Gave back Monday’s gains.
XLK – Technology The sector cleared the $144.10 resistance and testing. The sector was down 0.6% for the week. Need some leadership from the sector. Traded to $144 support, SOXX leading the downside… watching earning impact from MSFT & GOOG.
XLF – Financials breaks above resistance at the $32.36 level on better-than-expected earnings. Showing short-term leadership. The sector was up 1% for the week. Banks will be the key short-term as they continue to struggle with regional banks reporting weaker earnings. Watching banks with deposit worries back in the headlines pushing the sector lower.
XLY – Consumer Discretionary $147.11 resistance in play again. Retail sales didn’t help as they fell into negative territory. The sector was up 0.3% for the week. Down 2% on Tuesday.
IYR – REITs stalled from the bounce and moved sideways over the last three weeks. Need to clear $85 currently. The sector was up 1.6% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Letting this unfold. SRS entry $17.75. FCR is the largest holder of commercial real estate loans. Holding the trading range.
Summary: The index broke support on Tuesday and looking to see if the downside move follows through. A bounce early could offer entry points for short-side trades. Economic data remains a driver along with earnings. The 4086 level broke on the downside. Volume was above average on selling. Plenty of things to worry about on the horizon… crude is a concern longer term… treasury bond yields bounce on Fed concerns… leadership… geopolitics… dollar… earnings… and plenty of data on the way. We will remain patient for now as data versus hope play out. 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 238 points to 11,799 as the index was down 1.98% for the day. The index held the move above the 11,474 previous support. The break of the three-week lateral move on the chart was negative. Technology is the key… SOXX and IGV were lower on the day. After-hours earnings from MSFT and GOOG have a positive influence… looking at how that unfolds on Wednesday.
NASDAQ 100 (QQQ) was down 1.89% with the mega caps struggling of late. The move broke the $312.13 support and watching how Wednesday unfolds. The sector had a negative bias with 17 of the 100 stocks closing in positive territory for the day. Mega-caps are testing lower. Break of support and watching Wednesday for confirmation of the downside move.
Semiconductors (SOXX) failed to hold the move above the $432.27 resistance. Not looking good on the charts with the test lower. The sector was down 1.5% for the week. Watching how it plays out next week. Closed below the 50-day MA… confirmed the downside break Tuesday.
Software (IGV) worked higher and now consolidating around the 10-day MA. The sector was down 0.1% for the week. Mega caps leading the sector. Confirmed the up-trend line break – more downside? Watching how Wednesday unfolds with MSFT earnings.
Biotech (IBB) The sector moved higher hitting resistance at the $134 level. The sector was up 0.8% for the week. IBB entry $127.35. Stop $130.50. Negative reversal on Tuesday… watching how it unfolds.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. Bottom trading range in play. The sector was up 0.6% for the week. Letting it unfold. Broke lower and remains in the bottoming pattern.
Transports (IYT) attempting to push higher as airlines are a drag overall on the sector. The sector was up 1.4% for the week. If the markets are to move higher overall they need transport to be positive. UPS earnings tanks the sector down 4.2% erasing the upside moves.
The Dollar (UUP) The dollar remains volatile as more countries are willing to trade outside the dollar. held steady for the week… watching how it unfolds. The dollar was down 0.1% for the week. Up on Tuesday…
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.57 up from 3.52% last week. Mixed reactions all week to the news. TLT was down 0.6% for the week. TLT up 1% Monday. Up 1.5% Tuesday… bond rally on worries?
Crude oil (USO) Tough week for oil as 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 down 5.3% for the week. UCO entry $25.80. Stop $28.50 Hit Stop. Up on “improving” economic data in China Monday… Down on US worries Tuesday? Watching for some clarity.
Gold (GLD) The commodity is showing a rolling top. The metal was down 1.1% for the week. Entry $169.50. Stop $$184.50. Hit Stop. Solid gain, watching for the opportunity as it unfolds.
Put/Call ratio was 1.01 on Tuesday… negative bias builds.
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.
Semiconductors – China announced a national security review into US chipmaker – and one of three memory chip market leaders – Micron. MU fell on the news. This battle between the US and China over chips has been going on for some time… caught in the crossfire is South Korea and Tiawan.
Tuesday: Stocks showed some downside momentum on Tuesday following worries from the banking sector. UPS earnings took transports lower. VIX jumped 11% on the day as investor anxiety rose. There is still plenty ahead for investors to ponder relative to the economy, earnings, the Fed, and inflation. Earnings have been mixed, economic data has been mixed, thus, stocks have been mixed. The question is will the downside follow through with the glimmer of hope offered by MSFT and GOOG after hours? The market breadth still isn’t great. We see plenty of opportunities setting up both on the downside and the upside on the charts. The key is to let it unfold and take the opportunities as they are presented. The downside needs confirmation on Wednesday… watching for an early bounce in technology, but will it hold and keep the upside hopes alive? If it fails, look at adding to downside trades. Challenging environment as hope wrestles with reality.
We are watching the trends in the leading sectors and the major indexes as they broke key support levels. The SOXX is a key indicator for the markets and after peaking three weeks ago broke lower. The sector tested below key support levels and looking at how it plays out near term. Watch for the major index’s volume, direction, sentiment, and volatility levels to lead you to what takes place. There are plenty of moving parts, we have to understand that truth/reality eventually plays out in the markets. Until then we will continue to take what is offered and manage the risk that is.
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. We have to remain focused on short-term trades until there is longer-term directional clarity. 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.
“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.