Jim’s Notes – Tech & Mega Caps Lead

Moving the Market – July 1st

The markets started lower but managed to close in positive territory on Monday. The NASDAQ and SP500 struggled the first 90 minutes of trading but the buyers stepped in and pushed them into the green. The leadership returned to the usual suspects as AAPL, AMZN, MSFT, and TSLA led the upside. After some shuffling from the end of the quarter rebalancing on Friday the norm returned. QQQ moved back above the 10-day MA. XLK was the leading sector. The dollar was flat, interest rates ticked higher at 4.43%, gold was flat, and crude oil broke higher. The downside was led by XLB and XLI as commodities struggled. Banks gave back some of the gains from Friday. The broad indexes look tired as the upside move has turned sideways over the last eight days. Watching money flow for clues where investors are willing to put money to work. Small caps (IWM) were lower following their brief attempt to join the upside move. ISM Manufacturing still shows contraction at 48.5 versus 48.7 prior. The expectations were for the number to improve. Construction spending fell into negative territory as well. Economic data remains on the weaker side and isn’t helping the cause for stocks. There are plenty of headlines relative to the election following last week’s debate. The question is does it change anything? Spending is not being addressed by either side, just who has the better handicap. See you tomorrow.

The major indexes closed higher on the day with sectors showing mixed trading. The volume was above average with VIX dipping lower. The activity started lower and the buyers stepped in to push the indexes into positive territory. Monday the NASDAQ closed up 0.8%, DIA was up 0.1%, and the SP500 was up 0.2%. The SOXX was down 0.01%. Small Caps (Russell 2000) were down 0.8%. The ten-year treasury yield was 4.43% up 9 bps and TLT was down 2% for the day. Crude Oil (USO) was up 2.4%. (UGA) was up 2.8%. Natural gas (UNG) was down 4.9%. The dollar was up 0.03%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Tuesday Outlook: The markets are back to the previous pattern of leadership… watch to see if anything changes. The markets remain news-driven. The breadth is still narrow as we continue to look for broader leadership. Small caps sold lower along with midcaps. Watching how the parts look relative to the whole. What are we watching? 1) The dollar moving higher. 2) Interest rates at 4.43% and still showing volatility and testing the May lows. 3) Crude oil remains above $80… The break higher is a concern for inflation data and the consumer. 4) Natural gas remains volatile breaking below the key support levels. 5) Watching some breakout move from Monday… USO, DBC, GBTC, FANG, XME on the upside. The downside is DBA, UNG, TLT, and IWM. Taking what is offered and balancing the risk.

The chart below shows the breadth issue for the SP500 sectors compared from the beginning of the current leg higher that started in April. The technology sector is the only one to outperform the index… Note the rise in telecom last week.

Headlines Worthy of Note:

Oil trades near two-month high on Mideast, hurricane concerns. Oil was near $87 up 2.5% and gasoline was up 2.9%. This puts pressure on the consumer and will not bode well for inflation data if it stays elevated for an extended period.

Court blocks Biden administration ban on LNG exports. A US district court judge granted a preliminary injunction that prevents the ban on new LNG export projects from taking place. This is of interest to the natural gas space and will have an impact on prices looking forward. UNG fell 4.9% on Monday.

Fast-food value deals are back! Sonic rolled out a $1.99 menu joining Mcdonald’s, Taco Bell, and Burger King in offering lower-priced food options to customers. The pressure from the higher menu prices and customers searching elsewhere or just not dining out has put pressure on the fast-food franchises. An interesting note is that 78% view eating out as a luxury.

Quote of the Day: “It has been my experience that folks who have no vices have very few virtues.” — Abraham Lincoln.

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