Jim’s Notes – SOXX Leads Downside

Moving the Market – June 24th

The markets traded lower to start the week as investors took money from the leaders. The NASDAQ and SP500 struggled throughout the day. DIA, IYT, IWM, and MDY all closed in positive territory… some rotation to the laggards. The leading sector was energy as crude prices continued to move higher. Eight of the eleven sectors were higher on the day but the index still closed lower thanks to technology falling 2.6%. QQQ falls to support at the $474 level and will have a decision to make on Tuesday. The dollar was lower, interest rates were lower at 4.24%, Gold was higher along with crude oil. XLF looks okay at this point having bounced back from last week’s selling. Plenty of money moving but little to show for it as the laggards XLI, XLB, XLP, IYR, XLV, and IWM all see some modest gains. The question is how the technology sector responds to the move lower… some are at first-level support, and some have built solid bases, how to the move from here? Do they have buyers to take them to the next level? Watching money flow and who are the benefactors thus far it has been minimal. The Fed was out in force Monday talking the same rhetoric relative to the economy and future rate activity. Small and midcap stocks were higher the last two days… rotation? Not likely just some hope. Biotech (XBI) helped NDX from losses being worse. SOXX tested to the trendline as we watch to see if it bounces or if more selling to come. No dynamic changes to speak of plenty of questions were raised to start the week. The end of the week will have the economic data everyone will be watching as the PCE data caps off the week. It is the end of the month and quarter which will offer plenty of new data in the coming weeks. The talking heads are starting to discuss the overvaluation of the markets and the risk it implies near term. Watching and managing our risk accordingly.

The major indexes closed lower on the day with some downside on the charts. The volume was above average with angst showing up in the VIX index. The activity started higher and moved lower throughout the remainder of the day. Monday the NASDAQ closed down 1.1%, DIA was up 0.6%, and the SP500 was down 0.3%. The SOXX was down 2.8%. Small Caps (Russell 2000) were up 0.4%. The ten-year treasury yield was 4.24% down 1 bps and TLT was up 0.4% for the day. Crude Oil (USO) was up 1.3%. (UGA) was up 0.1%. Natural gas (UNG) was up 3.9%. The dollar was down 0.3%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Tuesday Outlook: The markets kick off the final week of June and end of the 2nd quarter. That means more data to digest. Watching how the parts look relative to the whole. As seen below the breadth is still very narrow for the overall market with some juggling the last three days. Seeing some of the laggards pick up. Commodities were mixed on Monday as they looked for direction and catalyst. What are we watching? 1) The dollar moving higher. 2) Interest rates at 4.24% and still showing volatility. 3) Crude oil back above $80… UGA as prices will follow crude. 4) Natural gas remains volatile as it settles out the run higher. 5) DBA is showing some volatility as commodities overall look for direction. 6) Mega caps tested… is there more to come? 7) Small caps bounce is it real this time? 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 on Thursday through Monday the leader (XLK) and the loser (XLE) shifted directions… XLF, XLY making upside moves as well.

Headlines Worthy of Note:

Electricity made from the heat of the earth makes progress. Geothermal company Fervo Energy is producing enough energy to provide power to 400,000 homes in California. Good news for the clean energy efforts and a growing demand on the power grid.

Driverless trucks getting help from Uber Freight. Uber has partnered with Aurora Innovations (AUR) to provide the trucking industry access to autonomous assets for moving freight. Interesting storyline worth tracking.

Headlines are gaining momentum relative to technology and the downside risk. NVDA the poster child for rising stock prices in the technology sector has declined 13% in the last three days and isn’t helping the rumblings with the move erasing $400 billion in market cap. The SOXX was down 2.8% on Monday. This has our attention looking forward.

Quote of the Day: “The husband who decides to surprise his wife is often very much surprised himself.” — Voltaire.

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