Jim’s Notes Monday Recap & Outlook

Moving the Market – March 11th

Markets spent the day juggling ahead of the CPI news to be released on Tuesday as investors wait to see the news. The expectations are for inflation to decline slightly putting more pressure on the outcome. The major indexes finished the day with the NASDAQ and the SP500 both in negative territory slightly. Semiconductors were under pressure again closing with a doji candle. Goldman Sachs was out again talking about the condition of the economy being negative and a recession on the way. This has been a constant for the last four weeks… always good news for stocks. The continued argument that stocks are overvalued is a hot topic on most financial networks. Yes, the valuation is high, yes the market is due for an adjustment, but the charts show an uptrend in play. Thus, I prefer to take the action of lessening risk when it is too high and adjusting my stops to protect against the unexpected. Case and point being SOXX the last two days… before the opening on Friday I adjusted my stop to $234.05 with the futures higher, it made my risk less going forward and gave me peace of mind knowing where the exit point was. With the ETF closing at $228.13, my stop was hit, and anxiety averted, not to mention, that I didn’t have to decide on Monday when it continued lower. It also gives me an opportunity if it holds support and renews the uptrend. Watching how the news unfolds, stops in place, and armed with what I think are the next opportunities.

Worthy Lesson: “Short-term volatility is greatest at turning points and diminishes as a trend becomes established.”

The indexes moved lower as investors juggled ahead of the CPI and PPI data. The activity on Monday was mixed with the defensive stocks leading and growth lagging. As we look to Tuesday the inflation data is out before the open giving everyone a reaction point before stocks start trading. The volume was below average and the money flow ticked lower. Six sectors closed in positive territory but we did see some distribution again on Monday. Watching what opportunities develop on the charts. The NASDAQ closed down 0.4%, DIA was up 0.1%, and the SP500 was down 0.1%. The major indexes closed mixed on the day. The SOXX was down 1.3%. Small Caps (Russell 2000) were down 0.8%. The ten-year treasury yield was at 4.09% up 1 bps for the day. Crude Oil (USO) was up 0.3%. (UGA) was up 2%. Natural gas (UNG) was down 2.7%. The dollar was up 0.1%. We are focused on managing the risk in the current environment and letting it unfold.

Charts to Watch: See Notes on “Reality of the Markets” & “Jim’s Beliefs About the Market” pages…

Quote of the Day: “I was eating in a Chinese restaurant downtown. There was a dish called Mother and Child Reunion. It’s a chicken and egg dish. And I said, I gotta use that one.” — Paul Simon.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed down 5 points to 5117 moving the index down 0.11% with below-average volume. The index held the up-trendline and the 10-day MA. Money flow was negative and RSI flat. Six of the eleven sectors closed higher on the day with energy as the leader up 1%. The worst performer of the day was technology down 0.2%. The VIX index closed at 15.2 higher on the day. There is plenty to ponder between the headlines and the facts. Selling in the semiconductors has my attention heading into the new week of trading… Stops adjusted and watching how it unfolds.

Leaders:

XLK – Technology Entry $183. Stop $204.10. Broke above the $208 resistance and retreated. The sector was down 1.6% for the week. The semiconductors sold to end the week as we watch how they respond.

XLY – Consumer Discretionary The sector broke higher from a cup and handle pattern… it has retreated below the breakout point showing short-term weakness. The sector was down 0.5% for the week. Needs to hold the 21-day EMA.

XLF – Financials Entry $33.65. Stop $39.92. Continuing to trend higher with banks showing some positive moves. The sector was up 0.8% for the week. Moved above the resistance at $39.28 and followed through upside. Interest rates were lower at the end of the week and could be seen as a positive for the sector looking forward.

XLV – Healthcare remains in an uptrend from the October lows. Some testing on the week as we move back towards the 21-day EMA as the trendline. Entry $129. Stop $144.57. The sector was up 0.1% for the week.

XLP – Consumer Staples Uptrend remains in place moving above resistance at the $74.70 mark. The sector was up 0.9% for the week. Discount big box is the strength of the sector currently.

XLI – Industrials Uptrend remains in play moving higher in a steady uptrend. The sector was up 0.6% for the week. GE and LDOS adding leadership.

XLB – Basic Materials uptrend remains in play adjust your stops if you own any positions here. For the week was up 1.5%. Activity picking up in the materials VMC and EXP. Let it run.

Laggards:

XLU – Utilities bounced off the $60.10 support level and cleared $62.90 resistance. Entry $61. Stop $62.70. Lower interest rates are helping the upside move. The sector was up 3.2% for the week.

XLE – Energy making a steady climb higher after clearing resistance points. Entry ERX $52.15. Stop $58.65 (adjusted). Let it play out. Target is $64 near term. The chart broke the downtrend from the September highs and is ploding higher. Posted a solid upside day.

IYZ – Telecom Held support at the $21.74 level and trading sideways. The sector was down 1.2% for the week. Bounced inside the trading range and at the 21-day EMA.

Losers:

IYR – REITs found support and started a reversal of the downtrend with a move above $88.20. The sector has been challenged by higher rates and vacancies in the commercial sector but is showing some signs of life thanks to residential and a tick lower in rates. The sector was 1.4% for the week. Entry $88.10. Stop $88.10.

Summary:

The SP500 index closed slightly lower with up and down activity. Economic data was void leaving the market to trade on its own accord. The trend is positive. Some rotation with materials, energy, and telecom show signs of moving higher. XLU, XLB, XLP, and XLE led the day… defensive stocks leading. We maintain our stops and continue to look for where money flow migrates. Technically the uptrend remains in play with the sellers and buyers battling it out. Remember two things; first, the trend is your friend, and second, don’t fight the Fed… Both are currently in play.

(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 Indexes & Sectors To Watch

The NASDAQ index closed down 65 points to 16,019 as the index was down 0.41% for the day. Mega caps didn’t help the cause as SOXX led the downside move. The trendline was challenged along with the 21-day EMA as we watch how this unfolds. Stops in place and watching the outcome. There is plenty of activity and speculation to filter through.

NASDAQ 100 (QQQ) was down 0.37% for the day as the mega-caps led the downside for the sector. The uptrend remains on the chart with some topping on the chart. SOXX was lower. Watching AAPL and GOOG both bounced at support showing a reversal. Manage stops and let it play out. Entry $354.20. Stop $435. Patience.

1) AAPL Watching if the bounce has any legs. 2) AMZN moved t the 20-day MA. 3) GOOG bounced and $140.40 level to clear. 4) MSFT moved below the 21-day EMA. 5) META dumped to the 20-day MA. 6) NFLX below the 10-day MA. 7) TSLA (testing support Feb lows) 8) QQQ tested the 21-day EMA. Adjust your stops if you hold positions and manage the risk going forward.

Semiconductors (SOXX) Hit stop on position with a nice gain. Selling to end the week and watching to see how it unfolds. The sector was up 0.6% for the week. The uptrend from the November lows remains in play. Picked up volatility. Traded lower.

Software (IGV) head and shoulder pattern on the chart $84.53 is key support. The sector was down 2.2% for the week. Looking for opportunity on directional decision. Small upside.

Biotech (IBB) consolidation pattern on the chart broke at the January highs. Watching for some momentum in the sector. The sector was down 0.8% for the week. XBI negative break lower Monday.

Small-Cap Index (IWM) downtrend reversal with a move above the December highs but can’t seem to get enough momentum. Added at $192.13 upside move. Stop $204.80. Needs to find conviction if going higher. Patience for now. The sector was up 0.4% for the week. Negative day for the sector.

Transports (IYT) drifting higher. Despite the Red Sea issues continuing to escalate the sector is moving higher. BDRY has responded well, bouncing back from the test at $8.95. The sector was down 0.4% for the week. Entry $66.35. Stop $69.56.

Red Sea issues continue to be bad. The activity continues to disrupt the passage of ships. The true impact of this on prices has yet to be passed through to consumers… this is a growing issue so look for disruption to the supply chains. BDRY entry $9.70. Stop $14.84.

The Dollar (UUP) The dollar struggled on the week as interest rates fell and Powell talked about stimulus. Watching how it unfolds moving forward. The buck was down 0.9% for the week.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond has been rising since the low in December, but it turned lower last two weeks on the inflation talk and the Fed. The yield moved from 4.18% to 4.08% this week down 10 bps. The topping pattern on the yield chart shows some believe rates have peaked with hopes of interest rate cuts… despite what the Fed is saying. TLT was up 1.3% for the week. Entry $93.52. Stop $94.45. (TMF is the leveraged trade).

Crude oil (USO) bottom reversal accompanied by volatility moved resistance at the $73.25 level and testing all week. OPEC extended its production cuts. As seen on the chart it is attempting to renew an uptrend from the December lows… up trending channel. The commodity was down 2.1% for the week. Entry UCO $26.70. Stop $29. Patience.

Natural Gas (UNG) The commodity continues to struggle with an attempt to bounce off support at the $14.70 level with resistance at $18. Watching how this dump lower unfolds. The commodity was down 1.7% for the week. Bear flag pattern broke lower. See if it retests the $14.72 low. Negative day.

Gold (GLD) The commodity broke higher from the consolidation pattern and went vertical. We added UGL and now we have a trailing stop to protect against a reversal. The metal was up 2.2% for the week. Entry $189.30. Stop – trailing 2%. UGL.

FINAL NOTES

Monday: The broad indexes closed mixed for the day. There is plenty of chatter and speculation on direction and leadership as seen over the last few weeks of trading. All the talk and juggling keeps the chatter about valuations and overbought in the news. The current activity shows speculation on the charts and a market that is overbought on optimism about the Fed shifting its stance on inflation. Watching how it unfolds and looking for the opportunities within the action. Six of the eleven sectors closed higher with technology leading the downside. SOXX was lower again. VIX moved to 15.2 showing more anxiety in play. Economic data remains suspect at best. All eyes will be on the CPI data on Tuesday before the opening. Keeping our stops at the appropriate risk level. It is interesting to note the bounce in crypto to new highs.

Longer-Term View: The uptrend from the October lows continues. The index moved above the July and August highs and broke above the 2021 highs to a new high. This resumes the long-term uptrend from the lows of October 2022. Currently, we are allowing the short-term to unfold in light of the longer-term perspective… don’t combine the two as the weekly charts look very different than the daily. A look at the weekly chart below shows the uptrend from the October 2020 lows is still in play at a slower degree of assent. The acceleration off the October 2023 low is getting extended. We have adjusted our stops on longer-term positions as we let this unfold. There are always positive and negative swings in a longer-term trend. A look at the daily chart from the October 2022 lows validates that premise with plenty of volatility along the way. The current bounce remains in play despite many issues on the horizon. Current activity shows volatility that is associated with extended moves. We look to charts and fundamentals for 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.

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.

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