Jim’s Notes Monday Recap & Outlook

Moving the Market – March 25th

The markets finished mostly lower with large-cap stocks pacing the decline. After the move to new highs last week a test of the move would be in order. No big changes overall on the charts as we continue the order process of rise and test. Reddit had a big jump higher following last week’s IPO. Crypto jumped higher as well with most parts up 10% or more. Semiconductors were mixed with MU up more than 6% helping the sector. China is in the process of blocking the use of Intel and AMD chips in state-owned computers. Both stocks put downside pressure on the sector. Retail is lagging as the reality of the consumer slowing is showing up in the sales data. Governments start to take action against large tech companies as the EU starts implementing the first Digital Markets Act probing Apple, Google, and Meta. If you can’t raise taxes attack corporations and take money through fines. Makes sense. Interest rates ticked higher as the Fed puppets continued the follow-up parade to the FOMC meeting. Crude was back near $82 bbl. Overall a day of consolidation with some specific news-driven moves. Taking what is offered and focusing on the opportunities created.

Financial Thought: “The most important rule of trading is to play great defense, not offense” – Paul Tudor Jones.

The indexes were mixed along with some volatility on Monday. They started the day in negative territory and were never really to gain any traction throughout the trading day. The leaders were crypto, energy, and utilities. Money flow was lower and the RSI was higher as volume remained below average. Four sectors closed in positive territory showing sluggish activity. The NASDAQ closed down 0.2%, DIA was down 0.4%, and the SP500 was down 0.3%. The major indexes closed lower on the day. The SOXX was down 0.3%. Small Caps (Russell 2000) were up 0.2%. The ten-year treasury yield was at 4.25% up 3 bps for the day. Crude Oil (USO) was up 1.4%. (UGA) was up 0.5%. Natural gas (UNG) was down 0.4%. The dollar was down 0.2%. 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: “Expert: a man who makes three correct guesses consecutively.” — Laurence J. Peter.

Sector Rotation & The S&P 500 Index

The S&P 500 index closed down 16 points to 5218 moving the index down 0.31% with below-average volume. The index maintained the uptrend and closed in negative territory. The money flow was lower and RSI was higherl. Leadership took a break with only Four of the eleven sectors higher. Energy was the leader up 0.9%. The worst performer of the day was Transports down 0.7%. The VIX index closed at 13.2 higher on the day. There is plenty to ponder between the headlines and the facts.

Leaders:

XLK – Technology Entry $183. Stop $204.10. Broke above the $208 resistance again but remained in a consolidation pattern. The sector was up 2% for the week. The semiconductors were the leader overall. Testing.

XLY – Consumer Discretionary The sector broke higher from a cup and handle pattern… tested and is now attempting to break higher again. The sector was up 2.6% for the week. Testing.

XLF – Financials Entry $33.65. Stop $40.70. Continued to trend higher with banks showing some positive moves. The sector was up 1.5% for the week. Moved above the resistance at $39.28 and followed through upside. Positive response to the FOMC meeting. Testing.

XLI – Industrials Uptrend remains in play moving higher in a steady uptrend. The sector was up 2.6% for the week. New highs. Testing.

XLB – Basic Materials uptrend remains in play adjust your stops if you own any positions here. For the week was up 0.6%. Activity picks up as money rotates. New highs. Testing.

XLE – Energy making a steady climb higher after clearing resistance points. Entry ERX $52.15. Stop $58.65 (adjusted). Let it play out. The target of $64 was hit and now looking at $69. Cleared the $92.50 level of resistance.

Laggards:

XLP – Consumer Staples Uptrend remains in place moving above resistance at the $74.70 mark and testing. The sector was up 0.1% for the week. Discount big box is the strength of the sector currently.

XLV – Healthcare has shifted to a sideways movement. Watching patiently how this unfolds. Entry $129. Stop $144.57. The sector was up 0.1% for the week.

XLU – Utilities bounced off the $60.10 support level and cleared $62.90 resistance but tested the move. Entry $61. Stop $62.70. The sector was up 0.6% for the week.

Losers:

IYR – REITs plenty of volatility as interest rates, defaults, and speculation factor into the activity. Commercial real estate remains a big question market looking forward. The housing data was positive. We will see how this unfolds short term with $87 support. The sector was down 0.4% for the week.

IYZ – Telecom broke support at the $21.74 level and renewed the downtrend slightly. The sector was up 0.4% for the week. Attempting to hold support.

Summary:

The SP500 index closed lower with modest downside pressure on stocks. The buyers and sellers continued to slug it out with no real conviction from the sellers. Any momentum is news-driven as seen last week with the FOMC news. The laggards continued to struggle but we have seen some rotation. Watching the overall breadth of the move expand with some of the outliers breaking higher. We maintain our stops and continue to look for where money flow migrates such as crypto, commodities, and the dollar. Technically the uptrend remains in play as we look for leadership. 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.)

Other Indexes To Watch

The NASDAQ index closed down 44 points to 16,384 with the index down 0.27% for the day. The index traded back above the 10-day MA. SOXX held over the prior $222.24 support. IGV was lower for the second day. Mega caps were mixed closing lower on the day. Technically the index tested the key levels of support and bounced again. The focus is to follow the trend and manage the risk.

NASDAQ 100 (QQQ) was down 0.36% for the day as the mega-caps were mixed overall. The uptrend remains on the chart with some topping still in play. Mixed moves as semiconductors pressured by China’s news and software was lower as well. Watching how the sector responds looking forward.

1) AAPL Watching after the DOJ lawsuit changes the outlook. Testing previous low.2) AMZN moved above the 10-day MA again. 3) GOOG holding near the highs. 4) MSFT testing the upside move. 5) META moved back above the 10-day MA. 6) NFLX back above the 10-day MA. 7) TSLA testing following bottom reversal. 8) QQQ back above the 10-day MA. Manage your stops if you hold positions and manage the risk going forward.

Small-Cap Index (IWM) downtrend reversal with a move above the December highs but can’t seem to maintain enough momentum to advance higher. Friday retraced 1.3%. The sector was up 1.3% for the week. The sector tried but failed yet again.

Transports (IYT) rolling top on the chart that bounced at support. BDRY has responded well, bouncing back from the test at $8.95. The sector was up 2.8% for the week. Broke below the 30-day MA. Testing support at $68.30 and bounced.

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 $14.70. Hit stop and locked in solid gains on position.

The Dollar (UUP) The dollar reacted to the FOMC news but rallied as global central banks cut rates and Japan hiked rates for the first time in over 17 years. Watching how it unfolds moving forward. The buck was up 1.2% for the week.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond moved back to the February highs and faded lower on the dovish FOMC meeting. The yield moved from 4.3% to 4.21% this week down 9 bps. Watch how yields respond looking forward relative to the Fed talk.

Crude oil (USO) uptrending channel continued to move higher with an attempt to accelerate. The move above $75 was a positive and the next target is $82.50. We adjusted our stop and manage the risk. The commodity was up 0.4% for the week. Entry UCO $26.70. Stop $31.70. Patience. It is important to note that pump prices are higher on a Y/Y basis. This is not a trend that the Fed wants to see nor consumers. UGA is up 23.9% since the December lows. Trying to move higher again. $82 bbl.

Biden announced he wanted to refill the strategic reserves for the US. Great, he depleted them at an average of $60 per barrel and wants to refill them with crude above $80 a barrel. It sounds like he was a great trader in his previous life. Watch how that impacts supply and prices. Supply drew down last week. Watching the trend and reaction to data.

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 pennant on the chart broke higher but the last two days gave up the gains as the dollar was stronger. The metal was up 0.3% for the week. Entry $189.30. Stop – trailing 2%. UGL.

FINAL NOTES

For Tuesday: The starts out mixed with some testing of last week’s move higher. The housing data continues to be positive and ITB has moved higher. There is still plenty of speculation and guessing on the part of analysts and traders. The trend remains on the upside plain as we take what is there and manage the risk. Looking forward we move to the last week of March which brings plenty of economic news and earnings for the first quarter. Shortened trading week with markets closed for Good Friday. Some are optimistic and some are pessimistic. We will take what is offered in light of the data as the expectations are elevated. Some rotation is in play with energy, agriculture commodities, crypto, the dollar, and other outliers. The talk of overbought and overvalued markets is back following the move higher after the announcement from the Fed. There is some rotation on the charts as money looks for where it will be treated the best. Money flow is flat overall. The dollar is higher on central bank activity globally… plenty to digest and evaluate.

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. After two modestly negative weeks, the index gained 2.3% this week helping the trend. The 13-week MA is the support for the current trend. 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 from the October 2023 low is getting extended, however. 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. There are many issues on the horizon with inflation remaining a top challenge for investors. Current activity shows volatility that is associated with extended moves. We look to charts and fundamentals for answers. Longer-term positions are a ‘hold’ with no accumulation towards the assets. 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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