Market volatility returned on Friday with selling the first half of the day and a rebound the second. Retail sales were the catalyst as investors now try to read into each number deciding the future impact relative to the Fed and inflation. March sales were -1% versus -0.4% expected versus -0.2% previous. The response offset the good seen in the JPM earnings beat. The stock was up more than 7% following better-than-expected revenue. In fact, WFC, BLK, PNC, and C all beat expectations putting to rest the chatter about bank earnings. With sales in negative territory, the twisted thought would be positive as it relates to the Fed. Hard to wrap your head around the current thesis of the markets as it relates to what is positive and what is not… the entire philosophy revolves around the Fed and interest rates. Thus each data point is weighed relative to how it will impact the outcome of the Fed. The current belief following Friday’s data is a 0.25% hike in May and the Fed is done with moving rates higher. That leaves investors in a position of watching and interpreting the outcome looking forward. The volume remained below average on the move. The breadth is minimal. Overall volume has been below average for the last 20 trading days despite the move higher. That takes us back to the bottom reversal in March. Lack of participation in the upside move makes it susceptible to downside risk. That said, we will take what is offered and manage the risk accordingly. Volatility fell to 17 showing less anxiety about the current outlook. Gold, agriculture, and crude show leadership from commodities…. not what you want to see leading as it points to more inflation. Look at a chart of each and you see when inflation spiked in the first half of last year and what happened to stocks. None of the news is painting a good outlook… thus, we have to proceed with caution and take what is offered. The belief would be at some point the markets/investors will have to accept the bad news for what it is… reality. But then again, we are an optimistic society when it comes to stocks.
The markets overall continue to hang tough despite the outlook as they continue the move higher from the March lows. The data has not been positive, but the liquidity factor as it relates to Fed and the discount window remains an underlying factor. There is the belief the Fed will cut rates in the second half of the year. We will see how that evolves. If the Fed continues on the liquidity path and commodities continue to rise, inflation isn’t going away anytime soon. We are heading down a slippery slope and one we have to manage with extreme caution despite the current headlines and bullish talk from analysts and talking heads. As I say plenty of times, data doesn’t matter, until does, so we will be watching just how much it matters. Remember the Saudi Arabia oil production cuts are still looming along with cuts from Iran… they will impact oil prices should demand raise in China or the US. Inflation will be challenged if oil increases to $100+ bbl. Liquidity will trigger inflation equally if the Fed goes too far. All issues the market will have to deal with over time as well as the investor. The S&P 500 index closed down 0.2% as intraday volatility returned. The NASDAQ was down 0.3% the mega-caps saved the day. Small Caps (Russell 2000) were down 0.9%. The ten-year treasury yield closed at 3.52% up 7 bps on the day as outlook for Fed hike prices in. Crude (USO) was up 0.4%… and remained above the $80 bbl level. Gasoline (UGA) was down 0.2%. Natural gas (UNG) was up 4.3% as volatility remains. The dollar was up 0.5% struggling globally. We are focused on managing the risk and watching how this all unfolds.
Charts to Watch:
Previous Charts of Interest Still in Play: LSCC (testing uptrend). Added uptrend in play. AAPL (reversal confirmed). Added to the position. GBTC (trading range breakout). Added to the position. AMZN (bottom reversal) Added. GDX (bottom reversal) Added. PG – trading range break as part of the consumer staples money rotation. Added. MCD breakout. Added. WMT ‘V’ bottom breakout. Added. WES reversal. Added. SCCO resuming an upside move. Added. UJB Added. FCX Added. FCX ($41.35 resistance, add to existing position). Added. SRS Added. SRS (buy the dip). Added. SKF Added. SOXS Added. UCO ($29.25 resistance) Added. DBA (‘V’ bottom breakout) Added. ZIM (breakout). Added. BLK (downtrend… earnings soon, REIT exposure). Added on positive earnings.
Stops Hit: None
Quote of the Day: “Any fool can tell the truth, but it requires a man of some sense to know how to lie well.” – Samuel Butler
The S&P 500 index closed down 8 points to 4137 the index was down 0.2% with below-average volume on the day. The index stayed above 4086 holding the upside move. 4169 next level of resistance. Three of the eleven sectors closed higher on the day with financials as the leader up 1%. The worst performer of the day was REITs down 1.6%. The VIX index closed at 17 as anxiety gave way to hope relative the future of interest rates. Plenty to watch moving forward. February highs are the current target if the upside continues.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials hit resistance at $81 tested lower and bounced back to $81. Some rotation is in play short term. The sector was up 1.6% for the week. FCX bottom reversal. SCCO.
Watch: WRN (‘V’ bottom).
XLU – Utilities Bounced breaking through resistance at $67.95 and hitting resistance at the 200-day MA. The sector was down 1.3% for the week. Entry $68.
IYZ – Telecom double bottom pattern breaks higher and tests back to support at $22.35. $22.35 entry. The sector was down 1.1% for the week.
XLP – Consumer Staples downtrend reversal offer entry at the 200 DMA ($73). Moved to resistance at the $75.50 level. The sector was down 0.2% for the week.
XLI – Industrials bounced back from a tough week but remain in a trading range currently. The sector was up 2.1% for the week.
Two to watch this week: EMR (breakout from trading range). HON (bottom reversal break above 200-day MA).
XLV – Healthcare Made a move back above the $127.50 mark. Broke above $131.40 resistance. Adding to the upside move $136.50 resistance next. Biotech (IBB) equally moved higher. Entry $127.57. The sector was up 0.8% for the week.
XLE – Energy double bottom reversal back to resistance at the $86.85 level. The sector was up 2.6% for the week.
XLK – Technology The sector cleared the $144.10 resistance and testing. The sector was down 0.3% for the week. Back to the August highs.
XLF – Financials breaks above resistance at the $32.36 level on better-than-expected earnings. Bear flag pattern on the chart broke to the upside. The sector was up 2.8% for the week. KBE, KRE, KIE fail to move higher on Friday.
XLY – Consumer Discretionary $147.11 resistance in play again. Retail sales didn’t help as they fell into negative territory. The sector was up 1.3% for the week.
IYR – REITs stalled from the bounce and moved sideways over the last two weeks. Need to clear $85 currently. The sector was down 1.4% 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.
Summary: The index closed the week barely in positive territory up 0.8% with mostly negative economic data for growth. The CPI and PPI offered some hope for inflation near term. 4169 next level to clear on the upside move. Volume was below average again… something we continue to watch. 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… and plenty of data on the way. We held 4086 support and look to break above the previous highs. 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 42 points to 12,123 as the index was down 0.35% for the day. The index was up 0.16% for the week. The index held the move back above the 11,474 previous support and pushed back toward the previous highs. Closed the week up 0.2%. Technology is the key… SOXX and IGV struggled for on the week.
NASDAQ 100 (QQQ) was down 0.19% with the mega caps leading for the week. The move held above $312.13 and attempted to push higher. The sector had a negative bias with 31 of the 100 stocks closing in positive territory for the day. Mega-caps are taking leadership again… for now.
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 0.16% for the week. Watching how it plays out next week.
Software (IGV) broke above $293.50 resistance and stalled near the $301.50 level. The sector was down 0.5% for the week. Mega caps leading the sector.
Biotech (IBB) The sector moved above the 200 DMA and completed a trend reversal clearing $128.35 and added to the move this week. The sector was down 0.8% for the week. IBB entry $127.35. Stop $130.50.
MRNA – Moderna cancer vaccine results could drive the company higher longer term. Despite the tough week for the stock, it is worth keeping on our watch list. Entry $142. Added to the position and looking to move to $165. Moved sideways for the week and need to clear the 200-day MA.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. The sector was up 1.5% for the week. Letting it unfold.
Transports (IYT) bottom reversal failed and is in a sideways pattern. The sector was up 1.4% for the week. BDRY showing a topping pattern.
The Dollar (UUP) The dollar remains volatile as more countries are willing to trade outside the dollar. The bounce on Friday was a plus… watching how it unfolds. The dollar was down 0.2% for the week.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.52 up from 3.28% last week. Big this week as future rate hike talks push yields up. TLT was down 3.1% for the week. Hit stop on TLT posted a solid gain.
Crude oil (USO) Gapped higher last the week as Saudi Arabia cut production going forward. Iran cut production temporarily and crude moved back above $80 per bbl. Without a response from the White House to open pipelines and Gulf, this could be a bigger issue going forward. USO was up 2.6% for the week. UCO entry $25.80. Stop $28.50.
Gold (GLD) The commodity bounced and pushing higher as money rotates. The metal was down 1.7% for the week. Entry $169.50. Stop $$184.50. UGL in play. SLV ‘V’ pattern back to the January highs… entry $20.70. stop $23.
Put/Call ratio was 0.91 Friday… moderating on data points.
Questions to Ponder: Navigating Uncertainty
Airlines were under pressure on Wednesday following AAL update of 1st quarter estimated earnings adjusted to 1-5 cents… Analyst’s expectations were 5 cents sending the stock down 9.2%. DAL fell 2.5% and UAL was down 6.5%. Something to watch as fuel price rise again. Added to the downside Thursday.
Semiconductors (SOXX) earnings season is approaching and the outlook isn’t positive according to IBD. Worth watching how this unfolds. We already own SOXS and watching if it pans out near term..
Blackstone REIT limits investor redemptions… Commercial real estate is being challenged more than most want to believe. The movement of money by investors is wider spread than banks. In February there were requests for $4.5 billion and granted only $667 million. Challenges are growing in more places… SRS tested back to the 200 DMA looking for entry again.
Saudi Aramco is investing $12 billion in new refining and petrochemical in China’s Liaoning province. In addition, they bought a 10% stake in one of China’s oil refining firms for $3.6 billion. Another shot at the current administration’s strained relationship with Saudi Arabia. Now cuts oil production… very interesting developments. Iran not exporting oil through Turkey… more cuts on oil availability. We own UCO and looking to add to the position.
Friday: Stocks were mixed all week based on the news and data of the day. The indexes managed to post a slim gain for the week on the back-and-forth trading activity. Despite the intraday swings volatility fell to 17 the lowest level since January 2022. There is still plenty ahead for investors to ponder relative to the economy, the Fed, and inflation. The Fed bailout money has slowed for the third week as discount window usage declined $10 billion to $139 billion. The balance sheet fell $17.6 billion for the week. There are some positive signs of improvement even if they are small. The breadth of the move still isn’t great. But, we have to take what is offered and manage the risk that is. There have been plenty of opportunities to play the upside move along with keeping stops in place.
Watching the trends in crude, agriculture, and precious metals, they are leaning toward future inflation along with offering upside trading opportunities. SOXX is a key indicator for the markets and after peaking nine days ago has been testing lower. TSV and RSI have fallen along with the sector. Closed at key support levels and looking at how it plays out next week. 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.