Jim’s Notes Market Summary

Moving the Market – January 25th

Thurday’s session took on a different tone as large caps took a break with energy, utilities, and transports heading higher. Small caps made a move higher as well showing some breadth on the day. Volatility was higher on the day as a result of the movement. Commodities were higher with some rumblings about a squeeze on supply thanks to the Red Sea conflicts as well as Ukraine issues. Those rumblings can be seen in the price of DBA moving higher in the last five trading days. TSLA set the tone on the downside following earnings as the stock dropped 12%. Economic had all the talking heads rattling on about a soft landing. GDP was at 3.3% for Q4 and well above the estimates and new home sales rose 8%. The fourth quarter data continues to show a slowing in inflation and increased demand. That is all good, but looking forward the worries remain relative to inflation especially if the comments on commodities are validated going forward. As always there is plenty to ponder and pontificate on, but the facts lie on the charts. The trends are what matter and in reality are how we all make money investing. We will dig through all the data released with more on the way Friday.

Stocks moved higher with more diversification in the move along with volume above average. The focus shifted to data points which sparked buying in more sectors. The charts do look extended in some indexes and sectors, but the buyers continue to put money to work. The NASDAQ closed up 0.2%, DIA was down 0.6%, and the SP500 was up 0.5%. The major indexes moved higher in the uptrend and continued to show buyers engaged. The SOXX was down 0.2%. Small Caps (Russell 2000) were up 0.8%. The ten-year treasury yield was 4.13% down 4 bps for the day. Crude (USO) was up 2.3%. (UGA) was up 1.7%. Natural gas (UNG) was down 4.5%. The dollar was up 0.3%. 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: “Before I take your questions, I have an opening statement.” — Ronald Reagan.

Additional Charts To Watch

Agriculture (DBA) As seen on the chart the bottoming pattern is in position to reverse the downtrend. We cleared $21.08 Monday. Entry $21.10. Stop $21.08. Tuesday broke higher and has shown solid gains since… Raise your stops.

Home Construction (ITB) Consolidation near the highs broke to the upside Monday. Looking for a follow-through above the $103 level. Oops, failed to hold the move higher as interest rates moving higher impacts the DHI earnings report. Failed break higher.

As it relates to the DHI earnings report… they missed on revenue… is the sector starting to show some effects of higher interest rates and affordability issues relative to construction? Something to ponder as the balance of the homebuilders report earnings. Maybe a downside trade opportunity? Sold to the bottom of the range… bounced on New Home Sales up 8%… watching how it plays as it remains in the range.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 26 points to 4895 moving the index up 0.54% with above-average volume. The index struggled to maintain the upside but rallied the last hour to close in positive territory. Thus far the markets have been sleepwalking higher. Nine of the eleven sectors closed higher on the day with energy as the leader up 2.2%. The worst performer of the day was consumer discretionary down 1.2%. The VIX index closed at 13.4 higher on the day as anxiety settled in. Plenty to ponder between the headlines and facts. Patience.

XLB – Basic Materials Uptrend reversal in play with key support at $81. Held at support and was down 1.3% for the week. No Positions. Bottom reversal setup failed with reversal lower.

XLU – Utilities Broke back below the $69.20 support. $60.10 Next level to watch as well as short side trade opportunity. Entry SDP $12.85. Stop $12.70. The sector was down 3.1% for the week. Broke $60.10 support and bounced back on Thursday.

IYZ – Telecom Topping pattern on the chart that bounced back to the previous highs. Broke above the $23 level Monday offering an entry point. No positions. The sector was up 1.3% for the week. Picked up volatility last few days and holding near the highs.

XLP – Consumer Staples Uptrend remains in place for the defensive sector with some modest testing. No Positions. The sector was down 0.7% for the week. drifting sideways remains in a range.

XLI – Industrials Topping pattern. $110.75 level of support to hold. No Positions. The sector was up 0.3% for the week.

XLV – Healthcare Made the move above September highs in a solid up trend from the October lows. Picked up some volatility of late but holding the trend. Entry $129. Stop $138.29. The sector was down 1% for the week.

XLE – Energy Started a bottoming pattern and cleared $81.97 resistance. Crude oil prices rising to help the sector recover. Entry ERX $52.15. Stop $52.80.

XLK – Technology Entry $193. Stop $200. Bounce-off support at $183.50 and continued the uptrend closing the week at a new high. Large-cap tech is leading the broad markets higher. The sector was up 4.4% for the week. Resting… watching for a test of the move higher.

XLF – Financials Entry $33.65. Stop $36.50. Trading sideways near the highs with a modest test lower. The uptrend remains in play as we manage the risk. The sector was up 0.7% for the week. Broke above the resistance at $37.95.

XLY – Consumer Discretionary Tested support $171.50. Downtrending channel on the chart. Needs to clear $176.70. The sector was down 0.7% for the week. Been lagging all week.

IYR – REITs Moved below support and tested the next level at $87. Bounced Friday but still needs to find some buyers. The sector was down 1.4% for the week. A downtrend in play. Bounced on economic data and new home sales.

Summary: The index traded slightly higher for the day as breadth was more in play on economic data. Yes, there are plenty of issues facing the markets both short-term and long. The buyers see the glass as half full currently and pushed the index to new highs. The uptrend from the October lows tested, held support, and resumed the upside move. Technology remains the leader near term. Plenty of rhetoric in the headlines as we watch the charts short term for direction. The S&P 500 index remains in an uptrend. Letting it unfold and taking it one day at a time. 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 up 31 points to 15,512 as the index was up 0.2% for the day. Started higher but gave up most of the gains. The index tested the extension of the uptrend and moved into a consolidation phase. It broke higher last week with solid volume. The leaders are IGV, SOXX, and QQQ on the upside. The chart remains in a positive trend. Managing the risk that is and looking for opportunities.

NASDAQ 100 (QQQ) was up 0.11% for the day as the mega-caps maintained the trend of lower volume. Large-cap tech struggled on the day but remains in a solid uptrend. The leadership is SOXX and IGV. Manage stops and let it play out. Entry $354.20. Stop $414. Watching for consolidation near term.

Semiconductors (SOXX) Entry $563.80. Stop $602. Tested lower bounced… broke from the bottoming pattern on the chart and got the follow-through moving back above the previous highs and extended higher. The sector was up 7.4% for the week. Managing the risk and letting it run. Some testing on Thursday has my attention into the Friday trading day.

Software (IGV) Moved back to the previous highs and follow-through to resume the uptrend. The sector was up 2.7% for the week. High to low move last two days… sign of profit taking. Watching how it unfolds on Friday.

Biotech (IBB) Topping pattern on the chart and letting it unfold. Entry $121.30. Stop $133. The sector was down 1.2% for the week. $136.50 level to clear on follow through.

Small-Cap Index (IWM) Tested lower and broke support at the $192.10 level… managed to close back above support to end the week… watching how it unfolds. No Positions. The sector was down 0.6% for the week. Some upside Thursday but still struggling to move through resistance at $198.64.

Transports (IYT) Broke support at the $254.50 level and bounced back as shipping took the lead in the sector. Red Sea issues continue to escalate. BDRY has done well in response, bouncing back from the test at $8.95. Up 17% for the week. The sector was down 0.5%. Solid bounce confirming the reversal at support. Still need to clear the $266 level.

The Dollar (UUP) The dollar has bounced off the December lows and gaining some strength of late. The buck was up 1% for the week. Remains in the uptrend of late.

Treasury Yield 10-Year Bond (TNX) The yield has been creeping higher of late as the 10-year moves above the 4% mark again. TLT triggered a short-side opportunity TMV entry $32.10. Stop $33.50. The yield moved from 3.97% to 4.15% this week up 18 bps. Yield moved to 4.14%.

Crude oil (USO) Remains a challenge relative to clarity. Production has been higher than expected as OPEC allowed producers to have voluntary cuts. Iran and Russia continue to produce with the need of money. USO remains in a bottoming pattern. Weekly inventory showed a drawdown in supply and crude moved higher on the news. The commodity was up 1.7% for the week. Crude has gained 4.9% last three days and breaks from the consolidation pattern back at the November highs.

Natural Gas (UNG) The move higher from the December lows came to an abrupt end this week with natural gas falling on projected supply rising the first half of the year. Watched how the commodity responded to the news looking for a bounce to add a downside trade. We added KOLD entry $84.40. Stop $104 Hit Stop locking solid gain. Natural Gas supply rose more than expected pushing it down further. The commodity was down 17.3% for the week. Solid gain again on Wednesday showing a bottom reversal in play… gave back some on Thursday… watching.

Gold (GLD) The commodity dipped below the uptrend line with support at $183.72. The dollar gained some near-term strength adding downside pressure on the metal. Letting this unfold near term. The metal was up 0.03% for the week. Sideways trend.

FINAL NOTES

Thursday: The broad index maintained the uptrend as large caps took a break and other sectors picked up the slack. Technology remains the mainstay relative to the upside. Watching the laggards as we need them to find some momentum if the move is to continue overall. The major indexes SPY, DIA, and QQQ are all extended but the sentiment is positive and VIX turned higher the last two days putting us on notice for now. Plenty of issues on the table, not the least of which, is the Fed. The FOMC meeting is on the horizon and there is talk of the Fed shifting their balance sheet reduction to help liquidity issues in the banking sector which remain very much a concern. Taking what is offered and letting it all unfold.

Our longer-term view shifts as the indexes remain in an uptrend from the October lows. They had moved above the July and August highs and broke above the 2022 highs to a new high. This resumes the long-term uptrend from October 2022. The key currently is to let the short term 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 lows 2020 lows has not resumed but from October 2022 has. 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. Short term the market has resumed the uptrend from the October 2023 lows. The current bounce remains in play despite any issues on the horizon. Time will tell how this plays out. Current activity shows optimism from the buy side and we will take what the market gives. 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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