The Powell effect from his testimony to Congress put stocks in a negative tone on Tuesday. He continued on Wednesday with a different set of people but similar questions… similar answers… hearing them twice helped investors understand where the Fed stands… they will hike 50 bps IF necessary. Stocks were up and down on the day and end up closing up 0.1%. The day started with initial jobless claims rising to 211k from 198k last week. Continuing claims were up as well to 1.718 million a 69k increase over the week. They were the highest claims since December. The news pushed stocks higher at the open, but then something happened to unnerve investors. JP Morgan was told by a court they had to release information regarding his relationship with Mr. Epstein… JPM lost 5.4% and it sent bank stocks down with the top four BAC fell 6.2%, C fell 4.1%, WFC down 6.1%, and USB fell 7%. KBE was down 7.2% as the sector tanked on the news. This problem is currently one of guilty first so sell and run. Perception matter at this point to investors… reality will take time. We could dig further into our conspiracy theory about the Fed engineering a market crash so we can put a halt to inflation through the market versus interest rates. What better way to do that than create a financial crisis so to speak? Biden wants a $1 trillion increase in spending through taxing everyone in the middle to upper class… not received well by Wall Street, by the way. Add all the conspiracies together and you find threads of the market correction being engineered. All said Thursday was a day of keen interest for me as it relates to the markets looking forward. The market traded lower on all the news and speculation. The ten-year however, was lower as bonds ticked up as a safe haven for cash. The volatility index bounced up 18.3% on the day showing a significant rise from the last few weeks. We saw money flow drop to 38.7 on the S&P 500 index which also closed below support at 3930 to close at 3918. The NASDAQ fell below 11,474 a key support level to close at 11,338. We held at the 50 DMA as the next level and watch how things look overnight. How this unfolds going forward will be of interest as we manage our positions accordingly. No matter what our beliefs the chart is the ultimate decision maker.
Plenty of questions about the current market environment. The VIX closed at 22.6 moving higher on the uncertainty with banks, inflation, and taxes. The S&P 500 index closed down 1.8% for the day. The NASDAQ was down 2%. Small Caps (Russell 2000) were down 2.8%. A shift in momentum put plenty of question marks relative to the direction. The ten-year treasury yield closed at 3.92% down 7 bps for the day with plenty of intraday volatility. Bonds have been pricing in the Fed and future rate hikes, but got a boost from flight to safety on Thursday. Watching how this storyline unfolds. Crude (USO) was down 1.2% and gives up last week of gains. Gasoline (UGA) was down 3% and reversed course. Natural gas (UNG) was down 4% with inventories rising the last two weeks. The dollar was down 0.3% as the bottom reversal remains reinforcing the belief the Fed will continue hiking rates. We are focused on managing the risk and watching how this all unfolds. The negative sentiment shifted for stocks as investors focus on the Fed and new banking fears.
Charts to Watch: TLT (fear rises money flow runs to safety). SPXS, SQQQ, TZA
FRIDAY THOUGHTS: The majority of investors were looking to the Friday jobs report as the next important data following Mr. Powell’s congressional testimony about the economy, inflation, and rate hikes coming. The jobless claims Thursday were higher (should have been good news), and continuing claims were higher (should have been good news from bad news for the Fed outlook). Futures were higher prior to and during the first hour of trading Thursday. Then the banking scares hit the headlines and the banking sector dropped more than 4%. The White House released its “budget plan” for the fiscal year… really it was a taxation and increased spending proposal. Shouldn’t pass through the GOP-controlled Congress… but with their lack of direction and integrity who knows. A new Russian offensive is rumored as they have one city already circled and ready to fall under Russian control… this is important news as it relates to the US involvement and its allies. The last two issues are important to the markets moving forward, but it was the banking issues that turned the markets lower on Thursday… Thus, we turn to Friday for direction as we review the jobs report and its potential impact on the Fed and interest rates. More importantly, will it impact buyers pushing the markets higher to overcome the banking worries? Watching to see which part of the news headlines drives investors Friday along with any opportunities.
Previous Charts of Interest Still in Play: LSCC (testing uptrend). Added upside move. DHT (J-Hook pattern). Added to the upside move. BDRY (bottom reversal) remains bullish. Gapped higher and raised stop. RUN (descending triangle break lower short signal). Bounced back… added upside move. STLD (trading range) Added upside move. MSFT (broke support, puts) Added. SOXX (upside follow-through) Added. AAPL (reversal confirmed) Added. TSLA (185 puts on break of support). Added. XRT (Apr 06 65 put). Added.
Stops Hit: GBTC, UAL, COIN
Quote of the Day: “All the world’s a stage and most of us are desperately unrehearsed.” – Seán O’Casey
The S&P 500 index closed down 73.6 points to 3918 the index was down 1.85% with above-average volume for first time in five weeks… on selling. With the Fed talks done the market turns to the jobs report on Friday and inflation data next week. Throw in the new storyline on banks as well. None of the eleven sectors closed higher on the day with utilities as the leader down 0.8%. The worst performer of the day was financials down 4%. The VIX index closed at 22.6 as anxiety moves higher on all the days headlines. The attempt of a bottom reversal is for most purposes gone and watching how markets react to the jobs report.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials bottom reversal and back to the top end of the current range. Back above the October trendline as the sector gains momentum. The sector was up 2.3% for the week. Watching how it unfolds near term. Fell to the bottom of the range.
XLU – Utilities remain in the down-trending channel… bounced off the lows and posted two solid days on the upside… watching for opportunity short term. The sector was down 3.2% for the week. Moved lower again into the down-trending channel.
IYZ – Telecom broke the head and shoulder pattern on the chart to the downside… broke below the trendline off the October lows… bounced to end the week. The sector was down 2.4% for the week. Back to previous support.
XLP – Consumer Staples downtrend from the December highs remains in play. The sector was down 1.8% for the week. Broke lower but bounced to end the week. Downtrend remains in play.
XLI – Industrials Sideways trend finally breaks from the trading range on positive momentum. The sector was up 0.3% for the week. Need to hold the break above the $102.40 level. Moved below $102.41.
XLV – Healthcare downtrend in play with a break below the $127.50 mark, but managed to bounce to end the week. The sector was down 2.4% for the week. Accelerated in the downtrend.
XLE – Energy tested support at $82.74 and bounced. Some momentum from higher crude prices of late. The sector was down 0.4% for the week. Added positions in commodities USO, UNG, UGA. Testing support again at $82.74.
XLK – Technology The sector moved to support at $136.10. Held the 50 DEMA. Maintaining leadership but struggled of late. The sector was flat for the week. Watching for direction and opportunity near term. Looking for direction.
XLF – Financials broke the trendline from the October lows. The sector was up 0.2% for the week. With interest rates in the headlines not helping the sector. Downside in play… added 4% loss with the bank news.
XLY – Consumer Discretionary rolling top broke to the downside. $147.10 support broken. $141.60 next level of support held. The sector was flat for the week. Remains in a downtrend from the February highs. broke below the $141.60 support.
IYR – REITs uptrend off the October lows broken. The sector was down 1.8% for the week. The negative influence of rising interest rates and reports of vacancies in commercial rents are rising. Short-side trade opportunity. Downtrend in play.
Trouble is building in commercial office space as the return to the office efforts aren’t working. The headlines are steadily showing the fight between corporations and employees. Amazon is the latest showing 1/2 are willing or want to return to the office for the three days a week proposed. This is impacting commercial property owners as mortgage payments are being delayed more than two months. Banks raised their reserves in January and are likely to increase more in February. With that in mind IYR and REM bounced off the October lows but may retest those lows or beyond based on future defaults. Worth watching the downside risk with SRS.
Summary: The index responded to Mr. Powell’s comments on inflation and interest rates. It responded to the JPM storyline. It responded to the jobless claims and tax proposal from the White House… a busy day of news and it didn’t settle well with investors. All eyes shift to the jobs report on Friday. Watching how it unfolds and how Friday unfolds. The charts are a mess for the last two weeks with indecision creating choppiness. 3930 level of support broke on Thursday. Interest rates moved to 3.92% on bank fears. Four of the sectors have established a short-term downtrend… watching how they respond to the moves lower on Thursday. We will remain patient for now as investors sort out their collective thoughts about the Fed and inflation. We continue to manage our positions accordingly. Taking exits as necessary and adding where opportunities arise. 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 237.6 points to 11,338 as the index was down 2.05% for the day. The 11,474 support broke and invites more downside… 10,941 next support. Money flow remains below 50 with all the news and speculation creating uncertainty around the markets. Technology and semiconductors are the keys… SOXX bounced nicely on Wednesday and gave up gains on Thursday. Watching how this unfolds next few days.
NASDAQ 100 (QQQ) was up 0.5% with the mega caps moving back towards $292 support. The sector had a negative bias with 9 of the 100 stocks closing in positive territory for the day. Watching how support plays out near term.
Semiconductors (SOXX) trend turned down breaking support but held and attempted to move higher again. The sector was down 0.1% for the week. $390.40 is near-term support. Looking for clarity in direction near term. Trying to hold the line for now.
Software (IGV) bounced at $276.50 support. CRM earnings added the spark on the upside. The sector was up 3.7% for the week. Bottom reversal failed.
AI stocks are heating up as companies race to launch new products amid the ChatGPT AI phenomenon. Here is a list to watch and trade the existing opportunities as they present themselves… NVDA, ANET, GTLB, META, BIDU, SPT, CXM, TIXT, STX, MSFT.
Biotech (IBB) The sector bounced at the 200 DMA and moved above $128.35 adding a small position. The sector was up 3.2% for the week. Hit the 200 DMA and added to the downside move on Thursday.
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. Finding support… added small position.
Small-Cap Index (IWM) consolidation pattern on the chart with positive upside on Friday… watching. The sector was up 2.1% for the week. Money flow turned negative. Downtrend in play from the February highs.
Transports (IYT) uptrend from the October low remains in play with plenty of volatility along the way. Trying to hold the $224 support level and cleared $233.95 resistance on Friday. The sector was up 3.9% for the week. Consolidating and testing the trendline from the October lows.
BDRY – Dry bulk shipping looking bullish with a bottom reversal in play. Gapped higher – adjusted stop. Moving towards the January highs.
The Dollar (UUP) The dollar was choppy all week on the back-and-forth talk about the Fed and interest rates. The dollar was up 0.1% for the week. The outlook is positive with the Fed-driven move in play. Traded higher from Mr. Powell’s comments.
GBTC – Grayscale Bitcoin Trust is trading at a 47% discount to the underlying asset. Something to watch moving forward. The chart is testing the rise off the January lows… watching how the news of higher regulations will impact prices going forward. Hit Entry $10.60. Consolidation pattern breaks lower on bank news.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.96% up from 3.95% last week. Big shift on Friday as softer Fed belief arise on comments from Atlanta President. TLT was up 0.4% for the week. fell to 3.92% on bank worries.
Crude oil (USO) trading range on the chart with oil headed back towards the top end of the range. Economic speculation is impacting supply-demand speculation globally. USO was up 4% for the week. The weekly chart shows the downtrend building in crude. Added upside position. Moved lower and remains in a sideways trend.
Gold (GLD) The commodity bounced this week as the dollar waffled. The metal was down 2.2% for the week. Held support at $168. Big reversal on the dollar moving higher Testing support at $168 again and held.
Put/Call ratio was 1.04 Thursday… News in play.
Questions to Ponder: Navigating Uncertainty
Retail sector (XRT) is lagging of late… but the White House says the economy is strong. Scanning the stocks shows WMT, TGT, JWN, KSS, M, etc are all slowing of late. Watching how this unfolds moving forward.
Speculation/Conspiracy Theory: The Fed is in the position of getting the market to do the dirty work for it. If the market drops 20-30% and crashes liquidity for the average American… they, the average Joe, cut spending out of fear. That allows the Fed to not raise rates above the 6% level by allowing the markets to accomplish the feat while they, in the background, dry up the money supply exacerbating the process. The market would crush inflation and throw the economy into a full-blown recession. Which in turn could and would destroy the middle class. This will all be done for the need to preserve the American way… printing money and raising debt levels while the government gains more control and take more of the freedom our forefathers fought for.
Adding to the speculation about the Fed doing the dirty work, JP Morgan is of the opinion with increased 0DTE options (zero days to expiration) trading daily it could send the market down as much as 25% intraday. Reuters posted an article on the impact on Monday. The daily dollar value is now up to $1 trillion per day. One thing is certain… the markets are never dull.
Adding to the speculation is JP Morgan potential involvement with Epstein… Not sure this isn’t part of the master plan. Take down the markets and create a digital currency to replace the current system all in the name of “protecting” democracy.
64% of all Americans are living paycheck to paycheck.
FINAL NOTES:
Thursday: Stocks fell on fear relative to just about everything. Inflation is tops on the list… bank run on Thursday news didn’t help matters and if it gets worse it will become the top issue. Jobs report out Friday prior to the open will be watched closely relative to inflation and the Fed. There was plenty of speculation on Thursday as we take what the market offers watching patiently and managing our money accordingly. The news on Thursday made up for the boring day on Wednesday. The flight to safety has my attention as well (TLT)… volatility is up intraday and accelerated on Thursday.
Hope is a beautiful thing… but, as we say many times, the data doesn’t matter until it does. That is where we find ourselves currently. We look to the charts to provide the next direction near term… Choppy markets based on the comments the last few weeks by the Fed versus the data reports gave way to selling on bank issues Thursday. This will play out near term and we will look to see where the opportunities are created. Eyes open. Emotions removed. Interest rates are at 3.92% on the shift in sentiment around the banks… flight to safety. It is a time for patience as the storylines unfold and the direction is determined. Sectors were all lower on Thursday as worries rise. The money supply has turned lower showing more money on the sidelines (flight to safety?). Don’t assume anything and manage the risk that is. Watch for the 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. Recession talks are trickling back into the headlines. Stagflation showing up in the ISM data. We remain focused on short-term trades until there is longer-term directional clarity. The charts are showing a short-term trend reversal from the upside. News is in the driver’s seat as we locked in some gains and exited positions with elevated risk. 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 the risk.
“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.