Markets started the day higher and end the day higher without volatility or drama. The PPI was much better than expected at -0.5% versus 0% expected versus 0% previous. The core PPI was up 0.1% versus 0.3% expected versus 0.2% previous. The news followed the CPI data was better than expected with a rise of 0.1% versus 0.3% expected versus 0.4% previous. Y/Y was up 5% versus 5.1% expected versus 6% previous. The cored was up 0.4% versus 0.4% expected versus 0.5% previous. The combination sparked a positive reaction. The volume remained below average on the move. The breadth is minimal. Overall volume has been below average for the last 19 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 below 18. 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.
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. That said, liquidy is what caused the current inflation issue to begin with. Inflation is falling currently but it is what’s on the horizon that will hurt you. 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 and Iran isn’t shipping through Turkey currently under litigation issues, both will have an impact on oil prices and on the economy. 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 up 1.3% with a solid day of buying. The NASDAQ was up 2% the mega-caps leading the way. Small Caps (Russell 2000) were up 1.3%. The ten-year treasury yield closed at 3.45% up 3 bps on the day as bonds ease from selling. Crude (USO) was down 0.9%… and remained above the $80 bbl level. Gasoline (UGA) was down 0.7%. Natural gas (UNG) was down 3.6% giving back recent gains. The dollar was down 0.5% struggling globally. We are focused on managing the risk and watching how this all unfolds.
The Financial Times reported that banks are offloading their large commercial loans to free up balance sheets and create more liquidity. This of course comes at a cost to the banks as they sell them at a discount to make them attractive to potential buyers. This will be of interest as banks start to report earnings soon. Watching how the financials (XLF) and banks perform (KBE).
Charts to Watch: Bank earnings prior to the open… they will set the tone along with retail sales.
Thursday: BX (downtrend… earnings soon, REIT exposure).
Wednesday: IYT (break downtrend line). ERX (‘V’ bottom).
Tuesday: OLLI head & shoulder $60 entry, $69 Target).
Monday: AAPL (bull flag) headed lower on sales data? SOXX (up-trending channel @ bottom of the channel).
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.
Stops Hit: SQQQ
Quote of the Day: “What I like to drink most is wine that belongs to others.” ― Diogenes
The S&P 500 index closed up 54 points to 4146 the index was up 1.33% with below-average volume on the day. The index stayed above 4086 barely and continued upside move. 4169 next level of resistance. Ten of the eleven sectors closed higher on the day with consumer discretionary as the leader up 2.2%. The worst performer of the day was REITs down 0.3%. The VIX index closed at 17.8 as anxiety gave way to hope on the PPI data. 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 and tested lower for the week. Some rotation is in play short term. The sector was down 1.2% for the week. FCX bottom reversal. SCCO. Bounced all week.
XLU – Utilities retested the lows at $64 and bounced breaking through resistance at $67.95. The sector was up 3.1% for the week. Entry $68. At the 200-day MA.
IYZ – Telecom double bottom pattern breaks higher and tests back to support. Cleared $22.35 entry. The sector was down 1.1% for the week. remains in trading range.
XLP – Consumer Staples downtrend reversal offer entry at the 200 DMA ($73). The sector was up 0.8% for the week. Attempting to move higher.
XLI – Industrials tough week as the sector fell giving up gains. The sector was down 3.3% for the week. Bounced all week.
XLV – Healthcare Made a move back above the $127.50 mark. Broke above $131.40 resistance. Biotech (IBB) equally moved higher. Entry $127.57. The sector was up 3.1% for the week. $136.25 resistance next level to clear.
XLE – Energy Gapped higher to start the week and held on. The sector was up 2.4% for the week. Bull flag.
XLK – Technology The sector bounced off support at $135 and ran higher… spent the week testing the highs. The sector was down 1.3% for the week. Back to the August highs. Solid day still needs to clear previous highs.
XLF – Financials pressure in banks continues pushing the sector lower. Bear flag pattern on the chart. The sector was down 0.5% for the week. KBE puts remain in play. FAZ Watching after taking gains. Banks are still not on solid ground. $32.36 resistance cleared – banks earnings begin on Friday.
XLY – Consumer Discretionary upward trending channel… closed at the lower end of the channel. The sector was down 3.1% for the week. Recovered on Thursday.
IYR – REITs stalled from the bounce last week. Need to clear $85 currently. The sector was down 0.8% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Letting this unfold. Stuck in a consolidation pattern.
Summary: The index moved higher on the positive PPI report. 4169 next level to clear on the upside move. The worries over inflation data and the Fed got a vote of hope on Thursday. 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 up 237 points to 12,166 as the index was up 1.99% for the day. The index held the move back above the 11,474 previous support and pushed back toward the previous highs. Technology is the key… SOXX and IGV added to the upside move.
NASDAQ 100 (QQQ) was up 1.96% with the mega caps leading the upside. The move held above $312.13 and attempting to push higher. The sector had a positive bias with 88 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 four straight down days. The sector was down 5% for the week. Watching how it plays out next week. up 1.7% to start the week… gave back 0.5% Tuesday and down 1.8% on Wednesday… up 0.8% on Thursday. Mixed bag nets 0.2% gain for the week… not exactly leading. Head & shoulders pattern on the chart?
Software (IGV) broke through $293.50 resistance adding to the upside move. The sector was down 1.6% for the week. Mega caps leading the sector. Nice upside Thursday back near previous highs.
Biotech (IBB) The sector moved above the 200 DMA and completed a trend reversal clearing $128.35. The sector was up 1.5% for the week. IBB entry $127.35. Stop $133. Broke higher from consolidation pattern. Solid upside move in the current uptrend.
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. Solid week adding to the upside modestly back above the 200-day MA.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. The sector was down 2.5% for the week. Letting it unfold. Bear flag on the chart… if breaks higher positive for the overall market. At resistance… needs to clear.
Transports (IYT) bottom reversal failed and is in a sideways pattern. The sector was down 2.5% for the week. BDRY showing a topping pattern. Stuck in a trading range.
The Dollar (UUP) The dollar remains volatile as more countries are willing to trade outside the dollar. The bounce on Thursday was a plus… watching how it unfolds. The dollar was down 0.5% for the week. The dollar has had a tough week on the downside testing the February lows.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.28 down from 3.49% last week. Big shift in the last two weeks as the fear of the bank fallout impacts investors’ risk tolerance. TLT was up 2% for the week. Entry TLT $102.90. Stop $106.50. 13 bps bounce pushing bonds lower… inflation worries in play.
Crude oil (USO) Gapped higher to start the week as Saudi Arabia cut production going forward. Without a response from the White House to open pipelines and Gulf, this could be a bigger issue going forward. USO was up 5.7% for the week. UCO entry $25.80. Stop $28.50. Back above the $80 bbl and testing the move.
Gold (GLD) The commodity bounced and pushed higher as money rotates. The metal was up 1.8% 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. Higher on a lower dollar.
Put/Call ratio was 0.92 Thursday… 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.
Thursday: Stocks were up thanks to the positive PPI data on the day. There is still plenty ahead for investors to ponder. Friday is retail sales and banks start earnings season. 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 eight days ago has been testing lower. TSV and RSI have fallen along with the sector. Closed at key support levels and bounced modestly on Thursday. Watching how it unfolds the next few days as an indicator. 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.