The market closed near the lows of the day as Fed Chair Powell’s comments didn’t sit well with investors. Treasury yields on the 10-year bond pushed near 5%. As many economists believe this is the level to stay below, you can see why investors were not happy with the Fed and their continued stance to be aggressive on inflation. Throw in all the new storylines with Israel, Russia, and other countries and you have plenty of uncertainty as to how this all unfolds in the coming months. Thus, the end-of-the-year rally is on hold. The SP500 opened solid and even attempted to move higher on Powell’s initial comments but by the end of his drooling stocks turned lower and moved lower throughout the balance of the day. None of the sectors closed in the red consumer discretionary leading the downside. The index closed below the 4300 support level. Weekly jobless claims were 198k versus 211k previous and continuing claims rose to 1.734 million versus 1.704 million previous. The level remains lower than expected. Philly Fed Index was -9 versus -13.5 previous showing no real improvement in the region. Existing home sales declined slightly as the sector continues to soften but remains better than expected. As we have discussed several times of late there is uncertainty in the air and one thing markets don’t like is uncertainty. The volume was above average as stocks retreated on the day. A look at the charts shows a move back to near-term support. We are willing to take what the market gives both up and down. The indecision is keeping the indexes in check and volatility above average. Manage your risk accordingly.
Thursday produced more downside as investors tried to read below the headlines for the reality of data being released. The complexity of the outlook for global economics, domestic economics, and uncertainty are alive and well. The major indexes fell below initial support and are poised to retest the early October lows. The S&P 500 index closed down 0.8%. The NASDAQ was down 0.9%. The SOXX was down 1.5%. Small Caps (Russell 2000) were down 1.5%. The ten-year treasury yield was 4.99% up 9 bps. Crude (USO) was up 2.3%. (UGA) was up 1.1%. Natural gas (UNG) was down 3.7%. The dollar was down 0.3%. We are focused on managing the risk in the current environment.
ONE Chart to Watch: QQQ – 1) Added to the move below the $366.14 level 2) The down trendline is in play from the July highs. 3) Patience as the consolidation pattern plays out.
* All Charts in the update are provided by TC2000
Quote of the Day: “Dear optimist, pessimist, and realist—while you guys were busy arguing about the glass of wine, I drank it! Sincerely, the opportunist!” – Lori Greiner.
Additional Charts To Watch
XRT – Retail showing a consolidation pattern at the near-term lows. Cleared $60.45 as an entry point and confirmed yesterday on solid upside. The Retail Sales data showed better than expected results… watching to see if it tests or runs higher. Tested again on Thursday.
Stops Hit: None
Sector Rotation And The S&P 500 Index
The S&P 500 index closed down 36 points to 4278 moving the index down 0.85% with above-average volume on the day. The index moved below the 4300 support and watching how Friday unfolds. None of the eleven sectors closed higher on the day with energy as the leader down 0.1%. The worst performer of the day was consumer discretionary down 2.6%. The VIX index closed at 21.4 moving higher on the day as anxiety returned on the economic and geopolitical front. The activity was mixed early with the downside taking control the second half of the day as Powell’s comments rattled investors. Do we retest the October lows/support or do the buyers reemerge? Plenty to ponder between the headlines and facts.
XLB – Basic Materials moved back to support at the $77 level. Consolidation pattern in place. The sector was up 0.4% for the week. No Positions. Bottom reversal… failed. Bottoming consolidation pattern moved below support with the downside in play.
XLU – Utilities found support at the $56 level… bounced and faced some resistance at the $59.50 level. Watch for follow-through upside. The sector was up 3.5% for the week. Bottom reversal in play. Need to clear $59.85.
IYZ – Telecom reversed lower again test support at the $20.50 level. Remains in a downtrend. The sector was up 0.6% for the week. No Positions. Need to clear $21.30.
XLP – Consumer Staples Remains in a downtrend with a bear flag pattern on the chart. The sector was up 0.2% for the week. No Positions. Bottom reversal… back in play. Cleared $67.65 and looking for confirmation to the move.
XLI – Industrials downtrend remains in play but did find some support at $99. The bounce moved back below the $102.40 level and the 200-day MA. The sector was up 0.9% for the week. No Positions. Bottom reversal… tested. Broke below the $102.41 level on negative momentum… heading toward the previous low.
XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce and watch how it unfolds. The sector was up 0.1% for the week. No Positions. Need to clear $132. Reversed on Thursday.
XLE – Energy gapped higher as the war in Gaza unfolds. letting the volatility settle, but expect the upside to resume. The sector was up 4.5% for the week after falling 5% last week. Entry $90.80. Stop $90. Bottom reversal… cleared $89.45… closed on doji candle Monday. Cleared $91 resistance on Tuesday. Followed through on Wednesday. Adjusted stop.
XLK – Technology The sector is in a bottom reversal pattern with a test of the move on Friday. The sector was up 0.2% for the week. Hit stops on some positions on Friday. Need some leadership here.
XLF – Financials bottom reversal pattern is in play with the sector up 0.5% for the week. Banks posted solid earnings to end the week. Need to clear $33.60. Bank earnings are solid, but not really helping the sector as interest rates jumped the last four days.
BAC – up on earnings… bottom reversal pattern worthy of watching near term.
XLY – Consumer Discretionary bottoming pattern on the chart with resistance at $163.10. The sector was down 1% for the week. No Positions. Bottoming consolidation pattern gapped lower and broke the 200-day MA.
IYR – REITs found support at the $75 level and bounced slightly. Higher interest rate worries and downside talk on defaults rising in commercial real estate. The sector was up 1.7% for the week. No Positions. Bottoming pattern tests lower.
Summary: The index struggled to work through the Powell comments about the future of rate hikes. Some up and down activity intraday but the close lower is testing the previous lows. Earnings continue with a hit-and-miss theme. No real clarity to the rationale and comments from companies in the same sector. The bounce-off support was tested lower, as the uncertainty returned. The talk about the year-end rally remains… but there are a lot of hurdles to jump to get there. The index moved to previous lows… tested and bounced and tested again and bounced and tested again… clearly consolidating. 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 128 points to 13,186 as the index was down 0.96% for the day. Intraday volatility in play and a lack of leadership from technology isn’t helping the cause. Closed lower and broke the 13,275 level of support. Back below the 50-day MA. The downtrend from the July highs is still in play.
NASDAQ 100 (QQQ) was down 0.94% for the day as the megacaps traded lower. The sector broke back below the $366.14 support as a negative. $354.22 next level to hold. The sector had a negative bias for the day with 16 of the 100 stocks closing in positive territory for the day. Intraday volatility remains in play.
AAPL bottoming pattern reversal (added $174.35)… Tested.
AMZN found support and consolidation pattern needs to clear $131.86… (added $131.90) Tested.
GOOG moved above the 50-day MA (added $135.65)… Tested.
META consolidation pattern (added $307.50)… Tested
MSFT consolidating (added $320). Tested.
Semiconductors (SOXX) The sector closed above the $473 level of support after selling lower on Friday. The sector was down 0.7% for the week. Hit stops and let this unfold. Need some leadership here. Tested back below $473 support and back near the previous low.
Software (IGV) The sector moved above $345 resistance validating the bounce at support. The sector was up 0.1% for the week. Added IGV entry $340. Stop $349. Need some leadership here. Trading sideways for now and $345 support.
Biotech (IBB) The sector remains in a downtrend with support at the $119 level. Looking for a follow-through upside. The sector was down 0.7% for the week. Consolidation pattern testing below support at $119.
Small-Cap Index (IWM) Found support bounced and retreated back to support. The sector was down 1.5% for the week. No Position. Growth outlook weighing on the sector. Nice upside Monday & Tuesday… lower again on Thursday.
Transports (IYT) downtrend remains in play with a consolidation pattern emerging on the chart. Closed below the 200-day MA. The sector was down 1.3% for the week. No positions. Consolidation pattern breaks lower on UAL warning and JBHT missing earnings. The talk of recession from the trucking sector not helping along with higher fuel costs for the airlines.
The Dollar (UUP) The dollar bounced back from early week selling to close near the current highs. The dollar was up 0.6% for the week. No Positions. Challenges with the 10 and 30-year treasury auction bring more questions about the future of the buck. Consolidation near the highs.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.62% up from 4.78% last week. TLT was up 3.3% for the week. Watching how the Fed manages the yield curve. No Positions. Locked in solid gains on TMV. Back above the 4.9% mark… remember the 5% level is a big concern for the system to withstand eroding asset values.
Crude oil (USO) Crude sold lower on worries about consumption. OPEC and others saying lower production is needed… data versus vested interest is the challenge. USO was 6.5% for the week gapping on the Gaza war. Gapped higher on Friday. Watching for more upside… got some on Thursday… EIA inventory showed a 4.3 million barrel drawdown versus the expected 400k build… trouble is brewing in the commodity.
The Hamas/Isreal war is adding to the speculation around oil prices and the alignment of countries in the Middle East. Iran called for an embargo on Israel over the war. Has my attention with the belief that oil will rise above the $100 mark moving forward. UCO entry $34.
Gold (GLD) The commodity accelerated higher this week on all the geopolitics in play. The metal was 5.3% for the week. Added positions at $172. Managing the risk. See notes below. broke to new highs.
Our longer-term view remains neutral as the upside trend from the October lows was broken. The short-term downtrend from the July highs is where our attention resides. If the longer-term trend is to resume the short-term downtrend needs to reverse… soon. Nothing, as we all know, goes straight down or up… there are always positive and negative swings in a longer-term trend. A look at the daily chart from the October lows validates exactly that premise with plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate limbo awaiting confirmation… the last ten weeks’ the micro-trend has offered short-term downside trades. The current bounce off the lows is being challenged by uncertainty in the economy and geopolitics ramping up. Current activity raises questions relative to direction and growth. We look to charts and fundamentals for some 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. Stops are a must currently on longer-term holdings. Listen to the market not the talking heads.
Thursday: Indexes were lower with some breaking support, some breaking previous lows, and some holding up. The SP500 and NASDAQ closed lower on the day and broke near-term support with the previous lows in play. Powell was the catalyst for selling as he failed to ease investor concerns about interest rates. Transports, materials, and consumer discretionary break below support. Higher interest rates will torpedo any positives in the financial sector. Technology is lagging and the mega-caps are holding within a consolidation pattern. There are no lack of issues on the table with each taking their respective turn in the spotlight. We will be patient to let this unfold as the pattern and consolidation still show an upside bias with specific weaknesses. For the day none of the eleven sectors closed in positive territory. The leadership is fading again. Interest rates above 4.9%. Economic data is confirming the ugly outlook. I would expect the data to remain negative with the only real caveat being how negative it will be. We have put money to work short term based on the technical moves and we continue to manage risk and take what the markets give. Remember all moves at this point are relief rallies and we will treat them as such until they validate otherwise.
Explore the following links for new pages that dig into data both In & Outside the markets. Jim’s insights highlight potential opportunities emerging from the current market environment. The pages also discuss the Reality of closed opportunities, whether they proved profitable or fell short of our expectations.
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.