The market closed closed lower as interest rates and Fed worries plague investors. Treasury yields on the 10-year bond pushed near 5% before finally retreating to 4.92%. Both the NASDAQ and the SP500 moved back to the October lows. Four of the five trading days this week were on the downside with the indexes giving up previous gains. Worries about the war with Israel heating up didn’t help the cause. Thus, the end-of-the-year rally is on hold. Weakness in the banking sector was a key to the downside with KBE falling 3.5% led by worries over rising yields impacting the bank’s balance sheets. None of the sectors closed positive for the second day. Technology led the downside. The index closed below the 4300 support level confirming the break lower on Thursday. There wasn’t any economic data on the day only the Fed leaders out pontificating their brilliance. The Congress yet again could not elect a Speaker of the House. The longer this goes the bigger the impact. Speaking of Washington the deficit for the 2023 calendar has ballooned to 1.7 trillion dollars… INSANE. As we have discussed several times of late there is uncertainty in the air and one thing markets don’t like is uncertainty. The SP500 closes down 2.4% for the week. The volume was above average as stocks retreated. 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 downside is keeping the indexes in check and volatility above average. Manage your risk accordingly.
Friday 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 the early October lows and retested support. The S&P 500 index closed down 1.2%. The NASDAQ was down 1.5%. The SOXX was down 1.4%. Small Caps (Russell 2000) were down 1.3%. The ten-year treasury yield was 4.92% up 9 bps. Crude (USO) was down 1.2%. (UGA) was down 0.3%. Natural gas (UNG) was down 1.8%. The dollar was up 0.03%. 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 and tested support at $354. 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: “Clothes make the man. Naked people have little or no influence in society.” – Mark Twain.
Additional Charts To Watch
KBE/KRE – The banking sector is being challenged by higher rates. Despite the solid earnings from the sector this week the overhang of rates pushed both the money center banks and the regional banks below the October lows and renewed the concerns over balance sheets. SEF offered an entry signal the last two days… watching how this storyline unfolds near term.
FXI – China broke lower and opened to door to test the November lows. They have been selling treasury bonds from the US. Depending on your view some say it is to get back at the US… or it could be the yields were 2.5% on those bonds and some have lost up to 50% of their face value due to rising rates. Short-side play is in effect based on the break lower. YANG entry $12.50.
Stops Hit: None
Sector Rotation And The S&P 500 Index
The S&P 500 index closed down 53 points to 4224 moving the index down 1.26% with above-average volume on the day. The index moved below the 4300 support and looking squarely at 4200 support. None of the eleven sectors closed higher on the day with consumer staples as the leader down 0.4%. The worst performer of the day was technology down 1.6%. The VIX index closed at 21.7 moving higher on the day as anxiety returned on the economic and geopolitical front. The activity was mixed with the downside taking control the few days. A retest the October lows/support on Friday raises plenty of questions heading into next week. Plenty to ponder between the headlines and facts. Below a look at the weekly chart shows key support levels to watch moving forward.
XLB – Basic Materials broke support at the $77 level. Consolidation pattern breaks lower bringing the $67 level into play on the downside. The sector was down 3.4% for the week. No Positions.
XLU – Utilities found support at the $56 level… bounced and faced some resistance at the $59.50 level. No follow-through upside. The sector was down 2.1% for the week. Bottom reversal is testing.
IYZ – Telecom reversed lower again test support at the $20.50 level. Remains in a downtrend and testing the previous low. The sector was down 0.8% for the week. No Positions.
XLP – Consumer Staples Remains in a downtrend with a bear flag pattern on the chart. The sector was up 0.7% for the week. No Positions.
XLI – Industrials downtrend remains in play and back to the support at $99. The sector was down 3% for the week. No Positions. $97 next level of support.
XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce but reversed to retest support. The sector was down 1.6% for the week. No Positions.
XLE – Energy gapped higher as the war in Gaza broke out. letting the volatility settle as the upside resumes. The sector was up 0.7% for the week with some testing on Friday. Entry $90.80. Stop $90.
XLK – Technology The sector renewed the downtrend and remains challenged by the economic picture. The sector was down 2.7% for the week. No Positions.
XLF – Financials The move higher in interest rates impacts the sector on the downside. The sector was down 3% for the week. Banks posted solid earnings but worry wins. SEF entry $13.13.
XLY – Consumer Discretionary broke from the consolidation pattern renewing the downtrend closing below the 200-day MA. The sector was down 4.6% for the week. No Positions.
IYR – REITs returned to support at the $75 level with worries rising with higher interest rates the downside talk focused on defaults rising in commercial real estate. The sector was down 4.3% for the week. No Positions.
Summary: The index struggled to work through Powell and company’s comments about the future of rate hikes. Some up-and-down activity intraday but closed lower 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 one beating one missing earnings. The return to previous support is not a positive near term as the uncertainty grew on multiple fronts. Next week will be pivotal for the index as it tests support again. A break lower would bring 4150 into play. Patience is key. 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 202 points to 12,983 as the index was down 1.53% 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. A break of the current support opens the way to 12,246.
NASDAQ 100 (QQQ) was down 1.49% 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 8 of the 100 stocks closing in positive territory for the day. Intraday volatility remains in play.
Hit Stops on AMZN, META, GOOG, MSFT, AAPL
Semiconductors (SOXX) The sector moved back to the $457 support… TSM earning hurting the outlook. The sector was down 4.1% for the week.
Software (IGV) The sector moved back to the $356 support. A break lower would get ugly technically. The sector was down 3% for the week.
Biotech (IBB) The sector remains in a downtrend and broke support at the $119 level. The sector was down 3.6% for the week.
Small-Cap Index (IWM) Broke support at the $170 level and added to the downside. The sector was down 2.2% for the week. No Position.
Transports (IYT) downtrend remains in play with a break of support. Gasoline prices and shipping weighing on the sector. Closed below the 200-day MA. The sector was down 1.4% for the week. No positions.
The Dollar (UUP) The dollar is showing a bull flag on the chart as it consolidates near the highs. The dollar was down 0.3% for the week. No Positions.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.92% up from 4.62% last week. TLT was down 5% for the week. Watching how the Fed manages the yield curve. No Positions. TMV was back in play.
Crude oil (USO) Crude sold lower on worries about consumption. Drawdowns in supply last week refuted that concern and crude moved back near $90 a barrel. USO was up 2.1% for the week.
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 2.6% for the week. Added positions at $172. Managing the risk. See notes below.
FINAL NOTES
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. With the short-term trendlines at key support, a break would hit stops on our longer-term positions. 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.
Friday: 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. Interest rate worries were the catalyst for selling as concerns about banks came back into play. Transports, materials, financials, and consumer discretionary break below support. Higher interest rates will torpedo any positives in the financial sector as seen on Friday. Technology is lagging and the mega-caps moved to key support. There is 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 move to key levels. 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.
