The FDIC brokered a deal for most of the assets SIV and that put investors in a buying mood. Not all things were on the upside however as the NASDAQ closed down on the day led by technology stocks. The small and midcaps were higher along with the S&P 500. The volatility index fell to 20 as fear seemed content to fall to worry. At the end of the day, there were modest gains with some uncertainty in direction as investors attempt to put some money to work. The financial crisis was put on hold as the Fed and Treasury talked extra money to shore up the system. The real solution is ugly and no one wants to take the measures to fix it long-term. Thus, the bandaid effect of patching things up and attempting to go a different direction to fight inflation. The Fed, Treasury, and White House are still rattling on about how strong the economy is… really? The data doesn’t seem to confirm those thoughts.
The recent leaders faded modestly SOXX down 1.1%, GLD down 1% and TLT down 2.3%. QQQ and SOXX failed again to breakout through resistance and lead the indexes higher. The moves in IWM, XLE, IYT, and IJH were oversold bounces. Watching for leadership and it is hard to find currently. The market has had every reason to sell lower but manages to fight to stay in the current range. Plenty of questions remain about the current market environment. The S&P 500 index closed up 0.1% with intraday volatility. The NASDAQ was down 0.4%. Small Caps (Russell 2000) were up 1.1% managing a modest bounce after testing lower. All the movement intraday was juggling positions and looking for leadership. The ten-year treasury yield closed at 3.52% up 14 bps on the day. Bonds have had a volatile ride of late as well, but they are likely to remain in the 3.4.-3.7% range for the near term. Watching how that storyline unfolds. Crude (USO) was up 5.2%… $65.70 is the key level of support for crude. Gasoline (UGA) was up 4.1%. Natural gas (UNG) was down 3.5% hitting a five-week low. The dollar was down 0.3% and in a downtrend of late. Overall crazy markets. We are focused on managing the risk and watching how this all unfolds. The sentiment is still negative overall but showed a glimpse of hope Monday… patience is the key.
News to follow: COIN was down 8% on Wednesday following a notice from the SEC (Wells Notice) of potential violations of securities laws. It fell another 14% on Thursday. This is a key issue as it relates to Crypto and how it is regulated or not regulated by the government. CNBC story link. Modest bounce on Friday to end the week. An interesting note is the NASDAQ announced on Friday they will house cryptocurrency starting at the beginning of the third quarter. Back down 7.8% on Monday.
Charts to Watch: SOXX, QQQ break above resistance. WMT breakout. MCD breakout.
Friday: Mega Caps – MSFT, META, AAPL, GOOG, AMZN, CSCO. Short – financials XLF, banks KBE, regionals KRE. Precious Metals upside – UGL, NUGT, AGQ. Energy short? XLE, ERY. Technology upside. SOXL. All have stalled or bounced at support.
Previous Charts of Interest Still in Play: LSCC (testing uptrend). Added uptrend in play. SOXX (upside follow-through) Added. AAPL (reversal confirmed) Added to the position. GBTC (trading range breakout). Added. XRT (Apr 06 65 put). Added. Sold half. AMZN (bottom reversal) Added. GDX (bottom reversal) Added Friday. PG – trading range break as part of the consumer staples money rotation. Added Monday.
Stops Hit: NONE
Quote of the Day: “The four most expensive words in the English language are, “This time it’s different.” — Sir John Templeton.
The S&P 500 index closed up 6.5 points to 3977 the index was up 0.16% with the below-average volume on the day. Held above the 3930 level and watching 3804 support. Nine of the eleven sectors closed higher on the day with energy as the leader up 2.1%. The worst performer of the day was consumer technology down 0.7%. The VIX index closed at 20.6 as anxiety subsided but the intraday volatility is still in play. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials Moved below the 200 DMA. Broke support and short-term downtrend in play with some bottoming on the chart. The sector was up 1.7% for the week. Bear flag on chart.
XLU – Utilities retested the lows at $64 and bounced nicely to end the week. The sector was down 1.9% for the week. Trading range.
IYZ – Telecom bottoming pattern on the chart and letting it unfold. Need to move above $22.35 to have a chance at the upside. The sector was down 0.5% for the week.
XLP – Consumer Staples downtrend from the December highs remains in play. The sector was up 1.2% for the week. Letting it unfold. $73.75 level to clear on the upside. Broke upside from the trading range.
XLI – Industrials moved to the 200 DMA as support. The sector was up 0.2% for the week. Bounced off the 200 DMA.
XLV – Healthcare downtrend in play with a break below the $127.50 mark. Found some support at the October lows. The sector was up 1.1% for the week. Broke above $127.50.
XLE – Energy broke support at $82.74 and moved to $76 support… watch to see if it holds or moves lower. The sector was up 1.2% for the week. ERY entry $32.40. Stop $32.40. Bear Flag on chart.
XLK – Technology The sector bounced off support at $135. Maintaining leadership but struggling with the rest of the market. The sector was up 1.7% for the week. Watching for direction and opportunity near term. Broke above $143.45 resistance. Tested to start the week.
XLF – Financials pressure in banks continues pushing the sector lower. Downtrend accelerated on the news and watching how this unfolds. The sector was up 01% for the week. KBE puts in play. FAZ entry hit $18.35. Stop $23. Bear flag on the chart.
XLY – Consumer Discretionary short-term downtrend in play. The sector was up 0.2% for the week. Bottom reversal?
IYR – REITs $82.96 support was broken and tested the October lows. The sector was down 1.7% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Short-side trade opportunity. SRS entry $17.95. Stop $19.
Summary: The index remains volatile on the uncertainty surrounding… everything. The SIV buyout of assets helped the psyche for the day. The financial liquidity issues aren’t over despite what the talking heads are saying. Volume was below average for the first time in eleven days… something to watch. Money flow is of interest as some risk in small caps showed up… QQQ is stalling… crude bounced… treasury bonds fell… SOXX lagged of late… still plenty of issues to be faced. The unknown is always the deepest threat to the investor psyche. It is a news-driven market and the headlines are driving for now. The Fed focus is back along with the Treasury Department. The charts are a mess for the last few weeks with indecision and increased volatility. Support is 3804 moved back above the 3930 level and held. Eight of the sectors have established a short-term downtrend… the other four are not in great shape… watching the retest of previous lows… We will remain patient for now as investors sort out their collective thoughts about what is fear and what is real. We continue to manage our positions accordingly. 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 55.1 points to 11,768 as the index was down 0.47% for the day. The 10,941 support held and the index moved back above the 11,474 previous support. Technology and semiconductors are the keys… SOXX struggled again on Monday but is still in good shape on the chart. Watching how this unfolds inching forward.
NASDAQ 100 (QQQ) was down 0.69% with the mega caps holding above $303 previous support. The sector had a negative bias with 46 of the 100 stocks closing in positive territory for the day. Watching how sentiment plays out near term. Volume is lagging despite the move higher.
Semiconductors (SOXX) sideways trading range with $432.27 resistance. Showing leadership overall. The sector was up 0.9% for the week. If breaks higher offers some sign of hope for stocks near term. Closed below the 10 DMA… watching. ON broke lower from the descending triangle pattern? Negative for the sector.
Software (IGV) bounced at $273.40 support. Trying to offer some leadership in the technology sector. The sector was up 1.7% for the week. Need to clear resistance $293ish level. Needs to break above resistance.
Biotech (IBB) The sector moved below the 200 DMA and remains in a downtrend from the February highs. The sector was up 1.1% for the week. LABD entry $18.26. Stop $21.50.
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 a small position and looking to move above $153.
Small-Cap Index (IWM) downtrend accelerated to support at the December lows. The sector was up 0.3% for the week. Money flow turned negative. Entry TZA $29.20. Stop $34.30. Watching Friday’s bounce? Leader on the day? Watching.
Transports (IYT) established a downtrend from the January highs. $214 is the support level. The sector was down 1.6% for the week. BDRY showing a topping pattern. Oversold bounce.
The Dollar (UUP) The dollar was down all week with the Fed and interest rates. The bounce on Friday was a plus… watching how it unfolds. The dollar was down 0.6% for the week. Moved lower.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.38 down from 3.39% last week. Big shift in the last two weeks as the fear of the bank fallout impacts investors’ risk tolerance. TLT was up barely for the week. Entry TLT $102.90. Stop $105.50 Big bounce in yields on the SIV deal.
Crude oil (USO) Tested lower and bounced but not showing much upside currently. Economic speculation is impacting supply-demand globally. USO was up 3.9% for the week. The weekly chart shows the downtrend building in crude. $65 level is key for crude relative to the downside support. Jumped 5% on the day.
Gold (GLD) The commodity bounced this week as the dollar waffled and fear rose. The metal was down 0.1% for the week. Entry $169.50. UGL in play. Dipped on the SIV news.
Put/Call ratio was 0.94 on Monday… Showing hedge of risks.
Questions to Ponder: Navigating Uncertainty
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.
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. The short side has played out well. CTRN earnings data addressed the lower income households struggle… no money and lower spending expected in the first half.
FINAL NOTES:
Monday: Stocks show intraday volatility as investors attempt to determine direction and opportunities. The move in growth stocks showed a bounce from oversold conditions. Economic data remains on the downside. The key will be the Fed’s willingness to deal with things from a longer-term view versus short-term ease of pain. The line between the banks, the Treasury, and the Fed are very blurred as seen in the comments on Monday. Markets are looking for clarity in the direction from the Fed, Treasury, and White House… got enough on Monday to push the index higher. Taking it one day at a time. Plenty of questions… too much speculation.
Eight of the eleven sectors have created short-term downtrends on the charts and watching how they respond going forward with key support levels in play. Treasury yields move up to 3.52%… the dollar heading lower… crude jumped to start the week… precious metals tested. Eyes open. Emotions removed. It is a time for patience as the storylines unfold and the direction is determined. 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. 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 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.