The markets were challenged by better economic data as it tried to mentally balance that with the Fed and future actions. Jobless claims were lower than expected and GDP Q1 was revised upward thanks to exports. Generally, the data would be welcomed as positive, but with the Fed reinforcing the need to hike rates a better economic picture allows them to act and investors don’t want higher rates. Thus, the challenge currently for the markets as they have remained in a tug-o-war since hitting highs on June 16th. Financials were the leading sector as the Fed reassures the populace that the banks passed their stress test. In response to that treasury bonds fell as rates rose. The energy sector continued its bounce off the lows. Small caps added to their bounce as the overall markets looked positive with the exception of technology. The NASDAQ was slightly higher, the S&P 500 was slightly higher along with the Dow. XLB, XLI, IYR, and XLE led the upside. The back and forth on leadership shows the lack of conviction from investors and we will remain patient as the direction is determined. The charts show solid patterns in play, they just need enough conviction to follow through. Watching how the week ends as the month, quarter, and first half of the year come to a close.
Thursday showed some positives in the DIA, IJH, IYT, and IWM… but the NASDAQ, QQQ, SOXX, IGV, and XLK, didn’t show the same upside interest. News and speculation are driving daily activity as sectors are influenced versus the markets as a whole. Inflation, earnings growth, economic conditions, and geopolitical issues weighing on clarity and keeping the markets in check. Nine of the eleven sectors closed in positive territory holding near the current highs. Volume remained below average. We continue to see money flow showing indecision near term. GBTC is sporting a bull flag on the chart. The S&P 500 index closed up 0.4%. The NASDAQ was flat along with the SOXX. Small Caps (Russell 2000) were up 1.1%. The ten-year treasury yield closed at 3.86% up 15 bps on the day. Crude (USO) was up 0.7%. (UGA) was 0.5%. Natural gas (UNG) was up 1.2%. The dollar was up 0.4% as it holds above the 50-day MA. We are focused on managing the risk and seeing how investors respond to the revised outlook for global economics.
ONE Chart to Watch: QQQ – 1) Moved below $366.14 negating the break higher. Watching how it holds the $352 level of support. Closed Thursday $363.85. 2) Short-term trend is UP… starting from the January low. 3) Moved near key support at the $355 level and held. 4) TQQQ $39.55 Entry. Stop $36.98. Reentered position. 4) Need upside to follow through. Look for a move above $366.14.
Additional Charts to Watch: SPY – Moved to new highs from March lows and tested the move. Manage your stops accordingly. $429.50 level to hold. Nice bounce at support. IWM – struggling but found some buyers the last three days. SOXX – moved back above the $497.61 level and watching for a follow-through. USO – moved lower to the bottom of the current range and bounced again. Plenty of speculation in the commodity near term. TSLA downgraded… watching the reaction to the extended stock. IYT transports are moving higher which is a positive sign for DIA… $247.15 level in play. DIA closed over the prior day’s high for the first time since the test of the high… swing trade entry signal if it moves above Tuesday’s high, or an intraday reversal at Monday’s high… added position Thursday $339.35. DIS – double bottom pattern.
ON TAP TODAY: 1) Looking for the leaders to follow through on the upside… XLY, XLK, SOXX. 2) Laggards to join the bounce… IWM, IJH, IYZ, XLU, XLI, XLB. Solid moves on Wednesday. 3) Banks to join in the move again… KRE, KBE. 4) Leadership to define itself. Indexes are reaching key decision points but they will need a catalyst to push them back to the upside. 5) IYT, XLI, and XLB showed solid moves on Tuesday… need to take leadership. 6) DKNG (consolidation pattern)
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added 5/7. Holding. AMZN (bottom reversal) Added 5/7. MSFT (break from flag pattern). Added 5/18. NFLX (test to $350 and bounce?). Added 5/24. HON (trading range breakout). Added 6/13. TQQQ (reversal) Added 6/27. SOXL (reversal) Added 6/27. DIA (technical entry) Added 6/29.
Stops Hit: None
Quote of the Day: “My theory is that all of Scottish cuisine is based on a dare.” – Mike Myers.
The S&P 500 index closed up 19 points to 4396 the index was up 0.45% with below-average volume on the day. The index remained below 4400. Managing the risk as the upside remains challenged. Nine of the eleven sectors closed higher on the day with financials the leader up 1.7%. The worst performer of the day was consumer staples down 0.1%. The VIX index closed at 13.5 as it inched higher on the day. The uptrend from the October low remains in play.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials ‘V’ bottom on the chart trying to break above resistance $81.75. A negative week for the sector down 2.5%. Testing the move higher. Cup and handle pattern set up.
XLU – Utilities Bottom reversal fails as the downtrend remains in play. The sector was down 3.3% for the week. Gave back the bounce testing the lows.
IYZ – Telecom In a downtrend from the February highs and failed to hold the bounce. The sector was down 5% for the week. Down all week and testing previous lows. Solid bounce held above the $21.63 level.
XLP – Consumer Staples broke up from the bear flag pattern and testing the move. The sector was down 1.2% for the week. Consolidation pattern in play.
XLI – Industrials The trend broke to the upside breaking above resistance at the $102.40 level. Testing the breakout. The sector was down 2% for the week. Solid bounce back to the previous highs.
XLV – Healthcare Remains in a consolidation pattern from the March lows. The sector was down 0.1% for the week. Watch for a break from the pattern as the next opportunity. Laggard.
XLE – Energy Bounce attempts failed retesting testing the March and June lows. The sector was down 4.3% for the week. The downtrend is in play from the November highs. Needs to hold $76ish level of support. Solid bounce at support.
XLK – Technology The sector is testing the move higher. The sector was down 2.7% for the week. Need to resume the leadership for the broad index. Solid bounce and watching.
XLF – Financials retesting the $32.36 level of support. The sector was down 2.5% for the week. The trend is down from the February highs. Banks are the key to the outlook.
XLY – Consumer Discretionary Consolidating near the highs. The sector was down 0.5% for the week. Topping? Flag pattern on the chart.
**Citigroup warned that credit card spending trends are slowing… they noted that travel and entertainment are slowing more than other areas. That is something to watch in the trendlines of those sectors. PEJ.
IYR – REITs moved below $82.96 support. The sector was down 4% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising but money flow has increased to other areas of the sector. Moved back to the high side of the trading range.
Summary: The index held support with some mixed results on Thursday. Nine of the sectors closed higher on the day… charts still show indecision with an upside bias. Remains a sector-driven market as it looks for overall leadership. The broad index remains in an uptrend from the October lows with some interim testing currently. 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 0.4 points to 13,591 as the index was flat for the day. The index remains in the uptrend with some testing near the highs. Support is 13,274. Watching how the trend unfolds short term. SOXX was lower on the day. IGV was lower. Taking what is offered long and short.
NASDAQ 100 (QQQ) was down 0.2% with the mega caps moved lower on the day. The testing continues from the near-term highs but holds the trend. Need the mega-caps to resume their leadership if the trend continues higher. The sector had a positive bias with 52 of the 100 stocks closing in positive territory for the day.
Semiconductors (SOXX) The sector moved lower testing the uptrend. The sector was down 4.5% for the week. Watching how it unfolds and the next opportunity. Held the $497.60 level.
Software (IGV) Testing the uptrend as the sector moves to $336 support. Added IGV $291. Stop $335.90 (adjusted). The sector was down 3% for the week. Back above the $336 support.
Biotech (IBB) The sector moved back to support at the $128.35 level. failed to hold last week’s bounce. The sector was down 2.1% for the week. Testing the May lows…
Small-Cap Index (IWM) lagged overall and broke lower to end the week. The sector was down 2.8% for the week. Testing support at the $179 level. Added upside move and followed through.
Transports (IYT) Made a break higher from the trading range and testing the move. The sector was down 2% for the week. Solid bounce last four days showing leadership.
Friday: UPS is going on strike if they don’t get a new contract by July 31st.
The Dollar (UUP) The dollar remains volatile and turned lower on comments from Treasury Secretary Yellen. What is on the horizon? Weak dollar policy from the current administration. The dollar was up 0.7% for the week. More chatter about losing dollar status globally. Wants to move higher.
Yellen says to expect a gradual decline in the dollar’s share of global reserves… amazing how between Obama and Biden the dollar has deteriorated.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.73% down from 3.76% last week. Rates are reacting to the FOMC meeting and how the Fed acts in the coming month. TLT was up 0.02% for the week. Bounced 15 basis points on Fed talk and economic data… 10-year to 3.85%
Crude oil (USO) Remains in a short-term downtrend on worries about central banks raising interest rates to fight inflation. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. USO was down 3% for the week. Bounced at support still indecisive.
Gold (GLD) The commodity is moving sideways to lower even with weakness in the dollar of late. Letting this unfold and opportunities presented. The metal was down 1.9% for the week. Trending lower.
Questions to Ponder: Navigating Uncertainty
Bank Stress Test – Wednesday the Fed said that all 23 major financials passed their annual stress tests, with sufficient levels of capital to get through a severe recession. Interesting considering that just four months ago the sky was falling. And let’s not forget the Fed continues to provide liquidity to banks in short-term loans. KBE continues to trade laterally following the big downside move in March. Worthy to see how this unfolds in light of this news.
BTFP hits new record: The emergency bank bailout facility moved to another record high of 103.1 billion dollars. Sound and resilient… passed the stress test… borrowing when no one has stated there is an emergency. All is well in OZ.
Bidenomics – The president rolled out his newly revised plan that has created the greatest economy ever… 14% inflation, -3.1% hourly earnings growth, trillions added to the debt, etc. greatest presidency ever.
Stagflation – is defined as persistent inflation combined with stagnant consumer demand and relatively high unemployment. Do we have this situation currently in the US economy? If it doesn’t exist in a purely technically defined way, it is creating the same economic environment currently in the US, and the current administration is in denial. Thus, we will continue to feel the effects of this until we change course. Layoffs from early 2022 to current continue… Bankruptcy filings are not slowing as the hit the fastest pace since 2010. War – Costs… Ukrain/Russia endless war isn’t good for the US economy. Inflation is here 1970’s style. Markets are giving the Fed cover to hike again with the surge in technology stocks. Although the leadership is narrow. Things are not as good as they seem on the surface.
FINAL NOTES:
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. A look at the daily chart from the October lows validates exactly that premise with the trend higher overall but plenty of volatility along the way. With the trend higher for more than six months it puts the broad indexes in intermediate uptrend… this is a positive overall for the broad markets. We remain focused on short-term trades based on the short-term volatility and until there is longer-term directional clarity we remain with our current approach. Trading the volatility has performed better than holding through the cycle. Sector-driven activity is in play short term with some testing at the highs. News has been 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.
Thursday: The charts tested key support levels and bounced. Still looking for an upside follow-through. Technology remains the leader along with consumer discretionary despite some testing. Seeing some added leadership from Transports last few days is a positive. Positive bounce from DIA and IWM. Nine sectors managed to close in positive territory. Trading the trends on sectors showing strength and weakness… We see the overall trend is still up from the October lows. Watching where money is going near term for clues of what is on the horizon. Manage the risk that is and let the current trend play out.
What I am watching on Thursday: 1) Direction decision with leadership. 2) Tug-o-war between the leaders and the laggards. 3) GLD, SLV, lagging… GLD broke support? Downside in play or temporary? 4) IGV as software stocks are well positioned to move higher. Scanning the sector shows positive charts for the leaders.
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.