The markets regain some traction as technology stocks lead the bounce off the lows. The NASDAQ opened higher and never looked back holding gains into the close. After-hours NVDA beat earnings as expected but even managed to surprise analysts with even stronger numbers. They remain a leader at the forefront of the AI space as seen in the numbers. The economic data showed a positive boost in New Home Sales, but the S&P flash US Services and Manufacturing numbers continued to show a decline in the US economic picture. Looking at the charts we see the two-plus week test of the highs and a bounce this week at key support levels… the question posed by many is how low do stocks test, my question would be how high do the bounce from support? The put/call ratio made a big swing to the negative side of sentiment but that has balanced this week and we will take what is offered… plenty of opportunity in QQQ and SOXX this week. Look at other areas as well near term.
The markets moved higher from the open and managed to hold it throughout the day. The NVDA earnings beat should provide some catalyst to the markets on Thursday. Plenty of rambling by the talking heads about the outlook and the economic picture. The greater challenge currently is how the bounce plays out short term in light of the pessimistic outlook. Ten of the eleven sectors closed in the green with the leadership coming from technology… mainly SOXX. Volume was below average on the day. Scanning the ETFs leadership is rotating to technology as well as some positives in consumer discretionary. The S&P 500 index closed up 1.1%. The NASDAQ was up 1.6%. The SOXX was up 2.2%. Small Caps (Russell 2000) were down 0.1%. The ten-year treasury yield closed at 4.2% down 13 bps. Crude (USO) was down 1.2%. (UGA) was down 0.3%. Natural gas (UNG) was down 0.2%. The dollar was down 0.3%. We are focused on managing the risk and seeing how investors respond to the economic picture.
ONE Chart to Watch: QQQ – 1) Broke below the $366.14 support… bounced back the last three days. 2) Short-term trend is broke the uptrend from the January lows… big negative to overcome. 3) $352.39 level to hold. 4) Added TQQQ at $37.50. Stop $38.24. 5) Watching NVDA impact.
Additional Charts to Watch:
SOXX – Tested to support at $473.23. Bounced off the low entry $485.35. Stop $490.57. $510.73 Target short term.
Stops Hit: None
Quote of the Day: “Even if you’re on the right track, you’ll get run over if you just sit there.” – Will Rogers
The S&P 500 index closed up 48 points to 4436 the index was up 1.1% with below-average volume on the day. The index holds the bounce-off support at 4338. 4445 resistance in play. Ten of the eleven sectors closed higher on the day with technology as the leader up 1.8%. The worst performer of the day was energy down 0.25%. The VIX index closed at 15.9 moving lower again on the bounce. Micro-term downtrend reversing… big question.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials Reversed to the 200-day MA. The sector was down 2% for the week. No Positions.
XLU – Utilities back to the previous lows and support. Need to hold $63. The sector was down 4.5% for the week. No positions.
IYZ – Telecom In a downtrend from the February highs moved into a trading range. The sector was down 0.6% for the week. No Position.
XLP – Consumer Staples moved back to the June lows. The sector was down 1.9% for the week. No Positions.
XLI – Industrials Broke uptrend $105.41 support. The sector was down 1.7% for the week. No Positions.
XLV – Healthcare Moved back to support at $132.64. The sector was down 2% for the week. No Positions
XLE – Energy Topping pattern broke lower on lower crude prices. The sector was up 1.2% for the week. Entry $81.95. Stop $85.05 Need to clear $87.70.
IEO – broke higher as offshore interest rise. Entry $85. Stop $95.04.
XLK – Technology The sector broke lower found support at $165 and bounced. The sector was down 1.3% for the week. Entry $167. Stop $168.40.
XLF – Financials Testing the $33.78 level of support. The sector was down 0.8% for the week. Banks downgrades not helping the sector.
XLY – Consumer Discretionary Bounced off support and watching the outcome. The sector was down 0.7% for the week. No Positions.
IYR – REITs Bounced at support… watching how it unfolds. The sector was down 2% for the week. No Positions.
Summary: The index moved higher on the day as investors rotated to technology stocks. Watching the data points as they continue to show a mixed outlook. Ten of the eleven sectors closed higher on the day with XLk in the leadership role. XLY set up to add to the bounce. The index is looking for direction and the talking heads believe it is lower… let the charts unfold and take what is offered. 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 215.1 points to 13,721 as the index was up 1.59% for the day. The index followed through on the bounce at support. Support is 13,274. Letting the move unfold as tech and megacaps find their collective footing. SOXX was up 2% on the day. IGV was down 1.6%. Watching support and how the activity unfolds.
NASDAQ 100 (QQQ) was 1.58% on the day as mega caps traded higher. Moved back above the $366.14 support. The mega-caps, as we have discussed, are/were extended from the May break higher and thus test lower short term. Watching for the next directional opportunity in the bounce. The sector had a negative bias with 88 of the 100 stocks closing in positive territory for the day.
Semiconductors (SOXX) The sector held support at $473.23 and bounced. Needs to hold above the $497.60 mark of support. The sector was down 3.7% for the week.
Software (IGV) The sector tested below the $336 level of support and bounced. The sector was down 3.5% for the week. No Positions
Biotech (IBB) The sector broke below the $128.35 support and in a downtrending channel. The sector was down 1.9% for the week. No Positions.
Small-Cap Index (IWM) Tested back to the 200-day MA and tried to find support. The sector was down 1.1% for the week. No Position.
Transports (IYT) Tested to the $247.67 support level. The sector was down 3.3% for the week. No positions.
The Dollar (UUP) The dollar moved back above the June highs… The dollar was up 0.4% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.32% up from 4.16% last week. TLT was down 3.2% for the week. Watching how the Fed manages the yield curve.
Crude oil (USO) Testing the uptrend on China’s economic weakness. USO was up 0.3% for the week. No Positions.
Gold (GLD) The commodity struggling on the stronger dollar. No positions. The metal was down 0.9% for the week.
Our longer-term view shifted to neutral as the upside trend from the October lows is challenged but in play. 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 it puts the broad indexes in an intermediate uptrend… that is testing and you need to manage stops on longer-term positions. The topping patterns broke short-term support to create a micro-term downtrend in the longer-term uptrend. The economic data is showing signs of fatigue relative to growth. Hit our stops on intermediate and short-term positions. We locked in some gains on positions, hit stops on others, and added some as money rotated. Sector-driven activity is in play short term. 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. Listen to the market not the talking heads.
Wednesday: Plenty of strength in the technology sector with consumer discretionary finding its legs. The talking heads have turned to doom and gloom headlines testing the uptrend near term. Letting it play out as we look for directional confirmation on QQQ, SPY, SOXX, and TLT. We have added positions in sectors showing positive momentum and exited those hitting our stops. 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. Plenty to ponder as we progress in the current environment.
What I am watching on Thursday: 1) SPY, QQQ, SOXX, directional decision follow through on the bounce. 2) TLT reaction to Wednesday rate move. 3) AI, NVDA, IGV… are a few to watch.
1) Elimination of the debt ceiling by Congress has sent the administration on a spending spree… no big surprise when you can’t bounce checks you keep writing them for undisclosed favors. TLT fell 1.9% Tuesday and we added TBT to our positions. Watching how this storyline unfolds as Fitch downgrades the Treasury Bond to AA+.
2) Inflation warnings are popping up again… on May 4th crude was $67. On August 1st crude was $81.96 which is a 22.1% increase in price… where does it go? Correct, into everything we basically touch. We own USO and UGA in order to keep pace with being able to afford gasoline. But it goes further and we should be looking at where to invest to keep pace with the next wave of inflation.
3) Climate Emergency? If this executive order is enacted by the Biden Administration bar the doors as spending will escalate to levels not seen since WWII. The draconian measures will mirror those seen during the pandemic lockdowns. They want to eliminate anything gas or electric in the name of “clean energy”. Another storyline that has our attention.
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.