The markets head higher on Thursday as earnings and guidance from Meta pushed the NASDAQ up 3.5%. The index gapped open to start the day and never really looked back. The mega-cap space was the benefactor to the Meta news. The labor market was the focus premarket as the jobless claims showed an increase with the layoffs starting to creep into the numbers. The postmarket news however wasn’t as friendly with AAPL, AMZN, and GOOG posting mixed earnings and trading lower after-hours. The NASDAQ added to the move higher pushing near the 12,300 resistance. With the after-hours news taking some of the mojo of Meta away we could see some profit taking on Friday. The leaders still look good in the current trend higher as technology, semiconductors, Nasdaq 100, and others show solid moves and we look to see how they respond moving forward.
Earnings are the next anticipated issue for the broad markets with mega caps reporting. AAPL was disappointing along with Amazon and Google. There was plenty to read relative to advertising, search, AI, etc. in each report giving insight into the current state of the economy. All three were trading lower after-hours and will be the focal point of Friday. The outlook was somewhat optimistic overall from the three mega-cap stocks, but the keynote was reduced spending from the consumer. All said it could have been worse. Wouldn’t be surprised to see them trading higher in the coming weeks.
Jobs report and earnings on tap Friday… like we need more data. The data will be of interest relative to how they are spun by those making them up. Do we get supporting data for the new “Powell effect”? One way to cancel out negative earnings is to have job erosion support the Fed’s comments about employment being too high… who reports the numbers? Yes, the government… is the rally in play being manipulated by those who report the data? No way, not our government. There is a reason behind the shift in Powell’s comments on Wednesday… Watching how the data shifts the negative sentiment from earnings after-hours. Watching how bonds respond to news as well.
The volume was above average, the VIX closed at 18.7 rising despite a solid upside move in the index. The S&P 500 index closed up 1.47% for the day. The NASDAQ was up 3.25%. Small Caps (Russell 2000) were up 1.97% breaking above resistance on above-average volume. The ten-year treasury yield closed at 3.39% flat for the day as TLT bounced nicely and remains in the consolidation pattern. Important to note as treasury yields dip to the 3.4% support level for the bond… if the yield breaks and holds this gets interesting for stocks. See notes below for more on bonds. Crude (USO) was down 1.17% showing the uncertainty of late. Gasoline (UGA) was down 0.3% and broke the 200 DMA hit support at $58.73. Natural gas (UNG) was down 1.4% and back at the April 2021 lows. The dollar was up after the break lower following the FOMC action. We adjusted our stops and will focus on managing the risk as we hit targets on the upside position.
Things to Watch This Week: 1) IGV – Software broke above the 50 DMA and resistance offering an entry signal for the sector… worth watching near term. Tested Monday. Bounced Tuesday. Ran higher on Wednesday. 2) QQQ broke above key resistance leading the markets higher… adjust stops and let it run. Tested Monday. Bounced Tuesday. Ran higher on Wednesday. 3) SOXX broke higher and is the leader for now… adjusted stops and watching. Tested Monday. Bounced Tuesday. Ran higher on Wednesday. 4) Watch resistance 4086 SPX… if we get through resistance the August highs are the target. Moved back to 4086 Tuesday. Ran higher on Wednesday.
Key Data: 1) FOMC meeting with Fed. Powell was optimistic but cautious and stocks moved higher on the announcement. 2) Earnings from AAPL, GOOG, AMZN, META… will key for the large caps sector. META news received as positive… big jump higher. 3) ARKK was up nearly 11% on the week… technology is key to the upside move. Adding to the upside again this week. 4) Consumer Confidence Index Jan. (107.1 versus 108.4 previous. 109 expected). Home Price Index Nov. (-3.1% versus -2.8% previous). 5) ADP Employment Jan. (106k versus 235k previous. 175k expected). Received as a positive following Powell’s comments at FOMC. 6) ISM Manufacturing Jan. (47.4% versus 48.4% previous. 48% expected). More slowing in the manufacturing sector as expected. Rental Vacancy Rate (5.8% versus 6% previous). 7) Motor Vehicle Sales Jan. (13.3 million previous). Construction Spending Dec. (-0.4% versus 0.5% previous. 0% expected.) 8) Initial Jobless Claims (183k versus 186k previous. 195k expected). Continuing Claims (1.66 million versus 1.67 million previous). Nonfarm Payroll Jan. (223k previous. 190k expected). Unemployment Rate Jan (3.5% previous. 3.6% expected). Average Hourly Earnings Jan. (0.3% previous. 0.3% expected). Labor Participation Jan. (82.4 previous). 8) ISM Services Index Jan. (49.6% previous. 50.8% expected).
Charts to Watch: 1) META – earnings due on Tuesday… focus is on advertising spending. Well received despite the miss on earnings. 2) JNJ – baby powder lawsuit allowed to proceed. Stock tanked. 3) TLT – yields heading into the FOMC. Solid move higher on rates dropping. 4) SPY & QQQ following the FOMC meeting. Moved higher following the Fed.
Previous List Updated: SPY $399.50 resistance (broke higher adjusted stops), QQQ $282.80 resistances (broke higher adjusted stops), SOXX $390.40 resistance (broke higher adjusted stops), IWM $186.60 resistance (broke higher adjusted stops). All tested lower… All bounced… thus, be aware of the upside bias still in play. Watching how investors respond to news and earnings going forward.
SOXX/XLK offering leadership is another positive for the indices. Watching the SOXX as it was lower but bounced on Tuesday. NXPI missed earnings Monday and bounced on Tuesday… the type of market sentiment currently in play… Both ran higher on Wednesday.
FXB the British pound is in an interesting pattern. The cup and handle pattern over the last six months is in a position to break higher. The dollar has been weakening of late and thus the move above the August highs. Positive outlook remains with the Fed actions pointing to a weaker dollar moving forward.
Metals & Mining: XME (hit entry), SLX (hit entry), GDX, SCCO, PAAS testing but holding up well. JJM shows the trend. Trend continues higher.
Energy: XLE, IEO holding up well along with individual stocks FANG, COP. (all tested on lower crude prices). Watching demand levels from China.
Previous Charts of Interest Still in Play: FCX (test support, raised stop as hit resistance), KWEB (breaking higher “V” bottom, hitting resistance). RIG (cup and handle breakout, big move adjusted stop). SPY (reversal, reentered). QQQ (reversal, adjusted stop). SOXX (back above $380=added to position). XME (trending higher. Break to the upside.)
Stops Hit: None
Quote of the Day: “The best way to teach your kids about taxes is by eating 30% of their ice cream” – Bill Murray
The S&P 500 index closed up 60.5 points to 4179 the index was up 1.47% with above-average volume. The index moved above the 4086 resistance and the next level coming at the 4300 level. Seven of the eleven sectors closed higher on the day with consumer discretionary as the leader up 3.5%. The worst performer of the day was energy down 2.2%. The VIX index closed at 18.7 as sentiment showed some intraday movement relative to actions midday. Managing the risk.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials bounced off support and back to the previous highs and testing the move. The sector was up 0.1% for the week. Entry $79. Reverse head and shoulder pattern on the chart. Broke above resistance…
XLU – Utilities broke support and tested lower. Watching for support and direction near term. The sector was down 0.5% for the week. Bottoming trading range.
IYZ – Telecom cup and handle with a break higher. 200 DMA just overhead as well. The sector was up 2% for the week. Watching how it unfolds. Entry $22.50. Broke above resistance and added to the gains.
XLP – Consumer Staples broke lower adding to the weakness of the sector. The sector was down 2.8% for the week. Looking for a decision on direction. Bottoming pattern on the chart.
XLI – Industrials sold back to support giving up all the gains from last week. The sector was up 0.3% for the week. Need to hold $72.35 support. Top of the current range and trying to break higher.
XLV – Healthcare Struggling to find direction $131.40 support is level to hold. The sector was down 0.8% for the week. Weakest sector currently. Held $131 support for now.
XLE – Energy established a trading range and broke higher and hit resistance at $93. The sector was up 0.8% for the week. Entry hit $89. USO and UGA are in play currently. Brroke the uptrend line at the 50 DMA.
XLK – Technology The sector reversed off the lows finally breaking through the $127 level. This is the key component in the current bounce off the previous lows. The sector was up 4.1% for the week. Entry at $127.50. $137 resistance in play – remains the leader. Broke above resistance added to the move watching $143.45.
XLF – Financials established a bottom reversal and tested the move. Positive moves to end the week breaking above the $35.85 resistance. The sector was up 2.2% for the week. Entry $34.50. C (break above resistance adjusted stop). XLF broke above resistance.
XLY – Consumer Discretionary bottom reversal in play and break above key resistance at $146.50. The sector was up 6.4% for the week. After leading the downside solid upside bounce. Entry $132. AMZN ($98 resistance clear hit entry). Upside breakout from cup and handle pattern. Moved above the 200 DMA and gapped higher on Thursday.
IYR – REITs bottom reversal in play. The sector was down 0.6% for the week. Lower interest rates could offer some upside to the sector near term. 12/30/22 10-year treasury yield peaked… IYR +6.2% since then. Moved above resistance and added to the gains.
Summary: The index added to the upside gains on Thursday. It now begs the question of how high we go from here. I remain cautious as optimism versus reality is a bitch. The reality is the data released has been flat-out bad. ISM below 50 which shows contraction. ADP jobs data… bad. Construction spending… bad. The Fed may have stepped off the gas on interest rate hikes but the ramification of those hikes is showing up in the data. The break above the 4086 level resistance is a positive and we will take what is offered, but remain focused on the risk that is. 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 384.5 points to 12,1979 as the index was up 3.25% for the day. The bounce off the October lows tested but regained the break higher from last week and added to the positive momentum led by Meta earnings on Thursday. Watching how money flow reacts going forward. Technology and semiconductors are the keys…. watching how they play out.
NASDAQ 100 (QQQ) was up 3.59% with the mega caps leading the broader index. Buyers were out in response to Meta’s earnings giving hope looking forward. The FOMC offered an olive branch to investors and they ran stock prices higher as a result. After-hours earnings from AAPL, AMZN, and GOOG could take some air out of the hope balloon. The sector had a positive bias with 71 of the 100 stocks closing in positive territory for the day. The chart remains in a positive trend off the December lows. AAPL ($137.20 level to clear/hit entry/adjusted stop). AMZN (hitting resistance/breakout). GOOG (bottoming pattern/hit entry). MSFT (bottom reversal/hit entry). Watching the response on Friday.
Semiconductors (SOXX) made a move higher to break from the bottoming range and added nicely to the upside then tested the move and bounced back to end the week higher. The sector was up 5.6% for the week. $390.40 resistance cleared and added to position… $422.45 next. Entry $355/adjusted stop. NVDA entry $171.95. Stop $193.35. AVGO (cup & handle/adjusted stop). RMBS (broke above previous highs/adjusted stop). SWKS solid break higher/adjusted stop). Tested the move higher on Monday and bounced back on Tuesday… big jump on Wednesday back to the August highs. Thursday was positive as well with solid gains. Raise our stops. The weekly chart is very interesting and could offer insight to how this unfolds.
Software (IGV) Finally found some upside momentum. The sector was up 4.5% for the week. $288.40 next resistance. $275 entry. CRM (sup and handle/hit entry/adjusted stop). Broke higher above the 200 DMA and added to the move higher.
Biotech (IBB) The sector remains in a trading range with a positive bias of late. The sector was up 1.3% for the week. Entry $134.10. Back to the top of the trading range… looking for a break higher. Tested Monday and bounced Tuesday. Remains in the trading range.
Small-Cap Index (IWM) bottom reversal showed leadership but stalled at resistance $188.25. Tested the move higher and bounced. The sector was up 2.4% for the week. Entry $177. Cup and Handle pattern in play. Breakout from pattern solid move upside.
Transports (IYT) Bottom reversal and positive upside with cup and handle pattern. The sector was flat 0.0% for the week. Need to clear $234 resistance. Entry $218/adjusted stop. Consolidation pattern. Solid recovery on Tuesday. Broke from the trading range on Wednesday and added to it on Thursday.
The Dollar (UUP) The dollar moved lower on economic data and trying to establish a near-term low. The dollar was up 0.1% for the week. The outlook remains negative. Building a bottoming range. Headed lower on the FOMC meeting news. Expect the dollar to weaken further on the Fed moves. Good for gold and trade near term. Used to be negative for oil interested in seeing how that unfolds… oil was down 2% on the day. Negative overall longer-term relative to the trade deficit.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.51% even from 3.51% last week. The yields reversed the last month adding to the upside trade in bonds. TLT was up 0.4% for the week. Entry TLT $102.35. Stop $105.50. Consolidating. 3.39% and flat on the day… TLT rallied has rallied over the last six weeks as rates have declined. TLT is at key resistance of double top pattern. Yields equally are at key support. Watching how this unfolds… and it depends on how investors view the Fed. If they are done hiking rates yields will tell us how stocks respond moving forward. Equally important here is the inversion of the yield curve pointing to recession. This is an area to watch moving forward for some guidance relative to stocks.
Crude oil (USO) Reversal in trend for crude the last few weeks pushing back to the previous highs and stalling. Supply-demand speculation as China opens its economy and borders. USO was down 2.8% for the week. Entry $67. Stop $69. OIS (uptrend/hit entry/adjusted stop). XOM (at resistance/hit entry/adjusted stop). CVX (breaking higher from consolidation pattern/hit entry). Watching for a trend and response to the weaker dollar. XLE fell in response. Some are stating the sector is waiting to see any signs of demand increase from China… post-covid reopening results.
Gold (GLD) The commodity has been trading higher as the dollar declines. The metal was 0.04% for the week. GLD entry $154.90. Stop $176. Cleared resistance at $174.30 and got the break higher. Letting it run and adjusting stops. GDX entry$31.50. Topping pattern breaks higher but reverses on Thursday with a higher dollar… watching how this unfolds.
Put/Call ratio was 0.8 on Thursday… Bias remains positive.
Questions to Ponder: Navigating Uncertainty
Did the Fed shift in bias relative to inflation? In theory no, but in action yes. The FOMC meeting was a big shift in what the Fed said relative to future rate hikes and their outlook for inflation. It is something to watch in the coming weeks. Will the Fed presidents come out and reinforce the fight on inflation or parrot much of what Powell said following the meeting? Interest rates are showing a belief by investors that they believe Powell and the Fed are done… watch how rates unfold. The real sign will come from banks, interest rates, earnings, and more importantly a recession pending.
Why are stocks rallying in the face of weaker economic data? Growth stocks have led the recent bounce off the lows of December as investors gain confidence the ‘worst’ is over. The Fed announcement on Wednesday was perceived as positive… but, Powell was very cautious in his comments. The economic data on Wednesday was bad and showed the impact of the rate hikes. The Fed will, and is, engineering a recession and layoffs as Powell pointed to the labor market as being too good. The yield curve is flashing recession with the ten-year dipping to 3.4%, ISM data shows contraction for the third straight month, and the Fed is promising more rate hikes… either it is different this time, or the market is ahead of itself. Manage your risk.
Remember the infrastructure spending bill that Congress passed last year? $1 trillion is to be spent on refurbishing and establishing new infrastructure… it has started impacting stocks like Caterpillar (CAT) and Freeport McMoRan (FCX)… This is a sector that will be a benefactor in years to come. We own FCX and watching others as opportunities relative to the spending unfold. URI, TEX, RIO, BHP, DE… some to track.
Thursday: The market want to believe the Fed is done hiking rates. The FOMC meeting gave them hope as Mr. Powell showed little conviction about future hikes. Meta earnings fueled that hope of a soft landing and a reversal in the economic picture. The reality however is seen in the ISM manufacturing numbers, AMZN, AAPL, and GOOG earnings. This tug-o-war isn’t going away anytime soon. The euphoria of late in rising stock prices will be challenged. We stated the first level of resistance would be 4086… we eclipsed that on Wednesday. The next level would be 4300 or the August highs… we are moving in that direction. Hope is a beautiful thing… but, as we say many times, the data doesn’t matter until it does. That is where we find ourselves currently and we will trade the hope and the move higher. And, we will manage our risk of hope giving way to reality. The near-term climb has offered solid gains. But, the future risk of reality is what we manage against. Stops raised on Thursday’s move higher. Eyes open. Emotions removed. Mixed economic data has been mostly ignored. Sentiment has shifted to positive despite the data. We are a far way from seeing growth… my opinion, but we trade what the market gives not what we think. Yes, we have thoughts and beliefs, but we will always follow the trend on the charts and never fight the Fed. Managing our risk as we add and subtract trading positions based on the charts. The dollar turned lower on the Fed news and is likely to trend even lower from here. Interest rates fell to the 3.4% level on the ten-year bond it has my attention as it relates to the dollar and recession data. Optimism remains in play for now as we break through key resistance points on the charts technology and consumer leads. Watching energy stocks with the weaker dollar. Volatility closed at 18.7 as some intraday anxiety shifted the index higher. The money supply shifted to positive and watch looking forward. Volume remains above average. Stay focused and follow the money. Follow the Fed. 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.
As stated above we continue to watch and take what is offered. 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. Recession talks are turning towards stagflation of late which could be worse for consumers as it tends to last longer with a slow negative effect. We remain focused on short-term trades until there is directional clarity. The charts are showing a short-term trend reversal… technology and consumer discretionary have led the move. Semiconductors have performed well but earnings are showing weakness currently. 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.