The market was a mixed bag again to start the week as the technology sector took a leadership role on the day. The energy sector fell along with utilities as crude moved lower and interest rates moved higher. As a result, the NASDAQ finished the day positive and the SP500 was flat. A quick look at the charts shows some shifts in activity worthy of watching as the week progresses. XLK and XLY have bottoming patterns still in place. XLF, XLV, and XLI are breaking lower confirming short short-side trades are still in play. The VIX index remains elevated and closed higher with some intraday activity showing uncertainty with investors. Treasury yields closed over 4.6% on the ten-year… the highest yield since 2007. The dollar was higher. Crude moved below $90 per barrel on the global economic outlook. Economic data is nothing short of ugly and the government has six weeks to put together a budget that Congress can pass. Thus, we start the month of October with the same issues to overcome. We are willing to take what the market gives both up and down. Manage your risk accordingly.
Volume was above average on the day. Mixed trading with little leadership on the day. The S&P 500 index closed up 0.01%. The NASDAQ was up 0.6%. The SOXX was up 0.5%. Small Caps (Russell 2000) were down 1.5%. The ten-year treasury yield closed at 4.68% up 11 bps. Crude (USO) was down 1.8%. (UGA) was up 0.3%. Natural gas (UNG) was down 2.9%. The dollar was up 0.7%. We are focused on managing the risk and seeing how investors respond to the current situation.
ONE Chart to Watch: QQQ – 1) Tested support at $354.10 and bounced. 2) $361.80 level to clear.
Additional Charts to Watch:
SOXX – Found support and bounced. Closed above the $473.23 level resistance. Watching how this unfolds near term.
Retail Stores – EMTY breaking higher as commercial real estate for retail stores struggles with plenty of distressed sales and bankruptcy issues in play. Short side entry was taken. Entry $15.25. Stop moved to $16.85. Watching how it unfolds.
Big Name NASDAQ moved on Monday with institutional money flowing into the stocks for what some say will be a year-end rally… Got my attention NFLX, MSFT, GOOG, META, AAPL, AMZN, SOXX.
Stops Hit: None
Quote of the Day: “The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd.” – Bertrand Russell.
The S&P 500 index closed up 0.3 points to 4288 moving the index up 0.01% with above-average volume on the day. The index failed to move back above the 4300 level on the close forfeiting early gains. Two of the eleven sectors closed higher on the day with technology as the leader up 1%. The worst performer of the day was energy utilities down 4%. The VIX index closed at 17.6 moving higher on the day. Watching to see if the bottom reversal can unfold or if the downside resumes.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials broke below the August lows and found some support this week. The sector was up 0.2% for the week. No Positions. Downside back in play.
XLU – Utilities accelerated lower for the week and broke below the $60 level. The sector was down 6.9% for the week. Accelerated lower on higher interest rates.
IYZ – Telecom reversed lower again test support at the $21 level. The sector was down 1.8% for the week. No Positions.
XLP – Consumer Staples broke below the March lows and added to the losses this week. Remains in a downtrend. The sector was down 1.9% for the week. No Positions.
XLI – Industrials downtrend remains in play but did find some support during the week. The sector was down 0.4% for the week. No Positions.
XLV – Healthcare downtrend in play with $128.50 near-term support. The sector was down 1% for the week. No Positions.
XLE – Energy tested this week with the large-cap stocks showing some profit-taking on Friday. The sector was up 1.2% for the week. No Positions. Broke $89.50 support.
XLK – Technology The sector has turned lower and broke support at $169.50… a negative short-term outlook but bounces modestly to end the week. The sector was down 0.3% for the week. Bottom reversal on the chart.
XLF – Financials downside accelerated on higher interest rates. Found some support. The sector was down 1.4% for the week. Bank downgrades not helping the sector. Downside resumes.
XLY – Consumer Discretionary found support after breaking lower. The sector was up 0.1% for the week. No Positions. Retail (XRT) chart moving lower as stocks show weakness. Bottom reversal on the chart.
IYR – REITs Broke $82.96 support accelerated lower on higher interest rate worries and downside talk on defaults rising in commercial real estate. The sector was down 2.5% for the week. No Positions.
Summary: The index was in a trading range all day closing flat… failed to keep the upside move going and investors pushed money to the sidelines. Still too many questions and sellers still lurking. The impact of Powell’s comments remains in play. The index remained below the August lows and watching to see if the bounce unfolds. Remember two things; first, the trend is your friend, and second, don’t fight the Fed. The Fed proves once again they are in control.
(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 88 points to 13,307 as the index was up 0.67% for the day. Mixed activity on the day as the volume was below average. Support at 13,274 support broken… recovered that level on Monday… needs to follow through. Watching how stocks respond near term… not much good news overall. SOXX was up 0.5% and IGV was up 0.5% for the day. Watching how the near-term move unfolds.
NASDAQ 100 (QQQ) was up 0.83% for the day as the mega caps led the day. It did manage to stay above the $355 level watching to see how the bounce unfolds. The sector had a mixed bias for the day with 48 of the 100 stocks closing in positive territory for the day. Watching… AAPL bottoming pattern… AMZN found support and bounced… GOOG moved above the 50-day MA… META consolidation pattern… NFLX moved to $375 support.
Semiconductors (SOXX) The sector closed at the $473 level of support and remained negative overall. The sector was up 1.6% for the week. Above $473… needs to follow through.
Software (IGV) The sector closed above the $335 support level. The sector was up 0.2% for the week. Need to clear $345.
Biotech (IBB) The sector remains in a downtrend but did find some support at the $122 level. The sector was down 0.2% for the week. No Positions. Broke support at $121.30… downside back in play.
Small-Cap Index (IWM) Found support after breaking lower last week. The sector was up 0.1% for the week. No Position. The downside is back in play.
Transports (IYT) downtrend remains in play and found some support at the $231 level. Closed at the 200-day MA. The sector was down 0.2% for the week. No positions. Back to $231 support.
The Dollar (UUP) The dollar moved higher for the week as it remains in the uptrend. The dollar was up 0.7% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Higher again.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.57% up from 4.43% last week. TLT was down 3% for the week. Watching how the Fed manages the yield curve. Moved higher on the week which will likely get the Fed in motion behind the scenes. No Positions. 4.68% highest yield since 2007. TLT fell 2% in response. TMV raised stop.
Crude oil (USO) Crude showing some topping on the chart, but more likely a pause before moving higher. USO was up 0.3% for the week. No Positions… watching for the opportunity to buy. Broke $80.20 support watching if it confirms a downside move.
Gold (GLD) The commodity accelerated lower on the week with $170 support nearby. The metal was down 4% for the week. Down again.
FINAL NOTES:
Our longer-term view remains neutral as the upside trend from the October lows was broken confirming the downside in play for long-term positions. 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 plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate limbo awaiting confirmation… the last eight weeks’ the micro-trend has tested the longer-term trend and we need to manage stops accordingly on longer-term positions. The topping patterns broke short-term support to create micro-term downtrends that moved lower this week. The economic data is showing signs of fatigue relative to growth. Seeing some oversold sectors short term as some found support and tried to bounce. We look to next week 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. Listen to the market not the talking heads.
Monday: Another mixed day to start the week of trading and left plenty of questions to start the new month. September economic data is out this week and it could set the tone near term. I would expect the data to remain negative with the only real caveat being how negative it will be. We have plenty of cash on the sidelines as we look for more clarity up or down. Taking what is offered and remaining focused on short-term activity for direction.
What I am watching:
Credit Card losses are rising at the fastest pace since the financial crisis. We have started a debt default cycle. The challenge is no one is paying attention to the impact this will have on the financial sector. Throw in higher interest rates and bank stocks could fall another 20-25%.
Congress is debating the new spending bill/budget for the US government… September 30th ends the fiscal year and a new budget has to be passed or the nonessential government shuts down. I know that is all the government! They are flirting with big ramifications if they fail to come to a budget. Keeping our eyes on this issue as well. Update: At the last minute, Congress passed a stop-gap bill to fund the government through November 17th… now they have six weeks to continue arguing about excess spending.
GBTC… upside favored. (Added $18.61.) Solid upside Monday.
Trending concerns:
Goldman Sachs stated shorts on stocks and the market are as strong now as they were in March 2020. That makes for an interesting scenario relative to the markets being oversold short term… but what about the longer term view? They were out again on Monday warning about a “financial accident” if rates continue to climb towards 7% Fed Funds Rate. Yes, the leaks of what we have been saying for a while, are finally making the airwaves… not a good situation for investors or consumers.
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.