The markets opened higher and closed higher as technology continued to ride the wave of NVDA and large-cap technology stocks. Economic data got the rest of the market heading higher for a broad upside move to end the week. PCE was higher than expected showing inflation is alive and well. It bumped up to 4.4% versus 4.2% year over year. Personal Income was higher up 0.4 in April. Personal Spending jumped 0.8% versus 0.1% in March. Durable Goods were up 1.1% versus 3.2% in March but well ahead of the -1% expected. On the NYSE declining stocks led the advancing stocks 9 to 5. The ratio on the NASDAQ was 2 to 1. Consumer Sentiment was up to 59.2 versus 57.7 in April. Overall some positive news for the economic picture with the exception of inflation. The PCE data brings the Fed back into the discussion with the FOMC meeting in June. Inflation is proving to be sticky and something will have to give to break the streak. Mega caps like AMZN, META, NFLX, GOOG, AAPL, and others were in a position to bounce, and bounce they did on Friday. The NASDAQ has been leading the upside move and with the current outlook is likely to continue that leadership. The VIX index moved down to 17.9 on the day showing optimism on the news. All the major indexes closed higher on the day and all is well with the markets… for now.
Overall markets stepped higher… questions relative to the downside in XLV, XLI, XLB, XLP, IYR, XLE, IYZ, and XLU as they all show downtrends on the charts despite the Friday optimism. XLF is sideways, and the two upsides are XLK and XLY. Not the kind of balanced market you want to see. Eight of the eleven sectors closed in positive territory on Friday. But only two of the eleven were higher for the week. The S&P 500 index closed up 1.3%. The NASDAQ was up 2.2% with SOXX up 6.5%. Small Caps (Russell 2000) were up 1.1%. The ten-year treasury yield closed at 3.81% flat on the day with TLT moving toward the March lows. Crude (USO) was up 1.1% building a range. (UGA) was up 1.4%. Natural gas (UNG) was down 1.7% turning lower again. The dollar was down 0.03% establishing an uptrend currently. We are focused on managing the risk and watching how this all unfolds. Markets are closed for Memorial Day.
ONE Chart to Watch: QQQ – 1) Tested the $329.77 support and held Wednesday. Thursday jumped 2.4% on the NVDA news. Added 2.5% on Friday. 2) Short-term trend is UP… starting from the January low. 3) Accelerated above the trendline, retraced on a test… NVDA sparked upside continuation. 4) TQQQ entry $27.45. stop $33.54 (adjusted). target $32.28 (hit letting it run). Adjusted the stop and sold 1/2 of the position at $31.65. Letting it run for now.
Additional Charts to Watch: SPY – retraced below the resistance $415.20 failed to recapture the upside Thursday, but pushed back to the previous highs on Friday. Trendline off the March lows is in play. IWM – moved back above $174.50 and remains in a trading range. SOXX – gapped below $432.30 support Wednesday… Gapped up 6.6% on NVDA news Thursday… Gapped another 6.5% on Friday… Raised stops and let it run. Added SOXL @ $14.65. Stop $21.56. USO – oversold… gap bounces off the lows offered entry at $63.60. Stop $63.60. Reversal on Thursday following the breakout is negative, raised stop.
Leadership – NASDAQ, NASDAQ 100, SP500, XLY, XLK, SOXX… QQQ – All adding to the upside on Friday. Take what is offered and manage the risk accordingly. Technology is the leading sector. Consumers (XLY) showing signs of slowing and testing lower… Economic data gave the sector an upside boost on Friday keeping the uptrend in play. If the debt ceiling issue is resolved the upside has a chance of extending, but we saw what happened on Tuesday & Wednesday when the deal wasn’t done.
Laggards – SP400, RUTX, USO, XLF, XLI, XLE… all mixed in trading as sectors have lagged overall. If the markets are to run higher we need to see them participate. IJH is testing lows. IWM can’t get out of the bottoming range. 7 of the 11 sectors in the S&P 500 index are supporting downtrends short term.
Interesting Charts: DAL (break higher follow through. $36.25 entry).
ON TAP TODAY: 1) Bumbling into default. Neither side is willing to give in on what they deem are important issues… thus they bumble along. McCarthy said almost there… where? 2) Watch the testing in some of the mega-caps… AMZN, NFLX, NVDA, AMAT… all moved to the upside and back on track. 3) If the market gets a hangover from two days of buying in the mega caps?
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Earnings 5/4 after-hours beat estimates. Holding. AMZN (bottom reversal) Holding (continued upside on Thursday… raised stop). SOXX reversal. Holding. TQQQ breakout. Holding. SRS Holding (big break higher Tuesday). SJB Holding (break higher Tuesday). TGT (descending triangle short setup with Jun Puts). Holding. Holding. LABU (break up from bottoming range). Holding. ARKK (bottom reversal). Holding. EMTY (breakout confirmation). Added 5/8. FNGU (breaking out). Added Tuesday 5/8. GOOG (Channel breakout – raised stop). Added Wednesday 5/9. MSFT (break from flag pattern). Added 5/18. AI (break higher… $23 level to hold). Added 5/18. MU (break above resistance). Added 5/19. CSCO (bottom reversal… good earnings). Added 5/19. NFLX (test to $350 and bounce?). Added 5/24.
Stops Hit: PFE even on trade.
Quote of the Day: “The trouble with being punctual is that nobody’s there to appreciate it.” – Franklin P. Jones
The S&P 500 index closed up 54 points to 4205 the index was up 1.3% with above-average volume on the day. The index broke below the 4160 support and bounced back. Managing the risk near term. Debt ceiling agreement stalls and watching for a solution. Eight of the eleven sectors closed higher on the day with technology as the leader up 2.8%. The worst performer of the day was energy down 0.4%. The VIX index closed at 17.9 moving lower with anxiety about the debt ceiling still in play. The uptrend from the October low remains in play. Closed above 4200.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials downtrend off the January highs testing the March lows. Moved below the 200-day MA The sector was down 3% for the week.
XLU – Utilities trending lower from the December highs. Testing the March lows. The sector was down 2.3% for the week.
IYZ – Telecom downtrend from the February highs. No momentum to speak of and looking for a test of the March lows. The sector was down 0.5% for the week.
XLP – Consumer Staples accelerated lower during the week breaking below the 200 day MA. The sector was down 3.2% for the week.
XLI – Industrials triangle pattern of consolidation on the chart. Looking for a trend to break up or down. The sector was down 1.4% for the week.
XLV – Healthcare accelerated lower during the week. The sector was down 2.9% for the week. March lows are in play. XBI, IHE, IHF, IHI all turning down.
XLE – Energy broke lower testing the March lows… attempted to bounce but not showing any momentum. The sector was down 1.1% for the week. The downtrend is in play from the November highs. Crude is down on global demand speculation relative to slowing economics.
XLK – Technology The sector broke from the trading range clearing the $154.42 resistance and going vertical. The sector was up 4.6% for the week. Providing leadership for the broad index. SOXX moved higher for the week as well as IGV.
XLF – Financials consolidation pattern near the current lows in play. The sector was down 1.5% for the week. The trend is down from the February highs. Banks are the key to the outlook.
XLY – Consumer Discretionary Broke higher from the consolidation pattern in play on the chart. Retail got a boost on reports that the consumer is spending. The sector was up 0.3% for the week.
IYR – REITs broke lower from the trading range and testing the March lows. The sector was down 1.3% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising. Own SRS on downside risk. Residential moving up… commercial moving down.
Summary: The index was higher on Friday thanks to NVDA impact in the technology sector. Gap higher open held the gains throughout the day. Eight sectors closed higher on the day… broader than Thursday. Remains a sector-driven market. XLK gapped higher. XLY got good news from the consumer spending report. KRE moved up but struggled with the $40 level. XLE is challenged by volatility in crude prices. XLV, XBI, XLI, IYR, IYZ, and XLU are all struggling to find support. XLP accelerated lower again on Thursday. The index remains in an uptrend from the October low but the breadth remains narrow as seen in only two sectors showing an uptrend on the chart. News is the primary driver up and down for the index. Taking what is offered near term and letting it all unfold. 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 277 points to 12,975 as the index was up 2.19% for the day. The index remains in the uptrend and extended technically. Mega-caps leading along with technology. SOXX gapped higher up 6.5%. IGV added 2.3%. NVDA earnings and economic data were the drivers on Friday… Taking what is offered long and short.
NASDAQ 100 (QQQ) was up 2.56% with the mega caps driving the sector higher. The support is $329.77 and bounced off the Wednesday test and pushed to new highs. The sector had a positive bias with 82 of the 100 stocks closing in positive territory for the day. Added TQQQ entry $27.45 (raised stop $33.54) Sold 1/2 of the position.
Semiconductors (SOXX) broke above the previous highs on NVDA earnings. Tighten stop and let it run. Added SOXL $13.60. Stop $21.50 (Adjusted). The sector was up 10.6% for the week. Well ahead of itself manage the risk.
Software (IGV) Broke above the $318 resistance adding to the uptrend. Added IGV $291. Stop $318 (adjusted). The sector was up 3.3% for the week. Mega caps leading the sector.
Biotech (IBB) The sector broke below the $128.35 support. Could test the March lows. The sector was down 2.3% for the week. Hit stop on positions.
Small-Cap Index (IWM) lagging overall and remains in a trading range. The sector was up 0.02% for the week. Letting it unfold.
Transports (IYT) Established a trading range and content for now. The sector was down 0.8% for the week. If the markets are to move higher overall they need transport to be positive.
The Dollar (UUP) The dollar remains volatile but produced an uptrend back to the March highs. What is on the horizon? If the dollar gets stronger watch the ripple effect… The dollar was up 1.1% for the week. Uptrend continued.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.81% up from 3.69% last week. Rates climbed 35 bps in the last two weeks. The FOMC meeting is on deck and rates are projected to move higher on the data. TLT was down 0.01% for the week.
Crude oil (USO) Establishing a bottoming range. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. USO was up 1.4% for the week. Warning from the Saudi energy minister to speculators… pushed the agenda of another production cut. EIA showed big drawdown in supply…
Gold (GLD) The commodity moved lower on the stronger dollar for the second week. letting this unfold with the trend higher from the October lows. The metal was down 1.5% for the week.
Questions to Ponder: Navigating Uncertainty
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.
Money Supply – Falling at the fastest rate since 1930. M2 fell 2.2% in February and fell 2.4% in March… Contraction in supply should contract liquidity in the system and stifle inflation. Watch bank deposits they are still declining. See the above definition of stagflation… the pressure on the economy is building.
Banking Facts: Money market inflows surged the last week… outflows remain from banks to money market funds… they gained $47 billion to a new record $5.39 trillion… “sound and resilient”. The Fed is giving just enough money through the BTFP (Bank Term Funding Program) facility to keep from a collapse (lending rose to $91.9 billion from $87 billion last week). “Sound and resilient” are the words uttered by many… not even close.
Interest Rates: Fed Funds Rate currently stands at 5.25%… Jamie Diamon (JP Morgan) stated in a presentation he believes rates go to at least 6% and possibly 7% before inflation breaks. Think about what that means for the financial markets if that is true.
Volatility Index (VIX–X) Tested down to the 16 level the last month showing little anxiety from investors despite all the news surrounding the markets. Short-term belief is they are focused on the Fed over the debt ceiling issues. Still an underlying belief the Fed will cut rates prior to the end of the year… despite what all the Fed folks say. The CBOE has added a 1-day Volatility Index (VIX1D) you can now track the volatility daily versus the rolling 30-day in the regular VIX. Note Monday’s volatility actually dropped despite the debt-ceiling deal not getting done. Worth tracking and learning more.
Consumer credit card debt is on the rise. It totaled $986 billion in the first quarter. This is a negative sign for the economic picture as most consumer debt is attributed to monthly expenses rising due to inflation.
Data is not supporting a Fed pause in rates. PCE was higher, core PCE was higher, personal income higher, personal spending higher, durable goods higher, and capital investments higher… that was all from Friday… FOMC meeting is two weeks away and the pressure will be on the Fed to hike rates based on the data.
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. We remain focused on short-term trades until there is longer-term directional clarity. Trading the volatility has performed better than holding through the cycle. Sector-driven activity is in play short term with narrow leadership. 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 your money.
Friday: Stocks traded higher again as AI stocks lead the charge. The gains were broader in reach with eight of the eleven sectors moving higher. Better economic data was a help as well. Technology remains the leader along with consumer discretionary which got a boost from the personal spending data out on Friday. We see the overall trend is still up from the October lows. Major indexes have moved higher on the mega-cap moves. Manage the risk as news continues to drive the indexes higher.
What I am watching on Friday: The AI sector runs higher. SOXX was up 13.1% the last two days? KBE/KRE follow through on bounce and test? USO?
“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.