Jim’s Notes Thursday’s Recap & Outlook

Moving the Market – February 22nd

Trading on Thursday was all about Nvidia. One company’s earnings report took the entire market higher as large gaps on the upside dominated the charts. Could this be a climax run to the top? Charts were showing contraction before Thursday with some distribution and rotation… Thus, my concern. All the indices closed near the session highs. SPY, DIA, SOXX, and QQQ all moved to all-time highs leaving a feeling of… “now what?” Small caps were the noted laggard on the day as they remained in the long-term trading range as seen on the weekly chart. I am not going to belabor the point of managing risk at this point of the trendline, but… we need to manage the risk. All is not well. There is plenty of underlying issues that remain for the broad markets and NVDA did nothing to resolve any of them. Take what is offered and watch how this all unfolds.

The indexes gapped higher and closed near their respective highs. Friday trading will be of interest to see if there is any profit taking or if the laggards play catch up. Economic data is still showing slowing in areas not attached to government spending and fairytale employment data. Watching the response to NVDA and if it lasts or extends beyond tech. The NASDAQ closed up 2.9%, DIA was up 1.1%, and the SP500 was up 2.1%. The major indexes were higher on the day. The SOXX was up 4.9%. Small Caps (Russell 2000) were up 0.7%. The ten-year treasury yield was 4.32% flat for the day. Crude Oil (USO) was up 0.5%. (UGA) was up 0.7%. Natural gas (UNG) was down 2%. The dollar was flat. We are focused on managing the risk in the current environment and letting it unfold.

Charts to Watch: See Notes on “Reality of the Markets” & “Jim’s Beliefs About the Market” pages…

Quote of the Day: “Procrastination is the art of keeping up with yesterday.” — Don Marquis.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 105 points to 5087 moving the index up 2.11% with above-average volume. The index moved back above the 5000 level. Money flow flattened on the day despite the gains. Ten of the eleven sectors closed higher on the day with technology as the leader up 3.2%. The worst performer of the day was utilities down 0.7%. The VIX index closed at 14.5 moving lower on the day. There is plenty to ponder between the headlines and the facts. Held support and bounced on the NVDA earnings… watching how Friday unfolds.

Leaders:

XLK – Technology Entry $183. Stop $202. Bounce-off support at $183.50 and renewed the uptrend. Trading sideways. The sector was down 2.5% for the week. Tested lower. Tested the $197.60 support and held bouncing nicely on the NVDA earnings news.

XLY – Consumer Discretionary Tested support $171.50. Moved into a downtrend channel on the chart and moved back to the previous highs. Needs to break above the December high. The sector was down 0.4% for the week. Consolidation wedge on the chart broke higher on Thursday.

XLF – Financials Entry $33.65. Stop $38.70. Broke higher from the consolidation pattern. The sector was up 1.4% for the week. Holding move above the resistance at $37.95. NYCB regional bank worries are worthy of our attention moving forward. Pushed higher on Thursday.

XLV – Healthcare remains in an uptrend from the October lows. Solid upside for the week confirming the move above the previous high. Entry $129. Stop $141. The sector was up 1.1% for the week.

XLP – Consumer Staples Uptrend remains in place with sideways trading the last few weeks. No Positions. The sector was up 0.2% for the week. $71.58 support. Higher last five days showing strength… defensive sector… rotation.

XLI – Industrials Uptrend remains in play moving higher on the week. No Positions. The sector was up 0.9% for the week. GE and LDOS adding leadership.

Laggards:

XLU – Utilities Moved back to the $60.10 support level. In a downtrend from the December highs. Watching how this unfolds. The sector was up 1.6% for the week. Solid bounce-off support – bottom reversal in play. Down trendline in play.

XLE – Energy Cleared $84.33 resistance breaking from the trading range with crude oil moving higher helping the stocks. Entry ERX $52.15. Stop $54.20 (adjusted). Let it play out. The chart remains in a downtrend from the September highs. Tested the break higher… resumed.

IYZ – Telecom Broke below support at $22.93 offering a downside opportunity. Added to the downside to end the week. The sector was down 2.1% for the week. Solid gain on the short trade. Needs to hold $21.74.

XLB – Basic Materials bottom reversal in play with key support at $81. Resuming the uptrend with solid mover for the week was up 2.4% for the week. Activity picking up in the materials VMC and EXP. Moved back to the December highs.

Losers:

IYR – REITs Moved to the next level of support at $87. The sector has been drifting lower on higher interest rates of late. The sector was down 0.05% for the week. Watching Interest rates near term. Remains in a short-term downtrend from the December highs. Holding above the $87 level but nothing impressive.

Summary:

The SP500 index made a solid move higher as technology led the day. Money flow was flat on the day with slightly above average volume. The index as well as the market is in a precarious position as it determines the next catalyst. Technically the uptrend remains in play and the buyers are present, but seeing some shifting relative to conviction. Does NVDA act as a catalyst to the upside for more than one day? Watching how Friday unfolds. As seen on the chart above, the short-term trendline remains higher. Remember two things; first, the trend is your friend, and second, don’t fight the Fed… Both are currently in play.

(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 Indexes & Sectors To Watch

The NASDAQ index closed up 460 points to 16,041 as the index was up 2.96% for the day. The three days of weakness was erased by one earnings report… all must be good in the economy. Small caps were the laggard on the day up 0.7%. The uptrend remains in play managing the risk that is and watching the leadership. We continue to take money off the table as the sectors and market look for overall direction short term. Friday the question is how much impact NVDA has short term.

NASDAQ 100 (QQQ) was up 2.93% for the day as the mega-caps led the day. The uptrend remains on the chart. Will the rotation return? What is the next catalyst for the stocks? Manage stops and let it play out. Entry $354.20. Stop $430. Patience.

AAPL tested the $180 support level again and bounced. AMZN tested the 20-day EMA and bounced. GOOGL holding at the 50-day MA and bounced. MSFT tested below the 20-day EMA and bounced. META & NFLX held the 10-day MA and bounced. QQQ held the 20-day EMA and bounced. Adjust your stops if you hold positions and manage the risk going forward.

Semiconductors (SOXX) Added position at $601. Stop $625. Tested lower… and looking for buyers… The sector was down 0.6% for the week. NVDA earnings provided hope to all. The uptrend from the November lows remains in play. Gained 4.9% on Thursday… now what? Adjusted stop.

Software (IGV) continued the uptrend from the January test. Broke higher from the topping on the chart and testing. The sector was down 3.2% for the week. Adjusted stop on the move higher. Moved below the 50-day MA. $410 support came into play on Wednesday. PANW was down 28%, ZS was down 14%, and WK was down 13%… missed earnings punishing stocks lower. Bounced on the NVDA news but we will see how it unfolds.

Biotech (IBB) Topping pattern on the chart and a modest downtrend from the January highs. The sector was up 0.8% for the week. $136.50 level to clear on the upside. Broke above the down trendline on Thursday… watching.

Small-Cap Index (IWM) downtrend reversal with a move back toward the December highs. Added at $192.13 upside move. Stop $192.13. Cleared $198.64 bar. The flag pattern on the chart broke to the upside. Letting it unfold with a breakeven stop. Back above $198.64 again. The sector struggles to find direction in the uncertainty and continues to lag.

Transports (IYT) Broke higher from the sideways trading range and confirmed. Despite the Red Sea issues continuing to escalate the sector is moving higher. BDRY has responded well, bouncing back from the test at $8.95. The sector was up 1.2% for the week. Entry $266. Stop $263. Holding the uptrend.

Red Sea issues are continuing to be bad. There have been ships on fire, protection vehicles turned back, and just an overall mess. The cost in some cases is over $100k per day. The true impact of this on prices has yet to be passed through to consumers… this is a growing issue so look for disruption to the supply chains. BDRY entry $9.70. Stop $11.40

The Dollar (UUP) The dollar bounced off the December lows and has not looked back. Stronger dollar in January. Fed talks on higher interest rates are keeping the dollar higher. The buck was up 0.3% for the week.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond jumped following the CPI and PPI data. The yield moved from 4.19% to 4.29% this week up 106 bps. Higher rates are not good for bond prices or banks at this juncture. TLT was down 1.1% for the week. TMV has been the trade of late. Watching how rates respond to any additional selling.

Crude oil (USO) bottom reversal last two weeks has moved to resistance at the $73.25 level. Production has been higher than expected as OPEC juggles its production outlook. Of interest to this conversation is the increased production in the US. OPEC has set a meeting for March to discuss extending their production cuts. As seen on the chart it is attempting to renew an uptrend from the December lows… plenty of volatility to go with it. The commodity was up 2.4% for the week. Entry UCO $26.70. Stop $28.65. remains at the resistance line. Watching.

Natural Gas (UNG) The move higher from the December lows came to an abrupt end with natural gas falling on projected supply rising the first half of the year. We traded the upside move and the downside move. Pressure is on the downside based on the White House taking away permits for new LNG facilities for transport globally. The commodity was down 12.5% for the week. Moved off the lows/support gaining 12% on Wednesday. Tested the move on Thursday.

Gold (GLD) The commodity traded sideways with some volatility sparked by a stronger dollar the last month. The metal did bounce at support $183.72. The metal was down 0.6% for the week. Bottom reversal in play.

FINAL NOTES

Thursday: The broad indexes closed higher for the day. Plenty of chatter and speculation on direction and leadership. Ten of the eleven sectors closed higher with small caps and software laggards on the day. VIX moved to 14.5 and anxiety levels subsided on the NVDA news. The key first levels of support held and bounced. Economic data was suspect at best, and the Fed continues to talk last of the year for rate cuts. All said, positive day, but left you asking… what’s next? Plenty of distractions in the activity, but we remained focused on what is moving up and down relative to the charts.

Longer-Term View: The uptrend from the October lows continues. They moved above the July and August highs and broke above the 2021 highs to a new high. This resumes the long-term uptrend from the lows of October 2022. Currently, we are allowing the short-term to unfold in light of the longer-term perspective… don’t combine the two as the weekly charts look very different than the daily. A look at the weekly chart below shows the uptrend from the October 2020 lows is still in play at a slower degree of assent. There are always positive and negative swings in a longer-term trend. A look at the daily chart from the October 2022 lows validates that premise with plenty of volatility along the way. Short term the market has resumed the uptrend from the October 2023 lows. The current bounce remains in play despite any issues on the horizon. Current activity shows optimism from the buy side and we will take what the market gives. We look to charts and fundamentals for 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.

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.

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