Jim’s Notes Thursday Recap & Outlook

Moving the Market – February 28th

The markets got an updraft from the PCE data showing up tamer year-over-year and easing some of the angst related to the Fed and interest rates. The broad indexes all closed in positive territory with modest gains. Some rotation out of the defensive sectors and back toward growth and mega caps. Tech, REITs, transports, and homebuilders were the leaders of the day. The move pushed some sectors to the top of the current chart consolidation. Retail, small caps, and biotech tested the upside move from Tuesday. The downside was led by financials, consumer staples, and healthcare. Natural gas was lower with the storage continuing higher again this week. The price of crude was lower on the day as commodities took a breather. On the economic side, PCE data showed 2.4% lower than the previous 2.6%, and personal income rose 1% versus the 0.4% expected. The numbers helped the markets overall. There is plenty of news no tap Friday and next week to show how the economic picture is unfolding. Outside the Market page has more. We are still in a wait-and-see game for the major markets. Plenty of talk about the markets being overbought as analysts point to insider selling, the percentage of shorts is up, retail sales are higher, indexes are at new highs, etc. The problem is that we have an administration that is willing to spend $2.50 for $1 of GDP. We have a Fed that is putting liquidity quietly into the system through banks, it is an election year, and as long as inflation is in a favorable range, and economics are tolerable, the markets can continue higher despite what anyone thinks… the point is you can make statistics point to your opinion, but it is a market of stocks and the charts will tell you very clearly the trend along with the winners and losers. That was seen on Thursday with just a little bit of favorable data. Don’t sway your thinking by distorting the data to say what you believe.

The indexes weren’t great on the day but they did manage to close on the upside. There was definitely some volatility throughout the day with some selling into lunchtime and then a rally to the close. Eight sectors closed in positive territory with interesting activity throughout the day. Commodities were lower. Crypto took a break with some modest selling. Consolidation patterns remain on the charts and we will look to Friday for some more clarity near term.. The NASDAQ closed up 0.9%, DIA was up 0.09%, and the SP500 was up 0.5%. The major indexes closed higher on the day. The SOXX was up 2.7%. Small Caps (Russell 2000) were 0.7%. The ten-year treasury yield was at 4.25% down 2 bps for the day. Crude Oil (USO) was down 0.3%. (UGA) was up 1.3%. Natural gas (UNG) was down 1.1%. The dollar was up 0.2%. 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: “Progress is man’s ability to complicate simplicity.” — Thor Heyerdahl

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 26 points to 5097 moving the index up 0.52% with below-average volume. The index held the up trendline as we let the current consolidation unfold. Money flow is trending lower. Eight of the eleven sectors closed higher on the day with technology as the leader up 1.1%. The worst performer of the day was healthcare down 0.8%. The VIX index closed at 13.4 lower on the day. There is plenty to ponder between the headlines and the facts. Watching how Friday unfolds relative to economic data for February. Large caps offered some upside on the day.

Leaders:

XLK – Technology Entry $183. Stop $203. Bounce-off support at $183.50 and renewed the uptrend. Trading sideways. The sector was up 0.4% 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 up 0.6% for the week. Cup pattern on the chart. Moved above the December highs.

XLF – Financials Entry $33.65. Stop $39.50. Continuing to trend higher with banks showing some positive moves. The sector was up 1.3% for the week. Moved above the resistance at $39.28 and followed through upside. Interest rates continue to be a watchlist item looking forward.

XLV – Healthcare remains in an uptrend from the October lows. Some testing on the week as we move back towards the trendline. Entry $129. Stop $145. The sector was up 1.8% for the week.

XLP – Consumer Staples Uptrend remains in place breaking above resistance at the $74.30 mark. The sector was up 2.2% for the week. $73 is support.

XLI – Industrials Uptrend remains in play moving higher on the week. The sector was up 1.2% for the week. GE and LDOS adding leadership.

XLB – Basic Materials bottom reversal broke above the December highs and added to the upside. For the week was up 2.9%. Activity picking up in the materials VMC and EXP. Let it run.

Laggards:

XLU – Utilities Moved back to the $60.10 support level and bounced. Building a trading range as the bottoming pattern continues to set up on the chart. Watching how this unfolds as we need to clear $62.90. The sector was up 1% for the week.

XLE – Energy Cleared $85.52 resistance and testing. Entry ERX $52.15. Stop $57 (adjusted). Let it play out. The chart is attempting to break the downtrend from the September highs, but it needs some momentum. Watching how crude plays out near term. Posturing to become a leading sector.

IYZ – Telecom Trying to hold support at the $21.74 level of late. Offered a downside opportunity. (own put options) Testing support at $21.74 if we hold here we will lock in our profit on the put trade. The sector was down 1.8% for the week. Patience as this unfolds

Losers:

IYR – REITs found support at $86.97 and attempted a reversal of the downtrend with a move higher. The sector has been challenged by higher rates and vacancies in the commercial sector, but showing some signs of life. The sector was down 0.3% for the week. Watching Interest rates near term. Setting up a bottoming pattern. Hovering around the $87 support line.

Summary:

The SP500 index was lethargic overall as the leaders are holding the trendline but not much leading being done. Money flow bounced on Thursday with below-average volume. The index as well as the market is in a precarious position as it determines the next catalyst. There is inflation data helped Thursday, but we still have all the February economic data head, and the FOMC meeting on the horizon. Technically the uptrend remains in play and the buyers are present, but seeing some shifting relative to conviction. As seen on the chart above, the short-term trendline remains higher but there is a divergence between RSI and price. 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 144 points to 16,091 as the index was up 0.9% for the day. Mega caps led the day with technology stocks higher. The SOXX posted a solid bump higher and software was up. As we manage the risk and watch the leadership, the uptrend remains in play. There is plenty of activity and speculation to filter through.

NASDAQ 100 (QQQ) was up 0.86% for the day as the mega-caps helping the sector. The uptrend remains on the chart. SOXX and IGV were higher on the day as we continue to see consolidation on the charts. Watching AAPL and GOOG as the laggards here. Looking for some defined leadership in the sector. Manage stops and let it play out. Entry $354.20. Stop $425. Patience.

AAPL tested the $180 support level again. AMZN tested the 20-day EMA and bounced. GOOGL broke the 50-day MA and fell 4.4% on AI issues… down 1.9% offering downside trade (May $135 puts @ $5.40). MSFT testing the 20-day EMA. 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 bounced on NVDA earnings… The sector was up 1.2% for the week. The uptrend from the November lows remains in play. Solid bounce on Thursday helped the cause.

Software (IGV) tested lower to support at $410 level and held. Bounced on NVDA earnings and held the $420.25 level of support. The sector was down 2.7% for the week. Looking for opportunity on directional decision.

Biotech (IBB) moved above the downtrend from the January highs. Watching for some momentum in the sector. The sector was up 1.2% for the week. $136.50 level cleared on the upside. Inside day, then broke lower on the Thursday.

Small-Cap Index (IWM) downtrend reversal with a move back toward the December highs but can’t seem to get enough momentum. Added at $192.13 upside move. Stop $192.13. Cleared $198.64 bar. One big volatility mess on the chart… patience for now. Gapped higher on Tuesday… can we clear the December highs? Reversed on Thursday.

Transports (IYT) Broke higher from the sideways trading range and moved higher. 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 0.03% for the week. Entry $266. Stop $272.

Red Sea issues continue to be bad. More activity over the weekend with destroying communication systems. 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 $13.05.

The Dollar (UUP) The dollar bounced off the December lows and is now trading sideways as some believe lower rates are on the horizon. Watching how it unfolds moving forward. The buck was down 0.1% for the week.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond has been rising since the low in December. The yield moved from 4.29% to 4.26% this week down 3 bps. Topping pattern on the yield chart shows some believe rates have peaked with the Fed softening on their stance… despite what the Fed is saying. TLT was up 0.6% for the week. TLT is trading at $92.80 support… modest bounce Thursday.

Crude oil (USO) bottom reversal last few 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 down 1.2% for the week. Entry UCO $26.70. Stop $28.60. Patience. Back above resistance and tested again?

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. Companies are starting to cut production to stabilize prices. The commodity was up 2.7% for the week. Plenty of intraday volatility closed higher… bottom reversal setting up. Added position entry $16.55. Stop $16.10. Bear flag pattern on the chart.

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 and attempted a trend reversal. The metal was up 1.5% for the week. Moved higher on belief rates are heading lower along with the dollar…

FINAL NOTES

Thursday: The broad indexes closed higher for the day. There is plenty of chatter and speculation on direction and leadership. Eight of the eleven sectors closed higher with technology stocks returning to the leadership role. VIX moved down to 13.4 and anxiety levels subsided with the consolidation. The key first levels of support were held and waiting. Economic data remains suspect at best, and the Fed continues to talk last of the year for rate cuts. All said it was a volatile day as investors jockeyed over the intraday direction. It is interesting to note the jump in crypto stocks of late as we adjust our stops on positions. Areas of focus for Thursday… response to the February economic reports.

Longer-Term View: The uptrend from the October lows continues. The index 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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