Jim’s Notes – Momentum Shift

Moving the Market – June 20th

The markets started the day higher but shifted gears early in the trading day and closed in negative territory. The NASDAQ and SP500 struggled throughout the day as the leaders tested. The Dow however decided to be a beacon of positivity on the day moving back above the 50-day MA. The transports showed some life as well moving above the 200-day MA. Commodities bounced led by crude oil and precious metals. Housing starts were ugly down 5.5% along with building permits down 3.8%… is the housing sector starting to feel the effects of inflation and the slowing economic picture? XHB was down on the day in response. Philly Fed was lower at 1.3 versus 5 prior… more regional data showing weakness in June. The dollar was higher, interest rates were higher at 4.25%, Gold was higher along with crude oil. Option expiration is Friday and it is the quad version meaning more activity… did that have something to do with Thursday’s move? Likely, but we will watch how this unfolds near term relative to the leaders. We wouldn’t call the activity rotation but we did see some profit taking in the leaders and buying in commodities which have been lagging of late. The Fed has been out in force all week talking the same rhetoric relative to the economy and future rate activity. Technology led the downside as SOXX fell 2.7% and energy led the upside… shift in leaders for the day. As stated crude oil was up 1% on the day but is up 11.4% in the last two weeks. That means gasoline is going up. That impacts the inflation data along with the consumer. All data we need to pay attention to short term. Watching how Friday unfolds with options expiration and volatility.

The major indexes closed mixed on the day with some downside on the charts. The volume was above average with options expiration working its magic. The activity started higher and failed to gain much momentum as they closed lower on the day. Thursday the NASDAQ closed down 0.8%, DIA was up 0.7%, and the SP500 was down 0.2%. Overall negative day. The SOXX was down 2.7%. Small Caps (Russell 2000) were down 0.4%. The ten-year treasury yield was 4.25% up 4 bps and TLT was down 0.6% for the day. Crude Oil (USO) was up 0.9%. (UGA) was up 0.8%. Natural gas (UNG) was down 4.5%. The dollar was up 0.4%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Friday Outlook: The markets came back from the midweek break to close lower. Options expiration on Friday should see some more volatility in the leaders related. Not seeing the laggards pick up yet. Commodities were higher on Thursday we will see it that follows through. What are we watching? 1) The dollar’s response to the data. Thus far higher. 2) Interest rates moved to 4.25% and still showing volatility. 3) Crude oil bounced back above $80… bought crude? UGA as prices will follow crude. bought some as well. 4) Natural gas remains volatile as it settles out the run higher. 5) DBA is showing some volatility as commodities overall look for direction. 6) Mega caps tested… is there more to come? 7) Small caps still struggling… Taking what is offered and balancing the risk.

The chart below shows the breadth issue for the SP500 sectors compared from the beginning of the current leg higher that started in April. The technology sector is the only one to outperform the index… Note on Thursday the leader (XLK) and the loser (XLE) shifted directions…

Headlines Worthy of Note:

As the political season kicks up some dust, I can’t help but be amused by the headlines. The smart money is preparing for Trumpflation… The point is the author of the article believes inflation is coming down under the Biden Administration… say what? Who started the inflation run? Anyway, the opinion is Trump will cause inflation to rise again based on his proposed economic agenda… time will tell not journalists.

Darden CEO stated that restaurant customers are shifting towards casual dining experiences versus fast food. That may well be true but seems like a good way to get your stock so to move higher. DRI gained 1.5% breaking from a bottoming pattern.

Home prices are falling? Some areas are seeing modest moves lower and more supply available. It is a trend worthy of following but expectations are not for a major move to the downside. XHB has been consolidating sideways since the March highs. REM looks similar on the chart, and REZ has been trending higher… sector still looks solid on the chart.

Quote of the Day: “To know one’s self is wisdom, but not to know one’s neighbors is genius.” — Minna Antrim.

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