Jim’s Notes Thursday Recap & Outlook

Moving the Market – March 14th

Markets were negative as inflation remained the focus and topic of discussion as the PPI data showed more inflation than anticipated at the producer level. The 0.6% monthly gain was almost double the expectation and the result was a swing higher in interest rates back to 4.3% as stocks were mostly lower. The action shows signs of rotation with money moving where investors believe will be treated better. The yield on the 10-year bond has risen all week on the inflation data as they shift thinking about the Fed and interest rates. Retail Sales were up 0.6% but lower than expected. Consumer spending has remained somewhat positive overall but has been sustained by debt. The job market is steady and housing prices continue to remain high, giving consumers a wealth effect albeit false when you use debt to pay bills. The results of the day were nine sectors of the SP500 closed in negative territory. The Volatility Index rose to 14.4 showing some anxiety. The NASDAQ held above the 20-day MA which has been the key support at each test in the current uptrend. The last half hour of trading the index bounced 0.6% to cut most of the day’s losses. The technical data shows a leaning towards negative and more consolidation, but the buyers refuse to go away. Retail stocks were higher thanks to BBW, DKS, and DG moving higher on better-than-expected earnings. The outlier sectors continued higher as well with USO, DBC, and IEO higher on the day. Friday brings the week to a close as we watch how investors respond.

Trader Quote: “Charts are a leading indicator of fundamental analysis.” – John Murphy.

The indexes were lower as investors continued to discuss inflation data and the outlook for the Fed. The activity shows rotation from the leaders based on shifting beliefs towards the Fed and interest rates. The volume was average, the money flow ticked down, and the RSI was lower. Two sectors closed in positive territory as investors attempted to show a positive face with some rotation in play. The NASDAQ closed down 0.3%, DIA was down 0.3%, and the SP500 was down 0.3%. The major indexes closed lower on the day. The SOXX was down 1.7%. Small Caps (Russell 2000) were down 1.7%. The ten-year treasury yield was at 4.29% up 10 bps for the day. Crude Oil (USO) was up 1.6%. (UGA) was up 1.2%. Natural gas (UNG) was up 4.4%. The dollar was up 0.5%. 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: “There are a lot of people who mistake their imagination for their memory.” — Josh Billings.

Sector Rotation & The S&P 500 Index

The S&P 500 index closed down 14 points to 5150 moving the index down 0.29% with average volume. The index maintains the uptrend and is above the 10-day MA. Money flow was negative and RSI was lower. Some rotation on the day with XLE higher in its respective trend. Two of the eleven sectors closed higher on the day with energy as the leader up 1%. The worst performer of the day was REITs down 1.5%. The VIX index closed at 14.4 higher on the day. There is plenty to ponder between the headlines and the facts. SPEW was down 0.95%, showing the downside’s breadth versus the overall index.

Leaders:

XLK – Technology Entry $183. Stop $204.10. Broke above the $208 resistance and retreated. The sector was down 1.6% for the week. The semiconductors sold to end the week as we watch how they respond. Back to the $208 level and showing volatility.

XLY – Consumer Discretionary The sector broke higher from a cup and handle pattern… it has retreated below the breakout point showing short-term weakness. The sector was down 0.5% for the week. Needs to hold the 21-day EMA.

XLF – Financials Entry $33.65. Stop $39.92. Continued to trend higher with banks showing some positive moves. The sector was up 0.8% for the week. Moved above the resistance at $39.28 and followed through upside. Interest rates were lower at the end of the week and could be seen as a positive for the sector looking forward.

XLV – Healthcare remains in an uptrend from the October lows. Some testing on the week as we move back towards the 21-day EMA as the trendline. Entry $129. Stop $144.57. The sector was up 0.1% for the week.

XLP – Consumer Staples Uptrend remains in place moving above resistance at the $74.70 mark. The sector was up 0.9% for the week. Discount big box is the strength of the sector currently.

XLI – Industrials Uptrend remains in play moving higher in a steady uptrend. The sector was up 0.6% for the week. GE and LDOS adding leadership.

XLB – Basic Materials uptrend remains in play adjust your stops if you own any positions here. For the week was up 1.5%. Activity picking up in the materials VMC and EXP. Let it run.

Laggards:

XLU – Utilities bounced off the $60.10 support level and cleared $62.90 resistance. Entry $61. Stop $62.70. Lower interest rates are helping the upside move. The sector was up 3.2% for the week. Tested $62.90 again.

XLE – Energy making a steady climb higher after clearing resistance points. Entry ERX $52.15. Stop $58.65 (adjusted). Let it play out. Target is $64 near term. The chart broke the downtrend from the September highs and is ploding higher. Gapped higher on crude moving to $85.

IYZ – Telecom Held support at the $21.74 level and trading sideways. The sector was down 1.2% for the week. Bounced inside the trading range and back to $21.74 support.

Losers:

IYR – REITs found support and started a reversal of the downtrend with a move above $88.20. The sector has been challenged by higher rates and vacancies in the commercial sector but is showing some signs of life thanks to residential and a tick lower in rates. The sector was 1.4% for the week. Entry $88.10. Stop $88.10. Led the downside as interest rates tick higher.

Summary:

The SP500 index closed negative on average volume. RSI ticked down due to the rotation. Money flow ticked lower. Watching the leadership in the outliers and how this current test unfolds. The leaders remain in play but there was more breadth to the selling on Thursday. We maintain our stops and continue to look for where money flow migrates. Technically the uptrend remains in play with the sellers and buyers battling it out. 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.)

Other Indexes To Watch

The NASDAQ index closed down 49 points to 16,128 as the index was down 0.3% for the day. The index has been challenged by increased volatility in the technology sector in the last few weeks. SOXX has been down for the last two days breaking $222.24 support Thursday. IGV was lower but holding above the 10-day MA. Mega caps look very similar as AAPL and GOOG tested support before bouncing. The activity shows rotation and indecision short term. The focus is to follow the trend and manage the risk.

NASDAQ 100 (QQQ) was down 0.25% for the day as the mega-caps led the downside for the sector. The uptrend remains on the chart with some topping in play. SOXX and IGV were lower. Watching AAPL move back to resistance, and GOOG moved higher. Manage stops and let it play out. MSFT, ORLY, and PYPL broke higher. Entry $354.20. Stop $435. Patience.

1) AAPL Watching if the bounce has any legs. Needs to clear $173.76 2) AMZN moved t the 20-day MA and bounced. 3) GOOG bounced and added to the upside. 4) MSFT broke higher. 5) META dumped to the 20-day MA and bounced. 6) NFLX below the 10-day MA. 7) TSLA (broke support Feb lows resumed downtrend) 8) QQQ tested the 21-day EMA and held. Manage your stops if you hold positions and manage the risk going forward.

Small-Cap Index (IWM) downtrend reversal with a move above the December highs but can’t seem to get enough momentum. Added at $192.13 upside move. Stop $204.80 (Hit Stop Thursday). Needs to find conviction if going higher. Patience for now. The sector was up 0.4% for the week. The sector tried but failed yet again. Closed below the 21-day EMA as a negative. Watch to see how it responds Friday.

Transports (IYT) drifting 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 down 0.4% for the week. Entry $66.35. Stop $69.56 (HIT STOP). Broke lower to the 30-day MA.

Red Sea issues continue to be bad. The activity continues to disrupt the passage of ships. 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 $14.84.

The Dollar (UUP) The dollar struggled on the week as interest rates fell and Powell talked about stimulus. Watching how it unfolds moving forward. The buck was down 0.9% for the week. Bounced higher on the inflation data.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond has been rising since the low in December, but it turned lower last two weeks on the inflation talk and the Fed. The yield moved from 4.18% to 4.08% this week down 10 bps. The topping pattern on the yield chart shows some believe rates have peaked with hopes of interest rate cuts… despite what the Fed is saying. TLT was up 1.3% for the week. Entry $93.52. Stop $94.45 (HIT STOP). Higher on CPI & PPI data… watching. 4.29%

Crude oil (USO) bottom reversal accompanied by volatility moved resistance at the $73.25 level and testing all week. OPEC extended its production cuts. As seen on the chart it is attempting to renew an uptrend from the December lows… up trending channel. The commodity was down 2.1% for the week. Entry UCO $26.70. Stop $29. Patience. Gapped higher clearing the $75 resistance level.

Gold (GLD) The commodity broke higher from the consolidation pattern and went vertical. We added UGL and now we have a trailing stop to protect against a reversal. The metal was up 2.2% for the week. Entry $189.30. Stop – trailing 2%. UGL. Tested on higher dollar prompted by CPI.

FINAL NOTES

For Friday: The broad indexes are showing some fatigue thanks to the CPI and PPI data this week putting pressure on interest rates and stocks. There is plenty of chatter and speculation on direction and leadership as seen over the last few weeks of trading. All the talk and juggling keeps the chatter about valuations and overbought in the news. The current activity shows rotation on the charts as money looks for where it will be treated the best. Friday has consumer sentiment and the Empire State Manufacturing Survey on tap. Money flow is shifting with rotation. Look to the outliers and take what is offered from each sector. SOXX, IGV, XLK, MGK, and others are reaching decision points on distribution versus accumulation. USO breaking higher. Set your stops and manage your risk accordingly.

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. The acceleration off the October 2023 low is getting extended. We have adjusted our stops on longer-term positions as we let this unfold. 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. The current bounce remains in play despite many issues on the horizon. Current activity shows volatility that is associated with extended moves. We look to charts and fundamentals for answers. Longer-term positions are a ‘hold’ with no accumulation towards the assets. 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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