Jim’s Notes Thursday Recap & Outlook

Moving the Market – March 21st

The markets continued the post-Powell/FOMC announcement with stocks gapping higher at the open and then an interesting diversion to the finish. There was economic data to add to the up-and-down day. The Philly Fed Index was higher than expected and existing home sales were higher, both added some optimism relative to the outlook for the economy improving. The NASDAQ gapped higher but failed to hold the moves as technology stocks faded below their opening levels. In contrast, small and midcaps, the Dow, and transports gapped and rallied higher into the close. Semiconductors held the majority of their gains but did give up some upside. There were also solid moves by the laggards and the SOXX moved into interesting territory on the chart. The Swiss National Bank unexpectedly cut interest rates stating inflation was low enough to cut rates. While the bravado in the headlines has a positive spin the reality is the global economy isn’t as strong as everyone would like to believe. Shocking, I know, but reports of Germany struggling, China and the UK in recessions, Russia overspending on war, and, and, and. All the pieces are starting to add up relative to trouble brewing economically. The DOJ sued Apple for being a monopoly… the stock dipped 4%. Reddit jumped 48% on its IPO. Cracks showing in retail as LULU lowers guidance and DRI states that same-store sales decline on lower spending per customer. Credit card delinquencies hit a 13-year high… Plenty to ponder as we continue to take what the market offers one day at a time.

Financial Thought: “If you want to have a better performance than the crowd, you must do things differently from the crowd.” – Sir John Templeton.

The indexes enjoyed another day of relief based on the Fed taking a more dovish approach to interest rates and the outlook for the US economy. They gapped higher at the open and then showed mixed follow-through for the balance of the day. The leaders were mid and small caps and transports. Money flow and the RSI were lower but money flow was higher but volume remained below average. Nine sectors closed in positive territory showing positive breadth. The NASDAQ closed up 0.2%, DIA was up 0.7%, and the SP500 was up 0.3%. The major indexes closed higher on the day. The SOXX was up 2.1%. Small Caps (Russell 2000) were up 0.9%. The ten-year treasury yield was at 4.27% down unchanged for the day. Crude Oil (USO) was down 0.5%. (UGA) was down 0.4%. Natural gas (UNG) was down 0.3%. The dollar was up 0.6%. 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: “My wife has a slight impediment to her speech. Every now and then she stops to breathe.” — Jimmy Durante.

Sector Rotation & The S&P 500 Index

The S&P 500 index closed up 16 points to 5241moving the index up 0.32% with below-average volume. The index maintained the uptrend and closed at new highs. The money flow was positive and RSI was lower. Leadership was broader on the day with nine of the eleven sectors higher. Industrials was the leader up 1.0%. The worst performer of the day was telecom down 0.2%. The VIX index closed at 12.9 lower on the day. There is plenty to ponder between the headlines and the facts.

Leaders:

XLK – Technology Entry $183. Stop $204.10. Broke above the $208 resistance and retreated. The sector was down 0.8% for the week. The semiconductors were the laggard keeping the sector down. Moved back above $208.

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 1.2% for the week. Needs to hold the 50-day MA. Made a solid move higher from the consolidation and back above the 10-day MA.

XLF – Financials Entry $33.65. Stop $39.92. Continued to trend higher with banks showing some positive moves. The sector was up 0.4% for the week. Moved above the resistance at $39.28 and followed through upside testing the 10-day MA. Interest rates ticked higher in inflation data and something to watch. New highs.

XLV – Healthcare has shifted to a sideways movement. Some testing on the week as we move back to the 30-day MA as the trendline. Entry $129. Stop $144.57. The sector was down 0.7% for the week. Held support $144.63.

XLP – Consumer Staples Uptrend remains in place moving above resistance at the $74.70 mark and testing. The sector was up 0.5% 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 down 0.2% for the week. New highs.

XLB – Basic Materials uptrend remains in play adjust your stops if you own any positions here. For the week was up 1.6%. Activity picks up as money rotates. New highs.

Laggards:

XLU – Utilities bounced off the $60.10 support level and cleared $62.90 resistance but tested it twice this week. Entry $61. Stop $62.70. The sector was down 0.4% for the week. Tested lower but held support.

XLE – Energy making a steady climb higher after clearing resistance points. Entry ERX $52.15. Stop $58.65 (adjusted). Let it play out. The target of $64 was hit and now looking at $69. Showing some resistance at the $92.50 mark and closed at $92.60… need to follow through.

IYZ – Telecom broke support at the $21.74 level and renewed the downtrend. The sector was down 1.3% for the week. Holding at support.

Losers:

IYR – REITs were weak all week as interest rates rose all week on the inflation data. The sector has been challenged by higher rates and vacancies in the commercial sector. We will see how this unfolds short term with $87 support. The sector was down 2.8% for the week. Bounced at support

Summary:

The SP500 index closed at new highs on below-average volume. RSI ticked higher. Money flow ticked lower overall. The tug-o-war between buyers and sellers showed intraday in the leaders. The laggards held with most closing at the highs of the day. Watching the overall breadth of the move expand and most importantly the trend of each. We maintain our stops and continue to look for where money flow migrates. Technically the uptrend remains in play with the buyers rotating where money is going. 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 up 342 points to 16,4019 as the index was up 0.2% for the day. The index traded back above the 10-day MA. SOXX gapped over the prior $222.24 support. IGV was higher moving back above the 10-day MA. Mega caps struggled on the day with the AAPL DOJ lawsuit putting a drag on the sector. Technically the index tested the key levels of support and bounced again. The focus is to follow the trend and manage the risk.

NASDAQ 100 (QQQ) was up 0.47% for the day as the mega-caps helped keep the dream alive. The uptrend remains on the chart with some topping still in play. Software and Semiconductors led the upside with small caps helping on the day. Watching how the sector responds looking forward.

1) AAPL Watching after the DOJ lawsuit changes the outlook. 2) AMZN moved above the 10-day MA again. 3) GOOG stalled at the $150 resistance. 4) MSFT added upside. 5) META moved back above the 10-day MA. 6) NFLX back above the 10-day MA. 7) TSLA testing following bottom reversal. 8) QQQ back above the 10-day MA. 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 maintain enough momentum. The sector needs to find conviction if it is going higher. Patience for now. The sector was down 2.1% for the week. The sector tried but failed yet again. Closed above the 10-day EMA as the sector bounced off support again.

Transports (IYT) rolling top on the chart as we see some profit taking. BDRY has responded well, bouncing back from the test at $8.95. The sector was down 2.2% for the week. Broke below the 30-day MA. Testing support at $68.30 and bounced.

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. Moving lower following the FOMC news, but bounced on Thursday.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond moved back to the February highs. The yield moved from 4.08% to 4.3% this week up 22bps. The move-up in yields triggered our stop in TLT and entry in TBT. Watching how this unfolds with the FOMC meeting next week. 4.27% following the FOMC meeting.

Crude oil (USO) bottom reversal continued the move higher reestablishing the uptrend. The move above $75 was a positive with the confirmation on Friday. We adjusted our stop and let it unfold. The commodity was up 4% for the week. Entry UCO $26.70. Stop $31.70. Patience. It is important to note that pump prices are higher on a Y/Y basis. This is not a trend that the Fed wants to see nor consumers. UGA is up 23.9% since the December lows. Biden announced he wanted to refill the strategic reserves for the US. Great he depleted them at an average of $60 per barrel and wants to refill them with crude above $80 a barrel. Sounds like he was a great trader in his previous life. Watch how that impacts supply and prices. Supply drew down more than expected and crude dropped and added a modest decline on Thursday.

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 pennant on the chart shows consolidation as we watch for a continuation of the uptrend. The metal was down 0.9% for the week. Entry $189.30. Stop – trailing 2%. UGL. Pennant broke to the upside on FOMC news and tested.

FINAL NOTES

For Friday: The week comes to a close with the S&P 500 up 2.1%, the NASDAQ is up 2.6% and the Dow is up 2.7%. Watching how Friday concludes the week… do the sellers take a shot? Profit-taking? Buyers continue the positive week? The move is in response to a more dovish Fed as we move toward the end of the quarter and earnings season. With no economic data, the markets will be left to their own devices. We are also looking at how the leaders and laggards respond. The talk of overbought and overvalued markets is back following the move higher after the announcement from the Fed. There is some rotation on the charts as money looks for where it will be treated the best. Money flow is rising again. The Fed presidents and vice-chair will be out talking again and we will see if they continue the dovish rhetoric from Powell and how markets respond.

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, have had back-to-back negative weeks on the index. Short term this is a caution signal but longer term we would need to break the 13-week MA. 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 from 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. There are many issues on the horizon with inflation remaining a top challenge for investors. 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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