Jim’s Notes Friday Recap & Outlook

Moving the Market – March 7th

Semiconductors set the tone again for the markets as the NASDAQ and the SP500 closed at new highs again. The catalyst on Thursday was Powell making comments to the Senate about the Fed being ready and gaining confidence that rates could be cut in 2024. Music to the ears of those wanting stimulus to move the markets even higher. He additionally commented on holding shorter-term bills versus the MBS (mortgage-backed securities) which is a new form of stimulus from the Fed. SOXX continues to set the tone for the markets as the sector added 3.4% on Thursday. The NASDAQ big names NVDA, META, AMZN, NFLX, and MSFT all posted solid upside gains. Copper stocks jumped on the day along with aluminum. Gold and silver added to previous gains. The outliers again add to the gains for the markets. Thus, we continue to see a narrow segment driving the upside along with the outside sectors. Banks, retail, and Dow, all lagged on the day. The economic data was flat with the bright spot being consumer credit moving up to $10 billion in spending versus $1.6 billion the prior month. All eyes will be on the Nonfarm Payroll Report Friday before the opening. 198,000 new jobs is the estimate. We will see if the news has any impact as the week comes to a close. As we have stated many times take what the market gives not what you think it should do. The last six weeks there has been plenty of doom and gloom about growth and valuations… they may be 100% accurate in their analysis, but it is what the charts do, not what we believe they should do.

Quote to ponder: “The core problem, however, is the need to fit markets into a style of trading rather than finding ways to trade that fit with market behavior.”

The indexes moved higher on the S& 500, Dow, and NASDAQ. The activity on Thursday showed more conviction with a gap higher at the open and continued drift higher throughout the day. The Volume was above average and the money flow was flat. Nine sectors closed in positive territory as some sectors pushed to new highs. Watch what opportunities develop on the charts as we will take what is offered. The NASDAQ closed up 1.5%, DIA was up 0.3%, and the SP500 was up 1%. The major indexes closed higher on the day. The SOXX was up 3.4%. Small Caps (Russell 2000) were 0.8%. The ten-year treasury yield was at 4.09% down 1 bps for the day. Crude Oil (USO) was down 0.1%. (UGA) was up 0.3%. Natural gas (UNG) was down 7.9%. The dollar was down 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: “I have tried to know absolutely nothing about a great many things, and I have succeeded fairly well.” — Robert Benchley.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 52 points to 5157 moving the index up 1.03% with above-average volume. The index held the up-trendline and the 10-day MA. Money flow was flat and RSI ticked up slightly. Nine of the eleven sectors closed higher on the day with technology as the leader up 1.5%. The worst performer of the day was telecom down 1%. The VIX index closed at 14.4 lower on the day. There is plenty to ponder between the headlines and the facts. Watching how the trend unfolds as we get more data from the jobs report. The new high showed more conviction. Patience and stops remain the priority.

Leaders:

XLK – Technology Entry $183. Stop $203. Broke above the $208 resistance adding to the upside trend. The sector was up 2.6% for the week. The semiconductors were the leading component of the week with software trying to resume the uptrend. Biotech added some upside as well. $208 resistance cleard.

XLY – Consumer Discretionary The sector moved into a down trending channel on the chart and broke higher clearing the December highs. Positive uptrend from teh January lows. The sector was up 2% for the week. Retail (XRT) and construction retail are pushing the sector higher. Selling in play Monday… selling on Tuesday to the 20-day EMA… selling on Wednesday breaking the 20-day MA. Modest buying Thursday back to the 20-day MA.

XLF – Financials Entry $33.65. Stop $39.50. Continuing to trend higher with banks showing some positive moves. The sector was down 0.02% 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 trendline. Entry $129. Stop $143.50. The sector was down 1% for the week. Sold to the 20-day EMA and held.

XLP – Consumer Staples Uptrend remains in place attempting to move above resistance at the $74.70 mark. The sector was down 0.4% for the week. Discount big box is the strength of the sector currently. Climbing higher.

XLI – Industrials Uptrend remains in play moving higher in a steady uptrend. The sector was up 1% 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 1.3%. 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 down 0.4% for the week. Solid upside move on Monday. Broke above the $62.90 resistance on Wednesday. Upside in play.

XLE – Energy Cleared $85.52 resistance and moved higher on Friday as crude moved above the $80 level. Entry ERX $52.15. Stop $57.40 (adjusted). Let it play out. The chart broke the downtrend from the September highs, but it needs some momentum. Watching how crude plays out near term. Posturing to become a leading sector. Inching higher.

IYZ – Telecom Held support at the $21.74 level and bounced to end the week. We closed our downside put trades with a solid gain and now watch how it unfolds from here. The sector was up 1.3% for the week. Back to support $21.74.

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 is showing some signs of life thanks to residential. The sector was 2% for the week. The bottoming pattern broke higher on Friday. Entry $88.10. Tested the move higher.

Summary:

The SP500 index gapped higher and continued gradually higher throughout the day. We will see what the jobs report holds for the day. XLK led the upside and IYZ as things seemed to return to normal with the narrow leadership. The bounce at support was positive with more conviction on Thursday. We maintain our stops and continue to look for where money flow migrates. Technically the uptrend remains in play with the sellers taking a shot… buyers were back… letting it unfold. 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 91 points to 16,031 as the index was up 0.58% for the day. Mega caps took the index higher with both the SOXX and IGV leading the upside move. The trendline was challenged along with the 21-day EMA but bounced. Stops in place and watching the outcome going forward. There is plenty of activity and speculation to filter through.

NASDAQ 100 (QQQ) was up 1.52% for the day as the mega-caps led the upside for the sector. The uptrend remains on the chart with some topping on the chart. SOXX and IGV were higher. Watching AAPL and GOOG as they moved lower. Manage stops and let it play out. Entry $354.20. Stop $435. Patience.

1) AAPL added to the move below the $180 support level again (May 180 puts @ $4.45) raising the stop, Sold 1/2 up 200%. 2) AMZN hammer doji candle, moved lower. 3) GOOG lower (May $135 puts @ $5.40) Raised stop. 4) MSFT bounced back above the 21-day EMA. 5) META & NFLX held the 10-day MA. 6) TSLA (testing support Feb lows) 7) QQQ tested the 21-day EMA. Adjust your stops if you hold positions and manage the risk going forward.

Semiconductors (SOXX) Added position at $601. Stop $640. Tested lower… and bounced. Broke from the uptrending wedge to new highs. The sector was up 6.8% for the week. The uptrend from the November lows remains in play. Moved down 2% and up 2.4%… still leading. (NOTE: SOXX splitting 3/1 on March 7th.) Up 3.4% Thursday… adjusted stops.

Software (IGV) tested lower to support at $410 level and held. Bounced on earnings and held the $420.25 level of support. The sector was up 2.6% for the week. Looking for opportunity on directional decision. Tanked falling 3.8% to lead the tech sector lower. No positions, but stops would have hit if we owned IGV. Inside day on Wednesday… watching. (NOTE: IGV splitting 5/1 on March 7th). Still not leading.

Biotech (IBB) consolidation pattern on the chart broke above the January highs and tested the move. Watching for some momentum in the sector. The sector was up 1.1% for the week. $136.50 level cleared on the upside. Inside day Friday… Tested the 21-day EMA. Consolidation pattern.

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 $204.80 resistance… needs to find conviction. One big volatility mess on the chart… patience for now. The sector was up 3% for the week. At the December highs.

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 0.2% for the week. Entry $266. Stop $274.50.

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 $13.70.

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. Fading lower all week.

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 this week on the PCE Price Index offering hope relative to inflation and the Fed. The yield moved from 4.26% to 4.18% this week down 8 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. Entry $93.52. Stop $94.45. (TMF is the leveraged trade). 4.09% helps rally in TLT.

Crude oil (USO) bottom reversal last few weeks has moved to resistance at the $73.25 level and it finally cleared it on Friday. 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 4.2% for the week. Entry UCO $26.70. Stop $29. Patience. Testing

Natural Gas (UNG) The commodity continues to struggle with an attempt to bounce off support at the $14.70 level. The trade set up on the bounce remains in place as we let it unfold. The commodity was up 7.9% for the week. Bear flag pattern on the chart. Bottom reversal failed for now. Hit stop with slight loss.

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 as inflation data adds to speculation of a lower dollar. The metal was up 2.2% for the week. Entry $189.30. Stop $195. UGL. Verticle move adjusted stop.

FINAL NOTES

Thursday: The broad indexes closed higher for the day. There is plenty of chatter and speculation on direction and leadership as seen over the last week of trading. All the talk and juggling only to close at new highs again. The current activity shows speculation on the charts and a market that is overbought on optimism about the Fed shifting its stance on inflation. Powell spoke to Congress and reiterated the Fed’s stance on fighting inflation… the early response was to a modest move higher… the second day of talking added some confidence to the markets. Watching how it unfolds and looking for the opportunities within the action. Nine of the eleven sectors closed higher with technology taking the lead. SOXX moved back to new highs. IGV bounced but was not convincing. VIX moved to 14.4 despite the buyers the index is showing some negative sentiment in play. Economic data remains suspect at best. We watch how Friday responds to the jobs report and keep our stops at the appropriate risk level. It is interesting to note the bounce in crypto erasing the downside move. Areas of focus for Friday… the jobs report. AAPL & GOOG downside moves.

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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