Moving the markets Friday solid earnings from AMZN and INTC as both climbed higher on the day. The opposite side was CVX and XOM both lower on negative earnings taking the energy sector lower. Megacap stocks did well on the day helping boost XLY and XLK. On the economic side were personal income and spending data both good enough to keep the Fed in play relative to interest rate hikes. Interest rates on treasury bonds were flat as we look forward to next week’s FOMC meeting. The 10-year closed at 4.84% giving some relief to bonds for the day. The big talk was the move was the SP500 index 4100 level on the day breaking support and officially being down 10% from the July highs… “correction territory”. The move confirmed the downside and is down 5.8% in the last nine trading days. The talking heads have all jumped on the correction language for the markets. The third leg lower from the July highs is definitely in play as volume remains above average on the selling. The NASDAQ joined other indexes breaking below the 200-day MA. Overall ugly day for stocks as they continue to move lower. Second down week for the markets with plenty of questions left unanswered.
Monday we stated that $354.22 for QQQ key. $420.66 SPY key. $457.26 for SOXX key. Decision time for all three was the question. The response on Tuesday was SPY held move up. QQQ held moved up. SOXX held moved up… Wednesday needed to follow through. Oops… SPY broke below support as did SOXX and QQQ. They all offered short side entry points on the week.
Friday stocks opened higher but by midday, they gave up their gains with most closing in negative territory. The megacaps in technology and consumer discretionary was the bright spot on the day while other sectors pushed lower led by energy on the downside. Earnings have been good and bad turning the market into a stock picker market. As stated it was a decision point for stocks on Wednesday… and stocks continued the leg lower. The complexity of the outlook for global economics, domestic economics, and uncertainty are alive and well. The major indexes failed to hold key levels of support. The S&P 500 index closed down 0.4%. The NASDAQ was up 0.3%. The SOXX was up 1%. Small Caps (Russell 2000) were down 1.1%. The ten-year treasury yield was 4.84% flat for the day. Crude (USO) was up 1.9%. (UGA) was up 2.3%. Natural gas (UNG) was down 1.5%. The dollar was down 0.1%. We are focused on managing the risk in the current environment.
Charts to Watch: See Notes on “Reality of the Markets” & “Jim’s Beliefs About the Market” pages…
Quote of the Day: “You have to be odd to be number one.” – Dr. Seuss.
Additional Charts To Watch
KBE/KRE – The banking sector is being challenged by higher rates. Despite the solid earnings from the sector the overhang of rates pushed both the money center banks and the regional banks below the October lows and renewed the concerns over balance sheets. SEF offered an entry signal on the development… watching how this storyline unfolds near term. Entry $13.35. Stop$13.11.
Sector Rotation And The S&P 500 Index
The S&P 500 index closed down 19 points to 4118 moving the index down 0.48% with above-average volume on the day. The index broke below the 4151 support and continued to move lower. Two of the eleven sectors closed higher on the day with consumer discretionary as the leader up 1%. The worst performer of the day was energy down 2.4%. The VIX index closed at 21.2 moving higher on the day. Plenty to ponder between the headlines and facts. The index breaks below support again.
XLB – Basic Materials broke support at the $77 level. Bear flag pattern brings the $67 level into play on the downside. The sector was down 0.4% for the week. No Positions.
XLU – Utilities found support at the $56 level… bounced and faced some resistance at the $59.50 level. No follow-through upside. The sector was up 1.2% for the week. Entry point if breaks above resistance.
IYZ – Telecom reversed lower again and broke support at the $20.50 level. Remains in a downtrend and testing the previous low. The sector was down 4.1% for the week. No Positions.
XLP – Consumer Staples Remains in a downtrend with a bear flag pattern on the chart. The sector was down 1% for the week. No Positions.
XLI – Industrials downtrend remains in play and back to the support at $96. The sector was down 2.2% for the week. No Positions.
XLV – Healthcare downtrend in play with Mach lows current support. Action on Friday clearly shows negative momentum in play. The sector was down 3.8% for the week. No Positions.
XLE – Energy moved all the way back to $84.33 support. Earnings were the downside catalyst. The sector was down 6.2% for the week.
XLK – Technology The sector renewed the downtrend and remains challenged by the economic picture. The sector was down 1.7% for the week. No Positions. Inside day on Friday.
XLF – Financials The move higher in interest rates impacts the sector on the downside. The sector was down 2.3% for the week. Broke support at $32.26 and offered entry on the short side trade. SEF entry $13.13.
XLY – Consumer Discretionary broke from the consolidation pattern renewing the downtrend and closing below the 200-day MA with $147.11 as next support. The sector was down 1.3% for the week. No Positions.
IYR – REITs trying to hold support at the $73.80 level with worries rising with higher interest rates the downside talk focused on defaults rising in commercial real estate. The sector was down 1.5% for the week. No Positions.
Summary: The index remains challenged by too many issues in too many places. The move lower on Friday extends the downside leg. Earnings set a negative tone for the day. On the positive side, economic data was better and interest rates were steady. The break of another support level was met with selling and plenty of questions remain. The break below 4150 is in play. Patience is key. Remember two things; first, the trend is your friend, and second, don’t fight the Fed.
(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 Indicators/Sectors & Leaders To Watch
The NASDAQ index closed up 47 points to 12,643 as the index was up 0.38% for the day. The index opened higher on the earnings from AMZN and INTC. It managed to hang on to some of the gains and close in positive territory. 12,977 level broken (see chart below). The downtrend from the July highs is still in play. The break of the current support opens the way to 12,246.
NASDAQ 100 (QQQ) was up 0.48% for the day as the megacaps were positive on earnings. The sector broke the $347.55 level of support. The sector had a negative bias for the day with 37 of the 100 stocks closing in positive territory for the day. Intraday volatility remains in play.
Semiconductors (SOXX) The sector moved below the $447 support… INTC helped but still lagging. The sector was down 2.8% for the week. SOXS entry $12.55. Stop $12.55.
Software (IGV) The sector moved below the $336 support. The break lower could get ugly technically. The sector was down 2.8% for the week. Short side setup.
Biotech (IBB) The sector remains in a downtrend and broke support at the $115 level. The sector was down 4% for the week. LABD in play. Entry $24. Stop $27.
Small-Cap Index (IWM) Moved to $162 support and added to the downside. The sector was down 2.5% for the week. No Position. TZA in play.
Transports (IYT) downtrend remains in play with a break of April lows. Gasoline prices and shipping weighing on the sector. The sector was down 6.3% for the week. No positions. Short side in play.
The Dollar (UUP) The dollar is showing a bull flag on the chart as it consolidates near the highs. The dollar was up 0.4% for the week. No Positions.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.84% down from 4.92% last week. TLT was up 1.3% for the week. Watching how the Fed manages the yield curve. No Positions. FOMC meeting on tap.
Crude oil (USO) Crude sold lower on worries about consumption. An increase in supply for the week was a concern and crude moved back near $85 a barrel. USO was down 2.9% for the week. Up and down activity all week.
Gold (GLD) The commodity accelerated higher to end the week on all the geopolitics in play. The metal was up 1.3% for the week. Added positions at $172. Stop $182. Managing the risk.
Our longer-term view to downside bias as the upside trend from the October lows was broken and fell 10% from the July highs. The short-term downtrend from the July highs is where our attention resides. If the longer-term trend is to resume the short-term downtrend needs to reverse… soon. With the short-term trend down and the third leg in play, we have raised cash on our longer-term positions. Nothing, as we all know, goes straight down or up… there are always positive and negative swings in a longer-term trend. A look at the daily chart from the October lows validates exactly that premise with plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate downtrend… the last eleven weeks’ short-term trend has offered downside trades. The current bounce off the lows is being challenged by uncertainty in the economy and geopolitics ramping up. Current activity raises questions relative to direction and growth. We look to charts and fundamentals for some 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.
Friday: Indexes continue lower and look for support. This keeps the short side in play with the third leg lower in play. Watching how next week unfolds… maybe a relief bounce to balance the selling? There is no lack of issues on the table with each taking their respective turn in the spotlight. For the last seven days, ten of the eleven sectors closed in negative territory. There is a lack of leadership except on the downside. Economic data is confirming the ugly outlook. I would expect the data to remain negative with the only real caveat being how negative it will be. We have put money to work short term based on the technical moves and we continue to manage risk and take what the markets give. Remember all upside moves at this point are relief rallies and we will treat them as such until they validate otherwise. FOMC meeting will be in play next week.
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.
Explore the following links for new pages that dig into data both In & Outside the markets. Jim’s insights highlight potential opportunities emerging from the current market environment. The pages also discuss the Reality of closed opportunities, whether they proved profitable or fell short of our expectations.