Jim’s Notes Market Summary

Moving the Market – January 30th

The markets lack conviction, volume, and direction. As investors awaited after-hours earnings from MSFT, GOOGL, and AMD there was plenty of speculation about the state of the economy and the Fed. Bottom line GOOGL and AMD disappointed and both fell more than 5% in after-hours trading. MSFT beat but still declined more than 3%. This followed the move lower in technology before the close… seemed like everyone knew something. XLK was off 0.8%, SOXX fell 1.5% and IGV was down 0.5%. Not the best day for the sector. Begs the question of how the markets will deal with tech and mega-cap stocks on Wednesday… expect more selling to start the day. Commodities tested lower on Monday and bounced back on Tuesday. Small caps made a move lower reversing the positive start to the week. Earnings are in full swing as we stated with a disappointing day from three large-cap tech stocks a break on Wednesday, but AAPL, AMZN, and META on Thursday. The FOMC meeting on Wednesday at 2 pm should bring some interesting speculation. The belief is the Fed will not hike rates. Economic data was a snoozer with consumer confidence rising slightly last month. ADP employment data out on Wednesday. Throw in geopolitical data it promises to be a fun-filled Wednesday. As always there is plenty to ponder and pontificate on, but the facts lie on the charts. The trends are what matter and in reality are how we all make money investing. That being said, Tuesday’s move shows topping in QQQ, SOXX, and XLK. Taking what is offered with our stops in place.

Stocks were less than exciting on the day some selling/profit-taking showed up. The focus was back on the large caps which lagged on the day. The charts do look extended in some indexes and sectors. The focus is all on the news from the Fed, earnings, and the economics. The NASDAQ closed down 0.7%, DIA was up 0.3%, and the SP500 was down 0.1%. The major indexes struggled money looked elsewhere for growth. The SOXX was down 1.5%. Small Caps (Russell 2000) were down 0.8%. The ten-year treasury yield was 4.06% down 3 bps for the day. Crude (USO) was up 1%. (UGA) was up 1.1%. Natural gas (UNG) was up 1.4%. The dollar was down 0.07%. 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: “Most traders take a good system and destroy it by makeing it into a perfect system.” — Robert Prechter, forex trader.

Additional Charts To Watch

Agriculture (DBA) As seen on the chart the bottoming pattern is in position to reverse the downtrend. We cleared $21.08 Monday. Entry $21.30. Stop $21.08. Broke higher and has shown solid gains since… Raise your stops.

Home Construction (ITB) Consolidation near the highs broke to the upside Monday. Looking for a follow-through above the $103 level. Oops, failed to hold the move higher as interest rates moving higher impacts the DHI earnings report. Failed break higher.

As it relates to the DHI earnings report… they missed on revenue… is the sector starting to show some effects of higher interest rates and affordability issues relative to construction? Something to ponder as the balance of the homebuilders report earnings. Maybe a downside trade opportunity? Sold to the bottom of the range… bounced on New Home Sales up 8%… watching how it plays as it remains in the range.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed down 3 points to 4924 moving the index down 0.06% with above-average volume. The index was sluggish all day closing on a doji candle. Thus far the markets have been sleepwalking higher. Six of the eleven sectors closed higher on the day with financials as the leader up 1.2%. The worst performer of the day was transports down 1.2%. The VIX index closed at 13.3 slightly lower for the day. Plenty to ponder between the headlines and facts. Patience.

XLB – Basic Materials bottom reversal in play with key support at $81. Held at support and was up 0.3% for the week. Letting the consolidation unfold near term. Activity picking up in the materials CX and EXP.

XLU – Utilities Broke back below the $60.10 support and bounced. Need to clear $61.50 near term. Sold SDP $13.50 for a small gain. Watching how this unfolds. The sector was up 0.4% for the week. Cleared $61.50…

IYZ – Telecom Topping pattern continued higher and added to our position at $22.93. The uptrend remains in play. The sector was up 3.2% for the week.

XLP – Consumer Staples Uptrend remains in place for the defensive sector with some modest testing. Trading back at the top of the current range. No Positions. The sector was up 0.8% for the week. Broke higher to continue the uptrend.

XLI – Industrials Topping pattern. Moved back to the top of the current range. $110.75 level of support to hold. No Positions. The sector was up 0.8% for the week.

XLV – Healthcare remains in an uptrend from the October lows. Some sideways trading last month but holding above support. Entry $129. Stop $138.29. The sector was down 0.1% for the week.

XLE – Energy Started a bottoming pattern and cleared $81.97 resistance for entry. Crude oil prices rising to help the sector recover. Entry ERX $52.15. Stop $54.20 (adjusted). Let it play out. Need to clear $84.33 resistance. Volatile day but cleared resistance at $84.33.

XLK – Technology Entry $193. Stop $200. Bounce-off support at $183.50 and continued the uptrend. Tested Friday with some profit-taking and worries in SOXX. The sector was up 0.8% for the week. Topping pattern.

XLF – Financials Entry $33.65. Stop $37. Trading sideways to higher with a solid week. The sector was up 1.9% for the week. Broke above the resistance at $37.95. Solid move higher on Tuesday.

XLY – Consumer Discretionary Tested support $171.50. Downtrending channel on the chart. Needs to clear $176.70. The sector was down 1.8% for the week. Solid upside Monday… the sector has been lagging and is worth our attention near term.

IYR – REITs Moved to the next level of support at $87. The sector has been drifting lower on higher interest rates of late. The sector was down 0.6% for the week. New home sales data had a mild impact. Watching Interest rates near term.

Summary: The index traded flat on the day closing on a doji candle showing indecision. Yes, there are plenty of issues facing the markets both short-term and long. The buyers see the glass as half full currently and pushed the index to new highs. Are we seeing profit-taking near term in the face of data? Juggling positions? Whatever may be the case a test of the upside is a possibility. Adjusted stops heading into Wednesday trading and the FOMC release. Technology remains the leader and is testing currently. Plenty of rhetoric in the headlines as we watch the charts short term for direction. Letting it unfold and taking it one day at a time. 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 down 118 points to 15,509 as the index was down 0.76% for the day. Large caps and technology struggled on the day and we will see more on Wednesday following earnings after hours that disappointed… MSFT, AMD, and GOOG all trading lower. The index tested the extension of the uptrend and moved into a consolidation phase. Upside remains in play and watching how the data impacts the trend. The IGV holding the upside. The chart remains in a positive trend. Managing the risk that is and watching how this unfolds.

NASDAQ 100 (QQQ) was down 0.67% for the day as the mega-caps moved sideways on lower volume. Large-cap tech with a big question mark following earnings. The leadership is IGV. Manage stops and let it play out. Entry $354.20. Stop $417.20. Watching for consolidation near term.

Semiconductors (SOXX) Entry $563.80. Stop $602 (HIT STOP). Tested lower… watching how this unfolds this week and what opportunities are presented. The sector was down 0.6% for the week.

Software (IGV) continued the uptrend from the January test. Shows some topping on the chart. The sector was up 1.2% for the week. Watching how this plays out in the coming week. Disappointing day and AMD news after-hours not likely to help the trend.

Biotech (IBB) Topping pattern on the chart and letting it unfold. Entry $121.30. Stop $133. The sector was up 0.1% for the week. $136.50 level to clear on the upside.

Small-Cap Index (IWM) Downtrending channel developing. Added at $192.13 upside move. Need to clear $198.64 near term. Flag pattern on the chart. Cleared $198.64 and looking for the follow-through. Tuesday didn’t provide any help.

Transports (IYT) Broke support at the $254.50 level and bounced back into the previous trading range. Red Sea issues continue to escalate. BDRY has done well in response, bouncing back from the test at $8.95. The sector was up 1.7%. Solid bounce confirming the reversal at support. Still need to clear the $266 level. Tested lower on Tuesday.

Red Sea issues are continuing to be bad. There are been ships on fire, protection vehicles turned back, and just an overall mess. The cost in some cases is over $100k per day. The true impact of this on prices has yet to be passed all the way through to consumers… this is a growing issue looking forward.

The Dollar (UUP) The dollar has bounced off the December lows and gaining some strength of late. The buck was up 0.3% for the week.

Treasury Yield 10-Year Bond (TNX) The yield has been creeping higher of late as the 10-year moves above the 4% mark again. TLT triggered a short-side opportunity TMV entry $32.10. Stop $33.75. The yield moved from 4.15% to 4.16% this week up 1 bps. TLT was down 0.3% for the week. Yields dipped on the treasury budget to 4.06%

Crude oil (USO) Remains a challenge relative to clarity. Production has been higher than expected as OPEC allowed producers to have voluntary cuts. Iran and Russia continue to produce with the need of money. USO broke from the bottom consolidation pattern offering an entry $69.50. Added UCO $27.40. Stop $28. Positive trade opportunity but rising oil has other implications to the economic picture if it continues. The commodity was up 6.2% for the week.

Natural Gas (UNG) The move higher from the December lows came to an abrupt end this week with natural gas falling on projected supply rising the first half of the year. We traded the upside move and the downside move. Pressure is on the downside based on the White House taking away permits for new LNG facilities for transport globally. And build in supply on weather and demand. Looking for the next opportunity. The commodity was down 3.1% for the week. Continued to test lower.

Gold (GLD) The commodity dipped below the uptrend line with support at $183.72. The dollar gained some near-term strength adding downside pressure on the metal. Letting this unfold near term. The metal was down 0.5% for the week. Sideways trend. Held support with a modest bounce on Monday.

FINAL NOTES

Tuesday: The broad index maintained the uptrend but showed some slowing on the chart. Technology is the sector to watch as earnings disappointed after-hours. Financials and energy showed solid upside on the day to help the index. The week will be filled with data from the end of the month’s economic news, FOMC meeting, and earnings. The initial releases are not helping matters and with the FOMC on Wednesday it only gets more interesting. The major indexes SPY, DIA, and QQQ are all extended but the sentiment is positive. Plenty of issues on the table. Taking what is offered and letting it all unfold.

Our longer-term view is the uptrend from the October lows. They had moved above the July and August highs and broke above the 2022 highs to a new high. This resumes the long-term uptrend from October 2022. The key currently is to let the short term 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 lows 2020 lows has not resumed but from October 2022 has. 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. Time will tell how this plays out. 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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