Jim’s Notes – SOXX Leads Again

Moving the Market – June 18th

The markets closed slightly higher as retail sales missed but industrial production beat… mixed signals from the data kept the markets in check as we saw some consolidation of the upside move. The NASDAQ, QQQ, SOXX, and SPY moved higher for the day. The financial sector led the upside along with the industrials adding more breadth to the move. Retail sales were up 0.1% versus the 0.3% expected and ex-auto sales fell 0.1% versus the expected rise of 0.2%. No matter how you look at the number ti was bad… we don’t even need to mention the sales aren’t adjusted for inflation. If we did, the fell 0.4%, FYI. Industrial production rose 0.9% versus the 0.4% expected and capacity utilization rose to 78.7% versus 78.5% prior. Nice gain showing improvement in production. The dollar was lower, interest rates were lower at 4.21%, and the major indexes closed slightly higher. The dominant talk on the street was again about the Fed. The Fed was also out in force talking the same rhetoric as well. There was drift higher in the broader markets showing some breadth, but we still need to see some move from the small caps. There is still plenty of work to do on the charts albeit. IWM moved above $199.45 and attempted a follow-through. XLY moved back above $178 to confirm a break of the downtrend from the February highs. XLI and XLP held key support lines and bounced. XLF found some support at $40.40 and moved higher. IYZ and XLY were the laggards on the day. Solid start to the week. Homebuilders confidence index due out Wednesday. Crude was up to $81.57… it is up 10.8% from the June 4th low… gasoline is following the rise and with that comes challenges to the US consumer. Something to watch relative to the inflation data and consumer spending. Take what is offered and manage the risk.

The major indexes closed higher on the day with modest gains in the breadth from the financial and industrial sectors. The volume was above average as the overall sentiment was positive. The activity started flat and failed to gain much momentum throughout the day with some giveback into the close. Tuesday the NASDAQ closed up 0.03%, DIA was up 0.1%, and the SP500 was up 0.2%. Overall positive activity on the day. The SOXX was up 1.2%. Small Caps (Russell 2000) were up 0.1%. The ten-year treasury yield was 4.21% down 6 bps and TLT was up 0.9% for the day. Crude Oil (USO) was up 1.1%. (UGA) was up 1.3%. Natural gas (UNG) was up 4%. The dollar was down 0.03%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Thursday Outlook: A day to think things over when trading resumes on Thursday. Need to continue to see modest breadth widen for the indexes. What are we watching? 1) The dollar’s response to the data. 2) Interest rates moved to 4.21% and still showing volatility. 3) Crude oil bounced back above $80… what is the trade here? UGA as prices will follow crude. 4) Natural gas remains volatile with a bounce up 4% after four days of selling. 5) DBA is showing some volatility as commodities overall look for direction. 6) Mega caps leading… rewarding the leaders. 7) Do small caps move higher? Taking what is offered and balancing the risk.

The chart below shows the breadth issue for the SP500 sectors compared from the beginning of the current leg higher that started in April. The technology sector is the only one to outperform the index…

Headlines Worthy of Note:

Red Sea remains a challenge as the Houthis are now using drone boats to sink ships. The impact on shipping costs continues to rise along with the danger. This is also putting pressure on container supply. With the longer shipping trip around Africa it is causing a shortage of containers to ship goods. Domino effect.

Berkshire Hathaway buys more Occidental Petroleum stock. Crude is up 10% in the last two weeks… are we going higher? Demand versus supply has been lagging but it is summer… and consumption rises. OXY bounced from the lows the last three days along with XLE. A trend worth tracking… along with UGA.

Home prices are falling? Some areas are seeing modest moves lower and more supply available. It is a trend worthy of following but expectations are not for a major move to the downside. XHB has been consolidating sideways since the March highs. REM looks similar on the chart, and REZ has been trending higher… sector still looks solid on the chart.

Quote of the Day: “I’m writing a book. I’ve got the page numbers done.” — Steven Wright.

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