Jim’s Notes Tuesday Recap & Outlook

Moving the Market – March 11th

Markets reacted initially to the CPI data showing more inflation than expected but then rebounded to rally to new highs. The higher CPI was not enough to shake the conviction that the Fed will still be on track to cut rates later this year. CPI rose 0.4% versus 0.3% in January but it was in line with expectations. The Core CPI was the same at 0.4% versus 0.3% prior. The challenging number was in the Core Ex-Housing which was up 0.5% showing goods are still climbing in price. Treasury bonds rose to 4.15% and the dollar bounced on the news. Fed can stay higher for longer. Semiconductors were the leader bouncing back from two days of selling. ORCL jumped 12% on strong quarterly earnings to help lead the technology sector higher. With the positive reaction, you would think the volume would be higher, but it was below average on the day. The VIX index did decline on the day as investor’s anxiety regressed. The NASDAQ held the 20-day MA again and again bounced. Both the broad index and the NASDAQ 100 staged a move higher keeping the uptrend alive and well. Boeing is testing the October lows as the plane maker gets in more hot water with the FAA over the 737 Max. The stock is down 30% from the December highs. The SP500 index closed at a new high with one interesting note, the technology sector was the only of the eleven sectors to outperform the index on the day… tells you the overweighting to the overall index. The index rose 1.1% while RSP was up 0.2%. Buyer beware.

Worthy Lesson: “Before you invest in something, invest in time to understand it.”

The indexes moved higher as investors shrugged off the CPI data. The activity was definitely skewed to the technology sector on the day. As we look to Wednesday no major economic data as investors will be left the their own thoughts. The volume was below average and the money flow ticked lower. Six sectors closed in positive territory as investors attempted to show a positive face. Watching what opportunities develop on the charts. The NASDAQ closed up 1.5%, DIA was up 0.6%, and the SP500 was up 1.1%. The major indexes closed higher on the day. The SOXX was up 2%. Small Caps (Russell 2000) were down 0.1%. The ten-year treasury yield was at 4.15% up 6 bps for the day. Crude Oil (USO) was down 0.3%. (UGA) was up 0.4%. Natural gas (UNG) was down 2.4%. The dollar was up 0.1%. 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: “Maybe if I fall in love with my anxiety it will leave me too.” — Phyllis Diller.

Sector Rotation & The S&P 500 Index

The S&P 500 index closed up 57 points to 5175 moving the index up 1.12% with below-average volume. The index held the up-trendline and the 10-day MA. Money flow was negative and RSI was higher. Six of the eleven sectors closed higher on the day with technology as the leader up 2%. The worst performer of the day was utilities down 0.9%. The VIX index closed at 13.8 lower on the day. There is plenty to ponder between the headlines and the facts. Watching how the bounce plays out following the tech rally.

Leaders:

XLK – Technology Entry $183. Stop $204.10. Broke above the $208 resistance and retreated. The sector was down 1.6% for the week. The semiconductors sold to end the week as we watch how they respond. Back above teh $208 level and resumed the uptrend.

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 0.5% for the week. Needs to hold the 21-day EMA.

XLF – Financials Entry $33.65. Stop $39.92. Continuing to trend higher with banks showing some positive moves. The sector was up 0.8% 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 21-day EMA as the trendline. Entry $129. Stop $144.57. The sector was up 0.1% for the week.

XLP – Consumer Staples Uptrend remains in place moving above resistance at the $74.70 mark. The sector was up 0.9% 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 up 0.6% for the week. GE and LDOS adding leadership.

XLB – Basic Materials uptrend remains in play adjust your stops if you own any positions here. For the week was up 1.5%. Activity picking up in the materials VMC and EXP. Let it run.

Laggards:

XLU – Utilities bounced off the $60.10 support level and cleared $62.90 resistance. Entry $61. Stop $62.70. Lower interest rates are helping the upside move. The sector was up 3.2% for the week. Tough day as interest rates rose… watching.

XLE – Energy making a steady climb higher after clearing resistance points. Entry ERX $52.15. Stop $58.65 (adjusted). Let it play out. Target is $64 near term. The chart broke the downtrend from the September highs and is ploding higher.

IYZ – Telecom Held support at the $21.74 level and trading sideways. The sector was down 1.2% for the week. Bounced inside the trading range and at the 21-day EMA.

Losers:

IYR – REITs found support and started a reversal of the downtrend with a move above $88.20. The sector has been challenged by higher rates and vacancies in the commercial sector but is showing some signs of life thanks to residential and a tick lower in rates. The sector was 1.4% for the week. Entry $88.10. Stop $88.10.

Summary:

The SP500 index closed higher on the day as investors looked past the CPI data. Watching how Wednesday unfolds following the technology move… will the move diversify or remain in the mega-cap technology stocks? The trend is positive. The leaders remain in play and we have seen the upside return to the laggards. We maintain our stops and continue to look for where money flow migrates. Technically the uptrend remains in play with the sellers and buyers battling it out. 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 246 points to 16,265 as the index was up 1.54% for the day. Mega caps led the cause as SOXX and IGV led the upside move. The trendline was challenged along with the 21-day EMA and bounced once again at the key support level. Stops in place and watching the outcome. There is plenty of activity and speculation to filter through.

NASDAQ 100 (QQQ) was up 1.43% 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 both bounced at support showing a reversal and moved back to key resistance. Manage stops and let it play out. Entry $354.20. Stop $435. Patience.

1) AAPL Watching if the bounce has any legs. Needs to clear $173.76 2) AMZN moved t the 20-day MA and bounced. 3) GOOG bounced and $140.40 level to clear. 4) MSFT moved below the 21-day EMA and bounced. 5) META dumped to the 20-day MA and bounced. 6) NFLX below the 10-day MA. 7) TSLA (testing support Feb lows) 8) QQQ tested the 21-day EMA and bounced. Manage your stops if you hold positions and manage the risk going forward.

Semiconductors (SOXX) Hit stop on position with a nice gain. Selling to end the week and watching to see how it unfolds. The sector was up 0.6% for the week. The uptrend from the November lows remains in play. Picked up volatility. Bounced at support of the 20-day MA again.

Software (IGV) head and shoulder pattern on the chart $84.53 is key support. The sector was down 2.2% for the week. Looking for opportunity on directional decision. Solid upside.

Biotech (IBB) consolidation pattern on the chart broke at the January highs. Watching for some momentum in the sector. The sector was down 0.8% for the week. XBI negative break lower Monday.

Small-Cap Index (IWM) downtrend reversal with a move above the December highs but can’t seem to get enough momentum. Added at $192.13 upside move. Stop $204.80. Needs to find conviction if going higher. Patience for now. The sector was up 0.4% for the week. Negative day for the sector.

Transports (IYT) drifting 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 down 0.4% for the week. Entry $66.35. Stop $69.56.

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. Up on CPI data.

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 last two weeks on the inflation talk and the Fed. The yield moved from 4.18% to 4.08% this week down 10 bps. The topping pattern on the yield chart shows some believe rates have peaked with hopes of interest rate cuts… despite what the Fed is saying. TLT was up 1.3% for the week. Entry $93.52. Stop $94.45. (TMF is the leveraged trade). Higher on CPI data… watching.

Crude oil (USO) bottom reversal accompanied by volatility moved resistance at the $73.25 level and testing all week. OPEC extended its production cuts. As seen on the chart it is attempting to renew an uptrend from the December lows… up trending channel. The commodity was down 2.1% 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 with resistance at $18. Watching how this dump lower unfolds. The commodity was down 1.7% for the week. Bear flag pattern broke lower. See if it retests the $14.72 low. Negative day.

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 metal was up 2.2% for the week. Entry $189.30. Stop – trailing 2%. UGL. Tested on higher dollar prompted by CPI.

FINAL NOTES

Tuesday: The broad indexes closed higher for the day. There is plenty of chatter and speculation on direction and leadership as seen over the last few weeks of trading. All the talk and juggling keeps the chatter about valuations and overbought in the news. The current activity shows speculation on the charts and a market that is overbought on optimism about the Fed shifting its stance on inflation. Watching how it unfolds and looking for the opportunities within the action. Six of the eleven sectors closed higher with technology leading the upside. SOXX bounced at support along with IGV. VIX moved to 13.8 showing less anxiety in play as investors put money to work again. Economic data remains suspect at best. The CPI data on Tuesday was mostly ignored on hope. Keeping our stops at the appropriate risk level. Watching the dollar and interest rates in response to the CPI.

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. The acceleration off 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. The current bounce remains in play despite many issues on the horizon. Current activity shows volatility that is associated with extended moves. 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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