Jim’s Notes Tuesday Recap & Outlook

Moving the Market – March 19th

The markets gapped lower to start the trading day but managed to work back to positive territory before the close. The S&P 500, Dow, and the NASDAQ all finish the day higher. Like yesterday’s buying motivated the sellers Tuesday the buyers seemed motivated by the selling… again plenty of indecision relative to the action the last few weeks. Thus, all the consolidation patterns on the charts. With the FOMC meeting on Wednesday, it raises the question relative to clarity from the Fed looking forward. 2 pm on Wednesday will be an important time for investors and the market overall. The economic data revolved around the housing starts showing an increase of 10.7% from the prior month the Y/Y was up 5.9% and building permits were higher as well. ITB was up 2% on the news. Semiconductors continue the rollercoaster ride with the SOXX down 1%. Mega caps remain poised to move higher with AAPL, AMZN, and MSFT higher on the day. Crude oil continues to work higher and energy stocks were the leading sector on the day. All said another day of give and take on the charts and the mixed trading remains the theme… looking for some answers from Mr. Powell and friends. Liquidity will be the key to the comments and press conference following the meeting.

The indexes traded in a low-to-high day with the major indexes closing in positive territory. The activity showed some from the opening gap lower but the volume was well below average for the trading day… not much conviction. The leaders again were the mega caps. Money flow and the RSI both ticked higher on the day. Ten sectors closed in positive territory showing positive breadth. The NASDAQ closed up 0.3%, DIA was up 0.8%, and the SP500 was up 0.5%. The major indexes closed higher on the day. The SOXX was down 0.8%. Small Caps (Russell 2000) were up 0.4%. The ten-year treasury yield was at 4.3% down 1 bps for the day. Crude Oil (USO) was up 0.5%. (UGA) was up 0.5%. Natural gas (UNG) was up 1.9%. The dollar was up 0.2%. 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’m thankful for the three-ounce ziplock bag, so that I have somewhere to put my savings.” — Paul Poundstone.

Sector Rotation & The S&P 500 Index

The S&P 500 index closed up 28 points to 5178 moving the index up 0.56% with below-average volume. The index maintains the uptrend and is above the 10-day MA. The money flow was positive and RSI was higher. Leadership was broader on the day with ten of the eleven sectors higher. Energy was the leader up 1.1%. The worst performer of the day was telecom down 0.1%. The VIX index closed at 13.8 lower on the day. There is plenty to ponder between the headlines and the facts.

Leaders:

XLK – Technology Entry $183. Stop $204.10. Broke above the $208 resistance and retreated. The sector was down 0.8% for the week. The semiconductors were the laggard keeping the sector down. Remains below $208.

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 1.2% for the week. Needs to hold the 50-day MA.

XLF – Financials Entry $33.65. Stop $39.92. Continued to trend higher with banks showing some positive moves. The sector was up 0.4% for the week. Moved above the resistance at $39.28 and followed through upside testing the 10-day MA. Interest rates ticked higher in inflation data and something to watch.

XLV – Healthcare has shifted to a sideways movement. Some testing on the week as we move back to the 30-day MA as the trendline. Entry $129. Stop $144.57. The sector was down 0.7% for the week. Held support $144.63.

XLP – Consumer Staples Uptrend remains in place moving above resistance at the $74.70 mark and testing. The sector was up 0.5% 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 down 0.2% for the week.

XLB – Basic Materials uptrend remains in play adjust your stops if you own any positions here. For the week was up 1.6%. Activity picks up as money rotates.

Laggards:

XLU – Utilities bounced off the $60.10 support level and cleared $62.90 resistance but tested it twice this week. Entry $61. Stop $62.70. The sector was down 0.4% for the week. Tested lower but held support.

XLE – Energy making a steady climb higher after clearing resistance points. Entry ERX $52.15. Stop $58.65 (adjusted). Let it play out. The target of $64 was hit and now looking at $69. Delayed bounce on crude being higher.

IYZ – Telecom broke support at the $21.74 level and renewed the downtrend. The sector was down 1.3% for the week.

Losers:

IYR – REITs were weak all week as interest rates rose all week on the inflation data. The sector has been challenged by higher rates and vacancies in the commercial sector. We will see how this unfolds short term with $87 support. The sector was down 2.8% for the week.

Summary:

The SP500 index closed positive on below-average volume. RSI ticked up thanks to late-day trading. Money flow ticked up overall. The activity with buyers and sellers is interesting as it relates to selling into buying and buying into selling… neither side seems to have a conviction about direction. The leaders returned but will they have enough momentum to take the markets higher? 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 61 points to 16,166 as the index was up 0.38% for the day. The index traded back above the 21-day EMA. SOXX struggled all day and remained below the $222.24 support. IGV was higher moving back above the 50-day MA. Mega caps look very similar as AAPL and GOOG were higher. Technically the index tested the key levels of support and bounced again. The focus is to follow the trend and manage the risk.

NASDAQ 100 (QQQ) was up 0.25% for the day as the mega-caps helped keep the dream alive. The uptrend remains on the chart with some topping in play. Software led the upside while the SOXX struggled with mixed activity. Watching how the sector responds post-FOMC meeting.

1) AAPL Watching if the bounce has any legs. Entry $174. 2) AMZN moved to the 10-day MA again. 3) GOOG tested the move higher. 4) MSFT added upside. 5) META moved back to the 10-day MA. 6) NFLX back above the 10-day MA. 7) TSLA inside day following bottom reversal. 8) QQQ back above the 21-day EMA. Manage your stops if you hold positions and manage the risk going forward.

Small-Cap Index (IWM) downtrend reversal with a move above the December highs but can’t seem to maintain enough momentum. The sector needs to find conviction if it is going higher. Patience for now. The sector was down 2.1% for the week. The sector tried but failed yet again. Closed below the 21-day EMA as a negative.

Transports (IYT) rolling top on the chart as we see some profit taking. BDRY has responded well, bouncing back from the test at $8.95. The sector was down 2.2% for the week. Broke below the 30-day MA. Testing support at $68.30.

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. Bounced higher on the inflation data. Moving higher in front of the FOMC.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond moved back to the February highs. The yield moved from 4.08% to 4.3% this week up 22bps. The move-up in yields triggered our stop in TLT and entry in TBT. Watching how this unfolds with the FOMC meeting next week. 4.3% ahead of the FOMC meeting.

Crude oil (USO) bottom reversal continued to move higher reestablishing an uptrend. The move above $75 was a positive with the confirmation on Friday. We adjusted our stop and let it unfold. The commodity was up 4% for the week. Entry UCO $26.70. Stop $31.70. Patience. It is important to note that pump prices are higher on a Y/Y basis. This is not a trend that the Fed wants to see nor consumers. UGA is up 23.9% since the December lows. Biden announced he wanted to refill the strategic reserves for the US. Great he depleted them at an average of $60 per barrel and wants to refill them with crude above $80 a barrel. Sounds like he was a great trader in his previous life. Watch how that impacts supply and prices.

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 pennant on the chart shows consolidation as we watch for a continuation of the uptrend. The metal was down 0.9% for the week. Entry $189.30. Stop – trailing 2%. UGL. Pennant still in play.

FINAL NOTES

For Wednesday: The broad indexes continue to be mixed with both sides indecisive about buying or selling… how that unfolds will be key moving forward. Adding to the angst is the FOMC meeting on Wednesday as the Fed pontificates how they will treat rates in light of the data. They are not expected to change interest rates, but the comments from Powell will carry plenty of weight for the markets. 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 rotation on the charts as money looks for where it will be treated the best. Money flow is shifting with rotation. USO broke higher on Ukraine/Russia pipeline bombings. Gasoline is higher at the pump heading into spring. Food supply chains are getting strained, note DBA is moving higher. Inflation is still a challenge for the consumer. Set your stops and manage your risk accordingly.

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, have had back-to-back negative weeks on the index. Short term this is a caution signal but longer term we would need to break the 13-week MA. 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 from 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. There are many issues on the horizon with inflation remaining a top challenge for investors. Current activity shows volatility that is associated with extended moves. We look to charts and fundamentals for answers. Longer-term positions are a ‘hold’ with no accumulation towards the assets. 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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