Jim’s Notes Tuesday Recap & Outlook

Moving the Market – March 5th

The markets closed in negative territory thanks to the weak showing in the software sector. The NASDAQ and NDX tested the 20-day MA. SOXX, SP400, and SP500 held the 10-day MA. Dow was below the 20-day MA and IGV moved below the 50-day MA. The question is once again, can the key indices hold key support levels? A look at the chart below shows we are once again at or near the level that the indices have held previously in the current trend. It is easy to be a speculator and say the market is overbought, and technically it is, but the market has to break these support levels to validate the sellers are in control. With Mr. Powell ready to talk to Congress on Wednesday the sellers may well get what they are looking for. This is why stops are used on the charts, targets are established for each position, and risk management is necessary daily. It takes the emotions out of the decision process and allows your actions to be based on logic versus emotions. Reacting to the moves in the market is what causes negative decision-making. On the economic side of things, ISM Services were less than expected but not horrible overall. Factory orders weren’t great but the defense spending continues to offset the worst of things. Technology led the downside on the day along with the mega caps. Consumer discretionary added to the downside move on Monday. The NASDAQ 100 closed lower as AAPL, INTC, and ADBE were down more than 3% on the day. Bitcoin started higher and reversed to close down 8.5%. A distribution day for the markets. Natural gas continued higher on anticipated demand from weather-related issues. There is plenty of news on tap this week to show how the economic picture is unfolding. Outside the Market page has more. The test on Tuesday has our attention relative to the overall downside risk. We have been taking profits along the way, we hit some stops, and our short positions benefitted from the action. Key manage your money, not the markets.

The indexes moved lower on the S& 500, Dow, and NASDAQ. The activity was soft all day with selling present from the opening bell. The Volume was above average and the money flow ticked lower. Four sectors closed in positive territory with profit taking in action. The break higher from last week reversed to test the move… some say more selling is to come. There are downside opportunities on the charts and we will take what is offered. The NASDAQ closed down 1.6%, DIA was down 1%, and the SP500 was down 1%. The major indexes closed lower on the day. The SOXX was down 1.9%. Small Caps (Russell 2000) were down 1%. The ten-year treasury yield was at 4.13% down 8 bps for the day. Crude Oil (USO) was down 0.7%. (UGA) was down 2.2%. Natural gas (UNG) was up 1.2%. The dollar was down 01%. 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 distrust camels, and anyone else who can go a week without a drink.” — Joe E. Lewis

Sector Rotation And The S&P 500 Index

The S&P 500 index closed down 52 points to 5078 moving the index down 1.02% with above-average volume. The index held the up-trendline and the 10-day MA. Money flow declined along with stocks. Four of the eleven sectors closed higher on the day with energy as the leader up 0.7%. The worst performer of the day was technology down 2.4%. The VIX index closed at 14.4 higher on the day. There is plenty to ponder between the headlines and the facts. Watching how the selling unfolds as we get more data and the Fed talking to Congress. Selling on the day sets a different tone for the markets as we watch how it unfolds.

Leaders:

XLK – Technology Entry $183. Stop $203. Broke above the $208 resistance adding to the upside trend. The sector was up 2.6% for the week. The semiconductors were the leading component of the week with software trying to resume the uptrend. Biotech added some upside as well. Doji candle… down 2.4% on Tuesday.

XLY – Consumer Discretionary The sector moved into a down trending channel on the chart and broke higher clearing the December highs. Positive uptrend from teh January lows. The sector was up 2% for the week. Retail (XRT) and construction retail are pushing the sector higher. Selling in play Monday… selling on Tuesday to the 20-day EMA.

XLF – Financials Entry $33.65. Stop $39.50. Continuing to trend higher with banks showing some positive moves. The sector was down 0.02% 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 trendline. Entry $129. Stop $143.50. The sector was down 1% for the week. Sold to the 20-day EMA.

XLP – Consumer Staples Uptrend remains in place attempting to move above resistance at the $74.70 mark. The sector was down 0.4% 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 1% for the week. GE and LDOS adding leadership.

XLB – Basic Materials bottom reversal broke above the December highs and added to the upside. For the week was up 1.3%. Activity picking up in the materials VMC and EXP. Let it run.

Laggards:

XLU – Utilities Moved back to the $60.10 support level and bounced. Building a trading range as the bottoming pattern continues to set up on the chart. Watching how this unfolds as we need to clear $62.90. The sector was down 0.4% for the week. Solid upside move on Monday. Tried to break higher on Tuesday but failed to hold the move.

XLE – Energy Cleared $85.52 resistance and moved higher on Friday as crude moved above the $80 level. Entry ERX $52.15. Stop $57.40 (adjusted). Let it play out. The chart broke the downtrend from the September highs, but it needs some momentum. Watching how crude plays out near term. Posturing to become a leading sector.

IYZ – Telecom Held support at the $21.74 level and bounced to end the week. We closed our downside put trades with a solid gain and now watch how it unfolds from here. The sector was up 1.3% for the week.

Losers:

IYR – REITs found support at $86.97 and attempted a reversal of the downtrend with a move higher. The sector has been challenged by higher rates and vacancies in the commercial sector but is showing some signs of life thanks to residential. The sector was 2% for the week. The bottoming pattern broke higher on Friday. Entry $88.10. Tested the move higher.

Summary:

The SP500 index was in negative territory all day as money moved out of harms way. We will see what Mr. Powell pontificates in his testimony to Congress on Wednesday. Likely more of the same. XLK led the downside move and has our attention. The move to support puts us on watch again. IF enough people believe the markets are overbought and collectively sell the markets will head lower. Watching the majority vote. Technically the uptrend remains in play and the took a shot… we will see how this unfolds. 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.)

Key Indexes & Sectors To Watch

The NASDAQ index closed down 267 points to 15,939 as the index was down 1.65% for the day. Mega caps took the index lower with both the SOXX and IGV leading the downside move. The trendline is being challenged along with the 21-day EMA. Stops in place and watching the outcome on Wednesday. There is plenty of activity and speculation to filter through.

NASDAQ 100 (QQQ) was down 1.79% for the day as the mega-caps led the downside for the sector. The uptrend remains on the chart but was challenged on Tuesday. SOXX and IGV were lower. Watching AAPL and GOOG as they moved lower. Manage stops and let it play out. Entry $354.20. Stop $435. Patience.

1) AAPL added to the move below the $180 support level again (May 180 puts @ $4.45) raising the stop, Sold 1/2 up 100%. 2) AMZN hammer doji candle, moved lower Tuesday. 3) GOOG lower (May $135 puts @ $5.40) Raised stop. 4) MSFT sold below the 21-day EMA. 5) META & NFLX held the 10-day MA. 6) QQQ tested the 21-day EMA. Adjust your stops if you hold positions and manage the risk going forward.

Semiconductors (SOXX) Added position at $601. Stop $640. Tested lower… and bounced. Broke from the uptrending wedge to new highs. The sector was up 6.8% for the week. The uptrend from the November lows remains in play. Moved down 2% and watching.

Software (IGV) tested lower to support at $410 level and held. Bounced on earnings and held the $420.25 level of support. The sector was up 2.6% for the week. Looking for opportunity on directional decision. Tanked falling 3.8% to lead the tech sector lower. No positions, but stops would have hit if we owned IGV.

Biotech (IBB) consolidation pattern on the chart broke above the January highs and tested the move. Watching for some momentum in the sector. The sector was up 1.1% for the week. $136.50 level cleared on the upside. Inside day Friday… Tested the 21-day EMA.

Small-Cap Index (IWM) downtrend reversal with a move back toward the December highs but can’t seem to get enough momentum. Added at $192.13 upside move. Stop $192.13. Cleared $204.80 resistance… needs to find conviction. One big volatility mess on the chart… patience for now. The sector was up 3% for the week.

Transports (IYT) Broke higher from the sideways trading range and moved 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 up 0.2% for the week. Entry $266. Stop $274.50.

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 $13.70.

The Dollar (UUP) The dollar bounced off the December lows and is now trading sideways as some believe lower rates are on the horizon. Watching how it unfolds moving forward. The buck was down 0.1% for the week.

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 this week on the PCE Price Index offering hope relative to inflation and the Fed. The yield moved from 4.26% to 4.18% this week down 8 bps. Topping pattern on the yield chart shows some believe rates have peaked with the Fed softening on their stance… despite what the Fed is saying. TLT was up 0.6% for the week. Entry $93.52. Stop $94.45. (TMF is the leveraged trade). 4.13% Tuesday.

Crude oil (USO) bottom reversal last few weeks has moved to resistance at the $73.25 level and it finally cleared it on Friday. Production has been higher than expected as OPEC juggles its production outlook. Of interest to this conversation is the increased production in the US. OPEC has set a meeting for March to discuss extending their production cuts. As seen on the chart it is attempting to renew an uptrend from the December lows… plenty of volatility to go with it. The commodity was up 4.2% 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. The trade set up on the bounce remains in place as we let it unfold. The commodity was up 7.9% for the week. Added position entry $16.55. Stop $16.10. Bear flag pattern on the chart. Bottom reversal confirmation.

Gold (GLD) The commodity traded sideways with some volatility sparked by a stronger dollar the last month. The metal did bounce at support $183.72 and attempted a trend reversal as inflation data adds to speculation of a lower dollar. The metal was up 2.2% for the week. Entry $189.30. Stop $195. UGL. Verticle move adjusted stop.

FINAL NOTES

Tuesday: The broad indexes closed lower for the day. There is plenty of chatter and speculation on direction and leadership, but as seen on Thursday and Friday all you need is little optimism towards the inflation outlook and up the markets go. A little doubt on Tuesday shows how the markets respond to a run higher… profit-taking. The current activity shows speculation on the charts and a market that is overbought on optimism about the Fed shifting its stance on inflation. Powell speaks to Congress on Wednesday and will give more insight into the current stance of the Fed. Watching how the day unfolds and looking for the opportunities within the action. Four of the eleven sectors closed higher with energy taking the lead. SOXX tested the move higher. IGV tanked putting pressure on technology and mega-cap stocks. VIX moved down to 14.4 as selling bumped the needle higher. Economic data remains suspect at best. We start the week in negative territory with the economic data heavy this week. It is interesting to note the selling in crypto stocks on Tuesday hitting our stops. Areas of focus for Wednesday… Powell testimony and the ISM Services data. AAPL & GOOG downside moves. BTGC does it bounce back?

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. 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. 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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