Tug-o-war continues for direction

The bulls and the bears continue to fight over the direction as seen in Thursday’s intraday activity. The indexes started the day up nearly 1% only to fall 1.4% by lunch and then climbed 1.3% to close the day in positive territory. Much like Wednesday, the tug-o-war for leadership and direction remains. The activity started following the release of the FOMC minutes from the last meeting. It appeared the meeting was more hawkish on inflation than Mr. Powell was in the “disinflation” press conference following the meeting. The mixed message has many on Wall Street in a quandary about the future. This has already been a big question for investors looking forward and the minutes only added to the issues. There were earnings from NVDA helping the cause early with the upside open for the NASDAQ 100 on Thursday. Their talk about AI fueling growth looking forward resonated with investors as the stock closed up 14%. Volume was average and the money supply turned higher on the day. As stated the gains sold but recovered by end of the day. Thus this remains a belief versus data debate among investors and talking heads. The speculation about the future of rate hikes from the Fed versus the “stronger” economic data is at the core of the debate. This leaves us with a speculation game at its best and void of any additional data from the Fed, investors are set to wrestle over who is right. The Fed presidents speaking in the media continued with the possible need to move 50 bps at the next FOMC meeting versus the expected 25 bps. That just adds to the anxiety and uncertainty. The S&P 500 index closed below the 4086 key level but gained 21 points on the day to 4012. 3930 is the next potential support. The NASDAQ shows a consolidation pattern breaking lower as well with 11,474 as the key support level closing at 11,590 with a second doji candle. The downside break has caught support for now as watch to see how this unfolds heading into the weekend. Look for a potential bounce at the next levels of support and how it unfolds from there. No matter what our beliefs the chart is the ultimate decision maker.

The volume remains below average giving some questions about the current market environment, the VIX closed at 21.1 down 5.5% following some crazy up-and-down activity following the release of the FOMC minutes. The S&P 500 index closed up 0.5% for the day. The NASDAQ was up 0.7%. Small Caps (Russell 2000) were up 0.7%. The leadership in technology and consumer stocks broke lower on Tuesday and offered short-side entry points and closed on a doji candle worthy of attention on Friday. The ten-year treasury yield closed at 3.87% down 5 bps for the day. Bonds have priced in the Fed and future rate hikes. TLT broke the trendline from the November lows and offered a short entry signal (TMV) last week and that has played out nicely. Crude (USO) was up 1.9% as uncertainty remains. Gasoline (UGA) was up 1.3% and broke below the 50 DMA. Natural gas (UNG) was up 6.4% after breaking below the April 2021 lows. The dollar was flat on the day maintaining the bottom reversal and showing belief the Fed will continue hiking rates. We are focused on managing the risk and watching how this all unfolds.

Things to Watch This Week: 1) Flash PMI US Services (50.5 versus 46.8 returns to expansion as a surprise to investors). Flash PMI US Manufacturing (47.8 versus 46.9 improves but still shows contraction). Existing Home Sales Jan (4 million versus 4.03 million. 4.02 million expected). 2) FOMC minutes set off mixed trading as investors deal with the belief about the Fed and stocks. 3) GDP 4th quarter revised (2.7% versus 2.9%. 2.9% expected) PCE revised higher to 3.9% from 3.5% bad news. Personal consumption fell to 1.4% from 2.9%. bad news. Watching the data continue to add up on the downside. Initial jobless claims remain near the weekly 190k. Continuing claims were 1.654 million down 37k. 4) Consumer spending, Personal Income, Core PCE, New Home Sales, and Consumer Sentiment on Friday. PCE is a key indicator for Friday and direction near term. If hot look for the downside. If cold look for the upside. In line with expectations could equally spark an upside move early in trading.

Last Week Key Data: 1) New York Fed inflation expectation (5% versus 5% previous). 2) Wholesale Inventories (0.1% versus 0.1% previous. 0.1% expected). Consumer Credit ($12 billion versus $28 billion previous. $27 billion expected). 3) Jobless Claims (196k versus 183k previous. 192k expected). Continuing Claims (1.69 million versus 1.65 million previous). 4) University of Michigan Consumer Sentiment Index (66.4 versus 64.9 previous. 65.1 expected). 5) Powell speaks on Tuesday… all ears want to hear if he has truly changed his tone inflation. Powell in his comments did seem confident that inflation is declining and we are on the path to a soft landing… markets liked what he had to say… if he truly believes that, equities will rally in response… until which time earnings fall based on slower growth. He didn’t address the growth side of the equation, but he did elude to disinflation as part of the process. Remember, don’t fight the Fed.

Charts to Watch: UNG, UGA, USO bottom reversals?

Thursday: GBTC (cup & handle pattern). Nice upside move closed on a hammer doji…

Wednesday: SPY, QQQ, SOXX, IMW follow through on selling. Some mixed reaction to the FOMC minutes. Modest bounce on Thursday.

Previous Charts of Interest Still in Play: TMV @ 200 DMA (hit entry and moved higher ). TMV (cup pattern followed through upside. Added to position). ITA (Breakout and follow through). DBA (breakout ‘V’ bottom)

Stops Hit: CCL

Quote of the Day: “People say satire is dead. It’s not dead; it’s alive and living in the White House.” – Robin Williams

The S&P 500 index closed 21.2 points to 4012 the index was up 0.53% with average volume. The index remained below the 4086 level with a modest bounce. Watching to see if it can regain upside footing. Wednesday and Thursday were a mixed reaction to the FOMC minutes and watching how it unfolds moving forward. Six of the eleven sectors closed higher on the day with technology as the leader up 1.6%. The worst performer of the day was telecom down 0.5%. The VIX index closed at 21.1 as anxiety moved lower on the day. The downside is in play and watching how this unfolds.

Sector Rotation and the S&P 500 Index:

XLB – Basic Materials broke the uptrend line from the October lows… negative. Closed below the 50 DMA and established a lower low. The sector was down 0.9% for the week. Hit stop locked in a nice gain. Watching how it unfolds near term. Broke support – closed on outside trade day watching.

XLU – Utilities closed at the top of the down-trending channel… looking for a break higher. Close above $68 a positive to end the week. The sector was up 1.1% for the week.

IYZ – Telecom moved up for the week closing at the 200 DMA. The uptrend from the October lower remains in play. The sector was up 3% for the week. Watching how it unfolds. Tested to the 50 DMA.

XLP – Consumer Staples downtrend from the December highs remains in play. The sector was up 1% for the week. Letting it play out and looking for a break above the trendline. Consolidation pattern.

XLI – Industrials moved back to the previous highs and attempted to break higher but moving sideways for now. The sector was up 0.9% for the week. Need to hold above $102.50. Tested to the 50 DMA.

XLV – Healthcare Struggling to find direction $131.40 support is level to hold. Down trending channel on the chart. The sector was down 0.4% for the week. Breaking from the bottom of the downtrending channel.

XLE – Energy gapped lower to end the week. Broke both intermediate and short-term trendlines. The sector was down 6.3% for the week. Short entry signal in play ERY, SCO, KOLD. $83.50 level to hold for support. Held and closed on doji candle.

XLK – Technology The sector moved into a trading range and tested the lower end on Friday. Closed below the 10 DMA which has essentially been the trendline This is the key component in the current trend off the previous lows. The sector was down 0.4% for the week. Entry at $127.50. $141.75 hit stop and locked in gains. Broke support at $138.92. $136 level to hold. Held Thursday and bounced back to the previous support level.

XLF – Financials testing the trendline from the October lows. The sector was down 0.2% for the week. Entry $34.50 Stop $35.80. Watching interest rates and impact near term. Broke $35.80 support and uptrend line from October lows. Hit stops.

XLY – Consumer Discretionary moved from an uptrend to a consolidation pattern. $147.10 level to hold near term. The sector was up 1.6% for the week. Entry $132. Took some profit (1/2) and letting it play out. Broke $147.10 support and hit stops on the balance of position.

IYR – REITs uptrend remains from the October lows. The sector was down 0.8% for the week. $90.47 is the level to hold near term. Broke support, trendline is in play.

Trouble is building in commercial office space as a return to the office efforts aren’t working. The headlines are steadily showing the fight between corporations and employees. Amazon is the latest showing 1/2 are willing or want to return to the office for the three days a week proposed. This is impacting commercial property owners as mortgage payments are being delayed more than two months. Banks raised their reserves in January and are likely to increase more in February. With that in mind IYR and REM bounced off the October lows but may retest those lows or beyond based on future defaults. Worth watching the downside risk with SRS.

Summary: The index remains in an uptrend from the October lows. It broke the short-term trendline from the January test. The 50 DMA is the next level to watch. Moved below the 4086 level Friday and confirmed the break lower on Tuesday. Modest bounce on Thursday as we watch how it unfolds. Fed is in play and the FOMC minutes cause more uncertainty. We will remain patient for now as investors sort out their collective thoughts about the Fed and inflation. We hit stops, held on some positions, added some short-side trades, and raised stops on existing short-side trades. 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.)


The NASDAQ index closed up 83.3 points to 11,590 as the index was up 0.72% for the day. The 11,474 is still in play. Money flow has turned negative with all the news and speculation creating indecision. Technology and semiconductors are the keys…. both bounced nicely on Thursday offering some recovery hopes for the index. Short-side entries were added Wednesday with DXD, SOXS, and TECS.

NASDAQ 100 (QQQ) was up 0.87% with the mega caps remaining below the $303 level of support. $292 next level to hold. The sector had a positive bias with 62 of the 100 stocks closing in positive territory for the day. The chart trend broke lower from the consolidation pattern and tested support at the $292 level… the question is will it resume the uptrend or continue lower? Added SQQQ Tuesday.

Semiconductors (SOXX) trend turned sideways and testing support. The sector was down 1.5% for the week. $432.27 resistance held. Entry $355/adjusted stop. Took some gains (1/2) – Hit Stop on balance. NVDA entry $171.95. Stop $211.50. Took some gains (1/2) – Hit stop on balance. AVGO (cup & handle/adjusted stop) entry $559.10. Took some gains (1/2) – hit stop on balance. RMBS (broke above previous highs/adjusted stop/ took gains on 1/2) – hit stop on balance. SWKS solid break higher/hit stop locked in gains). Managing the risk. Pennant pattern on the chart looking for direction near term. Taking some profits and watching. Confirmed the break lower. Hit stops on the balance of positions. $390.40 level to watch near term. Bounced on Thursday giving some hope of the upside resuming… watching.

Software (IGV) Uptrend moving sideways and consolidating. The sector was down 1.1% for the week. Target is the August highs. $275 entry (sold 1/2) – hit stop on the balance. Volatility is in play as the sector test moves sideways. Confirmed the downside move… modest bounce the last two days.

Biotech (IBB) The sector remains in a trading range with a double-top pattern. The sector was up 0.7% for the week. $128.35 level to hold as moves back to the bottom of the trading range.

Small-Cap Index (IWM) uptrend into a pennant pattern. Indecision on the chart short term. The sector was up 1.5% for the week. Money flow turned negative. Breaks lower for the wedge pattern on above-average volume hitting stops. Doji candle on Wedensday & Thursday.

Transports (IYT) uptrend from the October low remains in play with plenty of volatility along the way. Trying to hold the $234 support level. The sector was down 0.1% for the week. Broke support and sitting on the uptrend line from October. Bounced on Thursday.

Nordic American Tank Shipping (NAT) double bottom breakout ($3.25) and follow through. $3.40 entry. Moved to resistance at $3.76 took 2/3 position off and banked the profits. Hit stop on balance of the trade.

The Dollar (UUP) The dollar moved lower on the FOMC announcement but bounced as economic data may keep the Fed in play relative to interest rates. The dollar was up 0.4% for the week. The outlook remains negative longer term. Fed-driven for now. Up modestly on Fed uncertainty and facing key resistance at $28.40.

GBTC – Grayscale Bitcoin Trust is trading at a 47% discount to the underlying asset. Something to watch moving forward. The chart is testing the rise off the January lows… watching how the news of higher regulations will impact prices going forward. Hit Entry $10.60. Solid upside move adjusted the stop. Watching the hammer doji on Thursday.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.82% up from 3.74% last week. The yields reversed the downtrend following the FOMC announcement. TLT was down 1% for the week. Added TMV $112.50. Raised stop. Double bottom breakout on yields? TLT $99.60 level to hold. Yields fell 5 bps on Thursday… watching near term moves.

Crude oil (USO) trading range on the chart with a gap lower on Friday. Economic speculation is impacting supply-demand speculation globally. USO was down 4.1% for the week. The weekly chart shows the downtrend building in crude. A break of support sets up short-side trade. Remained in the trading range but managed a modest bounce on Thursday to $75.39.

Gold (GLD) The commodity shifted lower with the bounce in the dollar. The metal was down 1.2% for the week. Watching for support at $170.50. Flirting with break lower as the dollar remains stronger near term.

Put/Call ratio was 1.04 Thursday… Negative bias in the index.

Questions to Ponder: Navigating Uncertainty

Speculation/Conspiracy Theory: The Fed is in the position of getting the market to do the dirty work for it. If the market drops 20-30% and crashes liquidity for the average American… they, the average Joe, cut spending out of fear. That allows the Fed to not raise rates above the 6% level by allowing the markets to accomplish the feat while they, in the background, dry up the money supply exacerbating the process. The market would crush inflation and throw the economy into a full-blown recession. Which in turn could and would destroy the middle class. This will all be done for the need to preserve the American way… printing money and raising debt levels while the government gains more control and take more of the freedom our forefathers fought for.

Consumer credit was up $394 billion. That is the biggest gain in 20 years, to a record $16.9 trillion. That is up $2.75 trillion from 2020. Mortgage balances were up $254 billion in Q4 2022 and up 1 trillion for 2022. Home equity credit lines were up $14 billion to $340 billion. Student loans outstanding up $21B to $1.60 trillion. Auto loan balances up $28 Q4 2022. Delinquency rates for mortgages 90 days late +0.57% (2x from 2021). Auto loans +0.6%. Credit card +0.8% (to 4%). Substantial rises across the board from Q4 2021. Younger age groups are having particular trouble with their revolving debt. Credit card balances up $61 billion to $986 billion, surpassing the pre-covid high of $927 billion.

64% of all Americans are living paycheck to paycheck.


Thursday: Stocks were mixed on Thursday as investors grapple with the reality versus belief as it relates to the Fed speak. The debate about interest rates, inflation, the Fed, economic data, consumer, and just about everything else is impacting the outlook for stocks. With all the uncertainty surrounding the future stocks have turned down with volatility picking up and money flow declining. The appearance is plenty of money heading to the sidelines and waiting for some clarity. Friday offers the PCE data which could set the tone for the day into next week. A hot number would send stocks lower, at least that is the assumption. All eyes will be watching the data. Plenty of other economic data out on Friday as well. The modest bounce on Thursday afternoon to recover early losses was a positive sign, but this is still a news-driven market currently. Watching for some type of relief bounce followed by more selling moving forward. We will watch patiently and manage our money accordingly. We took some profits, hit stops, raised stops, and added some short positions. Taking what is offered and managing the risk.

Hope is a beautiful thing… but, as we say many times, the data doesn’t matter until it does. That is where we find ourselves currently. We look to the charts to provide the next direction near term… which is currently moved to a negative bias. We will manage our risk of hope giving way to reality along the way. Eyes open. Emotions removed. Mixed economic data has caught the attention of the talking heads only from the perspective that it goes against the FOMC message. Watching how that twist turns out near term. The dollar turned higher on Fed worries. Interest rates are at 3.87% on the ten-year bond up from 3.4% two weeks ago reflecting Fed worries. I state this so we understand it is the data that ultimately determines the direction of stocks and the Fed is currently in play. The leaders took a turn down on Friday and added a modest bounce on Thursday. Energy turned negative with a gap lower. Volatility closed at 21.1 settling some on Thursday. The money supply has turned lower showing more money on the sidelines. Stay focused and follow the money. Follow the Fed. Don’t assume anything and manage the risk that is. Watch for the volume, direction, sentiment, and volatility levels to lead you to what takes place. There are plenty of moving parts, we have to understand that truth/reality eventually plays out in the markets. Until then we will continue to take what is offered and manage the risk that is.

Our longer-term view is still negative, but nothing goes straight down or up… there are always positive and negative swings in a longer-term trend. Recession talks are trickling back into the headlines. We remain focused on short-term trades until there is longer-term directional clarity. The charts are showing a short-term trend reversal from the upside… technology and consumer discretionary have led the move but broke key levels of support this week… The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal now is to manage the risk of positions, take what is offered… short or long, and then manage the risk.

“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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