The market was up and down on the day but following the Fed minutes release late in the day they rallied into the close. The day started with PPI data higher than expected on both the top line and the core. After starting higher the indexes fell into negative territory. Then the minutes were released stating just what the Fed has been saying relative to fighting inflation… they reiterated the one more hike and then they will be diligent in overseeing the results. The response from investors was more buying. Both the NASDAQ and the SP500 index rose and closed above the 50-day MA. The move came on average volume and didn’t explode to the upside but it was enough to keep the uptrend in play. Bond yields continued to slide despite the weak 10-year bond auction. We will look at how the balance of the week plays out, but it isn’t out of the question. The NASDAQ 100 index made it through the first level of resistance closing above $366 on Monday and held. It moved to $471.15 resistance and tested. The SP 500 moved above 4300 to resistance at 4378 and tested. Watching both on Thursday and how they respond. Crude was lower on Wednesday as buyers settled down relative to the war with Isreal/Hamas. Russia isn’t letting the opportunity go as they reiterated late in the trading day that further cuts are needed in production… an interesting view not shared by many. A quick look at the charts shows consolidation at support over the last two weeks and bounced to the upside with buying to follow through… bottom reversal in play. Utilities and REITs led the upside move on the day. It was a mixed day as all seven sectors closed in positive territory keeping the index in positive territory. The VIX index closed lower showing relief in anxiety. Treasury markets remain the topic of discussion with yields reacting positively to the Fed’s comments on future rate hikes. Time will tell on this as the speculation train is picking up steam. Economic data remains weaker overall with CPI due out on Thursday. We are willing to take what the market gives both up and down. I would look for a test of the initial move higher and then a resumption of the year-end rally. Expect some volatility relative to geopolitics and economic outlook.
Volume was average on the day. Wednesday’s activity followed the economic data lower and the Fed Minutes higher. This only adds to the complexity of the outlook for global economics, domestic economics, and uncertainty. There is still plenty of work to be done for the upside to gain momentum. It has been slow and steady. The S&P 500 index closed up 0.4%. The NASDAQ was up 0.7%. The SOXX was up 0.4%. Small Caps (Russell 2000) were down 0.1%. The ten-year treasury yield was 4.59% down 6 bps. Crude (USO) was down 1.3%. (UGA) was down 1.6%. Natural gas (UNG) was up 0%. The dollar was down 0%. We are focused on managing the risk in the current environment.
ONE Chart to Watch: QQQ – 1) Tested support at $354.10 again and bounced. 2) Offered entry at $356.80. 3) TQQQ trade $35. Stop $38.4) Closed above the first resistance at $366. Let it play out with stops in place. $376 Target.
Additional Charts to Watch:
Retail Stores – EMTY breaking higher as commercial real estate for retail stores struggles with plenty of distressed sales and bankruptcy issues in play. Short side entry was taken. Entry $15.25. Stop moved to $16.85.
XRT, IGV, SOXX, XLE, XLB – consolidation patterns in place… looking for a bounce. XLE gapped open and didn’t add position on added risk. IGV bounced and added $346.50 on Monday. Stop $352. SOXX added $475 on Friday. Stop $481.75. XRT added $59.50 on Tuesday.
Stops Hit: None
Quote of the Day: “People will buy anything that is ‘one to a customer.’.'” – Sinclair Lewis.
Sector Rotation and the S&P 500 Index:
The S&P 500 index closed up 18.7 points to 4376 moving the index up 0.43% with average volume on the day. The index added to the move back above the 4300 level and to resistance at 4378 with a test. Seven of the eleven sectors closed higher on the day with RIETs as the leader up 1.8%. The worst performer of the day was energy down 1.2%. The VIX index closed at 16.1 moving lower on the day as anxiety subsides. Upside bounce in play. Will the buyers follow through or test at resistance? The Fed talking Fed minutes added to the momentum… patience.
XLB – Basic Materials moved lower and found support at the $77 level. Held and bounced to end the week. The sector was down 0.7% for the week. No Positions. Bottom reversal…
XLU – Utilities accelerated lower and found support at the $56 level… bounced. Watch for follow-through upside. The sector was down 2.8% for the week. Bottom reversal… Added upside on Wednesday.
IYZ – Telecom reversed lower again test support at $20.50 level. Remains in a downtrend. The sector was down 2.4% for the week. No Positions. Bottom reversal… Tested on Wednesday.
XLP – Consumer Staples accelerated lower and added to the losses for the week. Remains in a downtrend. The sector was down 3.1% for the week. No Positions. Bottom reversal… Tested on Wednesday.
XLI – Industrials downtrend remains in play but did find some support at $99. Watching how the bounce plays out. The sector was down 0.6% for the week. No Positions. Bottom reversal… Added upside on Wednesday.
XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce the last three days. The sector was up 1% for the week. No Positions. IBB was key to the bounce. Bottom reversal… Tested on Wednesday..
XLE – Energy tested this week back to the 200-day MA. Crude was down sparking profit-taking in the stocks. The sector was down 5.1% for the week. No Positions. Gapped higher on crude oil prices, but has struggled the last two days.
XLK – Technology The sector held support at $161.50… consolidated and bounced to break high. The sector was up 2.6% for the week. Bottom reversal… Added upside on Wednesday.
XLF – Financials traded down to $32.30 support held… then bounced. The sector was down 0.4% for the week. Banks struggle with higher interest rates hurting assets on their balance sheet. Bottom reversal… Added upside on Wednesday.
XLY – Consumer Discretionary found support at $151.15 and held, remains in a consolidation pattern near the current lows. The sector was down 0.2% for the week. No Positions. Retail (XRT) chart moving lower as stocks show weakness. Bottom reversal… Added upside onWednesday.
IYR – REITs found support at the $75 level and bounced slightly. Higher interest rate worries and downside talk on defaults rising in commercial real estate. The sector was down 1.7% for the week. No Positions. Bottom reversal… Added upside on Wednesday.
Summary: The index added to the upside following the FOMC minutes in the afternoon. The PPI didn’t settle well as the numbers showed higher-than-expected inflation at the producer level. The new war continues and leaves plenty of questions for discussion as to how long and what geopolitics arise. Bounce-off support starts the rally talks from the talking heads Monday and the follow-through is adding to the fire. Watching how the push to resistance unfolds. Showed an intraday test and bounce on the Fed. The banks talk financials accident, the Fed talks no more interest rate hikes, the dollar declines, interest rates decline, and stocks rally. Sounds a lot like collusion to me… if we were a company and did this what would happen? I know it is all about saving the system that is, but can we make it less obvious? The talk is the year-end rally… watching to see what unfolds near term. The index moved to previous lows… tested and bounced. 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.)
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
The NASDAQ index closed up 97 points to 13,659 as the index was up 0.71% for the day. Buyers showed up again following some selling on the PPI data. Added to the move pushing above the 13,618 mark helps the outlook near term. Next up is the 13,762 level. The downtrend from the July highs is still in play but about to be challenged.
NASDAQ 100 (QQQ) was up 0.71% for the day as the mega caps did well on the day. Tested the $353.80 support and bottom reversal in play. Cleared $366.14 resistance. The sector had a positive bias for the day with 62 of the 100 stocks closing in positive territory for the day. Intraday volatility closed higher. Watching…
AAPL bottoming pattern reversal (added $174.35)…
AMZN found support and consolidation pattern needs to clear $131.86…
GOOG moved above the 50-day MA (added $135.65)…
META consolidation pattern (added $307.50)…
MSFT consolidating (added $320).
TQQQ. entry $35. Stop $38.40.
Semiconductors (SOXX) The sector closed above the $473 level of support and looking for a follow-through on the upside move. The sector was up 1.3% for the week. Added SOXL entry $19.15. Stop $19.53. Moved $490 resistance and tested, closed higher on the day.
Software (IGV) The sector closed above the $335 support level and added to the upside to end the week. The sector was up 2.1% for the week. Added IGV entry $340. Stop $349. Solid upside follows through.
Biotech (IBB) The sector remains in a downtrend but did find some support at the $119 level. The move was enough to add a position in LABU entry $3.50. The sector was up 0.1% for the week. Solid day remains above the $121.30 level.
Small-Cap Index (IWM) Found support after breaking lower last week and showed a modest bounce. The sector was down 2.1% for the week. No Position. Bottom reversal… Tested on Wednesday.
Transports (IYT) downtrend remains in play and found some support to close back above the $231 support level. Closed below the 200-day MA. The sector was down 0.8% for the week. No positions. Bottom reversal…
The Dollar (UUP) The dollar moved lower for the week as it remains in the uptrend. The dollar was up 0.03% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Topping pattern… expect some downside near term.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.78% up from 4.57% last week. TLT was down 4.4% for the week. Watching how the Fed manages the yield curve. Moved higher on the week which will likely get the Fed in motion behind the scenes. No Positions. Raised stop on TMV. TLT up with bond yield lower… yields expected to move back near 4.5%
Crude oil (USO) Crude showed some topping on the chart last week… it followed through moving lower and looking for support near term. USO was down 8.2% for the week. No Positions… watching for the opportunity to buy. Crude gapped higher on war and OPEC comments. Sold on Wednesday.
The Hamas/Isreal war is adding to the speculation around oil prices and the alignment of countries in the Middle East. Has my attention with the belief that oil will rise above the $100 mark moving forward. UCO looking for an entry point.
Gold (GLD) The commodity accelerated lower and finally bounced on Friday. The metal was down 1% for the week. Looking for the upside trade near term. Gapped higher on global worries. Inside day on Tuesday. Gapped higher on Wednesday.
Our longer-term view remains neutral as the upside trend from the October lows was broken confirming the short-term downside in play and a negative for long-term positions. Nothing goes straight down or up… there are always positive and negative swings in a longer-term trend. A look at the daily chart from the October lows validates exactly that premise with plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate limbo awaiting confirmation… the last nine weeks’ the micro-trend has tested the longer-term trend and we need to manage stops accordingly on longer-term positions. The topping patterns broke short-term support to create micro-term downtrends that moved lower to support. The economic data is showing signs of fatigue relative to growth. Seeing some oversold sectors short term as some found support and tried to bounce. We look to charts and fundamentals for some 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.
Wednesday: Indexes added to the bounce moving to resistance with a test intraday. The SP500 and NASDAQ closed higher on the day. Things went according to plan as the Fed minutes reiterated their stance on interest rates, banks quietly bounced, the war continued, Russia talked about more oil production cuts, PPI showed inflation higher, and plenty of uncertainty looking forward… stocks moved higher. The end result was adding to the upside move. Sector leaders were interesting with utilities and REITs leading the day. Watching how technology and consumer discretionary unfolds. Sector laggards remain the same with several tests intraday again and a bounce. Interest rates move lower on Fed talk. Economic data is confirming the ugly outlook. I would expect the data to remain negative with the only real caveat being how negative it will be. We have put money to work short term based on the technical moves and we continue to manage risk and take what the markets give. Remember all moves at this point are relief rallies and we will treat them as such until they validate otherwise.
What I am watching:
XLE – Energy is struggling as crude struggles on the outlook for demand flattening. The sector tested lower, bounced on the war outbreak, and tested again… watching how it unfolds but the weakness isn’t universal in the sector. OIH has held up on the bounce… IEO has equally held. FANG broke higher. Still, opportunities here if you are willing to put in the work. ESTE nice consolidation set up on the chart.
SOXX leadership looking forward? Upside day on Monday… looking for a show of strength. Added the position on Friday and looking to add to that position on follow-through… need to clear $490.
Gold (GLD/UGL) has been selling and remains in a downtrend from the May highs. $168 support is currently in play and I am looking for some relief in the form of buyers. $175 target on the bounce. Looking to see how this unfolds near term. Finally bounce on Friday… UGL entry $51.25. Stop $53.25 (adjusted)… low-risk trade. Speculation bounce on Monday helps the cause. Another inside day on Tuesday followed by a gap higher on Wednesday and raised stop.
Crude Oil (USO/UCO) is down 7.1% in the last two days. Broke the uptrend line from the July lows. Looking for a bounce back to $77.30 on USO. Patience as it unfolds. Held Friday continue watching in light of Isreal/Hamas conflict. Gapped higher on Monday by 4%. Flat to down on Tuesday as everyone digests the move. Added to the downside Wednesday… Russia’s comments could impact trading on Thursday.
Biotech (IBB/LABD) sold to $119 support breaking the March lows in the process. Bounce at the support with MRTX spiking higher on the news. Watching to see if this has any follow-through near term with the sector in an oversold state technically. $127 target. Followed through for the bottom reversal. Entry LABU taken $3.50. Stop $3.36. Small test on Monday. Nice upside on Tuesday and Wednesday.
GBTC… upside favored. (Added $18.61.) Need to clear $30. Testing at resistance. Willing to add to the position if it breaks higher. Wednesday tested lower watching how it unfolds.
Economic Data: PPI hotter than expected… CPI due Thursday and it will be watched by the Fed and everyone else.
LVMH (Moet, Hennessy, Louis Vutont) reported sales in luxury banks up 9% versus up 17% Q2 year-over-year… that is a negative data point for the economy. The belief is, that luxury items are the last to fall as the economy moves towards a recession. Hello recession? The wine and spirits division was worse at -14% for the quarter. The stock has declined 27.2% since the high in July.
Geopolitics: Hamas/Isreal conflict will impact the globe with plenty at stake.
Mortgage demand is at the lowest levels since 1996… applications fell 6% last week alone. Bank stocks will get hit by this over time.
Selling in the Airbnb space is rising. Rentals are down and thus, can’t pay the mortgage, so sell the property. ABNBtesting support at $123.50… double top on the chart.
Credit card usage dropped again last week by 11.3% versus down 10.9% the prior week. Think MA, AXP, and V stock prices.
Banks talk ‘financial accident’. Goldman Sachs stated shorts on stocks and the market are as strong now as they were in March 2020. That makes for an interesting scenario relative to the markets being oversold short term… but what about the longer term view? They were out again on Monday warning about a “financial accident” if rates continue to climb towards 7% Fed Funds Rate. Yes, the leaks of what we have been saying for a while, are finally making the airwaves… not a good situation for investors or consumers. Watching… BAC, GS, JPM, MS… bounce into year-end, and then it could get ugly.
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.