Stocks started out well moving higher and then after lunch took a nap closing flat on the day. All the chatter was on Mr. Powell’s testimony starting on Tuesday to Congress. Plenty of angst about what path he will take relative to the Fed’s outlook on the economy, inflation, and interest rates. Metals and materials took a break on the day along with the SOXX both seeing some selling. The speculation about the future of rate hikes from the Fed versus the economic data is at the core of the current debate about the economy and interest rates are reflecting the thoughts of investors about bonds. We are starting to believe the Fed is miss reading the tea leaves about disinflation versus inflation…. it sounds a little like the comments from Mr. Powell about inflation being “transitory”. This leaves us with a speculation game at its best and Fed speaking the next two days there will be plenty of sound bites for everyone to debate. The S&P 500 index closed higher and 3930 remains the next support level. The NASDAQ was lower on the day closing above the 11,474 key support level at 11,675 and trying to hold support. How this unfolds going forward will be of interest as we manage our positions accordingly. No matter what our beliefs the chart is the ultimate decision maker.
Plenty of questions about the current market environment, the VIX closed at 18.6 and flat as the debate about the Fed heats up. The S&P 500 index closed up 0.1% for the day. The NASDAQ was down 0.1%. Small Caps (Russell 2000) were down 1.4%. A shift in momentum in the afternoon put plenty of question marks relative to the direction. The ten-year treasury yield closed at 3.98% up 2 bps for the day with plenty of intraday volatility. Bonds have been pricing in the Fed and future rate hikes. Watching how this storyline unfolds following Powell’s speech. Crude (USO) was up 0.9% and breaks higher from the triangle consolidation pattern. Gasoline (UGA) was up 1.5% and broke higher as well. Natural gas (UNG) was down 12.4% after a positive run higher. The warmer weather following the winter blast was the catalyst… lower demand. The dollar was down 0.1% as the bottom reversal remains reinforcing the belief the Fed will continue hiking rates. We are focused on managing the risk and watching how this all unfolds. The negative sentiment shifted for stocks as investors focus on the Fed and interest rates.
Charts to Watch: XRT (Apr 06 65 put). UBER (upside break from consolidation). AAPL (reversal confirmed).
Friday: MCD (descending triangle). SLB (descending triangle). ATVI (breakout from trading range).
Previous Charts of Interest Still in Play: GBTC (cup & handle pattern). Nice upside move testing near term. UGA hit entry, USO hit entry, bottom reversals. LSCC (testing uptrend). Added upside move. UAL (trading range) added upside move. COIN (triangle pattern) added upside move. DHT (J-Hook pattern). Added to the upside move. BDRY (bottom reversal) remains bullish. Gapped higher and raised stop. RUN (descending triangle break lower short signal). Bounced back… added upside move. BOAT (break higher in an uptrend). Added to the upside move. Tested. STLD (trading range) Added upside move. FCX (bottom reversal) Added to positions upside move. UAL (break from trading range) Added. MSFT (broke support, puts) Added. SOXX (upside follow-through) Added. C (triangle consolidation pattern) Added.
Stops Hit: ZIM, UNG
Quote of the Day: “Some people ask the secret of our long marriage. We take the time to go to a restaurant two times a week. A little candlelight, dinner, soft music and dancing. She goes Tuesdays; I go Fridays.” – Henry Youngman.
The S&P 500 index closed up 2.7 points to 4048 the index was up 0.07% with below-average volume. The index failed to follow through on last week’s bounce but remains in a good pattern. The challenge this week is Mr. Powell testifying before congress on the state of the economy. That will keep the markets interesting as he is like to face some challenges from the panel. The downside bias gave way to the buyers watching how the next two days unfold. The patterns are still in play relative to a bottom reversal on the test. I stated, “it is going to need some news or a shift in sentiment.” Watching to see if Thursday’s comments were the shift or if Mr. Powell shifts the momentum Tuesday. Six of the eleven sectors closed higher on the day with utilities as the leader up 0.6%. The worst performer of the day was basic materials down 1.6%. The VIX index closed at 18.6 as anxiety moves slightly lower on the Fed comments. The attempt of a bottom reversal is in play. Watching the tombstone doji left on Monday.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials bottom reversal and back to the top end of the current range. Back above the October trendline as the sector gains momentum. The sector was up 2.3% for the week. Watching how it unfolds near term. Led the downside Monday.
XLU – Utilities remain in the down-trending channel… bounced off the lows and posted two solid days on the upside… watching for opportunity short term. The sector was down 3.2% for the week. Led the upside on Monday.
IYZ – Telecom broke the head and shoulder pattern on the chart to the downside… broke below the trendline off the October lows… bounced to end the week. The sector was down 2.4% for the week.
XLP – Consumer Staples downtrend from the December highs remains in play. The sector was down 1.8% for the week. Broke lower but bounced to end the week.
XLI – Industrials Sideways trend finally breaks from the trading range on positive momentum. The sector was up 0.3% for the week. Need to hold the break above the $102.40 level.
XLV – Healthcare downtrend in play with a break below the $127.50 mark, but managed to bounce to end the week. The sector was down 2.4% for the week.
XLE – Energy tested support at $82.74 and bounced. Some momentum from higher crude prices of late. The sector was down 0.4% for the week. Added positions in commodities USO, UNG, UGA. Bottom reversal in play.
XLK – Technology The sector moved to support at $136.10. Held the 50 DEMA. Maintaining leadership but struggled of late. The sector was flat for the week. Watching for direction and opportunity near term. Gave up the early gains on Monday.
XLF – Financials broke the trendline from the October lows. The sector was up 0.2% for the week. With interest rates in the headlines not helping the sector.
XLY – Consumer Discretionary rolling top broke to the downside. $147.10 support broken. $141.60 next level of support held. The sector was flat for the week.
IYR – REITs uptrend off the October lows broken. The sector was down 1.8% for the week. The negative influence of rising interest rates and reports of vacancies in commercial rents are rising. Short-side trade opportunity.
Trouble is building in commercial office space as the 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 flirting with the uptrend line from the October lows… Struggling to find any momentum in either direction until the Fed comes out with some strange comments on rate hikes… we will see how that plays out with more Fed talk Tuesday and Wednesday. We recaptured the short-term trendline from the October lows. 3930 level of support is in play. Interest rates moved back below the 4% mark showing hope in the Fed comments. Four of the sectors have established a short-term downtrend… but watching how the bounce plays out next week and if the momentum does shift to positive. We will remain patient for now as investors sort out their collective thoughts about the Fed and inflation. We continue to manage our positions accordingly and look for the best opportunities near term. 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 down 13.2 points to 11,675 as the index was down 0.11% for the day. The 11,474 support is back in play with the bounce on Friday. Money flow remains below 50 with all the news and speculation creating uncertainty around the Fed. Technology and semiconductors are the keys… SOXX struggled to start the week. Watching how this unfolds next few days.
NASDAQ 100 (QQQ) was up 0.11% with the mega caps moving back to the $303 level but giving up the gains. The sector had a negative bias with 43 of the 100 stocks closing in positive territory for the day. bottom reversal is still in play short term.
Semiconductors (SOXX) trend turned down breaking support but held and attempting to move higher again. The sector was down 0.1% for the week. $390.40 is near-term support. Looking for clarity in direction near term. Down 1.1% on Monday… watching how it unfolds.
Software (IGV) bounced at $276.50 support. CRM earnings added the spark on the upside. The sector was up 3.7% for the week. Bottom reversal still in play short term.
AI stocks are heating up as companies race to launch new products amid the ChatGPT AI phenomenon. Here is a list to watch and trade the existing opportunities as they present themselves… NVDA, ANET, GTLB, META, BIDU, SPT, CXM, TIXT, STX, MSFT.
Biotech (IBB) The sector bounced at the 200 DMA and moved above $128.35 adding a small position. The sector was up 3.2% for the week. Inside day o the charts…
MRNA – Moderna cancer vaccine results could drive the company higher longer term. Despite the tough week for the stock, it is worth keeping on our watch list. Finding support… added small position.
Small-Cap Index (IWM) consolidation pattern on the chart with positive upside on Friday… watching. The sector was up 2.1% for the week. Money flow turned negative.
Transports (IYT) uptrend from the October low remains in play with plenty of volatility along the way. Trying to hold the $224 support level and cleared $233.95 resistance on Friday. The sector was up 3.9% for the week.
BDRY – Dry bulk shipping looking bullish with a bottom reversal in play. Gapped higher – adjusted stop. Moving towards the January highs.
The Dollar (UUP) The dollar was choppy all week on the back-and-forth talk about the Fed and interest rates. The dollar was up 0.1% for the week. The outlook is positive with the Fed-driven move in play. Traded lower in front of Mr. Powell’s comments.
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. Consolidation pattern.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.96% up from 3.95% last week. Big shift on Friday as softer Fed belief arise on comments from Atlanta President. TLT was up 0.4% for the week. Dropped to 3.9% early on Powell speculation… closed at 3.98%
Crude oil (USO) trading range on the chart with oil headed back towards the top end of the range. Economic speculation is impacting supply-demand speculation globally. USO was up 4% for the week. The weekly chart shows the downtrend building in crude. Added upside position. Up 1% on the day.
UNG – natural gas bounced on the outlook for colder weather in the US over the next few weeks. Projected bump in demand as a result. Trade entry $8.13 on Friday. Upside in play the last six days. Tanked on Monday hit our stop… Lower demand for heating dropped in the next two-week forecast.
Gold (GLD) The commodity bounced this week as the dollar waffled. The metal was down 2.2% for the week. Held support at $168. Found a bottom and bounced above $170.50 for entry.
Put/Call ratio was 1.0 Monday… Fed comments shift momentum.
Questions to Ponder: Navigating Uncertainty
Retail sector (XRT) is lagging of late… but the White House says the economy is strong. Scanning the stocks shows WMT, TGT, JWN, KSS, M, etc are all slowing of late. Watching how this unfolds moving forward.
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.
Adding to the speculation about the Fed doing the dirty work, JP Morgan is of the opinion with increased 0DTE options (zero days to expiration) trading daily it could send the market down as much as 25% intraday. Reuters posted an article on the impact on Monday. The daily dollar value is now up to $1 trillion per day. One thing is certain… the markets are never dull.
64% of all Americans are living paycheck to paycheck.
FINAL NOTES:
Monday: Stocks were mixed in front of Mr. Powell’s speaking to Congress the next two days. The question is will he continue his “disinflation” line on the economy? Or, does he return to his hardline defense on inflation? Because of the uncertainty, the markets took some profits off and watching how this plays out. Economic data and Fed comments keep the worries front and center and at the least they are entertaining. We take what the market offers watching patiently and managing our money accordingly. Hit some stops on positions and watching the hard materials as they tested lower on Monday. The dollar slipped as well in front of the Fed speaking… volatility is up intraday but remains near 18 on the close.
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… the reversal in momentum Thursday and Friday are all hope and speculation… took some positions on the moves technically from setups that have been present prior… the comments from the Fed just provided the catalyst. We will see how Powell’s comments on Tuesday and Wednesday impact the markets. We will manage our risk of hope giving way to reality along the way. Eyes open. Emotions removed. Lagging economic data has caught the attention of the talking heads if 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, but the shift in momentum is showing up on the chart. Interest rates are at 3.98% on the ten-year bond up from 3.4% three weeks ago reflecting Fed worries. Important to note the big swings in yields the last two days. I state this so we understand how the current shift in belief is impacting sectors. The leaders bounced on the news from the Atlanta Fed president shifting things near term. Thursday and Friday’s news-driven move has to follow through to add any value to the conversation. Volatility closed at 18.6 receding on hope things will improve soon. The money supply has turned lower showing more money on the sidelines. Stay focused and follow the money as some was put to work on the bounce. 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. Stagflation showing up in the ISM data. 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 and shifted to end the 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.