The markets decide waiting wasn’t a good idea and sell on Tuesday. Banks, rate hikes, Yellen and debt ceiling, Bank of Australia raising rates, inflation data in the EU, and earnings all set the tone for the downside. Simply put the same old worries along with some new ones sent stocks lower. It was a day of headlines that unsettled investors with the VIX rising to 17.7 up more than 10% on the day. The day was void of any key economic data or it may have been worse. The indexes did manage to find some buyers after lunch moving off the lows of the day. The FOMC meeting is Wednesday and will bring some interesting data from the Fed along with a real reaction from investors… Tuesday was just worrying added to worries and a dose of reality sinking into investors. That doesn’t mean the markets won’t bounce back as bull markets don’t die easily. The focus remains primarily on preserving the system the Fed has built. Jamie Dimon stated Monday in the assumption of FRC assets… “the system is very, very sound.” Didn’t look so sound on Tuesday with banks dropping 6% as a sector. Plenty of data on the horizon and plenty to ponder… for now the markets are content to wait. The S&P 500 gave up the move above the 4160 resistance and fell to 4086 support intraday and closed at 4119. QQQ moved back below the $320.92 resistance and tested the 10-day MA but held the uptrend alive from the January lows. An interesting day that could have been worse. Ten of the eleven sectors closed in negative territory.
The market continues to ponder how the Fed will respond relative to interest rates, it is equally concerned about the outlook for rates relative to inflation following the EU data. The S&P 500 index closed down 1.1% ahead of the FOMC decision. The NASDAQ was down 1% with SOXX down 0.7%. Small Caps (Russell 2000) were down 2% retesting the lows. The ten-year treasury yield closed at 3.43% down 14 bps showing more volatility in bonds. Crude (USO) was down 1.4%… economic strain putting pressure on prices. Gasoline (UGA) was down 5.2%. Natural gas (UNG) was down 4% as volatility remains. The dollar was down 0.2% and struggling globally. We are focused on managing the risk and watching how this all unfolds.
ONE Chart to Watch: QQQ – 1) Moved back below the $320.92 resistance and negated the upside break. 2) Short-term trend is UP… starting from the January low. 3) $320.92 resistance back in play as level to break. 4) Uptrend line in play with $312.78 level to hold for support. 5) Break higher on Friday failed to confirm the upside move last two days.
Additional Charts to Watch: SPY – retraced the break higher. IWM – retested the previous lows. SOXX – tested the move upside the last two days and watching how it unfolds. Added SRS with all the rumblings about defaults rising in commercial real estate and moving on Tuesday. SJB is also of interest again.
Leadership – NASDAQ, NASDAQ 100, SP500, Dow… All moved lower on Tuesday after a move near the recovery highs of February. The major indexes are led by the mega caps and watching how they respond to the selling Tuesday and the FOMC decision.
Laggards – SOXX, SP400, RUTX… struggling despite the bounce at the end of last week. The growth stocks are still not showing the needed leadership if the markets are to run higher. IWM fell 2% on Tuesday. Important to note the move lower in XLE down 4.3% on Tuesday as the sector saw money flow drop.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added to the position. AMZN (bottom reversal) Added. PG – trading range break as part of the consumer staples money rotation. Earnings gapped higher. Added. MCD breakout. Added. WMT ‘V’ bottom breakout. Added. TSLS. Added. SPXL breakout. Added. SOXX reversal. Added. TQQQ breakout. Added.
Stops Hit: WES
Quote of the Day: “Some people drink from the fountain of knowledge, others just gargle.” – Robert Anthony.
The S&P 500 index closed down 48 points to 4119 the index was down 1.16% with above-average volume on the day. The index moved back below the 4160 resistance and now needs to confirm the downside move. Indecision remains in play as volatility moved higher. One of the eleven sectors closed higher on the day with consumer discretionary as the leader up 0.1%. The worst performer of the day was energy down 4.3%. The VIX index closed at 17.7 as anxiety jumped on the uncertainty of the day. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials hit resistance at $81.75 and tested lower holding above the 200-day MA. Solid bounce to end the week. The sector was down 0.2% for the week.
XLU – Utilities trading range developing on the chart with resistance at the 200-day MA. The sector was down 0.9% for the week. Entry $68. Tested $67.95 support.
IYZ – Telecom gapped down to $21.63 support and held with a bounce to end the week. The sector was down 0.5% for the week. Gave up 50% of the bounce.
XLP – Consumer Staples upside trend continues as money rotates to the “safe” haven of defensive stocks. The sector was up 1.1% for the week.
XLI – Industrials moving sideways with some volatility showing on the chart. The sector was down 0.6% for the week.
XLV – Healthcare made a move through two resistance points. $136.30 next resistance as it held $131.40 support. Topping pattern on the chart. The sector was down 0.6% for the week.
XLE – Energy rolling top as hits resistance at the $86.85 level and held the $82.74 support. The sector was down 2.4% for the week. Crude moving lower impacting stocks short term but solid bounce on Friday. Short-side trade entry hit $82.70 ERY. Added to the move lower on Monday.
XLK – Technology The sector cleared the $144.10 resistance and retested with a bounce back to resistance… trading range is in play. The sector was up 1.4% for the week. Need some leadership from the sector if markets are going higher. Need to clear the previous highs.
XLF – Financials breaks above resistance at the $32.36 test the move and bounced to keep the uptrend in play off the Mach lows. Testing the short-term leadership. The sector was down 0.1% for the week. Banks will be the key short-term as they continue to struggle with regional banks reporting weaker earnings. Moved below $32.33 support as banks fall more than 6%.
XLY – Consumer Discretionary $147.11 resistance in play again. Retail is struggling as consumer debt rises to record levels. They learned from the government. The sector was up 0.3% for the week.
IYR – REITs broke from the trading range on Friday. Cleared $85 and watching as the commercial property remains a challenge overall. The sector was up 1.5% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Tracking SRS for an opportunity.
Summary: The index was lower on the day and it could have been worse. The uptrend from the October low remains intact with three higher lows keeping the trend in place. Earnings pushed the index back above support and offered some optimism to investors the last three days but Tuesday was filled with worries testing the move. Now we have the FOMC decision on Wednesday to factor in. The 4160 level break higher failed to confirm as now the index must bounce back above this level or confirm the break lower. We will remain patient for now as data versus hope play out. 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 132 points to 12,080 as the index was down 1.08% for the day. The index failed to hold the move higher testing back to the 10-Day MA. Now we watch to see if the test moves lower or the buyers return. Technology is the key… SOXX equally gave up the positive move on Monday.
NASDAQ 100 (QQQ) was down 0.87% with the mega caps holding better on the day. They did take the sector back below the $320.92 break higher. Now we watch to confirm the downside move or renew the upside break. The sector had a negative bias with 20 of the 100 stocks closing in positive territory for the day. Added TQQQ entry $27.45.
Semiconductors (SOXX) Tested the $400 level of support and bounced with follow-through on Friday. Still trading below the 50-day MA. Added SOXL Friday on the confirmation. The sector was down 1.1% for the week. Watching how it plays out next week. Gave back the bounce.
Software (IGV) Tested to the $289 support level and bounced. Added IGV. The sector was down 1.4% for the week. Mega caps leading the sector. Moved lower to the 50-day MA.
Biotech (IBB) The sector tested back to the $128.35 level and bounced. The sector was down 2.2% for the week. Added IBB on the bounce at support.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. The bottom reversal offered an entry for an upside bounce. The sector was down 1.3% for the week. Letting it unfold. Negative day falling back to support at $171.68… decision time.
Transports (IYT) negative earnings created a big test lower to support at the $213 level. Nice bounce on Friday and watching how it unfolds. The sector was down 2.6% for the week. If the markets are to move higher overall they need transport to be positive.
The Dollar (UUP) The dollar remains volatile as more countries are willing to trade outside the dollar. Held steady for the week… watching how it unfolds. The dollar was up 0.1% for the week. Solid bounce to start the week. Tested on Tuesday.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.45% down from 3.57% last week. Mixed reactions all week reacting to the news. TLT was up 1.9% for the week. Jumped to 3.57% Monday and fell to 3.42% on Tuesday… now the FOMC decision.
Crude oil (USO) Tough week for oil as news states China and US are consuming less on weaker economic data. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. Nice bounce on Friday to end the week. USO was down 1% for the week. Big dump lower on Tuesday falling 5.2%. Simply put the data shows slowing economic activity in China and the US… not good for consumption looking forward.
Gold (GLD) The commodity is showing a rolling top. The metal was up 0.3% for the week. Watching for the upside to resume. Bounced 1.9% on Tuesday in response to the worries.
Put/Call ratio was 1.02 on Tuesday… not reflecting worry.
Questions to Ponder: Navigating Uncertainty
Stagflation – persistent inflation combined with stagnant consumer demand and relatively high unemployment. Do we have this situation currently in the US economy? If it doesn’t exist in a purely technically defined way, it is creating the same economic environment currently in the US, and the current administration is in denial. Thus, we will continue to feel the effects of this until we change course.
Money Supply – Falling at the fastest rate since 1930. M2 fell 2.2% in February and fell 2.4% in March… Contraction in supply should contract liquidity in the system and stifle inflation. Watch bank deposits they are still declining. See the above definition of stagflation… the pressure on the economy is building.
Semiconductors – China announced a national security review into US chipmaker – and one of three memory chip market leaders – Micron. MU fell on the news. This battle between the US and China over chips has been going on for some time… caught in the crossfire are South Korea and Taiwan.
Tuesday: Stocks were lower on the day as worries rise relative to headlines, not the least of which is the FOMC decision on Wednesday. The VIX rising 10% on Tuesday reflected some of the worries looking forward… are we lining up for the perfect storm? One of the eleven sectors closed higher on the day with above-average volume and selling ahead of the meeting. We see opportunities setting up both on the downside and the upside on the charts. The key is to let it unfold and take the opportunities as they are presented. Taking what is offered and willing to be more patient than anxious currently as the trend unfolds.
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. We have to remain focused on short-term trades until there is longer-term directional clarity. News is in the driver’s seat as we take positions that are technically moving and offering opportunities. 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 your money.
“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.