The ups and downs of the overall market the last few weeks have been challenging and one that requires patience to navigate. The first day of trading in the new year started with higher volume and more indecision about direction. The indexes started higher but failed to hold the gains longer than 15 minutes. The intraday swing was more than 2% and volume move up significantly on the movement. All said the close was not bad and we watch to see how the direction unfolds. The economic data continues to show weakness overall with construction spending down and Markit Manufacturing PMI reading at 46.2 and well below the 50 mark showing contraction in the economy. You can see on the intraday chart with the higher open and then a test of support again at the 3805 level. The downtrend remains in play and the activity was better but negative money flow. The NASDAQ moved down to 10,350 support again and bounced the last hour as well. The S&P 500 index closed down 0.2% and the NASDAQ was down 0.1% for the day. The ten-year treasury yield closed at 3.79% down 8 bps on the day as TLT got a small bounce on the move. The volatility index moved to 22.9 on the day as investors were more active on the day. Crude was down 3.5% on the day, and natural gas was down 9.3% moving back to the lows of December 2021. The dollar was up 1% and tries to reverse the downtrend. The goal is to see how this plays out as we start the new year. Looking for opportunities in the volatility.
Things to Watch on Wednesday: 1) Support for SPY and QQQ. 2) TLT watching how interest rates respond near term. 3) Chicago PMI (44.9 versus 37.2 previous. 40.5 expected).
Charts to Watch: COW (trading range breakout), GOLD (saucer breakout), RIG (cup and handle breakout). SQQQ (break of October lows). SOXS (break of $337 support SOXX). LABD (break above $2050 resistance). TZA (cup and handle breakout).
Previous Charts of Interest Still in Play: FCX (test support, raised stop), KWEB (breaking higher “V” bottom). UGA (double bottom). Adjusted stops as necessary.
Stops Hit: None
This Week’s Data Reports:
Quote of the Day: “Tis better people think you a fool, then open your mouth and erase all doubt.” – Abraham Lincoln.
The S&P 500 index closed down 15.3 points to 3824 the index was down 0.4% with below-average volume. The index continued lower on the day but managed a positive bounce off the intraday lows and support at 3805. The negative tone continued for stocks overall. Five of the eleven sectors closed higher on the day with telecom as the leader up 0.9%. The worst performer of the day was energy down 3.5%. The VIX index closed at 22.9 higher on higher volume. The Index closed lower and watching the support levels to confirm the downside if it breaks adding SPXS.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials broke lower breaking 200 DMA. The sector was down 0.4% for the week. Closed at the 50 DMA.
XLU – Utilities moved below the 200 DMA putting the uptrend in question. The sector was down 0.4% for the week. Letting it play out.
IYZ – Telecom attempting a bottom reversal in slow motion. The sector was up 1.7% for the week. Establishing a trading range.
XLP – Consumer Staples broke lower from the consolidation pattern. The sector was down 0.5% for the week. Held the 200 DMA. Bounce at support and gave it back.
XLI – Industrials broke support at $99 and held the 50 DMA. The sector was up 0.4% for the week. Sideway trading pattern.
XLV – Healthcare Tested the 50-day EMA. The sector was down 0.1% for the week. Established trading range.
XLE – Energy established a trading range with some volatility as crude prices rise to end the week. The sector was up 3.6% for the week. USO and UGA are in play currently.
XLK – Technology The sector continued the downside momentum to close below the 50 DMA. The sector was down 0.2% for the week. Holding at support for now.
XLF – Financials established a downtrend as money flow turns negative. The sector was up 1.3% for the week. Watching for the bottom reversal slow motions style.
XLY – Consumer Discretionary moves below the October lows as the downtrend remains. The sector was up 0.5% for the week. Added SZK adjusted stop.
IYR – REITs found $82.96 support and holding. The sector was up 0.4% for the week.
Summary: The index was down 0.15% for the week. It has established a sideways trading activity on low volume and negative money flow. We will watch how trading unfolds in the new year, but the downside remains the bias. Held above the 3805 support level and letting it unfold. We have reduced positions on the upside and added positions on the downside as both opportunities remain in play. 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 79.4 points to 10,386 as the index was down 0.76% for the day. The chart found support at the October lows again and tried to bounce again. Technology remains in the doldrums not providing any direction for the index overall.
NASDAQ 100 (QQQ) was down 0.68% with the large caps holding the October lows as support. Technically the downside momentum is still on the chart… watching to see if we bounce further or reverse. The sector had a mixed bias with 37 of the 100 stocks closing in positive territory for the day. The chart isn’t impressive with money flow turning negative, but watching near-term direction.
Semiconductors (SOXX) broke lower from the range and tested support. The sector was down 0.2% for the week. $334.25 next level of support.
Software (IGV) Downtrend is in play on the chart with the October lows in play. The sector was up 1% for the week. Watching how the week begins.
Biotech (IBB) The sector is trading lower in and up and down pattern. The sector was down 1.9% for the week.
Small-Cap Index (IWM) trading sideways in a narrow range. The sector was up 0.4% for the week.
Transports (IYT) downtrend is in play with $210 support. The sector was down 0.7% for the week.
The Dollar (UUP) The dollar moved below the 200 DMA and remains in a downtrend. The dollar was down 0.3% for the week. Outlook remains negative.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.87% up from 3.75% last week. The yields are in an established short-term uptrend. TLT was down 3.9% for the week.
Crude oil (USO) volatility in oil prices as speculation ramps up on economics. Supply-demand speculation as China opens its economy and borders. USO was up 3.5% for the week. UCO entry $28.30.
Gold (GLD) The commodity has been trading higher as the dollar declines. The metal was up 1.7% for the week. GLD entry $154.90. Stop $164.50. The move to resistance and looking for a break higher. Added AGQ $23.50. Stop $31.
Put/Call ratio was 1.19 on Friday… SVXY trade setup ($57.50 entry).
Questions to Ponder: Navigating Uncertainty
Food issues are back with the current winter blast heading east. Winter wheat is the challenge this time as there isn’t enough snow covering the ground in key states to protect it from freezing or being damaged. WEAT is on the radar for now. WEAT entry $7.70.
AAPL: More cuts for iPhone sales outlook. Murata Manufacturing expects a downward revision from Apple orders. MS cut its production estimates for Q4 as well. The stock was down 1.4% Wednesday… down 4.7% for the week. Needs to hold support at $137.20. Broke lower… puts in play. Sold 1/2 of position.
WMT: At a decision point with the rolling top on the chart. Indicator for the retail sector. Added Puts adjusted stops… Wednesday broke key support.
Energy (XLE): Watching the downside momentum in the sector with crude moving below $80 bbl. Added UCO and ERX.
Friday: The markets managed to bounce the last hour to cut losses on the day. The year ends much like it has acted all year… confused. The data isn’t helping and investors are content to sit it out for now. The bigger worry from my view is a weak economy that in time will take earnings down and stocks with them. Watching how this unfolds but as we head into the new year I fully expect another run to the downside. We are a far way from seeing growth… my opinion. The retail sales data was negative. Holiday sales thus far have been lower than expected. Housing data negative. Winter storms wreak havoc on the airlines. Too many variables are being juggled and too many parts of the economy not working properly. The dollar broke below the 200 DMA as lower rates help the global financial markets ease. The word “stagflation” is something to watch moving forward as well. The October lows are in sight and watching how this unfolds. Volatility closed at 21.6 as anxiety levels remain elevated, and money supply and volume weak. 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.
As stated above we continue to watch and take what is offered. 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 turning towards stagflation of late which could be worse for consumers as it tends to last longer with a slow negative effect. We remain focused on short-term trades until there is directional clarity. The charts are showing a negative trend… with the key components lagging… technology, financials and consumer discretionary show negative trends. 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.