The markets remain volatile and failed to find a definitive direction. The indexes were in positive territory until late afternoon and then sold off into the close. Despite getting what everyone wanted with tepid jobs report the buyers could hold the gains as sellers pushed back. The yields on the 10-year bond dipped as well giving even more reason for the rally to hold. But, when it was all said and done, the downside prevailed. The price of crude was higher on the day and remains above the $80 mark. The economic data was focused on the jobs report with 187,000 new jobs added in July and was below the expected 200,000… 3.5% unemployment rate versus 3.6% last month. Roughly 30% of the working-age population isn’t working. Earnings rose 0.4% versus 0.4% in June. 62.6% participation rate vs February 2020 it was 63.3%… Earnings from AMZN were cheered with an 8.2% gain, while AAPL disappointed and fell 4.8% on the day. The test of the uptrend remains in play and with the Fed engaged we are not likely to see a major drop but the current setups are worth tracking and taking the opportunity when presented on the upside or downside. Taking what is offered in terms of rotation and momentum. Watching what Central Bank activity transpires next week.
The markets moved higher through lunch and then someone yelled fire and the gains evaporated. Plenty of rambling by the talking heads about the outlook and the economic picture. The greater challenge currently is a lack of direction in the markets overall. Data continues to be the tail-wagging the dog. We adjusted stops on our downside positions. Still looking for more testing overall of the upside move. Two of the eleven sectors closed in the green with the leadership coming from consumer discretionary… mainly AMZN. Volume was above average on the day. Scanning the ETFs leadership remains thin with news driving specific parts each day. ITB, REM, USO, and XLY. The S&P 500 index closed down 0.5%. The NASDAQ was down 0.3%. The SOXX was down 0.1%. Small Caps (Russell 2000) were down 0.2%. The ten-year treasury yield closed at 4.06% down 13 bps. Crude (USO) was up 0.9%. (UGA) was down 0.3%. Natural gas (UNG) was up 1%. The dollar was down 0.5%. We are focused on managing the risk and seeing how investors respond to the disappointing data.
ONE Chart to Watch: QQQ – 1) Held above the $366.14 mark and closed down on Friday. 2) Short-term trend is UP… starting from the January low. Topping pattern in play. 3) Moved down to the 30-day MA. 4) Added SQQQ at $17.81. Stop $17.81. 5) Down 3% for the week.
Additional Charts to Watch:
SPY – Moved above the June highs and resumed the uptrend only to test lower again. $453 stop hit on positions to lock in a solid gain. $457.60 target hit and reversed. Watching the current test with the June highs as near-term support. No Positions.
IWM – struggled and reversed off support with solid follow-through on the upside clearing the $189 level. Testing the uptrend… watching how it unfolds. No Positions.
SOXX – moved back above the $497.61 level hit new highs and reversed. Testing with $508 support currently. No positions and watching how this unfolds near term.
USO – broke above the April highs with upside pressure coming from the supply data. Hit the entry point at $65. Stop $71.22 (adjusted). Positive for the commodity as our positions post gains, but the impact on the economic picture isn’t as it acts as a tax on individuals. OPEC extending production caps… $100 projections for crude prices…
IYT transports tested back to the $247.67 level bounced and moved to new highs. An uptrend in play. Testing the trend currently… dry shipping is the drag currently as rates fall and capacity is rising. Rails and trucking still looking solid. No Positions.
Stops Hit: DIA
Quote of the Day: “I not only use all the brains I have but all that I can borrow.” – Woodrow Wilson
The S&P 500 index closed down 23 points to 4478 the index was down 0.53% with above-average volume on the day. The index holding the move above the 4400 level. 4585 resistance came into play again and tested back to the 30-day MA. Two of the eleven sectors closed higher on the day with consumer discretionary as the leader up 1.4%. The worst performer of the day was technology down 1.3%. The VIX index closed at 17.1 moving higher on late-day selling. The uptrend from the October low remains in play but is testing.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials Week of testing with the trend being tested. The sector was down 2% for the week. No Positions.
XLU – Utilities back to the previous lows and support. Need to hold $63.75. The sector was down 4.5% for the week. No positions.
IYZ – Telecom In a downtrend from the February highs, bounced at support and back to the top of the current range. Need to clear $22.30 resistance. The sector was down 0.6% for the week. No Position.
XLP – Consumer Staples topping pattern broke to support on Friday to end the week. The sector was down 1.9% for the week. No Positions.
XLI – Industrials The uptrend is being tested $107.90 is the level to hold near term. The sector was down 1.7% for the week. No Positions.
XLV – Healthcare Moved back to support at $132.64. The sector was down 2% for the week. No Positions
XLE – Energy Bounced and cleared the $82.74 level and broke the downtrend from the October highs. The sector was up 1.2% for the week. Entry $81.95. Stop $85.05 Need to clear $87.70.
IEO – broke higher as offshore interest rise. Entry $85. Stop $92.50.
XLK – Technology The sector is testing the move higher and needs to hold $170.90 support. The sector was down 1.3% for the week. No positions.
XLF – Financials holding above $33.35 support and testing the current trend. The sector was down 0.8% for the week. KIE broke above resistance. Entry $40.60. Stop $42.10.
XLY – Consumer Discretionary Tested the move higher in the uptrend. Solid gains on Friday thanks to AMZN. The sector was down 0.7% for the week. No Positions.
IYR – REITs struggled all week with higher interest rates and data impacting the sector. The sector was down 2% for the week. No Positions. Watching interest rate near the 4% level again. Looking at SRS for an entry point.
Summary: The index moved lower on the day as investors rotate and money flow slows. Watching the data points as they continue to show a mixed outlook. Two of the eleven sectors closed higher on the day with XLE in the leadership role. XLK set the pace on the downside and looking for how plays out near term. The broad index remains in an uptrend from the October lows with some interim testing. 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 50 points to 13,909 as the index was down 0.36% for the day. The index remains in the uptrend with some testing. Support is 13,762. Letting the move unfold as tech and mega caps test their respective highs. SOXX was down 0.1% on the day. IGV was down 1.1%. Watching support and how the activity unfolds.
NASDAQ 100 (QQQ) was down 0.47% on the day as mega caps traded lower. Remains above the $366.14 support. The mega-caps, as we have discussed, are/were extended from the May break higher and thus we manage the risk short term. Watching for the next directional opportunity. The sector had a negative bias with 43 of the 100 stocks closing in positive territory for the day.
Semiconductors (SOXX) The sector is testing in an up-trending channel. Needs to hold above the $497.60 mark of support. The sector was down 3.7% for the week.
Software (IGV) Testing again in the uptrend. The sector remains above the $336 level of support. FTNT fell 25% Friday impacting the sector. The sector was down 3.5% for the week. No Positions
Biotech (IBB) The sector broke below the $128.35 support. The sector was down 1.9% for the week. No Positions.
Small-Cap Index (IWM) Cleared the $189 resistance level to establish an uptrend. Topping pattern on the chart. The sector was down 1.1% for the week. Entry TNA $36.31. Stop $38.32.
Transports (IYT) Remains in an uptrend with a test currently in play. The sector was down 3.3% for the week. No positions.
The Dollar (UUP) The dollar moved back near the June highs… sold on Friday and watching. The dollar was up 0.4% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.06% up from 3.96% last week. TLT was down 3.2% for the week. Moved above 4% and watching how it impacts the economy.
Crude oil (USO) Broke higher and remains in a solid uptrend. USO was up 2.3% for the week. UCO entry $24.15. Stop $29.50.
Gold (GLD) The commodity struggling on the stronger dollar. No positions. The metal was down 0.9% for the week.
FINAL NOTES:
Our longer-term view shifted to neutral as the upside trend from the October lows remains in play. 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 the trend higher overall but plenty of volatility along the way. With the trend higher it puts the broad indexes in intermediate uptrend… this is a positive overall for the broad markets. The topping patterns remain in place and we remain cautious about the outlook near term as seen in the selling last week… mild but present watching key support levels going forward. The economic data is showing some signs of fatigue relative to growth. Some testing in leaders and some rotation among sectors but overall the trend remains higher. Tightening our stops on intermediate and short-term positions. We locked in some gains on positions, hit stops on others, and added some as money rotated. Sector-driven activity is in play short term with some testing at the highs. 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.
Friday: Plenty of volatility during the day with the indexes closing lower. The data for July is having an impact based on the current moves and it’s not all positive. Letting it play out as we look for directional confirmation on QQQ, SPY, SOXX, and TLT. We have added positions in sectors showing positive momentum and exited those hitting our stops. We see the overall trend is still up from the October lows. Watching where money is going near term for clues of what is on the horizon. Manage the risk that is and let the current trend plays out. Plenty to ponder as we progress in the current environment.
What I am watching on Monday: 1) SPY, QQQ, SOXX, directional decision. 2) TLT reaction to downgrade. The issues are just beginning relative to the spending spree of the current administration. The debt has increased $2 Trillion in 2023 and we still have 5 months to go. 10-Year yield moved above 4% again… watching how this plays out. TBT added to our positions. 3) AI, SOXX, IGV, XLF… are a few to watch. 5) AAPL earnings reaction and any opportunity.
Trending concerns:
1) Elimination of the debt ceiling by Congress has sent the administration on a spending spree… no big surprise when you can’t bounce checks you keep writing them for undisclosed favors. TLT fell 1.9% Tuesday and we added TBT to our positions. Watching how this storyline unfolds as Fitch downgrades the Treasury Bond to AA+.
2) Inflation warnings are popping up again… on May 4th crude was $67. On August 1st crude was $81.96 which is a 22.1% increase in price… where does it go? Correct, into everything we basically touch. We own USO and UGA in order to keep pace with being able to afford gasoline. But it goes further and we should be looking at where to invest to keep pace with the next wave of inflation.
3) Climate Emergency? If this executive order is enacted by the Biden Administration bar the doors as spending will escalate to levels not seen since WWII. The draconian measures will mirror those seen during the pandemic lockdowns. They want to eliminate anything gas or electric in the name of “clean energy”. Another storyline that has our attention.
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.