Markets drifted higher throughout the day on sluggish volume until the last 30 minutes of trading when it gave up the day’s gains to close flat on the day. No real economic data to ponder on the day so traders were left to themselves to anticipate what CPI will hold along with the release of the Fed minutes. Both will offer insight into the next FOCM meeting in May. The volume remains anything but impressive. The breadth is minimal. We can say the market is waiting on key data points but overall volume has been below average for the last 17 trading days. That takes us back to the bottom reversal in March. Lack of participation in the upside move makes it susceptible to downside risk. That said, we will take what is offered and see how this unfolds near term. Despite the late-day selling ten of the eleven sectors closed in the green. Small caps were up 0.8% attempting a bounce from selling last week. Treasury yields tipped higher as the inflation worries and projections of another rate hike in May stepped into the equation. None of the news is painting a good outlook… thus, we have to proceed with caution and take what is offered. The belief would be at some point the markets/investors will have to accept the bad news for what it is… reality.
The markets overall continue to hang tough despite the outlook. Some interesting moves on Tuesday with BAC gaining 2.7%. Bitcoin continued higher gaining 3.3%. Natural gas posted another solid day, transports were higher, and midcaps moved higher as well. RIOT jumped another 17% and ZIM was up 13.5%. The big data will start on Wednesday with CPI, PPI, and Retail Sales all due out by the end of the week. As I say plenty of times, data doesn’t matter, until does, so we will be watching just how much it matters. The Fed liquidity is in play and likely to remain to prop up stocks for now. Remember the oil production cuts still are a looming impact on the economy. Inflation will be challenged if oil increases to $100 bbl. Liquidity will trigger inflation equally if the Fed goes too far. All issues the market will have to deal with over time as well as the investor. The S&P 500 index closed up 0.01% with intraday volatility at the close. The NASDAQ was down 0.4% with intraday volatility at the close. Small Caps (Russell 2000) were up 0.8%. The ten-year treasury yield closed at 3.43% up 2 bps on the day as bonds sold in turn. Crude (USO) was up 1.8%… back above the $80 bbl level. Gasoline (UGA) was up 1.4%. Natural gas (UNG) was up 3% bouncing back from selling on Thursday. The dollar was down 0.3% struggling globally. We are focused on managing the risk and watching how this all unfolds.
NEWS: The Financial Times reported that banks are offloading their large commercial loans to free up balance sheets and create more liquidity. This of course comes at a cost to the banks as they sell them at a discount to make them attractive to potential buyers. This will be of interest as banks start to report earnings soon. Watching how the financials (XLF) and banks perform (KBE).
Charts to Watch: IYT (break downtrend line). ZIM (breakout). FCX ($41.35 resistance, add to existing position). ERX (‘V’ bottom). UNG ($7.15 entry bottom reversal).
Tuesday: SRS (buy the dip). OLLI head & shoulder $60 entry, $69 Target).
Monday: AAPL (bull flag) headed lower on sales data? SOXX (up-trending channel @ bottom of the channel) bounced offering an opportunity.
Previous Charts of Interest Still in Play: LSCC (testing uptrend). Added uptrend in play. AAPL (reversal confirmed) Added to the position. GBTC (trading range breakout). Added to the position. AMZN (bottom reversal) Added. GDX (bottom reversal) Added. PG – trading range break as part of the consumer staples money rotation. Added. MCD breakout. Added. WMT ‘V’ bottom breakout. Added. WES reversal. Added. SCCO resuming an upside move. Added. UJB Added. FCX Added. SRS Added. SKF Added. SQQQ Added. SOXS Added. UCO ($29.25 resistance) Added. DBA (‘V’ bottom breakout) Added.
Stops Hit: None
Quote of the Day: “French is the language that turns dirt into romance.” ― Stephen King
The S&P 500 index closed down 0.2 points to 4108 the index was flat with below-average volume on the day. The index stayed above 4086 and showed some intraday volatility into the close. Ten of the eleven sectors closed higher on the day with energy as the leader up 0.9%. The worst performer of the day was technology down 0.9%. The VIX index closed at 19.1 as anxiety was higher to start the week. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials hit resistance at $81 and tested lower for the week. Some rotation is in play short term. The sector was down 1.2% for the week. FCX bottom reversal. SCCO. Bounced to start the week.
XLU – Utilities retested the lows at $64 and bounced breaking through resistance at $67.95. The sector was up 3.1% for the week. Entry $68. At the 200-day MA.
IYZ – Telecom double bottom pattern breaks higher and tests back to support. Cleared $22.35 entry. The sector was down 1.1% for the week. Modest upside.
XLP – Consumer Staples downtrend reversal offer entry at the 200 DMA ($73). The sector was up 0.8% for the week. Attempting move higher.
XLI – Industrials tough week as the sector fell giving up gains. The sector was down 3.3% for the week. Bounced to start the week.
XLV – Healthcare Made a move back above the $127.50 mark. Broke above $131.40 resistance. Biotech (IBB) equally moved higher. Entry $127.57. The sector was up 3.1% for the week. bounced off the lows.
XLE – Energy Gapped higher to start the week and held on. The sector was up 2.4% for the week. bull flag.
XLK – Technology The sector bounced off support at $135 and ran higher… spent the week testing the highs. The sector was down 1.3% for the week. Back to the August highs. SOXX and IGV drag on the sector.
XLF – Financials pressure in banks continues pushing the sector lower. Bear flag pattern on the chart. The sector was down 0.5% for the week. KBE puts remain in play. FAZ Watching after taking gains. Banks are still not on solid ground. $32.36 resistance – banks earnings on deck.
XLY – Consumer Discretionary upward trending channel… closed at the lower end of the channel. The sector was down 3.1% for the week. Higher despite negative retail data.
IYR – REITs stalled from the bounce last week. Need to clear $85 currently. The sector was down 0.8% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Letting this unfold. Higher despite rate moves Monday.
Summary: The index tried to move higher until the last half hour of trading. Close on a doji candle… could show a shift in direction. The worries over inflation data and the Fed set the tone with both CPI and Fed minutes on Wednesday. Volume was below average again… something we continue to watch. Plenty of things to worry about on the horizon… crude is a concern longer term… treasury bond yields bounce on Fed concerns… leadership… geopolitics… dollar… and plenty of data on the way. We did hold 4086 support. We will remain patient for now as investors sort out their collective thoughts about what is fear and what is real. We continue to manage our positions accordingly. 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 52 points to 12,031 as the index was down 0.43% for the day. The index held the move back above the 11,474 previous support and watching how it handles the news ahead. Technology is the key… SOXX and IGVwere lower. Data ahead will play a role in the chart.
NASDAQ 100 (QQQ) was down 0.68% with the mega caps holding the move above $312.13 and in a consolidation pattern. The sector had a positive bias with 53 of the 100 stocks closing in positive territory for the day. Watching how sentiment plays out near term. Volume is lagging again on the day.
Semiconductors (SOXX) failed to hold the move above the $432.27 resistance. Not looking good on the charts with four straight down days. The sector was down 5% for the week. Watching how it plays out next week. up 1.7% to start the week… gave back 0.5% Tuesday.
Software (IGV) broke through $293.50 resistance adding to the upside move. The sector was down 1.6% for the week. Mega caps leading the sector. Second inside trading day… watching.
Biotech (IBB) The sector moved above the 200 DMA and completed a trend reversal clearing $128.35. The sector was up 1.5% for the week. IBB entry $127.35. Broke higher from consolidation pattern. Holding the uptrend.
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. Entry $142. Added to the position and looking to move to $165. Solid week adding to the upside modestly.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. The sector was down 2.5% for the week. Letting it unfold. Positive bounce to hold support.
Transports (IYT) bottom reversal failed and in a sideways pattern. The sector was down 2.5% for the week. BDRY showing a topping pattern. Positive bounce at support.
The Dollar (UUP) The dollar remains volatile as more countries are willing to trade outside the dollar. The bounce on Thursday was a plus… watching how it unfolds. The dollar was down 0.5% for the week. Plenty playing into the dollar globally and domestically.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.28 down from 3.49% last week. Big shift in the last two weeks as the fear of the bank fallout impacts investors’ risk tolerance. TLT was up 2% for the week. Entry TLT $102.90. Stop $106.50. 13 bps bounce pushing bonds lower… inflation worries in play.
Crude oil (USO) Gapped higher to start the week as Saudi Arabia cut production going forward. Without a response from the White House to open pipelines and Gulf, this could be a bigger issue going forward. USO was up 5.7% for the week. Back above the $80 bbl.
Gold (GLD) The commodity bounced and pushed higher as money rotates. The metal was up 1.8% for the week. Entry $169.50. UGL in play. SLV ‘V’ pattern back to the January highs. higher on a lower dollar.
Put/Call ratio was 1.02 Tuesday… moderating into data points.
Questions to Ponder: Navigating Uncertainty
Blackstone REIT limits investor redemptions… Commercial real estate is being challenged more than most want to believe. The movement of money by investors is wider spread than banks. In February there were requests for $4.5 billion and granted only $667 million. Challenges are growing in more places… SRS tested back to the 200 DMA looking for entry again.
SEC Chair Gensler requests more funding to fight bitcoin non-compliance. The government is making its move in the name of “protecting its citizens from a highly speculative asset class”. Of course, they are working on having one controlled by the government.
Saudi Aramco is investing $12 billion in new refining and petrochemical in China’s Liaoning province. In addition, they bought a 10% stake in one of China’s oil refining firms for $3.6 billion. Another shot at the current administration’s strained relationship with Saudi Arabia. Now cuts oil production… very interesting developments.
Tuesday: Stocks were higher most of the day forfeiting profits into the close. The focus shifted to the CPI and Fed minutes due out on Wednesday. The renewed worries following the jobs report last week make the report even more of an issue. Plenty of data out the balance of the week as well with earnings starting. The banking sector will kick off the season… that should be interesting reading and could spark some selling in the sector if the data reveals a further weakness in banks. The breadth of the move isn’t great. But, we have to take what is offered and manage the risk that is. Watching patiently.
Downtrending sectors are sporting bottom reversal patterns with some breaking higher. Treasury yields move to 3.43% on CPI worries… the dollar struggles… natural gas jumped 9% in two days… precious metals bounce on the weaker dollar. Eyes open. Emotions removed. It is a time for patience as the storylines unfold and the direction is determined. 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. 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 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.