Things are not looking good for the economy. ADP jobs fell to 145k versus 242k previous and 261k expected. That shows a slowing in the labor markets. ISM Services missed falling to 51.2 in March from 55.1 in February ISM Manufacturing was below 50 on Monday adding to the bad news. S&P 500 was lower on the day along with the NASDAQ raising plenty of questions from investors about the outlook. The 3-month versus 10-year bond yields are greater than 1.5% inversion again… negative. Small caps testing the March lows again… negative. Large-cap industrials XLI… UGLY. The VIX remains near 19… not spiking and worthy of attention. None of the news painted 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. Friday’s jobs report looms even bigger following Wednesday’s news.
The markets have had every reason to sell lower but manage somehow to hang on. Tuesday was chalked up to a test of the current move higher. We could say the same about Wednesday with the exception of small caps. We will see how it responds going forward. As I say plenty of times, data doesn’t matter, until does. The current market environment is a bounce off the previous lows with a current test as it got extended or overbought. The Fed liquidity is in play and likely to remain to prop up stocks for now. Oil production cuts will have an impact in time. Inflation will be a challenge again if oil increases to $100 bbl. Liquidity will trigger inflation equally. All issues the market will have to deal with in time as well as the investor. The S&P 500 index closed down 0.2% with intraday volatility. The NASDAQ was down 1% with intraday volatility. Small Caps (Russell 2000) were down 1%. The ten-year treasury yield closed at 3.28% down 5 bps on the day as bonds rally again. Crude (USO) was down 0.1%… holding above $80 bbl. Gasoline (UGA) was up 2.9%. Natural gas (UNG) was up 2.7%. The dollar was up 0.3% but remains in a downtrend of late. Overall markets show that liquidity trumps reality, but reality is a bitch. We are focused on managing the risk and watching how this all unfolds.
NEWS: The Federal Reserve’s Mester says the target rate will need to go over 5%… that is a shift in position and very dangerous for banks and insurance companies.
Charts to Watch: SPXS watching sentiment and money flow. SOXS if it fails to hold the upside trend short term. The weekly chart SOXX shows an interesting pattern.
Previous Charts of Interest Still in Play: LSCC (testing uptrend). Added uptrend in play. SOXX (upside follow-through) Added – Adjusted stop. AAPL (reversal confirmed) Added to the position. GBTC (trading range breakout). Added. 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.
Stops Hit: None
Quote of the Day: “The most effective way to do it, is to do it.” — Amelia Earhart
The S&P 500 index closed down 10 points to 4090 the index was down 0.25% with the below-average volume on the day. The index closed above the 4086 resistance and showed some intraday volatility. Five of the eleven sectors closed higher on the day with utilities as the leader up 2.5%. The worst performer of the day was consumer staples down 2%. The VIX index closed at 19 as anxiety increased with intraday volatility. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials found support at the $75 mark and bounced. As one of the defensive sectors, it moved higher. The sector was up 5% for the week. FCX bottom reversal. SCCO. Testing the move higher.
XLU – Utilities retested the lows at $64 and bounced nicely to end the week at resistance. Need to clear $67.95. The sector was up 3% for the week. Trading range in a double bottom pattern. Broke above resistance $67.95. Entry $68.
IYZ – Telecom double bottom pattern breaks higher offering entry. Cleared $22.35 entry. The sector was up 4.3% for the week.
XLP – Consumer Staples downtrend reversal offer entry at the 200 DMA. The sector was up 2.4% for the week. Another defensive sector leading. Defensive sectors moving higher.
XLI – Industrials moved to the 200 DMA as support and reversed to the upside. The sector was up 4.4% for the week. Another defensive sector leading. Big test lower on Tuesday and Wednesday.
XLV – Healthcare Made a move back above the $127.50 mark. Biotech (IBB) equally moved higher on Friday. Entry $127.57. The sector was up 1.7% for the week. Up again breaking resistance at $131.41.
XLE – Energy broke support at $82.74 and moved back as resistance… watch to see if it breaks or moves lower. The sector was up 6.3% for the week. Holding the move higher.
XLK – Technology The sector bounced off support at $135. Maintaining leadership with IGV and SOXX leading. The sector was up 3.4% for the week. Back to the August highs. Testeing with SOXX lower.
XLF – Financials pressure in banks continues pushing the sector lower. Bear flag pattern on the chart. The sector was up 3.7% for the week. KBE puts remain in play. FAZ hit stop and solid gain. Watching how this unfolds. S&P lowers ratings on JPM, BAC, PNC, and TFC… happened after the close on Friday… watching how it impacts them on Monday. Challenged by banks again.
XLY – Consumer Discretionary bottom reversal in play clearing $147.11 resistance. The sector was up 5.6% for the week. TGT bottom reversal. Economic picture not favoring the sector testing lower.
IYR – REITs ‘V’ bottom reversal in play… cleared $82.96 level and $87.63 target. The sector was up 5.2% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Letting this unfold. Mixed with rising concerns about commercial space.
Summary: The index posted a down day as leaders tested their respective moves higher. Definite rotation in play and watching how it unfolds near term. Volume was below average again… something we continue to watch. Money flow is of interest as remains below 50… crude testing move higher… treasury bonds were higher jobs reports… SOXX tested but holding… still plenty of issues and more data on the way. The charts show reversals in most sectors that were in downtrends… the index held the 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 129 points to 11,996 as the index was down 1.07% for the day. The 10,941 support held and the index moved back above the 11,474 previous support and now faces the February highs. Technology and semiconductors are the keys… SOXX was lower on intraday volatility. Watching how this unfolds relative to the test.
NASDAQ 100 (QQQ) was down 1% with the mega caps holding the move above $312.13 resistance and looking at the August highs. The sector had a negative bias with 29 of the 100 stocks closing in positive territory for the day. Watching how sentiment plays out near term. Volume is lagging despite the move higher of late.
Semiconductors (SOXX) broke higher from the sideways trading range clearing $432.27 resistance. Showing leadership overall. The sector was up 3.5% for the week. Lagged on Friday but was higher nonetheless. Gave up 3.5% last two days testing the move higher.
Software (IGV) broke through $293.50 resistance adding to the leadership in the technology sector. The sector was up 4.7% for the week. Mega caps leading the sector. AI & IONQ were up 21% Friday. Testing the move higher.
Biotech (IBB) The sector moved above the 200 DMA and attempting a trend reversal clearing $128.35. The sector was up 2.6% for the week. IBB entry $127.35. Broke higher from consolidation pattern. Held break over the $128.35 mark.
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. Testing bounce.
Small-Cap Index (IWM) working on a bottom reversal from a bear flag pattern. The sector was up 3.8% for the week. Money flow turned higher on Friday. Moved lower last two days and remains in bottoming range.
Transports (IYT) bottom reversal in play. The sector was up 5.4% for the week. BDRY showing a topping pattern. Moved lower and remains in a downtrend from the February highs.
The Dollar (UUP) The dollar was down all week with the Fed and interest rates. The bounce on Friday was a plus… watching how it unfolds. The dollar was down 0.6% for the week. Plenty happening globally to undermine the dollar and replace it as the currency of trade. Very negative overall if and when this happens. In trouble near term as downtrend remains with modest bounce on Wednesday.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.49 up from 3.38% last week. Big shift in the last two weeks as the fear of the bank fallout impacts investors’ risk tolerance. TLT was down 0.4% for the week. Entry TLT $102.90. Stop $105.50. Dipped to 3.28 on jobs news.
Crude oil (USO) Tested lower bounced and moved higher. Economic speculation is impacting supply-demand globally. USO was up 8.9% for the week. The longer-term trend is still down. The $65 level is key for crude relative to the downside support. Up 6% with targets moved to $100 bbl.
Gold (GLD) The commodity bounced and is in a bull flag pattern currently. The metal was down 0.2% for the week. Entry $169.50. UGL in play. SLV ‘V’ pattern back to the January highs. Broke higher along with the miners.
Put/Call ratio was 1.0 Wednesday… Flattened out the negative bias.
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.
Wednesday: Stocks struggled most of the day with intraday volatility and leaders testing. Liquidity is a bigger driver currently than reality. With the Fed ready to save “the system”, markets have been in buy mode. Yes, some selling on Tuesday and Wednesday, but that, for the most part, has been a modest test… watching how it unfolds moving forward. Economic data remains on the downside seen in the ISM data along with the ADP numbers. Money flow remains below the 50 level. 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 3.28% on the ADP report… the dollar is heading lower… crude jumped 6%… precious metals rebounded and moved higher. 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.