Jim’s Notes Wednesday Recap

Moving the Market – February 14th

The markets test the 20-day EMA and the buy-the-dip mentality comes into play pushing stocks back up after selling on Tuesday. Why? No really solid rationale with no real economic data out, but there was Fed’s Goolsbee talking to Congress and he stated one report is not a trend… that seemed to be enough for the buyers to put money to work. Whatever the reason/rationale stocks were higher after testing the 20 day. Now we turn our attention to Thursday and see if the buyers remain or the sellers return. Small caps gave up gains on Tuesday and found support again at $192. Wednesday they bounced back above the $198.64 resistance. SPY, QQQ, DIA, and MDY all tested to the 20-day EMA and bounced. MGK was up 1.1% versus RSP was 0.9% showing the breadth of the upside move. Yesterday I stated there were solid patterns on the charts to bounce, but it would need a catalyst to do so… maybe the FOMO trade would come back… or buy the dip, and they did. Thus, we focus on ‘the risk’ versus speculation. One move of note came in crude oil which declined on the day after showing a second week of building inventory. Rising prices in energy commodities aren’t good for the inflation data… that could have been another helping point for the bounce.

The indexes moved to key support and bounced back. With the Fed storyline being relentless about fighting inflation the CPI data was not what investors were looking for. The Fed offered some hope in testimony to Congress… or at least it was interpreted that way. Remember, don’t fight the Fed. We will see more inflation data on Friday with the PPI release. Watching the volatility factor that spiked on Tuesday and declined on Wednesday. The NASDAQ closed up 1.3%, DIA was up 0.4%, and the SP500 was up 1%. The major indexes were higher on the day. The SOXX was up 2.2%. Small Caps (Russell 2000) were up 2.3%. The ten-year treasury yield was 4.26% down 5 bps for the day. Crude (USO) was down 1.5%. (UGA) was 3%. Natural gas (UNG) was down 4%. The dollar was down 0.1%. We are focused on managing the risk in the current environment and letting it unfold.

Charts to Watch: See Notes on “Reality of the Markets” & “Jim’s Beliefs About the Market” pages…

Quote of the Day: “Do more of what works and less of what doesn’t.” — Steve Clark.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 47 points to 5000 moving the index up 0.96% with below-average volume. The index moved to exactly the 5000 level. Money flow pointing to the index being overbought short term. Nine of the eleven sectors closed higher on the day with industrials as the leader up 1.69%. The worst performer of the day was consumer staples down 0.2%. The VIX index closed at 14.3 lower on the day. Plenty to ponder between the headlines and the facts. Held the 20-day EMA. Watching how the Fed factor plays out relative to the inflation data and speculation.

Leaders:

XLK – Technology Entry $193. Stop $202. Bounce-off support at $183.50 and renewed the uptrend. Tested and bounced… Letting it play out and managing the risk. The sector was up 2.7% for the week. SOXX, IGV leading. Held test at support.

XLY – Consumer Discretionary Tested support $171.50. Moved into a downtrend channel on the chart and moved higher during the week. Needs to move above the December high. The sector was up 1.4% for the week. Held support.

XLF – Financials Entry $33.65. Stop $37.80. Traded slightly higher into a consolidation pattern. The sector was up 0.2% for the week. Holding move above the resistance at $37.95. NYCB regional bank worries is worthy of our attention moving forward. NYCB and KRE bounced nicely on Friday.

XLV – Healthcare remains in an uptrend from the October lows. Solid upside for the week confirming the move above the previous high. Entry $129. Stop $141. The sector was up 1.4% for the week.

XLP – Consumer Staples Uptrend remains in place for the defensive sector with a move towards resistance at $74.72 being tested. No Positions. The sector was down 1.4% for the week. The uptrend remains in play. Tested lower.

XLI – Industrials Topping pattern broke above resistance. Held $110.75 level of support and cleared $114.20 resistance. No Positions. The sector was up 1.1% for the week. The uptrend remains in play. Positive bounce on Wednesday.

Laggards:

XLU – Utilities Moved back to the $60.10 support level. In a downtrend from the December highs. Watching how this unfolds. The sector was down 2% for the week. Held support.

XLE – Energy shows a bottoming pattern and attempted to clear $84.33 resistance but failed on Friday. Some volatility as crude oil looks for direction. Entry ERX $52.15. Stop $54.20 (adjusted). Let it play out. The chart remains in a downtrend from the September highs. Back in the trading range.

IYZ – Telecom Topping pattern continued and broke below support at $22.93 offering a downside opportunity. Small bounce to end the week and watching how this unfolds. The sector was down 3.4% for the week. Solid gain on short trade Wednesday & Thursday adjusted stop. Resumed the downtrend… support?

XLB – Basic Materials bottom reversal in play with key support at $81. The downtrend in play from the December highs was up 0.06% for the week. Letting the consolidation unfold near term. Activity picking up in the materials CF and EXP. Broke higher from the consolidation pattern and tested.

Losers:

IYR – REITs Moved to the next level of support at $87. The sector has been drifting lower on higher interest rates of late. The sector was up 0.05% for the week. Watching Interest rates near term. Watching NYCB as they cut their dividend due to commercial loans underwater… Remains in a short-term downtrend from the December highs. Failed to break higher back in the downtrend.

Summary:

The index bounced at support and recovered most of the downside from Tuesday… it did so no lower volume. Money flow remains in overbought territory. The market has shown signs of fatigue and the CPI data in light of the FOMC notes and Fed talk was bad news. The Fed attempted to make up for it on Wednesday… moved higher on the sentiment. Small caps bounced but on half of the losses. Watching how the leaders respond on Thursday. 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 Indexes & Sectors To Watch

The NASDAQ index closed up 203 points to 15,859 as the index was up 1.3% for the day. Upside in both semiconductors and software to lead the move. Small caps and transports helped the upside as well. Uptrend remains in play and watching how Thursday unfolds. Managing the risk that is and watching leadership.

NASDAQ 100 (QQQ) was up 1.09% for the day as the mega-caps tested support and bounced. The uptrend remains in play. Manage stops and let it play out. Entry $354.20. Stop $425. Patience.

Semiconductors (SOXX) Added position at $601. Stop $601. Tested lower… bounced at support. Took the opportunity presented. The sector was up 5.5% for the week. The uptrend from the November lows remains in play. Back to the upside leadership… Back near the previous highs.

Software (IGV) continued the uptrend from the January test. Broke higher from the topping on the chart. The sector was up 2.9% for the week. Adjusted stop on the move higher. Tested support and bounced.

Biotech (IBB) Topping pattern on the chart and a modest downtrend from the January highs. The sector was down 0.01% for the week. $136.50 level to clear on the upside. Closed below support hitting stop… bounced?

Small-Cap Index (IWM) down trending move breaks higher and looking for confirmation of the move. Added at $192.13 upside move. Stop $192.13. Cleared $198.64 bar. The flag pattern on the chart breaks to the upside. Letting it unfold with a breakeven stop. Sold Tuesday to support and bounced Wednesday back above resistance… letting it unfold.

Transports (IYT) Broke higher from the sideways trading range and confirmed the move higher. Despite the Red Sea issues continuing to escalate the sector is moving higher. BDRY has done well in response, bouncing back from the test at $8.95. The sector was up 3.1% for the week. Entry $266. Stop $263. Tested support and bounced.

Red Sea issues are continuing to be bad. There are been ships on fire, protection vehicles turned back, and just an overall mess. The cost in some cases is over $100k per day. The true impact of this on prices has yet to be passed through to consumers… this is a growing issue so look for disruption to the supply chains. BDRY entry $9.70. Stop $11.40

The Dollar (UUP) The dollar bounced off the December lows and has not looked back. Stronger dollar in January. Fed talks on higher interest rates is keeping the dollar higher. The buck was up 0.2% for the week. Big bounce as interest rates jumped.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond jumped following the FOMC meeting. The yield moved from 4.03% to 4.19% this week up 16 bps. Higher rates are not good for bond prices or banks at this juncture. TLT was down 2.3% for the week. TMV has been the trade of late. Closed at 4.261% – Still elevated.

Crude oil (USO) Remains a challenge relative to clarity. Production has been higher than expected as OPEC juggles its production outlook. Of interest to this conversation is the increased production in the US. OPEC has set a meeting for March to discuss extending their production cuts. As seen on the chart it is attempting to renew an uptrend from the December lows… plenty of volatility to go with it. The commodity was 6.1% for the week after being down 7.3% last week. Entry UCO $26.70. Stop $28. Higher to start the week Resistance at $73.26… tested lower on build in supply again this week.

Natural Gas (UNG) The move higher from the December lows came to an abrupt end with natural gas falling on projected supply rising the first half of the year. We traded the upside move and the downside move. Pressure is on the downside based on the White House taking away permits for new LNG facilities for transport globally. Not seeing any reversal to the downtrend currently. Managing our stops on KOLD. The commodity was down 11.4% for the week. Accelerated lower again. $14.72 next level to hold.

Gold (GLD) The commodity continues to trade sideways with some volatility sparked by a stronger dollar the last month. The dollar gained some near-term strength adding downside pressure on the metal. The metal was down 0.5% for the week. Broke support on the rising dollar… GLL in play. Watching $183.72 support.

FINAL NOTES

Wednesday: The broad index held the longer-term uptrend with a bounce on Tuesday. The key is to watch how it unfolds from here with speculation rising. Nine of the eleven sectors closed higher each finding key support levels to hold. VIX dropped back to 14.3 still elevated but some calm restored in trading. Plenty of distractions in the activity, but we remained focused on what was moving and if the buyers or the sellers take control. Patience.

Longer-Term View: The uptrend from the October lows continues. They moved above the July and August highs and broke above the 2021 highs to a new high. This resumes the long-term uptrend from the lows of October 2022. Currently, we are allowing the short-term to unfold in light of the longer-term perspective… don’t combine the two as the weekly charts look very different than the daily. A look at the weekly chart below shows the uptrend from the October 2020 lows is still in play at a slower degree of assent. There are always positive and negative swings in a longer-term trend. A look at the daily chart from the October 2022 lows validates that premise with plenty of volatility along the way. Short term the market has resumed the uptrend from the October 2023 lows. The current bounce remains in play despite any issues on the horizon. Current activity shows optimism from the buy side and we will take what the market gives. We look to charts and fundamentals for answers. 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.

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.

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