Jim’s Notes Wednesday Recap & Outlook

Moving the Market – March 13th

Markets were mixed as inflation remained the focus and topic of discussion. That said, the outliers had an interesting day with precious metals, industrial metals, crypto-related, crude, and most commodities up nicely on the day. We will go with the headlines and say it was investors waiting on the PPI data due out before the opening on Thursday. The action is showing signs of rotation with money moving towards energy, financials, materials, and small caps. Thus, the breadth is picking up but in a manner, many investors haven’t seen in a while. On the surface Wednesday felt like a slow trading day but the reality is money is migrating where it will be treated the best near term. Crypto stocks BITO, ARKB, and MSTR all had positive moves. Precious metals CDE, MUX, AU, SA, GOLD, and PAAS were up. Industrial metals STLD, RS, and TMC higher copper jumped with FCX, SCCO, and WRN jumped higher. Crude was up 2.3%, XLE was up 1.2% and IEO was up 2.3%. The point being, plenty of opportunities in other sectors as money flow increases. Treasury bonds rose to 4.19% as the statistics show a decrease in the odds the Fed will hike rates in July. Fed can stay higher for longer. Semiconductors were down 2.4% giving back the gains from Tuesday. The VIX index was flat as the major indices closed slightly lower on below-average volume. Thursday brings PPI and retail sales. The worry about producer inflation is valid. Energy prices are up, strained supply lines due to the Red Sea issues are in play, and materials are rising… doesn’t bode well for a decline in prices for production. That doesn’t mean the number won’t get ‘massaged’ to be better… we will see how it all unfolds. Retail sales are estimated to rise 0.7% and it could play into how investors respond during the trading day. Patience as we continue to take what the market gives.

Trader Quote: “Trading with indicators is second-hand information. Trading with price action is first-hand information.” – Nial Fuller.

The indexes mixed as investors continued to discuss inflation data and the outlook for the Fed. The activity was away from the core sectors and in the outliers. As we look to Thursday retail sales and PPI data will set the tone and fill the headlines of the financial networks. The volume was below average, the money flow ticked up, and the RSI was lower. Six sectors closed in positive territory as investors attempted to show a positive face with some rotation in play. The NASDAQ closed down 0.5%, DIA was up 0.1%, and the SP500 was up 0.1%. The major indexes closed mixed on the day. The SOXX wasdown 2.4%. Small Caps (Russell 2000) were up 0.3%. The ten-year treasury yield was at 4.19% up 4 bps for the day. Crude Oil (USO) was up 2.3%. (UGA) was up 2.8%. Natural gas (UNG) was down 2.6%. 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: “My theory is that all Scottish cuisine is based on a dare.” — Mike Myers.

Sector Rotation & The S&P 500 Index

The S&P 500 index closed down 9 points to 5165 moving the index down 0.19% with below-average volume. The index maintains the uptrend and is above the 10-day MA. Money flow was positive and RSI was lower. Some rotation on the day with XLB, XLF, XLI, and XLP higher in their respective trends. Six of the eleven sectors closed higher on the day with energy as the leader up 2%. The worst performer of the day was technology down 1%. The VIX index closed at 13.7 lower on the day. There is plenty to ponder between the headlines and the facts. Important to note that the smaller sectors are seeing a positive upside and the impact on the broad sector is muted due to the weighting.

Leaders:

XLK – Technology Entry $183. Stop $204.10. Broke above the $208 resistance and retreated. The sector was down 1.6% for the week. The semiconductors sold to end the week as we watch how they respond. Back to the $208 level and showing volatility.

XLY – Consumer Discretionary The sector broke higher from a cup and handle pattern… it has retreated below the breakout point showing short-term weakness. The sector was down 0.5% for the week. Needs to hold the 21-day EMA.

XLF – Financials Entry $33.65. Stop $39.92. Continued to trend higher with banks showing some positive moves. The sector was up 0.8% for the week. Moved above the resistance at $39.28 and followed through upside. Interest rates were lower at the end of the week and could be seen as a positive for the sector looking forward.

XLV – Healthcare remains in an uptrend from the October lows. Some testing on the week as we move back towards the 21-day EMA as the trendline. Entry $129. Stop $144.57. The sector was up 0.1% for the week.

XLP – Consumer Staples Uptrend remains in place moving above resistance at the $74.70 mark. The sector was up 0.9% for the week. Discount big box is the strength of the sector currently.

XLI – Industrials Uptrend remains in play moving higher in a steady uptrend. The sector was up 0.6% for the week. GE and LDOS adding leadership.

XLB – Basic Materials uptrend remains in play adjust your stops if you own any positions here. For the week was up 1.5%. Activity picking up in the materials VMC and EXP. Let it run.

Laggards:

XLU – Utilities bounced off the $60.10 support level and cleared $62.90 resistance. Entry $61. Stop $62.70. Lower interest rates are helping the upside move. The sector was up 3.2% for the week. Doji candle… watching.

XLE – Energy making a steady climb higher after clearing resistance points. Entry ERX $52.15. Stop $58.65 (adjusted). Let it play out. Target is $64 near term. The chart broke the downtrend from the September highs and is ploding higher. Gapped higher on crude moving to $84

IYZ – Telecom Held support at the $21.74 level and trading sideways. The sector was down 1.2% for the week. Bounced inside the trading range and at the 21-day EMA.

Losers:

IYR – REITs found support and started a reversal of the downtrend with a move above $88.20. The sector has been challenged by higher rates and vacancies in the commercial sector but is showing some signs of life thanks to residential and a tick lower in rates. The sector was 1.4% for the week. Entry $88.10. Stop $88.10.

Summary:

The SP500 index closed flat with below-average volume. RSI ticked up due to the rotation. Money flow ticked lower. Watching the leadership in the outliers along with the rise in small-cap interest. The leaders remain in play and we have seen the upside return to some of the laggards. We maintain our stops and continue to look for where money flow migrates. Technically the uptrend remains in play with the sellers and buyers battling it out. Remember two things; first, the trend is your friend, and second, don’t fight the Fed… Both are currently in play.

(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.)

Other Indexes To Watch

The NASDAQ index closed down 87 points to 16,177 as the index was down 0.54% for the day. The index has been challenged by increased volatility in the technology sector in the last few weeks. SOXX has been up and down since hitting new highs. IGV dipped to support before bouncing back. Mega caps look very similar as AAPL and GOOG tested support before bouncing recently. The activity is showing rotation as well. The small caps in the index are the benefactors as RSPG, RSPM, and RSPF lead. Taking what is offered and following the money.

NASDAQ 100 (QQQ) was down 0.77% for the day as the mega-caps led the downside for the sector. The uptrend remains on the chart with some topping in play. SOXX and IGV were lower. Watching AAPL retreated on the day, and GOOG moved above the $140 resistance. Manage stops and let it play out. PYPL, MNST, and FANG broke higher. Entry $354.20. Stop $435. Patience.

1) AAPL Watching if the bounce has any legs. Needs to clear $173.76 2) AMZN moved t the 20-day MA and bounced. 3) GOOG bounced and $140.40 moved above the level. 4) MSFT moved below the 21-day EMA and bounced. 5) META dumped to the 20-day MA and bounced. 6) NFLX below the 10-day MA. 7) TSLA (broke support Feb lows) 8) QQQ tested the 21-day EMA and bounced. Manage your stops if you hold positions and manage the risk going forward.

Small-Cap Index (IWM) downtrend reversal with a move above the December highs but can’t seem to get enough momentum. Added at $192.13 upside move. Stop $204.80. Needs to find conviction if going higher. Patience for now. The sector was up 0.4% for the week. Some rotation is in play for the sector.

Transports (IYT) drifting higher. Despite the Red Sea issues continuing to escalate the sector is moving higher. BDRY has responded well, bouncing back from the test at $8.95. The sector was down 0.4% for the week. Entry $66.35. Stop $69.56. trading sideways.

Red Sea issues continue to be bad. The activity continues to disrupt the passage of ships. 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 $14.84.

The Dollar (UUP) The dollar struggled on the week as interest rates fell and Powell talked about stimulus. Watching how it unfolds moving forward. The buck was down 0.9% for the week. Sideways.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond has been rising since the low in December, but it turned lower last two weeks on the inflation talk and the Fed. The yield moved from 4.18% to 4.08% this week down 10 bps. The topping pattern on the yield chart shows some believe rates have peaked with hopes of interest rate cuts… despite what the Fed is saying. TLT was up 1.3% for the week. Entry $93.52. Stop $94.45. (TMF is the leveraged trade). Higher on CPI data… watching. 4.19%

Crude oil (USO) bottom reversal accompanied by volatility moved resistance at the $73.25 level and testing all week. OPEC extended its production cuts. As seen on the chart it is attempting to renew an uptrend from the December lows… up trending channel. The commodity was down 2.1% for the week. Entry UCO $26.70. Stop $29. Patience. Broke higher need to clear the $75 level.

Gold (GLD) The commodity broke higher from the consolidation pattern and went vertical. We added UGL and now we have a trailing stop to protect against a reversal. The metal was up 2.2% for the week. Entry $189.30. Stop – trailing 2%. UGL. Tested on higher dollar prompted by CPI.

FINAL NOTES

For Thursday: The broad indexes are showing some fatigue. There is plenty of chatter and speculation on direction and leadership as seen over the last few weeks of trading. All the talk and juggling keeps the chatter about valuations and overbought in the news. The current activity shows rotation on the charts as money looks for where it will be treated the best. Thursday will offer news from PPI and Retail Sales which will set the tone for the trading day. Following the money as stated above. Look to the outliers and take what is offered from each sector. SOXX, IGV, XLK, MGK, and others are reaching decision points on distribution versus accumulation. XRT will be in play. Set your stops and manage your risk accordingly.

Longer-Term View

The uptrend from the October lows continues. The index 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. The acceleration off the October 2023 low is getting extended. We have adjusted our stops on longer-term positions as we let this unfold. 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. The current bounce remains in play despite many issues on the horizon. Current activity shows volatility that is associated with extended moves. We look to charts and fundamentals for answers. Longer-term positions are a ‘hold’ with no accumulation towards the assets. 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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