Jim’s Notes Wednesday Recap & Outlook

Moving the Market – March 20th

The markets were flat until 2 pm when Mr. Powell and friends announced they would leave rates unchanged and didn’t change the outlook for rate cuts or other key items relative to the future actions anticipated from the Fed. Obviously, that was good news for the markets and stocks moved higher with the SP500, Dow, and NASDAQ all posting new highs. As we all know things must be better since the Fed will cut rates three times prior to the year end… right? Thus, all the chart consolidation patterns break higher, and all is well. With the FOMC meeting behind us we look forward to more economic data, the end of the quarter, and earnings. Crude oil inventories fell more than expected and mortgage applications fell considerably from last week… mostly ignored data. Interest rates ticked slightly lower the dollar fell along with crude prices all in response to the Fed news. Semiconductors bounced nicely at support, small caps were higher as were the transports. Mega caps were equally higher on the day. All said it was a positive day for the markets as investors interpreted the Fed comments as bullish. As we say, don’t fight the Fed. We continue to take what the market offers one day at a time.

The indexes enjoyed the relief of the Fed taking a more dovish approach to interest rates and the outlook for the US economy. The activity was slow all day until the comments from Mr. Powell when the indexes gapped higher and closed higher. The leaders were small caps and transports. Money flow and the RSI both ticked higher but volume remained below average. Nine sectors closed in positive territory showing positive breadth. The NASDAQ closed up 1.2%, DIA was up 1%, and the SP500 was up 0.9%. The major indexes closed higher on the day. The SOXX was up 1.7%. Small Caps (Russell 2000) were up 1.9%. The ten-year treasury yield was at 4.27% down 3 bps for the day. Crude Oil (USO) was down 1.5%. (UGA) was down 1%. Natural gas (UNG) was down 1.7%. The dollar was down 0.4%. 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: “I used to be Snow White, but I drifted.” — Mae West.

Sector Rotation & The S&P 500 Index

The S&P 500 index closed up 46 points to 5224 moving the index up 0.89% with below-average volume. The index maintained the uptrend and closed at new highs. The money flow was positive and RSI was higher. Leadership was broader on the day with nine of the eleven sectors higher. consumer discretionary was the leader up 1.4%. The worst performer of the day was energy down 0.1%. The VIX index closed at 13.0 lower on the day. There is plenty to ponder between the headlines and the facts.

Leaders:

XLK – Technology Entry $183. Stop $204.10. Broke above the $208 resistance and retreated. The sector was down 0.8% for the week. The semiconductors were the laggard keeping the sector down. Moved back above $208.

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 1.2% for the week. Needs to hold the 50-day MA. Made a solid move higher from the consolidation and back above the 10-day MA.

XLF – Financials Entry $33.65. Stop $39.92. Continued to trend higher with banks showing some positive moves. The sector was up 0.4% for the week. Moved above the resistance at $39.28 and followed through upside testing the 10-day MA. Interest rates ticked higher in inflation data and something to watch. New highs.

XLV – Healthcare has shifted to a sideways movement. Some testing on the week as we move back to the 30-day MA as the trendline. Entry $129. Stop $144.57. The sector was down 0.7% for the week. Held support $144.63.

XLP – Consumer Staples Uptrend remains in place moving above resistance at the $74.70 mark and testing. The sector was up 0.5% 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 down 0.2% for the week. New highs.

XLB – Basic Materials uptrend remains in play adjust your stops if you own any positions here. For the week was up 1.6%. Activity picks up as money rotates. New highs.

Laggards:

XLU – Utilities bounced off the $60.10 support level and cleared $62.90 resistance but tested it twice this week. Entry $61. Stop $62.70. The sector was down 0.4% for the week. Tested lower but held support.

XLE – Energy making a steady climb higher after clearing resistance points. Entry ERX $52.15. Stop $58.65 (adjusted). Let it play out. The target of $64 was hit and now looking at $69. Showing some resistance at the $92.50 mark.

IYZ – Telecom broke support at the $21.74 level and renewed the downtrend. The sector was down 1.3% for the week. Bounced at support.

Losers:

IYR – REITs were weak all week as interest rates rose all week on the inflation data. The sector has been challenged by higher rates and vacancies in the commercial sector. We will see how this unfolds short term with $87 support. The sector was down 2.8% for the week. Bounced at support

Summary:

The SP500 index closed at new highs on below-average volume. RSI ticked higher. Money flow ticked up overall. The tug-o-war between buyers and sellers took a day off as the buyers put money to work on the Fed comments. The leaders returned but will they have enough momentum to take the markets higher? We maintain our stops and continue to look for where money flow migrates. Technically the uptrend remains in play with the buyers taking the upper hand for now. 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 up 202 points to 16,369 as the index was up 1.25% for the day. The index traded back above the 10-day MA. SOXX bounced off the $222.24 support. IGV was higher moving back above the 10-day MA. Mega caps look very similar as AAPL, AMZN, and GOOG were higher. Technically the index tested the key levels of support and bounced again. The focus is to follow the trend and manage the risk.

NASDAQ 100 (QQQ) was up 1.19% for the day as the mega-caps helped keep the dream alive. The uptrend remains on the chart with some topping still in play. Software and Semiconductors led the upside with small caps helping on the day. Watching how the sector responds post-FOMC meeting.

1) AAPL Watching added to the bounce. Entry $174. 2) AMZN moved above the 10-day MA again. 3) GOOG added to the move higher. 4) MSFT added upside. 5) META moved back above the 10-day MA. 6) NFLX back above the 10-day MA. 7) TSLA inside day following bottom reversal. 8) QQQ back above the 10-day MA. 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 maintain enough momentum. The sector needs to find conviction if it is going higher. Patience for now. The sector was down 2.1% for the week. The sector tried but failed yet again. Closed above the 10-day EMA as the sector bounced off support.

Transports (IYT) rolling top on the chart as we see some profit taking. BDRY has responded well, bouncing back from the test at $8.95. The sector was down 2.2% for the week. Broke below the 30-day MA. Testing support at $68.30 and bounced.

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. Bounced higher on the inflation data. Moving lower following the FOMC news.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond moved back to the February highs. The yield moved from 4.08% to 4.3% this week up 22bps. The move-up in yields triggered our stop in TLT and entry in TBT. Watching how this unfolds with the FOMC meeting next week. 4.27% following the FOMC meeting.

Crude oil (USO) bottom reversal continued the move higher reestablishing the uptrend. The move above $75 was a positive with the confirmation on Friday. We adjusted our stop and let it unfold. The commodity was up 4% for the week. Entry UCO $26.70. Stop $31.70. Patience. It is important to note that pump prices are higher on a Y/Y basis. This is not a trend that the Fed wants to see nor consumers. UGA is up 23.9% since the December lows. Biden announced he wanted to refill the strategic reserves for the US. Great he depleted them at an average of $60 per barrel and wants to refill them with crude above $80 a barrel. Sounds like he was a great trader in his previous life. Watch how that impacts supply and prices. Supply drew down more than expected and crude dropped? Watching Thursday activity.

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 pennant on the chart shows consolidation as we watch for a continuation of the uptrend. The metal was down 0.9% for the week. Entry $189.30. Stop – trailing 2%. UGL. Pennant broke to the upside on FOMC news.

FINAL NOTES

For Thursday: The broad indexes move higher with each hitting new highs following the FOMC announcement. Now we watch to see how the day-after affects investors. With the Fed out of the way near term, the attention turns to a day full of economic data. Philly Fed data, jobless claims, and existing home sales are just a few of the data points on tap. We are also looking at how the leaders and laggards respond. We did notice the talk of overbought and overvalued markets didn’t show in the headlines following the announcement from the Fed. There is some rotation on the charts as money looks for where it will be treated the best. Money flow is rising again. The Fed presidents and vice-chair will be out talking again and we will see if they continue the dovish rhetoric from Powell and how markets respond.

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, have had back-to-back negative weeks on the index. Short term this is a caution signal but longer term we would need to break the 13-week MA. 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 from 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. There are many issues on the horizon with inflation remaining a top challenge for investors. 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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