Jim’s Notes – More Mixed Trading

Moving the Market – May 8th

The markets ended mixed for a second day, as the consolidation of the recent move higher continues. The move towards the highs is meeting some resistance and after a few days is likely to continue higher if history is correct. If not, then we hit our stops and reevaluate the situation and direction. It was light news day with consumer credit the only real news and it was not pretty. The major indices traded in a relatively narrow range through most of the session after climbing off the opening lows. Earnings equally were mixed with UBER, SHOP, and INTC all missing earnings and closing lower as a result. Others, LYFT, ANET, RDDT, and BUD posted better than expected data and closed higher. Utilities were again the leading sector as money flow towards the sector continues on the AI research about electric demands as it grows. The biggest laggard on the day was REITs reacting to the 10-year bond moving back to 4.49%. The 10-year bond rose in response to a weak auction early in the day. And of course, there was the Fed out speaking again and the rhetoric remains hawkish. Collins stated, “Recent upward surprises to activity and inflation suggest the likely need to keep policy at its current levels until we have greater confidence that inflation is moving sustainably toward 2%.” He went so far as to say, “Moving sustainably toward 2% inflation taking more time than previously thought would slow the economy but in an orderly way.” Now that is completely reassuring that we are going to go broke in an orderly fashion. While this warning has been sounded before by others in the Fed family, it came on a day with light news allowing it to sink in some with investors. The Atlanta Fed adjusted the Q2 GDP to 4.2% from the prior 3.3% estimate. Meanwhile, back in the real economy, the Department of Energy reported gasoline and diesel demand are at the May 2020 lows, which was during the lockdown period… conflicting commentary relative to the state of the economy. That said, it was a second day of pause with some higher, some lower, as we consolidate some gains.

The major indexes were mixed on the day as investors juggle positions based on what is on the horizon. They did so on lower volume. The leadership came from utilities, telecom, and financials. The upside move remains in play with a pause for the cause. Five sectors closed in the green. The NASDAQ closed down 0.1%, DIA was up 0.4%, and the SP500 was flat. The major indexes closed mixed. The SOXX was up 0.1%. Small Caps (Russell 2000) were down 0.5%. The ten-year treasury yield was 4.49% up 7 bps for the day. Crude Oil (USO) was up 0.8%. (UGA) was down 0.2%. Natural gas (UNG) was down 1.3%. The dollar was up 0.1%. We are focused on managing the risk in the current environment and letting it unfold.

Thursday Outlook: Markets continue the pause in the action before what is likely to resume the upside following. Weekly initial claims are expected to remain at 213K week over week. We need to manage our risk based on the current activity. Short-term upside opportunities continue to arise along with some downside opportunities. Commodities remain of interest with DBA consolidating Tuesday’s gains. The dollar rose 0.3% halting the downside move, which also represents a shift in sentiment following the jobs report when it fell. Watching how the leadership and direction unfold.

Chart of Sectors: The scatter chart below shows the activity of the sectors relative to the S&P 500 index. The red down trendline was broken and the leadership is clear. Watching how this unfolds moving forward.

Charts to Watch: See Notes on “Reality of the Markets”

Headlines Worthy of Note:

Chip designer Arms Holding shares fall nearly 9% after weaker guidance.

Biden says US won’t supply weapons for Israel to attack Rafah… an interesting change of circumstance.

China’s imports jump 8.4% in April, exceeding expectations as purchases from the US grow. FXI has moved higher the last three weeks and data from China continues to improve and their economy has shifted back into production following the long lockdown.

Disney and Warner Brothers Discovery are going to bundle their streaming service available this summer. The ties between the two companies continue to grow… Sell or merger in the future?

Quote of the Day: “Censorship no longer works by hiding information from you; censorship works by flooding you with immense amounts of misinformation, of irrelevant information, of funny cat videos, until you’re just unable to focus.” — Yuval Noah Harari.

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