Jim’s Notes – Buyers respond to Thursday’s selling

Moving the Market – April 6th

The markets responded to the Thursday selloff with the buyers showing some optimism over the Jobs Report. The 303k new jobs were well ahead of the expected 200k. Interesting how we keep adding so many jobs with big layoffs in the headlines almost daily. No election-year folly there… The indexes started higher and faded modestly in afternoon trading, but still managed to recover most of the losses from Thursday. Despite the bounce some sectors and indexes remained below their respective trendlines. Energy shares were strong thanks to crude oil up 4.6% for the week. Banks will start reporting earnings next week raising the question of what to expect. Total S&P 500 earnings for the first quarter are expected to be up 2.5% and revenue to climb 3.5%. The finance sector is expected to be up 3.7% on 2.4% revenue growth. The markets are priced to perfection adding pressure on the earnings announcements. US and the EU committed to extend by three years their cooperation on identifying disruptions in the semiconductor sector, with an emphasis on mainstream “legacy” chips from China. The Senate is looking at legislation on TikTok starting next week, and Yellen is in China talking economics. The geopolitics with China are heating up again. FXI is up more than 20% from the January lows. Gold was up again gaining 4.5% for the week with analysts upgrading the target price to $2800 an ounce. Overall positive week for stocks but it came with some ups and downs as seen in the VIX index rising to 16. Inflation data is on tap next week with CPI and PPI reporting. Manage the risk and let the storylines unfold.

The indexes were broadly higher. Commodities were flat to lower. The leaders were industrials, transportation, and technology. Money flow was flat to higher. The RSI was higher with below above average on the buying. Ten sectors closed in positive territory. The NASDAQ closed up 1.2%, DIA was up 0.7%, and the SP500 was up 1.1%. The major indexes closed higher on Friday. The SOXX was up 1.1%. Small Caps (Russell 2000) were up 0.3%. The ten-year treasury yield was 4.37% up 7 bps for the day. Crude Oil (USO) was up 0.1%. (UGA) was down 0.2%. Natural gas (UNG) was down 0.2%. The dollar was up 0.1%. We are focused on managing the risk in the current environment and letting it unfold.

Monday Outlook: All eyes and talk will be about Wednesday and the CPI data reports. The expectation is for the M/M number to rise 0.3% and the core to rise 0.3%. The Y/Y number is expected to rise to 3.5% from 3.2%. If it is higher the markets will not handle the news very well. Bank earnings start on Friday for the first glimpse at earnings. Technically speaking the SP500 and Dow closed on their respective 10-day MA. The NASDAQ and NDX closed near the 20-day MA on sluggish trading Friday and are closer to the 50-day MA. The rallies to highs continue to be met with selling… how long before the sellers take control? The patterns are weaker, trendlines are breaking, and volatility is rising. This all makes us cautious, our stops are in place as we manage the risk and look for the opportunities.

Headlines Worthy of Note:

Bearish Engulfing Pattern: This happens when the is higher than the prior day’s session high and the close is below the prior session’s low… A bearish indication. A look at the S&P 500 Index shows this clearly along with other indexes. Watch how this unfolds moving forward. The follow-up was an inside candle on Friday showing more indecision even with the upside trading day. The price closed below the trendline for the second day.

Crude Oil Prices are higher and heading higher based on the current speculation in the Middle East situation. As Israel and Iran return missiles and words, the outlook is for pressure on oil exports. Add in the Ukrain strikes on Russian refineries and you can see why the speculation cards are being dealt. This brings all the related ETFs into play. USO, BNO, IEZ, IEO, USL, UGA and others. Managing our risk in positions but taking what is offered from the spike higher in the commodity.

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

Quote of the Day: “In trading, you don’t try to predict what the market might do in the future; you simply trade the signals you see at the moment. If you are not seeing any signal, you wait until the market shows you one.” — Jesse Livermore.

Note of Changes on Website: The ‘Weekend Update & Outlook’ will now reside on the “Reality of the Markets” page. It will be updated throughout the week as needed relative to market changes.

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