Jim’s Notes Weekend Recap & Outlook

Moving the Market – February 24th

The markets close out another positive week thanks to the euphoria from NVDA earnings. For the week the SP500 index gained 1.1% establishing a new high. As we stated on Thursday what will be the encore? Earnings are winding down, the FOMC meeting is four weeks out, economic data isn’t impressive, and the markets are extended technically. Retail (XRT) posted a solid upside move breaking from a cup and handle pattern. The Nikkei 225 hit new highs as Japan (EWJ) continued the uptrend. The STOXX 600 equally hit new highs in Europe (IEV). Emerging markets (EEM) broke above resistance extending the move from the January lows. The week was void of any big economic data, but the data released continues to show weakness. Next week will offer plenty of data as the month comes to a close and we will see how the month of February measured up. The challenge remains clarity as it pertains to the data. That introduces speculation relative to the Fed, interest rates, and the dollar. Take what is offered and manage the risk accordingly.

The indexes digested the move higher closing flat on Friday. Interest rates ticked lower on yet more comments from the Fed about the possibility of cutting rates late in the year. Economic data still shows slowing in areas not attached to government spending and fairytale employment data. Watching how the end of the month unfolds and the resulting data reports. The NASDAQ closed down 0.2%, DIA was up 0.1%, and the SP500 was up 0.03%. The major indexes were flat on the day. The SOXX was down 1%. Small Caps (Russell 2000) were up 0.2%. The ten-year treasury yield was 4.26% down 5 bps for the day. Crude Oil (USO) was down 2.2%. (UGA) was down 2%. Natural gas (UNG) was down 6.5%. The dollar was up 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:When your work speaks for itself, don’t interrupt.” — Henry J. Kaiser

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 2 points to 5088 moving the index up 0.03% with above-average volume. The index held above the 5000 level. Money flow is trending lower. Eight of the eleven sectors closed higher on the day with utilities as the leader up 0.7%. The worst performer of the day was energy down 0.6%. The VIX index closed at 13.7 moving lower on the day. There is plenty to ponder between the headlines and the facts. Held support and bounced on the NVDA earnings… watching how the new week unfolds.

A look at the chart of the index shows the extended trend higher breaking from the consolidation in January. It is important to note the divergence between the relative strength index (red line) and the price (green line). Equally money flow (blue line) is diverging from price. Is this a warning sign? At the very least it is worthy of our attention. There is also divergence in the number of stocks trading above their 50-day and 200-day MA as both are trending lower.

Leaders:

XLK – Technology Entry $183. Stop $203. Bounce-off support at $183.50 and renewed the uptrend. Trading sideways. The sector was up 0.4% for the week. Tested lower. Tested the $197.60 support and held bouncing nicely on the NVDA earnings news.

XLY – Consumer Discretionary Tested support $171.50. Moved into a downtrend channel on the chart and moved back to the previous highs. Needs to break above the December high. The sector was up 0.6% for the week. Cup pattern on the chart.

XLF – Financials Entry $33.65. Stop $39.50. Broke higher from the consolidation pattern. The sector was up 1.3% for the week. Moved above the resistance at $39.28. Interest rates continue to be a watchlist item looking forward.

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 $145. The sector was up 1.8% for the week.

XLP – Consumer Staples Uptrend remains in place breaking above resistance at the $74.30 mark. The sector was up 2.2% for the week. $73 is support.

XLI – Industrials Uptrend remains in play moving higher on the week. The sector was up 1.2% for the week. GE and LDOS adding leadership.

Laggards:

XLU – Utilities Moved back to the $60.10 support level and bounced. Attempting to break the down trendline. Watching how this unfolds. The sector was up 1% for the week. Solid bounce-off support – bottom reversal in play.

XLE – Energy Cleared $85.52 resistance and testing. Entry ERX $52.15. Stop $57 (adjusted). Let it play out. The chart remains in a downtrend from the September highs. Watching how crude plays out near term.

IYZ – Telecom Broke below support at $22.93 offering a downside opportunity. (own put options) Testing support at $21.74 if we hold here we will lock in our profit on the put trade. The sector was down 1.8% for the week. Solid gain on the short trade.

XLB – Basic Materials bottom reversal in play breaking above the December highs. For the week was up 2.9%. Activity picking up in the materials VMC and EXP. Let it run.

Losers:

IYR – REITs found support and attempting a reversal of the downtrend. The sector has been challenged by higher rates and vacancies in the commercial sector. The sector was down 0.3% for the week. Watching Interest rates near term. Setting up a bottoming pattern.

Summary:

The SP500 index made a solid move higher for the week as materials, consumer staples, and healthcare led the week. Money flow was lower on above-average volume. The index as well as the market is in a precarious position as it determines the next catalyst. Technically the uptrend remains in play and the buyers are present, but seeing some shifting relative to conviction. As seen on the chart above, the short-term trendline remains higher but there is divergence between RSI and price. 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.)

Key Indexes & Sectors To Watch

The NASDAQ index closed down 44 points to 15,996 as the index was down 0.28% for the day. The index closed the week higher but still shows some underlying concerns. The SOXX was lower on the day putting pressure on the index. The uptrend remains in play as we manage the risk that is and watching the leadership. We continue to take money off the table as the sectors and market look for overall direction short-term. Watching how the new week unfolds.

NASDAQ 100 (QQQ) was down 0.29% for the day as the mega-caps weighed on the sector. The uptrend remains on the chart. SOXX lower on the day held the sector down. What is the next catalyst for these stocks? Manage stops and let it play out. Entry $354.20. Stop $430. Patience.

AAPL tested the $180 support level again and bounced. AMZN tested the 20-day EMA and bounced. GOOGL holding at the 50-day MA and bounced. MSFT tested below the 20-day EMA and bounced. META & NFLX held the 10-day MA and bounced. QQQ held the 20-day EMA and bounced. Adjust your stops if you hold positions and manage the risk going forward.

Semiconductors (SOXX) Added position at $601. Stop $625. Tested lower… and bounced on NVDA earnings… The sector was up 1.2% for the week. The uptrend from the November lows remains in play.

Software (IGV) tested lower to support at $410 level and held. Bounced on NVDA earnings and needs to hold the $420.25 level of support. The sector was down 2.7% for the week. Looking for opportunity on directional decision.

Biotech (IBB) moved above the downtrend from the January highs. Watching for some momentum to the sector. The sector was up 1.2% for the week. $136.50 level cleared on the upside.

Small-Cap Index (IWM) downtrend reversal with a move back toward the December highs and tested. Added at $192.13 upside move. Stop $192.13. Cleared $198.64 bar. One big volatility mess on the chart… patience for now.

Transports (IYT) Broke higher from the sideways trading range and attempting to move 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 up 0.03% for the week. Entry $266. Stop $272.

Red Sea issues are continuing to be bad. There have 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 $12.30.

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 are keeping the dollar higher with some testing this week. The buck was down 0.1% for the week.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond has been rising since the low in December. The yield moved from 4.29% to 4.26% this week down 3 bps. Higher rates are not good for bond prices or banks at this juncture. TLT was up 0.6% for the week. Solid bounce on Friday helped the cause.

Crude oil (USO) bottom reversal last few weeks has moved to resistance at the $73.25 level. 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 down 1.2% for the week. Entry UCO $26.70. Stop $28.60.

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. Companies are starting to cut production to stabilize prices. The commodity was up 2.7% for the week.

Gold (GLD) The commodity traded sideways with some volatility sparked by a stronger dollar the last month. The metal did bounce at support $183.72 and attempting a trend reversal. The metal was up 1.5% for the week.

FINAL NOTES

Friday: The broad indexes closed mixed for the day. Plenty of chatter and speculation on direction and leadership. Eight of the eleven sectors closed higher with semiconductors as the laggards on the day. VIX moved to 13.7 and anxiety levels subsided on the NVDA news. The key first levels of support held and bounced. Economic data was suspect at best, and the Fed continues to talk last of the year for rate cuts. All said, sluggish day as we look to next week. Plenty of distractions in the activity, but we remained focused on what is moving up and down relative to the charts.

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. 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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