Jim’s Notes Weekend Recap & Outlook

Moving the Market – February 10th

The markets posted a positive end to a positive week. There was more breadth as the small caps joined the mega-cap technology stocks to push the indexes higher. The S&P 500 moved above the 5000 mark and the NASDAQ moved closer the the 2022 highs. The push comes on the heels of a slow start to the week with indexes testing support, but the buyers stepped up and pushed the markets higher. We will take the move higher, but we do so managing the risk that is. Semiconductors and biotech both post positive upsides on the day while energy and consumer staples move lower on the day. There still has not been a concerted selling interest despite talk of an overbought market short term. The fact that is in the headlines has probably had the opposite effect on buyers. The Fed is still out talking and being hawkish on inflation as bond yields moved higher again. MGK was up 1.2% versus RSP was up 0.1% showing the dominance of mega-caps on the day. Regional banks bounced on the day with KRE up 1.7% and NYCB saw the short-squeeze help move the stock up 16.9% to end the week. They are still challenged by their balance sheet. There are positive patterns setting up and positive trends in the broad markets, but the data doesn’t all add up… we will take the good and manage the risk as we dig deeper into the data. On the economic side, the Q4 3-month annual rate was unrevised at 3.3% after season factors. The news was taken as a positive for the broad markets. We continue to follow the trends and take what is offered.

The indexes moved higher with leadership from small-cap and semiconductor stocks. The chatter from the Fed continues relative rate cuts not happening anytime soon. They continue to want clearer data from the economic outlook that prices have stabilized… Based on what is happening that may be a while. Watching the volatility factor along with the sector activity relative to strength and weakness. The NASDAQ closed up 1.2%, DIA was down 0.1%, and the SP500 was up 0.5%. The major indexes were higher on the day. The SOXX was up 2%. Small Caps (Russell 2000) were up 1.6%. The ten-year treasury yield was 4.19% up 2 bps for the day. Crude (USO) was up 0.2%. (UGA) was down 0.3%. Natural gas (UNG) was down 1.5%. 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: “Don’t worry about what the markets are going to do, worry about what you are going to do in response to the markets.” — Michael Carr.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 28 points to 5026 moving the index up 0.57% with below-average volume. The index cleared the 5000 level. The index posted a new high and watching the breadth or lack of. Money flow pointing to the index being overbought short term. Eight of the eleven sectors closed higher on the day with technology as the leader up 1.3%. The worst performer of the day was energy down 1.5%. The VIX index closed at 12.9 and was flat on the day. Plenty to ponder between the headlines and the facts. Patience. 4815 level of support held and bounced. Remain patient for now.

Leaders:

XLK – Technology Entry $193. Stop $202. Bounce-off support at $183.50 and renewed the uptrend. Tested and bounced… Letting it play out and managing the risk. The sector was up 2.7% for the week. SOXX, IGV leading.

XLY – Consumer Discretionary Tested support $171.50. Moved into a downtrend channel on the chart and moved higher during the week. Needs to move above the December high. The sector was up 1.4% for the week.

XLF – Financials Entry $33.65. Stop $37.80. Traded slightly higher into a consolidation pattern. The sector was up 0.2% for the week. Holding move above the resistance at $37.95. NYCB regional bank worries is worthy of our attention moving forward. NYCB and KRE bounced nicely on Friday.

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 $141. The sector was up 1.4% for the week.

XLP – Consumer Staples Uptrend remains in place for the defensive sector with a move towards resistance at $74.72 being tested. No Positions. The sector was down 1.4% for the week. The uptrend remains in play.

XLI – Industrials Topping pattern broke above resistance. Held $110.75 level of support and cleared $114.20 resistance. No Positions. The sector was up 1.1% for the week. The uptrend remains in play.

Laggards:

XLU – Utilities Moved back to the $60.10 support level. In a downtrend from the December highs. Watching how this unfolds. The sector was down 2% for the week.

XLE – Energy shows a bottoming pattern and attempted to clear $84.33 resistance but failed on Friday. Some volatility as crude oil looks for direction. Entry ERX $52.15. Stop $54.20 (adjusted). Let it play out. The chart remains in a downtrend from the September highs.

IYZ – Telecom Topping pattern continued and broke below support at $22.93 offering a downside opportunity. Small bounce to end the week and watching how this unfolds. The sector was down 3.4% for the week. Solid gain on short trade Wednesday & Thursday adjusted stop.

XLB – Basic Materials bottom reversal in play with key support at $81. The downtrend in play from the December highs was up 0.06% for the week. Letting the consolidation unfold near term. Activity picking up in the materials CF and EXP

Losers:

IYR – REITs Moved to the next level of support at $87. The sector has been drifting lower on higher interest rates of late. The sector was up 0.05% for the week. Watching Interest rates near term. Watching NYCB as they cut their dividend due to commercial loans underwater… Remains in a short-term downtrend from the December highs.

Summary:

The index was higher for the week gaining 1.3% on below-average volume. Money flow is pushing into overbought territory. The market has shown signs of fatigue but the buyers continue to push money into stocks. The index closed the week at new highs but the breadth remains a concern overall. Four sectors closed lower on the week and three sectors closed slightly higher. The heavy lifting continues to come from the technology sector. There were reversals from selling earlier in the week on the charts and we will how it unfolds next week. Remember two things; first, the trend is your friend, and second, don’t fight the Fed…

(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 up 197 points to 15,990 as the index was up 1.25% for the day. Small caps and semiconductors led the day as investors continued to find reasons to buy. The index showed a positive move in SOXX QQQ, and IGV. Upside remains in play and watching how the data impacts the trend moving forward. Managing the risk that is and watching how this unfolds. The index was up 2.3% for the week.

NASDAQ 100 (QQQ) was up 0.98% for the day as the mega-caps added to the uptrend. The index set a new high. Manage stops and let it play out. Entry $354.20. Stop $425. Broke above resistance. Gained 1.8% for the week.

Semiconductors (SOXX) Added position at $601. Stop $625. Tested lower… bounced at support at $583.41. Took the opportunity presented. The sector was up 5.5% for the week. The uptrend from the November lows remains in play. Back to the upside leadership…

Software (IGV) continued the uptrend from the January test. Broke higher from the topping on the chart. The sector was up 2.9% for the week. Adjusted stop on the move higher.

Biotech (IBB) Topping pattern on the chart and a modest downtrend from the January highs. Entry $121.30. Stop $133. The sector was down 0.01% for the week. $136.50 level to clear on the upside.

Small-Cap Index (IWM) down trending move breaks higher and looking for confirmation of the move. Added at $192.13 upside move. Cleared $198.64 bar. The flag pattern on the chart breaks to the upside. Letting it unfold with a breakeven stop.

Transports (IYT) Broke higher from the sideways trading range and confirmed the move higher. Despite the Red Sea issues continuing to escalate the sector is moving higher. BDRY has done well in response, bouncing back from the test at $8.95. The sector was up 3.1% for the week. Entry $266. Stop $263.

Red Sea issues are continuing to be bad. There are 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 $11.40

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 is keeping the dollar higher. The buck was up 0.2% for the week.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond jumped following the FOMC meeting. The yield moved from 4.03% to 4.19% this week up 16 bps. Higher rates are not good for bond prices or banks at this juncture. TLT was down 2.3% for the week. TMV has been the trade of late.

Crude oil (USO) Remains a challenge relative to clarity. 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 6.1% for the week after being down 7.3% last week. Entry UCO $26.70. Stop $28.

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. Not seeing any reversal to the downtrend currently. Managing our stops on KOLD. The commodity was down 11.4% for the week.

Gold (GLD) The commodity continues to trade sideways with some volatility sparked by a stronger dollar the last month. The dollar gained some near-term strength adding downside pressure on the metal. The metal was down 0.5% for the week.

FINAL NOTES

Friday: The broad index maintained the uptrend with the small caps and semiconductors providing the leadership. The markets remain split as the laggards and losers total 7 of the 11 sectors. The narrow leadership remains and the upside in the broad indexes remains… taking what is offered. NASDAQ trying to hit new highs, and the S&P 500 breaks above 5000. Eight of the eleven sectors closed higher on Friday maintaining the upside move. We will watch how the dust settles as the Fed continues to talk higher rates for longer. Banks are a challenge. Take what is offered and stop listening to the talking heads… that is why the remote has a mute button.

Longer-Term View: The uptrend from the October lows continues. They 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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