Jim’s Notes – Test Continues for Stocks

Moving the Market – June 22nd

The markets traded in a tight range Friday with options expiration spiking volume. The NASDAQ and SP500 struggled throughout the day as the leaders tested. The leadership came from the telecom sector. Six of the eleven sectors were higher on the day. The S&P Flash Services PMI rose to 55.1 from 54.8 prior and manufacturing equally rose to 51.7 versus 51.3 prior. Existing Home Sales were 4.11 million versus the 4.08 million expected. Finally some positive data from the economic outlook. The dollar was higher, interest rates were higher at 4.25%, Gold was lower along with crude oil. Option expiration Friday spiked volume but the volatility in prices was muted. Plenty of money moving but little to show for it. The buying breadth remains narrow with technology receiving the majority of the attention. The Fed was out in force all week talking the same rhetoric relative to the economy and future rate activity. Small and midcap stocks were higher on Friday… rotation? Not likely just some hope. AMZN, GOOG, MSFT, and NFLX moved higher. SOXX tested for the second day. No dynamic changes to speak of as the SP 500 was up 0.5% for the week and the NASDAQ was up 0.1% for the week. Next week brings plenty of economic data with the PCE capping of the week. It is the end of the month and quarter which will offer plenty of new data in the coming weeks. The talking heads are starting to discuss the overvaluation of the markets and the risk it implies near term. Watching and managing our risk accordingly.

The major indexes closed lower on the day with some downside on the charts. The volume was above average with options expiration working its magic. The activity started lower and failed to gain much momentum as they closed lower on the day. Friday the NASDAQ closed down 0.1%, DIA was up 0.1%, and the SP500 was down 0.1%. Overall negative day. The SOXX was down 1%. Small Caps (Russell 2000) were up 0.2%. The ten-year treasury yield was 4.25% up 0.3 bps and TLT was down 0.01% for the day. Crude Oil (USO) was down 0.9%. (UGA) was up 0.4%. Natural gas (UNG) was down 0.3%. The dollar was up 0.2%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Monday Outlook: The markets kick off the final week of June and end of the 2nd quarter. That means more data to digest. Watching how the parts look relative to the whole. As seen below the breadth is still very narrow for the overall market. Not seeing the laggards pick up yet. Commodities were mixed on Friday as they looked for direction and catalyst. What are we watching? 1) The dollar moving higher. 2) Interest rates at 4.25% and still showing volatility. 3) Crude oil back above $80… UGA as prices will follow crude. 4) Natural gas remains volatile as it settles out the run higher. 5) DBA is showing some volatility as commodities overall look for direction. 6) Mega caps tested… is there more to come? 7) Small caps still struggling… Taking what is offered and balancing the risk.

The chart below shows the breadth issue for the SP500 sectors compared from the beginning of the current leg higher that started in April. The technology sector is the only one to outperform the index… Note on Thursday the leader (XLK) and the loser (XLE) shifted directions…

Headlines Worthy of Note:

As the political season kicks up some dust, I can’t help but be amused by the headlines. The smart money is preparing for Trumpflation… The point is the author of the article believes inflation is coming down under the Biden Administration… say what? Who started the inflation run? Anyway, the opinion is Trump will cause inflation to rise again based on his proposed economic agenda… time will tell not journalists.

Amazon mulls $5 to $10 monthly price tag for Alexa. The company is planning a revamp money-losing Alexa service to include a conversational generative AI. Trying to find more money sources to keep the stock moving higher. The stock posted a 1.6% gain on Friday.

Home prices are falling? Some areas are seeing modest moves lower and more supply available. It is a trend worthy of following but expectations are not for a major move to the downside. XHB has been consolidating sideways since the March highs. REM looks similar on the chart, and REZ has been trending higher… sector still looks solid on the chart.

Quote of the Day: “The husband who decides to surprise his wife is often very much surprised himself.” — Voltaire.

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