Jim’s Notes Weekend Recap & Outlook

Moving the Market – March 10th

It was an interesting week for stocks as the up-and-down week closed on a negative note. Some attribute the selling to profit-taking before the weekend after hitting new highs. Sounds logical. Semiconductors set the tone again only on the downside this time as MRVL reported weaker than expected earnings, which prompted selling in NVDA and AVGO. Both the NASDAQ and the SP500 were down on the day closing the week in negative territory. The jobs report was positive, for what part of you can believe, the data gives the Fed more room to hold interest rates higher for longer. The unemployment rate rose to 3.9% even with adding 275k new jobs. All said the data for the week has been slightly positive overall. The major indexes finished the week with the NASDAQ down 1.1% and the SP500 down 0.2%. With the selling on Friday, the question begs was this profit taking or is something bigger brewing? The continued argument that stocks are overvalued is a hot topic on most financial networks. Yes, the valuation is high, yes the market is due for an adjustment, but the charts show an uptrend in play. Thus, I prefer to take the action of lessening risk when it is too high and adjusting my stops to protect against the unexpected. Case and point being SOXX… before the opening on Friday I adjusted my stop to $234.05 with the futures higher, it made my risk less going forward and gave me peace of mind knowing where the exit point was. With the ETF closing at $228.13, my stop was hit, and anxiety averted. It is similar to looking at where the exits are in a moving theater… if a fire breaks out you know where to go instead of panicking. Managing money is not as easy as many would lead us to believe, but having a defined strategy allows you to take the necessary steps to manage your risk as it relates to your money.

Key story on Friday was NVDA. Intraday in a matter of a couple of hours the stock fell more than 11%. The chart below is a 5-minute chart showing the move. This is something to watch during next week’s trading. The pressure on stocks continues to mount and we are seeing more profit-taking/selling in specific areas and stocks. Stops are a must to protect your money.

Worthy Lesson: “Short-term volatility is greatest at turning points and diminishes as a trend becomes established.”

The indexes moved lower as investors took some money off the table. The activity on Friday started to the upside and then moved lower throughout the day forfeiting gains from Thursday. As we look to next week some review is necessary for positions as well as where money is going. The Volume was above average and the money flow ticked lower. Five sectors closed in positive territory but we did see some distribution on Friday. Watching what opportunities develop on the charts. The NASDAQ closed down 1.1%, DIA was down 0.1%, and the SP500 was down 0.6%. The major indexes closed lower on the day. The SOXX was down 4%. Small Caps (Russell 2000) were down 0.1%. The ten-year treasury yield was at 4.08% down 1 bps for the day. Crude Oil (USO) was down 1.1%. (UGA) was down 1%. Natural gas (UNG) was up 0.6%. 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: “If I want to knock a story off the front page, I just change my hairstyle.” — Hillary Clinton.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed down 33 points to 5123 moving the index down 0.65% with above-average volume. The index held the up-trendline and the 10-day MA. Money flow was negative and RSI flat. Five of the eleven sectors closed higher on the day with REITs as the leader up 1.1%. The worst performer of the day was technology down 1.4%. The VIX index closed at 14.7 higher on the day. There is plenty to ponder between the headlines and the facts. Selling in the semiconductors has my attention heading into the new week of trading… Stops adjusted and watching how it unfolds.

Leaders:

XLK – Technology Entry $183. Stop $204.10. Broke above the $208 resistance and retreated. The sector was down 1.6% for the week. The semiconductors sold to end the week as we watch how they respond.

XLY – Consumer Discretionary The sector broke higher from a cup and handle pattern… it has retreated below the breakout point showing short-term weakness. The sector was down 0.5% for the week. Needs to hold the 21-day EMA.

XLF – Financials Entry $33.65. Stop $39.92. Continuing to trend higher with banks showing some positive moves. The sector was up 0.8% for the week. Moved above the resistance at $39.28 and followed through upside. Interest rates were lower at the end of the week and could be seen as a positive for the sector looking forward.

XLV – Healthcare remains in an uptrend from the October lows. Some testing on the week as we move back towards the 21-day EMA as the trendline. Entry $129. Stop $144.57. The sector was up 0.1% for the week.

XLP – Consumer Staples Uptrend remains in place moving above resistance at the $74.70 mark. The sector was up 0.9% for the week. Discount big box is the strength of the sector currently.

XLI – Industrials Uptrend remains in play moving higher in a steady uptrend. The sector was up 0.6% for the week. GE and LDOS adding leadership.

XLB – Basic Materials uptrend remains in play adjust your stops if you own any positions here. For the week was up 1.5%. Activity picking up in the materials VMC and EXP. Let it run.

Laggards:

XLU – Utilities bounced off the $60.10 support level and cleared $62.90 resistance. Entry $61. Stop $62.70. Lower interest rates are helping the upside move. The sector was up 3.2% for the week.

XLE – Energy making a steady climb higher after clearing resistance points. Entry ERX $52.15. Stop $58.65 (adjusted). Let it play out. Target is $64 near term. The chart broke the downtrend from the September highs and is ploding higher.

IYZ – Telecom Held support at the $21.74 level and trading sideways. The sector was down 1.2% for the week.

Losers:

IYR – REITs found support and started a reversal of the downtrend with a move above $88.20. The sector has been challenged by higher rates and vacancies in the commercial sector but is showing some signs of life thanks to residential and a tick lower in rates. The sector was 1.4% for the week. Entry $88.10. Stop $88.10.

Summary:

The SP500 index closed the week lower with up and down activity. Economic data was okay… earnings have been mostly positive. The trend is positive. Some rotation with REITs, energy, and telecom show signs of moving higher. XLU, XLB, IYR, and XLE led the week… showing the impact of lower rates and rotation to more defensive positions. We maintain our stops and continue to look for where money flow migrates. Technically the uptrend remains in play with the sellers and buyers battling it out. 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 188 points to 16,085 as the index was down 1.16% for the day. Mega caps didn’t help the cause as SOXX led the downside move. The trendline was challenged along with the 21-day EMA as we watch how this unfolds. Stops in place and watching the outcome. There is plenty of activity and speculation to filter through.

NASDAQ 100 (QQQ) was down 1.44% for the day as the mega-caps led the downside for the sector. The uptrend remains on the chart with some topping on the chart. SOXX and IGV were lower. Watching AAPL and GOOG both bounced at support to buck the trend of the day. Manage stops and let it play out. Entry $354.20. Stop $435. Patience.

1) AAPL bounced and closed the remainder of our short position. Watching if the bounce has any legs. 2) AMZN held the 10-day MA. 3) GOOG bounced and closed our short position. Watching the bounce. 4) MSFT at the 21-day EMA. 5) META & NFLX held the 10-day MA. 6) TSLA (testing support Feb lows) 7) QQQ tested the 21-day EMA. Adjust your stops if you hold positions and manage the risk going forward.

Semiconductors (SOXX) Hit stop on position with a nice gain. Selling to end the week and watching to see how it unfolds. The sector was up 0.6% for the week. The uptrend from the November lows remains in play. Picked up volatility.

Software (IGV) head and shoulder pattern on the chart $84.53 is key support. The sector was down 2.2% for the week. Looking for opportunity on directional decision.

Biotech (IBB) consolidation pattern on the chart broke at the January highs. Watching for some momentum in the sector. The sector was down 0.8% for the week.

Small-Cap Index (IWM) downtrend reversal with a move above the December highs but can’t seem to get enough momentum. Added at $192.13 upside move. Stop $204.80. Needs to find conviction if going higher. Patience for now. The sector was up 0.4% for the week.

Transports (IYT) drifting 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 down 0.4% for the week. Entry $66.35. Stop $69.56.

Red Sea issues continue to be bad. The activity continues to disrupt the passage of ships. 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 $14.84.

The Dollar (UUP) The dollar struggled on the week as interest rates fell and Powell talking about stimulus. Watching how it unfolds moving forward. The buck was down 0.9% for the week.

Treasury Yield 10-Year Bond (TNX) The yield on the 10-year bond has been rising since the low in December, but it turned lower last two weeks on the inflation talk and the Fed. The yield moved from 4.18% to 4.08% this week down 10 bps. Topping pattern on the yield chart shows some believe rates have peaked with hopes of interest rate cuts… despite what the Fed is saying. TLT was up 1.3% for the week. Entry $93.52. Stop $94.45. (TMF is the leveraged trade).

Crude oil (USO) bottom reversal accompanied by volatility moved resistance at the $73.25 level and testing all week. OPEC extended its production cuts. As seen on the chart it is attempting to renew an uptrend from the December lows… up trending channel. The commodity was down 2.1% for the week. Entry UCO $26.70. Stop $29. Patience.

Natural Gas (UNG) The commodity continues to struggle with an attempt to bounce off support at the $14.70 level with resistance at $18. Watching how this dump lower unfolds. The commodity was down 1.7% for the week. Bear flag pattern broke lower. See if it retests the $14.72 low.

Gold (GLD) The commodity broke higher from the consolidation pattern and went vertical. We added UGL and now we have a trailing stop to protect against a reversal. The metal was up 2.2% for the week. Entry $189.30. Stop – trailing 2%. UGL.

FINAL NOTES

Friday: The broad indexes closed lower for the day. There is plenty of chatter and speculation on direction and leadership as seen over the last few weeks of trading. All the talk and juggling keeps the chatter about valuations and overbought in the news. The current activity shows speculation on the charts and a market that is overbought on optimism about the Fed shifting its stance on inflation. Powell spoke to Congress and reiterated the Fed’s stance on fighting inflation… stocks moved higher… Friday they sold back… profit-taking? Maybe. Watching how it unfolds and looking for the opportunities within the action. Five of the eleven sectors closed higher with technology leading the downside. SOXX erased its gains from Thursday. IGV looking weaker. VIX moved to 14.7 showing more anxiety in play. Economic data remains suspect at best. Keeping our stops at the appropriate risk level. It is interesting to note the bounce in crypto to new highs.

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. The acceleration off the October 2023 low is getting extended. We have adjusted our stops on longer-term positions as we let this unfold. 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. The current bounce remains in play despite many issues on the horizon. Current activity shows volatility that is associated with extended moves. 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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