Jim’s Notes Market Summary

Moving the Market – Weekend Update – January 27th

We ended the week of trading with some interesting actions and reactions to both news and data. Earnings from INTC disappointed and SOXX fell more than 2% on the day. That will be of interest as next week AMD will announce earnings and we will see if INTC is the reality of the sector or an outlier. Energy (XLE) is moving higher from the consolidation patterns thanks to a rise in crude oil prices. Again something to watch as we move forward. Commodities in general have been on the rise as the Red Sea issues continue to weigh on supply chains… no clear indication of how long or how much it will impact prices and supply moving forward. Small caps made a move higher stalled and now face more resistance short term. Volatility was slightly higher for the week and clearly on our watch list for next week. Earnings are in full swing rewarding those like AXP and punishing those like TSLA. Economic data has everyone talking about a soft landing in the economy… we will see how that plays out. And speaking of economic data, next week is loaded with FOMC and end-of-month data. Throw in earnings and geopolitical data it promises to be a fun-filled week. As always there is plenty to ponder and pontificate on, but the facts lie on the charts. The trends are what matter and in reality are how we all make money investing. We will dig through all the data released and adjust accordingly.

Stocks were a mixed bag on Friday with some profit-taking, some speculation, and some solid breakout patterns. The focus shifted to data points which sparked buying in other sectors. The charts do look extended in some indexes and sectors, but the buyers continue to put money to work in others. The NASDAQ closed down 0.3%, DIA was up 0.1%, and the SP500 was down 0.1%. The major indexes struggled on the day on above-average volume. The SOXX was down 2.7%. Small Caps (Russell 2000) were up 0.01%. The ten-year treasury yield was up 4.16% up 3 bps for the day. Crude (USO) was up 1.2%. (UGA) was up 1.8%. Natural gas (UNG) was up 0.2%. The dollar was up 0.0%. 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: “Trading doesn’t just reveal your character; it also builds it if you stay in the game long enough.” — Yvan Byeajee.

Additional Charts To Watch

Agriculture (DBA) As seen on the chart the bottoming pattern is in position to reverse the downtrend. We cleared $21.08 Monday. Entry $21.10. Stop $21.08. Broke higher and has shown solid gains since… Raise your stops.

Home Construction (ITB) Consolidation near the highs broke to the upside Monday. Looking for a follow-through above the $103 level. Oops, failed to hold the move higher as interest rates moving higher impacts the DHI earnings report. Failed break higher.

As it relates to the DHI earnings report… they missed on revenue… is the sector starting to show some effects of higher interest rates and affordability issues relative to construction? Something to ponder as the balance of the homebuilders report earnings. Maybe a downside trade opportunity? Sold to the bottom of the range… bounced on New Home Sales up 8%… watching how it plays as it remains in the range.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed down 3 points to 4890 moving the index down 0.07% with below-average volume. The index struggled to maintain the upside and closed the week on a doji candle. Thus far the markets have been sleepwalking higher. Nine of the eleven sectors closed higher on the day with energy as the leader up 0.7%. The worst performer of the day was technology down 1.1%. The VIX index closed at 13.2 slightly higher for the week. The index closed up 1.06% for the week. Plenty to ponder between the headlines and facts. Patience.

XLB – Basic Materials bottom reversal in play with key support at $81. Held at support and was up 0.3% for the week. Letting the consolidation unfold near term.

XLU – Utilities Broke back below the $60.10 support and bounced. Need to clear $61.50 near term. Sold SDP $13.50 for a small gain. Watching how this unfolds. The sector was up 0.4% for the week.

IYZ – Telecom Topping pattern continued higher and added to our position at $22.93. The uptrend remains in play. The sector was up 3.2% for the week.

XLP – Consumer Staples Uptrend remains in place for the defensive sector with some modest testing. No Positions. The sector was up 0.8% for the week.

XLI – Industrials Topping pattern. $110.75 level of support to hold. No Positions. The sector was up 0.8% for the week.

XLV – Healthcare remains in an uptrend from the October lows. Some sideways trading last month but holding above support. Entry $129. Stop $138.29. The sector was down 0.1% for the week.

XLE – Energy Started a bottoming pattern and cleared $81.97 resistance for entry. Crude oil prices rising to help the sector recover. Entry ERX $52.15. Stop $52.80. Let it play out.

XLK – Technology Entry $193. Stop $200. Bounce-off support at $183.50 and continued the uptrend. Tested Friday with some profit-taking and worries in SOXX. The sector was up 0.8% for the week.

XLF – Financials Entry $33.65. Stop $37. Trading sideways to higher with a solid week. The sector was up 1.9% for the week. Broke above the resistance at $37.95.

XLY – Consumer Discretionary Tested support $171.50. Downtrending channel on the chart. Needs to clear $176.70. The sector was down 1.8% for the week.

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 down 0.6% for the week. New home sales data had a mild impact.

Summary: The index traded slightly higher for the week as breadth was more in play on economic data to end the week. Yes, there are plenty of issues facing the markets both short-term and long. The buyers see the glass as half full currently and pushed the index to new highs. The uptrend from the October lows tested, held support, and resumed the upside move. Technology remains the leader near term despite the test on Friday. Plenty of rhetoric in the headlines as we watch the charts short term for direction. Letting it unfold and taking it one day at a time. 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 Indicators/Sectors & Leaders To Watch

The NASDAQ index closed down 55 points to 15,455 as the index was down 0.36% for the day. Day of testing in the large-cap technology stocks. The index tested the extension of the uptrend and moved into a consolidation phase. It broke higher last week with solid volume. The index was up 0.9% for the week. The leaders are IGV, SOXX, and QQQ on the upside. The chart remains in a positive trend. Managing the risk that is and watching how the Friday test plays out in the new week.

NASDAQ 100 (QQQ) was down 0.6% for the day as the mega-caps tested but maintained the trend on lower volume. Large-cap tech struggled on the day but remains in a solid uptrend. The leadership is SOXX and IGV. The sector was up 0.62% for the week. Manage stops and let it play out. Entry $354.20. Stop $414. Watching for consolidation near term.

Semiconductors (SOXX) Entry $563.80. Stop $602 (HIT STOP). Tested lower for the second day and hit our stop… watching how this unfolds next week and what opportunities are presented. The sector was down 0.6% for the week.

Software (IGV) continued the uptrend from the January test. Shows some topping on the chart. The sector was up 1.2% for the week. Watching how this plays out in the coming week.

Biotech (IBB) Topping pattern on the chart and letting it unfold. Entry $121.30. Stop $133. The sector was up 0.1% for the week. $136.50 level to clear on the upside.

Small-Cap Index (IWM) Downtrending channel developing. Added at $192.13 upside move. Need to clear $198.64 near term. Flag pattern on the chart.

Transports (IYT) Broke support at the $254.50 level and bounced back into the previous trading range. Red Sea issues continue to escalate. BDRY has done well in response, bouncing back from the test at $8.95. The sector was up 1.7%. Solid bounce confirming the reversal at support. Still need to clear the $266 level.

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 all the way through to consumers… this is a growing issue looking forward.

The Dollar (UUP) The dollar has bounced off the December lows and gaining some strength of late. The buck was up 0.3% for the week.

Treasury Yield 10-Year Bond (TNX) The yield has been creeping higher of late as the 10-year moves above the 4% mark again. TLT triggered a short-side opportunity TMV entry $32.10. Stop $33.75. The yield moved from 4.15% to 4.16% this week up 1 bps. TLT was down 0.3% for the week.

Crude oil (USO) Remains a challenge relative to clarity. Production has been higher than expected as OPEC allowed producers to have voluntary cuts. Iran and Russia continue to produce with the need of money. USO broke from the bottom consolidation pattern offering an entry $69.50. Added UCO $27.40. Stop $28. Positive trade opportunity but rising oil has other implications to the economic picture if it continues. The commodity was up 6.2% for the week.

Natural Gas (UNG) The move higher from the December lows came to an abrupt end this week 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. And build in supply on weather and demand. Looking for the next opportunity. The commodity was down 3.1% for the week.

Gold (GLD) The commodity dipped below the uptrend line with support at $183.72. The dollar gained some near-term strength adding downside pressure on the metal. Letting this unfold near term. The metal was down 0.5% for the week. Sideways trend.

FINAL NOTES

Friday: The broad index maintained the uptrend as large caps took a break and other sectors showed some modest upside. Technology is the sector to watch as we start the new week of trading. The week will be filled with data from the end of the month’s economic news, FOMC meeting, and earnings. Promises to be an entertaining time for all. The major indexes SPY, DIA, and QQQ are all extended but the sentiment is positive and VIX turned higher in the last few days. Plenty of issues on the table. The FOMC meeting is on the horizon and there is talk of the Fed shifting their balance sheet reduction to help liquidity issues in the banking sector which remain very much a concern. Taking what is offered and letting it all unfold.

Our longer-term view is the uptrend from the October lows. They had moved above the July and August highs and broke above the 2022 highs to a new high. This resumes the long-term uptrend from October 2022. The key currently is to let the short term 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 lows 2020 lows has not resumed but from October 2022 has. 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. Time will tell how this plays out. 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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