With the Fed on Hold, Santa Just Revved Up the Sled; Think Value

The Santa Claus rally has left the station and is barreling down the tracks, as the Federal Reserve is on hold. 

Before I took a week off from writing this column for the Thanksgiving holiday, I wrote: “Regular readers of this column were not surprised by the rally, given the multiple alerts I posted noting the likelihood of a meaningful market bottom emerging due to the extraordinary technical picture which had developed in the bond market, and the ensuing gloom and doom in stocks as early as September 2023. And although there are no guarantees, the ongoing rally in both stocks and bonds has a great chance of continuing, due to the bullish seasonality which kicks into high gear with the traditional Thanksgiving rally.”

Here’s why we’re rallying. At least three voting members of the FOMC, including Chairman Powell, have made the following clear:

  • No easing in in the cards for now;
  • The Fed is prepared to tighten further if needed; but
  • Unless inflation data worsens, the interest rate hiking cycle is likely over.

All of which adds up to stocks moving higher in the short term, unless something bad happens that derails the bullish sentiment; think CPI, PPI, and the FOMC meeting, which are all approaching. Moreover, there is some evidence that overbought sectors of the market, such as technology, are starting to struggle, which means that some sort of sector rotation is well overdue.

So far, so good; but what’s next?

Bond Yields and Mortgages Continue Bullish Decline

The first part of the answer to the above question lies in the bond market, where rates continue to fall and seem headed lower at a rapid clip. The U.S. Ten Year Note yield (TNX) is now well below 4.5% and its 50-day moving average. Moreover, it just broke below the 4.3%-4.4% support area, and looks headed for 4%.

Even more impressive is the move down in mortgage rates (MORTGAGE), which looks set to test the 7% area and may move as low as 6.8%, the 50-day moving average for this series.

As expected, amongst the major beneficiaries of the lower interest rates have been the homebuilders, as reflected in the recent price action for the SPDR S&P Homebuilders ETF (XHB), which broke out to a new high on the latest decline in TNX.

In addition, the long-term fundamentals of supply and demand in the housing market remain in favor of the homebuilders and related sectors. These include real estate investment trusts (REITs), which specialize in home rentals and related businesses.

You can see the bullish influence of lower interest rates on Nuveen Short Term REIT ETF (NURE) which is now testing its 200-day moving average. This ETF specializes in rental properties. A move above $30 in REZ is likely to deliver higher prices.

Sector Rotation is Likely

The REIT sector is certainly a place where value investors can find excellent ways to put money to work. But it’s not the only area that has been overlooked by the market lately, and which should benefit from a sector rotation.

Over the last few weeks in this space, I’ve been focusing on value investing, a topic in which I recently expanded in my latest Your Daily Five video, which you can catch here. That’s because growth stocks have become overbought and are due for a pause, while there are still plenty of investors and money managers who missed the October bottom and are being forced to play catchup before the year ends.

You can see this dynamic playing out by comparing the action in the S&P 500 Citigroup Pure Growth Index (SPXPG) to the trend in the S&P 500 Citigroup Pure Growth Index (SPXPV) index.

The growth index has been trading ahead of the value index for the past several weeks, but is now struggling near the 15800 chart point. Meanwhile, the value index has extended its move with greater momentum. You can appreciate the differences in the strengths of the move via the Pure Price Momentum indicators (PMO) for both where the PMO for SPXPV is much stronger.

All of this suggests that the next leg up in the market, barring something bad happening, will likely be led by value stocks.

For more on homebuilder stocks, click here.

The Unloved Energy Sector

After the amazing summer rally in the oil markets, things have cooled off dramatically. At the center of the decline in crude and the fossil fuel sector has been an oversupply of product. On the one hand, higher well efficiency in the U.S. shale sector has increased supply. On the other hand, as usual, OPEC + has not fully stuck to its highly publicized production cuts.

Yet the recent collapse in the clean energy stocks puts a different emphasis on the traditional energy sector, which is why it’s worth looking at the action in the Energy Select Sector SPDR Fund (XLE), where big oil and gas companies are aggregated.

What stands out the most is that even as crude oil prices (WTIC) have come well off their recent top, XLE’s decline has been a lot gentler. In fact, XLE is still trading above its 200-day moving average, which puts it technically in a bullish trend. In addition, the ETF is starting to show signs of moving away (to the upside) from a large VBP bar near $85. Above, there is more resistance from the 50-day moving average and a cluster of VBP bars all the way to $89.

Nevertheless, with components such as BP Plc (BP) trading at seven times earnings while yielding 4.81%, you have to wonder how long before value investors come a-knocking at the door of this sector.

Aside from recommending multiple big winners in the homebuilder and technology sectors, I recently recommended an energy stock which likely to move decidedly higher regardless of what the price of oil does. Join the smart money at Joe Duarte in the Money Options.com, where you can have access to this ETF and a wide variety of bullish stock picks FREE with a two week trial subscription

Market Breadth is Now Bullish

The NYSE Advance Decline line (NYAD) is back in bullish territory, coursing above its 50- and 200-day moving averages. So, while there is improvement, we don’t have a definitively bullish long-term signal for the market’s trend, yet. If there is a downside, it’s that the RSI indicator is nearing an overbought situation. However, at this stage of the rally, NYAD’s rate of climb may slow, but does not look as if it will fully reverse in the short term.

The Nasdaq 100 Index (NDX) looks a bit tired and needs a rest. The index has struggled to move above 16,000. Both ADI and OBV are flattening out as profit-taking increases.

The S&P 500 (SPX) remained above 4500 and could well move above 4600. This is not surprising, as many value stocks are now pushing SPX higher.

VIX is Back Below 20

The CBOE Volatility Index (VIX) continues to fall, closing below 15 last week. This is bullish.

A rising VIX means traders are buying large volumes of put options. Rising put option volume from leads market makers to sell stock index futures, hedging their risk. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying. This causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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In Bullish Trends, Seek Value and Momentum; Three Sectors to Watch as Year-End Rally Progresses

The combination of a pause in the Fed’s rate hikes and strong year-end seasonal tendencies have created an opportunity for investors to end the year on a positive note. The fly in the ointment, in the short term, could be a bad set of readings on the upcoming Consumer (CPI) and Producer (PPI) price gauges. Aside from that, the negative sentiment on Wall Street is still thick enough to push prices higher.

As I noted last week, “The stock market seems to have bottomed, as short sellers panicked and recently frightened buyers rushed back into the markets. It’s about time, as the signs of a pending reversal have been in place for the past two months, namely a slowing economy and fears about the Fed’s rate hike cycle, which have been mounting as investor’s pessimism rose to a fever pitch.”

On the other hand, Fed Chairman Powell proved once again that a few words can kill any rally, when he noted the central bank was “not confident” that inflation was fully vanquished on 11/9/23 and stocks sank. Whether that was just tough talk or a sign that he knows what the CPI and PPI numbers will show is anyone’s guess. Thankfully, the market recovered, although, as I discuss below, breadth remains weaker than one would hope for.

That said, there is no substitute for being prepared for any eventuality. For now, the trend is bullish, so here are three groups that should move higher, barring any unpleasant surprises.

It’s What’s Inside That Matters; Three Sectors Worth Watching as the Year End Rally Develops

Most investors focus on areas of the market which are exhibiting strength. That’s because, in bull markets, strength usually leads to further strength. This, of course, is the essence of momentum investing.

At the same time, it’s also useful to review the action in weak sectors, as underperformers are often future areas of value. Moreover, it’s important to know what you’re buying. Here is what I mean.

The software sector encompasses a wide swath of companies ranging from security companies to app developers, along with those in the increasingly popular AI sector. With so many companies, it’s often more practical to buy into a diversified portfolio, such as an ETF.

One such ETF is the Invesco Dynamic Software ETF (IGPT), recently renamed Invesco AI and Next Gen Software ETF, which is closing in on what could be a major breakout. But don’t let the title fool you; this ETF holds the usual large-cap tech stocks that typically rally when the tech sector moves into a rising trend, such as what is currently developing and is evident in the price chart for the Invesco QQQ Trust ETF (QQQ). QQQ holds many of the same companies, but currently trades at ten times the price of IGPT.

So, you can pay ten times more for QQQ, or get the same general market exposure via IGPT for a fraction of the price. Consider that IGPT is currently trading below $40 per share, which means you can own shares in Meta (META), Alphabet (GOOGL), Adobe (ADBE), and even NVDIA (NVDA) for a fraction of the price of each of these blue chips.

And here’s what the price chart is telling us regarding IGPT:

  • The ETF is back in bullish territory, as it just crossed above its 200-day moving average;
  • Accumulation/Distribution (ADI) is moving higher after a recent consolidation as short sellers leave the scene;
  • On Balance Volume (OBV) is in an established uptrend, as buyers come in; and
  • A move above $36 will likely take this ETF higher, as long as the bullish trend in the technology sector remains in place.

Another bullish sector which remains undervalued is the uranium mining sector, as in the Global X Uranium ETF (URA), in which I own shares and which is a core holding at Joe Duarte in the Money Options.com. Nuclear power is slowly becoming an option for areas of the world which are trying to find a compromise between clean fuels and reliable power generation.

URA’s appeal has been boosted by the demise of the renewable power sector over the last few months, due to the expense burden and supply chain challenges required to build wind turbines. Note the difference in the performance of URA versus the First Trust ISE Global Wind Energy ETF (FAN).

For one, URA is in a bullish consolidation pattern after its recent breakout. Note the excellent support at $26, where the 50-day moving average and a large Volume-by-Price (VBP) bar continue to attract buyers. Moreover, note the bullish uptrend in OBV as buyers sneak into the shares.

Certainly, FAN is in a consolidation pattern of its own after its recent collapse. Note, however, that neither ADI or OBV have turned up yet, which means that there is currently little interest in these shares from bullish investors. On the other hand, from a contrarian standpoint, it’s not a bad idea to keep an eye on this ETF as the cycle works itself out. All it would take for this sector to bottom out would be something like a large infusion of government cash, such as what may be materializing in Europe, according to reports.

I recently recommended an ETF which is now breaking out in a big way. Join the smart money at Joe Duarte in the Money Options.com, where you can have access to this ETF and a wide variety of bullish stock picks FREE with a two-week trial subscription.

Bonds Retain Bullish Tone Ahead of Inflation Numbers

As I noted last week, bond yields have made at least a short-term top. In fact, just three weeks ago, the U.S. Ten Year note yield (TNX) hit the 5% point, an event that unhinged both stock and bond traders.

Since then, things have quieted down and TNX has settled into a trading range, with 4.5% and the 50-day moving average as the floor.

If the inflation numbers are bullish, and TNX breaks below 4.5%, expect a big move up in stocks.

Keep an eye on the SPDR S&P Homebuilders ETF (XHB), specially the $78-$80 area. If CPI and PPI are bullish and bond yields fall, XHB should rise as short sellers get squeezed. Note the improvement in ADI, as the shorts cover their bets, while OBV is still holding steady, as buyers remain patient.

I’ve recently posted several detailed articles on mortgage rates, bonds, and homebuilders at my Buy Me a Coffee page. You can access them here. For the perfect price chart set up, check out my latest Your Daily Five video here.

Market Breadth Lags Rally as Indexes Outperform

The NYSE Advance Decline line (NYAD) has bottomed out, but has yet to cross above its 50- or 200-day moving averages. So, for now, NYAD is neutral to slightly positive. If it doesn’t show a bit more pop in the next few weeks, it may signal that the rally will have short legs.

In contrast, the Nasdaq 100 Index (NDX) is nearing a breakout after rallying above its 50-day moving average. Both ADI and OBV turned higher as short sellers cover (ADI) and buyers move in (OBV). A move above 15,800-16,000 would likely extend the rally further.

The S&P 500 (SPX) is also lagging NDX, but has delivered a minor breakout above 4400. SPX is well above its 200-day moving average, returning to bullish territory after its recent dip below 4150. Moreover, it has now survived a test of the 4350 support area.

VIX is Back Below 20

The CBOE Volatility Index (VIX) is well below 20. This is bullish.

A rising VIX means traders are buying large volumes of put options. Rising put option volume from leads market makers to sell stock index futures, hedging their risk. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying. This causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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#Bullish #Trends #Seek #Momentum #Sectors #Watch #YearEnd #Rally #Progresses

3 Key Relationships to Help Assess Market Direction

If you are finding yourself fluctuating between bullishness and bearishness, then congratulations! Hopefully, that also means you are waiting for certain signals to help you commit to one way or another.

Here are the signals we are waiting for before overly committing to a bias:

  1. As we wrote over the weekend, how the junk bonds (high yield high debt bonds) do independently, and how they perform against the long bonds (TLT).
  2. How the retail and transportation sectors do (along with small caps) as they represent the “inside” of the US economy.
  3. How DBA (ags) and DBC (commodity index) do relative to the strong dollar and higher yields.

The first chart shows you a sell signal mean reversion as far as the ratio between long bonds and junk bonds signaled. However, junk still outperforms long bonds — at this point, that says risk on, but a cautious risk on, with junk gapping lower and taking out summer lows (but holding March lows at 72.61).

Retail (XRT) had a solid reversal bottom last week. Now, it must clear last Friday’s highs and hold June lows… plus, XRT outperforms SPY right now.

Transportation (IYT) is now underperforming SPY. Although consolidating after breaking under the 200-DMA (green), it looks vulnerable. Could that change? A move over 235 would be a good start.

Looking at DBA, that whole commodities sector is outperforming the SPY. Makes you wonder what would happen if the dollar and/or yields soften.

Trading slightly below the July 6-month calendar range high, we anticipate DBA can continue higher, especially if price retakes the 50-DMA (blue line). DBC fell right onto support at its 50-DMA. Momentum also fell into support. Furthermore, DBA also outperforms SPY. This certainly makes the case for higher commodities and inflation as a trend again, especially if long bonds and the dollar soften.


This is for educational purposes only. Trading comes with risk.

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at [email protected].

“I grew my money tree and so can you!” – Mish Schneider

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.


Watch Mish and Nicole Petallides discuss how pros and cons working in tandem, plus why commodities are still a thing, in this video from Schwab.

Mish talks TSLA in this video from Business First AM.

See Mish argue investors could jump into mega-tech over value and explain why she is keeping an eye on WTI prices on BNN Bloomberg’s Opening Bell.

Even as markets crumble, there are yet market opportunities to be found, as Mish discusses on Business First AM here.

Mish explains how she’s preparing for the next move in Equities and Commodities in this video with Benzinga’s team.

Mish talks about the head-and-shoulders top pattern for the S&P 500 in The Final Bar.

Mish covers sectors from the Economic Family, oil, and risk in this Yahoo! Finance video.

Mish shares why the most important ETFs to watch are Retailers (XRT) and Small Caps (IWM) in this appearance on the Thursday, September 20 edition of StockCharts TV’s The Final Bar with David Keller, and also explains MarketGauge’s latest plugin on the StockCharts ACP platform. Mish’s interview begins at 19:53.

Mish covers 7 stocks that are ripe for the picking on the Wednesday, September 20 edition of StockCharts TV’s Your Daily Five, and she gives you actionable levels to watch.

Take a look at this analysis of StockCharts.com’s Charting Forward from Jayanthi Gopalkrishnan, which breaks down Mish’s conversation with three other charting experts about the state of the market in Q3 and beyond.

Mish was interviewed by Kitco News for the article “Oil Prices Hit Nearly One-Year High as it Marches Towards $100”, available to read here.

Mish covers short term trading in DAX, OIL, NASDAQ, GOLD, and GAS in this second part of her appearance on CMC Markets.

Mish talks Coinbase in this video from Business First AM!

Mish looks at some sectors from the economic family, oil, and risk in this appearance on Yahoo Finance!

Mish covers oil, gold, gas and the dollar in this CMC Markets video.

In this appearance on Business First AM, Mish explains why she’s recommending TEVA, an Israeli pharmaceutical company outperforming the market-action plan.

As the stock market tries to shake off a slow summer, Mish joins Investing with IBD to explain how she avoids analysis paralysis using the six market phases and the economic modern family. This edition of the podcast takes a look at the warnings, the pockets of strength, and how to see the bigger picture.

Mish was the special guest in this edition of Traders Edge, hosted by Jim Iuorio and Bobby Iaccino!

In this Q3 edition of StockCharts TV’s Charting Forward 2023, Mish joins a panel run by David Keller and featuring Julius de Kempenaer (RRG Research & StockCharts.com) and Tom Bowley (EarningsBeats). In this unstructured conversation, the group shares notes and charts to highlight what they see as important considerations in today’s market environment.


Coming Up:

October 4: Jim Puplava, Financial Sense

October 5: Yahoo! Finance & Making Money with Charles Payne, Fox Business

October 12: Dale Pinkert, F.A.C.E.

October 26: Schwab and Yahoo! Finance at the NYSE

October 27: Live in-studio with Charles Payne, Fox Business

October 29-31: The Money Show

Weekly: Business First AM, CMC Markets


  • S&P 500 (SPY): There are multiple timeframe support levels around 420-415.
  • Russell 2000 (IWM): 170 huge.
  • Dow (DIA): 334 pivotal.
  • Nasdaq (QQQ): 330 possible if can’t get back above 365.
  • Regional Banks (KRE): 39.80 the July calendar range low.
  • Semiconductors (SMH): 133 the 200-DMA with 147 pivotal resistance.
  • Transportation (IYT): 237 resistance, 225 support.
  • Biotechnology (IBB): 120-125 range.
  • Retail (XRT): 57 key support; if can climb over 63, get bullish.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

Mish Schneider

About the author:
Mish Schneider serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision.

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The Smart Money Changes Gears; As Tech Weakens, New Leaders Appear

The Fed is flying trial balloons about the end of the interest rate hike cycle, but the technology sector is ignoring them as the smart money move to energy continues.

Last week, Philadelphia Fed Governor Patrick Harker, in a Philadelphia speech, suggested the central banks should pause their rate hikes. Moreover, even though the CPI inflation numbers were relatively tame, markets seemed to focus on the more negative details inside the report, such as persistently high rents and car insurance prices.

Interestingly, producer prices (PPI) rose as well, but much of the climb was due to an increase in fees by money managers – hardly a widespread expense as compared to gasoline and food. Meanwhile, consumer confidence is flat and inflation expectations are improving.

Still, money flows in bonds and stocks suggest otherwise. That’s not a good turn of events, if not reversed, especially when the Fed is trying to gauge the market’s response to a potential extended pause on its rate hikes.

As Tech Weakens, New Leaders Appear

Last week in this space, I noted “short sellers are starting to smell blood in the water in the tech sector.” This week, the evidence piled up further as the bloom is wearing off the AI rose, at least for now. You can see that sellers have gained the upper hand as the Invesco QQQ Trust (QQQ) has broken below its 50-day moving average, as both Accumulation/Distribution (ADI, increasing short sales) and On Balance Volume (OBV, buyers turning into sellers) have also rolled lower.

But QQQ is not alone. A more focused picture of the selling in AI and robotics-related stocks can be seen in the shares of the ROBO Global Robotics and Automation ETF (ROBO), which has fallen back to what may be long-term support near $54. If ROBO fails to hold in this general area, which features two very large Volume-by-Price bars (VBP) and the 200-day moving average as key markers, the decline will likely accelerate.

A stark example of how rising costs are impacting emerging technology companies was the collapse of solar tech company Maxeon Solar Technologies (MAXN), whose shares cratered after the company missed its earnings estimates and lowered forward guidance, citing “falling demand” for its products while partially blaming the situation on higher interest rates.

Meanwhile, shares of energy stocks, such as refiner Valero Energy (VLO), continue to power higher as the fuel supply and demand balance is steadily tipping toward the energy patch. This view is supported by the steady downward pace in the weekly oil rig count. There are now 125 fewer active rigs in the U.S. compared to the same period in 2022.

VLO is emerging above a stout resistance shelf, marked by a large cluster of Volume-by-Price (VBP) bars extending back to the $107 area. A move above $140 would likely lead to higher prices in a hurry. I recently discussed how to spot the smart money’s footprints and how to turn them into profits; you can check out the video here.

Over the last few weeks, I’ve asked whether it’s time to sell the tech rally. What should you do with your energy holdings? And what about the homebuilder stocks and the REITs? The answers are in the model portfolios at Joe Duarte in the Money Options.com, updated weekly, and via Flash Alerts as needed. You can have a look at all of them and my latest recommendations on what to do with each individual pick FREE with a two week trial subscription. And, for an in-depth review of the current situation in the oil market, homebuilders and REITS, click here.

Bonds, Oil, and Stealth Inflation

The lack of enthusiasm from bond traders about the CPI numbers, quirky PPI numbers and a Fed governor suggesting the central bank may stop raising rates soon suggests there is more going on than meets the eye. The answer may be future inflation related to limited supplies of products and services, which are not likely to increase anytime soon, along with the unknowns about the future of global energy prices.

The U.S. Ten-Year Note yield (TNX) briefly dipped below 4% on the CPI news. But the rally didn’t last. And by week’s end, yields were once again moving toward the higher end of the trading range, which has been in place since October 2022.

More concerning is the lack of interest from bond traders regarding deflationary news from China a day earlier, which suggests the bond market is not a believer in the notion that inflation is slowing to the point where the Fed can stop raising rates.

In the present, you can blame their disbelief on the oil market, where volatile supply data and demand news, combined with ongoing reports that U.S. oil production is being curtailed, is moving prices higher.

Moreover, as evidenced by the action in MAXN, above, it’s becoming evident that the ongoing transfer from traditional energy to renewable energy will be more expensive than initially thought. All of which suggests that inflation is becoming stealthily embedded into the system. When you factor in the expected rise in U.S. Treasury bond issuance by the U.S. Treasury and the increasing budget deficits, the indifference from bond traders makes sense.

In other words, even though CPI may have slowed its gains for now, the bottoming of PPI may be a prelude to the near future. Thus, forward-looking bond traders may be considering future shortages of key minerals, the energy to fuel the transition to clean energy, and tight labor.

Specifically, along with poor demand for solar technology, the bond market may be quietly worried about the ongoing problems in the wind energy industry, where costs are reportedly out of control, to the tune of having climbed 20-40% since February 2022. Meanwhile, reports of major technical problems with turbines continue to plague the industry, while governments are beginning to evaluate how much more money they’re willing to put into subsidies.

NYAD Struggles, Major Indexes Extend Losses

The long-term trend for stocks remains up, but the short term is weakening further. The New York Stock Exchange Advance Decline line (NYAD), has broken below its 20-day moving average and may be headed for a test of its 50-day, and perhaps the 200-day, moving averages.

The Nasdaq 100 Index (NDX) has broken below its 50-day moving average and looks headed for a test of the 15,000 level. Accumulation/Distribution (ADI) and On Balance Volume (OBV), remain weak, as short sellers are active and sellers are overtaking buyers.

The S&P 500 (SPX) remained below 4500, and its 20-day moving average, as it approaches a test of its 50-day moving average. Both ADI and OBV are nowhere near uptrends. Support is now around the 4400 area.

VIX Struggles at 20

I’ve been expecting a move higher in VIX, and it seems to have arrived as the index finally moved above the key 15 resistance level. The good news is that the index has yet to break above 20. A move above 20 would be very negative, as it would signal that the big money is finally throwing in the towel on the uptrend.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

Liquidity Remains Stable

Liquidity is stable, but may not remain so for long if the current fall in stock prices accelerates. The Secured Overnight Financing Rate (SOFR), which recently replaced the Eurodollar Index (XED), but is an approximate sign of the market’s liquidity, just broke to a new high in response to the Fed’s move. A move below 5.0 would be more bullish. A move above 5.5% would signal that monetary conditions are tightening beyond the Fed’s intentions. That would be very bearish.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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Bullish Tidings: Breadth Rallies, Oil Service Makes its Move, Bonds Survive Yield Scare

Three weeks before the Fed’s next meeting, investors who have missed the AI/tech rally have thrown caution to the wind.

That urgency to catch up has led to an encouraging improvement in the market’s breadth and a marginal new high in the S&P 500 index ($SPX). The combination is likely setting the market up for what could be an impressive upward thrust. See below for full details.

And if June is any sign of what July may be, the bulls will rule the roost. Here are some grounding facts:

  • The S&P 500 index has returned an average of 3.3% in July from 2012–2022.
  • SPX rallied 9% in July 2022.

Of course, there are no guarantees that history will repeat itself. But it pays to be always ready. So, which sectors are likely to benefit? I have some thoughts just below.

Bond Yields Survive Yield Scare

I wouldn’t be surprised if the Fed joined the other global central banks that have raised interest rates in the last few weeks. However, from a trading standpoint, the action in bonds is more important, as bond yields have largely disagreed with the Fed’s perception of the economy since late 2022.

What I mean, of course, is that even as the Fed raised interest rates after October 2022, bond yields have fallen since then, setting up a divergence.

Certainly, there has been some volatility in yields. For example, the 10-Year US Treasury Yield Index ($TNX) bounced higher on June 29, 2023, as a surprising upward revision of US GDP to the 2% growth rate raised the odds of a rate hike at the upcoming FMOC meeting in mid-July. Yet, the flattening out of the Fed’s favorite indicator, the PCE inflation gauge on June 20, 2023, calmed things down.

That leaves the resistance band between 3.6–3.85% as the area to monitor. If TNX rises above 3.85%, we may see a move toward 4%, which would be very negative for stocks, especially the interest rate-sensitive homebuilders and real estate investment trusts (REITs).

The Fine Print in Housing Stats: Supply, Supply, Supply

As would be expected, as TNX flirted with 3.85%, there was a pullback in the homebuilder stocks. But as we’ve learned over the recent past, the correlation between the direction of bond yields and the action in the homebuilder stocks is nearly 100%. As a result, when bond yields, as I described above, hit resistance at 3.85% and turned lower, the homebuilder stocks regained their upward trend.  

Overall, the housing sector continues to deliver mixed news. For example:

  • New home sales recently rose—bullish for homebuilders.
  • Existing home sales are flattening out—neutral for brokers.
  • Pending home sales fell—not what you may be thinking.

The quiet part is all three stats above have two things in common—low supply and steady-to-rising demand. So new home sales are rising because builders are building enough of them to sell to enough people who are looking for housing. Existing home sales are flat because no one wants to sell a house with a 3% mortgage and buy a new one with a 6% mortgage. And, of course, if no one wants to sell their house, then you get a fall in pending home sales.

The bottom line remains unchanged. Low supply of steady demand favors the homebuilders.

Overall pending home sales fell 2.7% month to month. And if you’re wondering how each U.S. region fared in the pending home sales data here you go:

  • The Northeast delivered a 12.9% increase.
  • The South registered a 4.4% decrease.
  • The Midwest dropped by 5.3%.
  • The West’s sales dropped by 6.1% (a 62% decrease since 2001).

Moreover, the National Association of Realtors noted that there are still three pending offers per sale.

Mortgage rates ticked up last week, along with bond yields. Homebuilder stocks pulled back slightly before recovering. Several homebuilders will be reporting earnings in July, near the date of the Fed’s next meeting.

For an in-depth look at the news and trends in the housing and real estate market, check out my new publication, Joe Duarte’s Real Estate Weekly, here.  You’ll find crucial and detailed real estate market updates in an easy-to-follow and highly accessible format. This crucial information complements the stock picks at Joe Duarte in the Money Options.com. For more details on how to trade the bullish housing megatrend, check out my latest video here.

Oil Service Makes its Move

The bullish action in stocks on June 30 might be at least partially related to window dressing. That’s where portfolio managers who missed the rally play catch up to show their clients that they own stocks in groups that are rising. That means that the bullish action may or may not remain in some of the more extended market sectors, such as AI.

On the other hand, some portfolio managers use the cover of window dressing as a stealthy way to put money to work in sectors that offer value. As a result, while everyone is looking at the hot sectors, such as AI, it pays to look at sectors that have underperformed in the first half.

One of them is oil service. As the price chart illustrates, the Philadelphia Oil Service Index (OSX) shows some bullish characteristics. Note the broaching of the 200-day moving average after the recent double bottom it carved out over the last three months.

Moreover, its accompanying ETF, the Van Eck Vectors Oil Service ETF (OIH), looks even better. You can see that OIH has crossed above its 200-day moving average, marking what looks to be the start of a bullish reversal.

In addition, you can see that the Accumulation Distribution Line has begun to move higher as the On Balance Volume (OBV) indicator has bottomed out. Together, these two indicators confirm the emerging price trend in OIH as money moves in.

I have several oil service stocks in my Joe Duarte in the Money Options portfolios which are worth considering. One of them just broke out to a new high. You can check it out with a FREE trial to my service here.

NYAD Recovers and Gathers Upside Momentum

In a bullish development, the New York Stock Exchange Advance Decline line ($NYAD) turned on a dime last week and moved decidedly higher, breaking above short-term resistance. This comes after a short-lived dip below the 50-day moving average.

The Nasdaq 100 Index ($NDX) also turned around, finding support at its 20-day moving average. ADI and OBV have turned short-term negative.

The S&P 500 made a new high since the October bottom in stocks. As with NDX, SPX found support at its 20-day moving average. This is a bullish development. Both ADI and OBV stabilized.

VIX Is Likely to Bounce

After its recent new lows, the Cboe Volatility Index ($VIX) is poised to rise, as July often marks a bottom. On the other hand, VIX is at such a low level that it could take a while before the negative effects of a rising VIX affect the bullish action in stocks.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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Where’s the Money Going? Watch Volume and Price Action

A driver who goes with the flow of traffic and adjusts to traffic conditions usually gets places in good time and safely. Similarly, a good trader who trades in sync with price action is likelier to make better trades and preserve more capital.

The key: Recognize price movement and take advantage of the move. When you see a clear move in one group of stocks, identify the top performers and make your way into that lane. When the momentum slows, you may want to exit your position and join the next moving group. But that doesn’t mean you should constantly move in and out of stocks; it pays to be patient and ensure the odds are in your favor before bailing or jumping in.

Identifying the Movers and Shakers

There are different ways to identify groups of stocks that are moving. Technical analysts can choose to identify trends, turning points, and/or investor sentiment using the appropriate indicators. In addition to focusing on a handful of indicators, it may also help to keep an eye on volume.

In his book Technical Analysis Explained, Martin Pring states that volume often moves ahead of price. So an increase or decrease in volume could be an advance warning of a potential price trend reversal. If you think about it, volume gives you an idea of whether traders are bullish or bearish. If price moves up on strong volume, it’s generally an indication of bullish momentum. And when the volume starts falling, it could be a signal that the upward price movement is slowing down.

Combining volume with price movement can help identify developing trends and the end of a trend. Open up a long-term chart of your favorite stock and see how volume and trend move. The chart below looks at recent price movement in Microsoft (MSFT)’s stock price. Note the exponential rise in volume when price hit a high in the short-term move. After that, volume fell as the stock price traded sideways. If volume expands when price starts moving in a clear direction, it could indicate the strength of the next move.

CHART 1: VOLUME AND PRICE ACTION. Volume and price expand until it spikes at a short-term high. After that, volume drops as price moves sideways. Think of volume as a barometer for the next price move.Chart source: StockCharts.com. For illustrative purposes only.

You can do a similar volume and price analysis with different stocks by going back further in time. Better yet, analyze volume action in different groups of stocks, such as the S&P Sector ETFs. The CandleGlance tool on the StockCharts platform gives you a bird’s eye view of the different sectors.


How to Access It

  • From the Member Tools on Your Dashboard or from the Charts & Tools tab.
  • Select S&P Sector ETFs from the Predefined Groups dropdown menu. You’ll see charts of all 11 ETFs and a chart of the S&P 500 index ($SPX).
  • Select chart duration and indicator. There are different volume indicators you could use, such as Rate of Change (ROC), On-Balance Volume (OBV), Accumulation/Distribution, the Force Index, and so on. In the chart below, the OBV is added with an overlay of its 20-day simple moving average.

You can customize your CandleGlance charts and save it as a ChartStyle. That way your settings will automatically appear on the CandleGlance charts—major timesaver.


The recent regional bank crisis is an example of how investors started pulling out of the banking sector and moving their capital to other sectors. If you add a volume indicator such as OBV to the charts, some interesting observations surface.

CHART 2: CHARTS AT A GLANCE. The CandleGlance chart of the S&P Sector ETFs with a volume indicator of your choice (OBV was used here) helps to see where the rotation occurs.Chart source: StockCharts.com. For illustrative purposes only.

The OBV suggests that money is moving into the market, but only in some sectors. “The inflows are more concentrated on the large caps and specific sectors, and not the broad market,” said Buff Dormeier, CMT, chief technical analyst at Kingsview Partners.

What’s more interesting is how much money was flowing into the market. “In the week of March 13, the S&P 500’s capital inflows were $90 billion, the highest inflows in nearly 10 years,” added Dormeier. “Capital outflows totaled $36 billion and, if you take them together, it was the largest since March 2020, which was at the onset of the pandemic.”

The following week saw a similar trend. “In the week of March 20, cap-weighted inflows surpassed outflows with $30.5 billion out to $50 billion flowing in,” Dormeier continued.

Where Are the Inflows and Outflows? 

The CandleGlance view helps to see which sectors are experiencing the greatest outflows and which ones are experiencing significant inflows. Communication Services (XLC) and Technology (XLK) are seeing significant inflows, whereas Real Estate and Financials are seeing significant outflows. 

Generally, a falling interest rate environment helps growth stocks, and money is flowing into large-cap growth stocks and out of small- and mid-caps. Does that mean investors expect the Fed to stop raising rates soon? It’s possible, but let’s remember the other side of the coin. When money flows out of small- and mid-caps, it could mean that the underlying economy may not be stable. These are conflicting signals which means the market is still fickle.

Trading With the Flow

We’re not out of the woods yet. Even though volume in the stock market is increasing and the stock market seems like it wants to go up, it could change anytime. So, create your own CandleGlance charts so you always have a bird’s eye view of the market. When you see price action speeding up in one sector and slowing down in another, change lanes so you can keep up with price movement. Don’t rush, be patient, and, more important, be disciplined. It’ll get you where you want to go.



Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jayanthi Gopalakrishnan

About the author:
Jayanthi Gopalakrishnan is Director of Site Content at StockCharts.com. She spends her time coming up with content strategies, delivering content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was Managing Editor of Technical Analysis of Stocks & Commodities magazine for 15+ years.
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Ongoing Sector Rotation Out Of Defense Into Technology

The Relative Rotation Graph for US sectors continues to show a shift out of defensive sectors into more offensive and economically sensitive ones.

The improvement for XLC (communication services, XLY (consumer discretionary), and XLK (technology) continues and is visible inside the improving quadrant. All three tails are travelling at a positive RRG-Heading. XLC and XLK are coming very close to crossing over into the leading quadrant, while XLY is still the sector with the lowest RS-Ratio reading but rapidly picking up now.

Communication Services

XLC managed to break away from its falling trend channel at the end of last year. Since then, a double bottom formation was completed, out of which a rally followed that brought the sector back to resistance near 60. The decline that followed after setting a peak against that resistance level is the first serious pull-back after breaking away from the bottoming formation.

On the back of that improvement in price, the relative strength for XLC against SPY has rapidly improved, and the tail on the RRG is now close to crossing over into the leading quadrant. Overall, the current setback seems to offer a good new entry point, especially when the tail on the daily RRG will rotate back into a positive RRG-Heading. Confirmation will be given when XLC can take out resistance at 60.

Technology

After breaking above its falling resistance and out of the declining channel, XLK is managing to hold up well above its previous high, now acting as support. This confirms that a new series of higher highs and higher lows is now in place.

Relative strength against SPY has just broken above its previous high, signalling an end to the relative downtrend as well.

On the RRG, the tail for XLK is inside improving, travelling at a strong RRG-Heading and ready to cross over into the leading quadrant.

Even if XLK dropped back below support between roughly 135-137, it would not immediately harmn the new trend. There is still a bit of room to manoever.

Here also, a rotation back to a positive RRG-Heading on the daily RRG tail will be the confirmation for further relative improvement over SPY.

Consumer Discretionary

The break above the falling resistance line marked the end of the downtrend that started at the end of 2021. For the last three weeks, XLY remained above its breakout level around 147, where falling trendline resistance co-incided with the horizontal resistance offered by the most recent peaks in H2-2022. This in itself is a sign of strength.

Combine this with a further improvement in relative strength and the weekly tail moving further into the improving quadrant, and things are looking good for XLY. The only things that makes XLY a bit more risky than XLK and XLC is the fact that it has the lowest Jdk RS-Ratio reading on the weekly RRG. This means there is still some risk for this tail to roll over while inside improving and not making it all the way to leading.

Just like for XLC and XLK, here also a rotation back up on the daily RRG will provide support for a further improvement in coming weeks.


Rotation out of Defense

On the opposite side of these rotations, at a positive RRG-Heading we are still seeing money flowing out of the defensive sectors. Their tails continue to travel at a negative RRG-Heading. XLU has already crossed into the lagging quadrant. XLV and XLP are still inside weakening but rapidly moving towards lagging.

Utilities

This sector has been showing a very choppy chart since it came down off its high near 78. In that move, trendline support was broken, as well as support coming from two previous lows. The rally then tried to break back above resistance, sending some confusing messages in the process. But finally that attempt failed, and a small double top formation was completed in that resistance zone, and the market is now working its way lower from that high.

Relative strength has started to move inline and recently broke below its former low, signalling that a downtrend is now in place. This puts the tail on the weekly RRG back into the lagging quadrant while at a negative RRG-Heading, suggesting that there is more relative weakness ahead in coming weeeks.

Consumer Staples

XLP dropped out of its rising channel in the first half of 2022. Since then, a trading range has developed between 66 and 77. The last rally to this upper boundary ended in another test of resistance and a failure to break. Out of this recent high a new series of lower highs and lower lows is developing, and XLP seems to be underway to the lower end of the range again.

This sideways price performance has also caused relative weakness for this sector, resulting in the tail on the weekly RRG to move rapidly towards the lagging quadrant, currently inside weakening, at a negative RRG-Heading.

Health Care

The third and final defensive sector is Health care. This sector already started trading in a range late 2021, starting 2022. The upper boundary is marked around 140 while the lower boundary is coming in around 122.50 with two to three dips towards 117.5.

This sideways movement caused really strong relative strength during 2022, when the S&P 500 moved significantly lower. However, XLV has not been able to keep up with the recent strength in the S&P, and relative strength is now rolling over. On the weekly RRG the XLV tail is following XLP towards the lagging quadrant.

All-in-All, rotation out of defensive sectors continues, and a more pronounced move into more offensive and sensitive sectors is starting to shape up. This suggests underlying strength for the broader market.

#StayAlert, –Julius


Julius de Kempenaer
Senior Technical Analyst, StockCharts.com
CreatorRelative Rotation Graphs
FounderRRG Research
Host ofSector Spotlight

Please find my handles for social media channels under the Bio below.

Feedback, comments or questions are welcome at [email protected]. I cannot promise to respond to each and every message, but I will certainly read them and, where reasonably possible, use the feedback and comments or answer questions.

To discuss RRG with me on S.C.A.N., tag me using the handle Julius_RRG.

RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered trademarks of RRG Research.

Julius de Kempenaer

About the author:
Julius de Kempenaer is the creator of Relative Rotation Graphs™. This unique method to visualize relative strength within a universe of securities was first launched on Bloomberg professional services terminals in January of 2011 and was released on StockCharts.com in July of 2014.

After graduating from the Dutch Royal Military Academy, Julius served in the Dutch Air Force in multiple officer ranks. He retired from the military as a captain in 1990 to enter the financial industry as a portfolio manager for Equity & Law (now part of AXA Investment Managers).
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