Trade The Journey

Trade The Journey

Volatility

Top of the morning! I hope everyone enjoyed their week as a new week begins. The Superbowl matchup is set; the Cincinnati Bengals will face the Los Angeles Rams at the Sofi stadium in Inglewood. The Bengals in the Superbowl, who would have ever thought they’d beat the Chiefs at home?

Indices:

Russell 2000: The Russell closed the week with a 1.45% gain.

S&P 500: The S&P 500 closed the week with a 1.79% gain.

Dow Jones: The Dow Jones closed the week with a 1.30% gain.

Nasdaq:  The Nasdaq closed the week with a 0.36% gain.

Indices measured using Monday’s close to Friday’s close.

Bonds:

Five-Year Yields: The five-year yield closed at 1.78%, above the resistance level of 1.76%. The next resistance level is at 1.90%. The week closed on heavy selling.

Ten-year Yields: The ten-year yield closed at 1.93%. The next resistance area is at 1.96% and 2.14%. The week closed on heavy selling.

Thirty-year yields: The thirty-year yield closed at 2.23% finishing the week strong and above the resistance area of 2.17%. The next resistance area is at 2.31%. The week closed on heavy selling.

Sector Chart Story:

Materials: Materials gapped below the 200 simple moving averages towards last week’s support level. The $83.87 price area should be an excellent test to see if materials can recover and venture back above 200 sma.

Technology: The technology sector closed the week unchanged; however, it remained above the 200 sma. The $163.91 served as a resistance level during the week. If the sector can break through $163.91, the $166 level will be the next test.

Industrials: The industrial sector remained below the 200 sma. It looks like the 50 sma may cross the 200 sma; if it does, it will only confirm more downwards action.

Energy: The energy sector made another high, as crude oil made a high of $90. In the coming weeks, it looks like crude oil could make its way to the $100 price level, expect the energy sector to follow the move upwards.

Healthcare: The healthcare sector broke above the 200 sma but fizzled out to close the week. The 50 sma at $134 and the 200 sma at $130 could each be viable levels for the sector to drift.

Utilities: The utility sector briefly drifted above the 50 sma but could not stay above it. The week closed with a significant Doji, indicating indecision between the bulls and bears on the direction. The utility sector should test the 50 sma in the coming week.

Financial: The financial sector closed firmly above the 50 sma, bolstered by higher yields in the bond market. The next resistance area is $40.85, which isn’t too far from the week’s close. In the coming weeks, the financial sector could make a new high.

Consumer Discretionary: The consumer discretionary sector closed the week below the 200 sma. It briefly ventured above the 200 sma but quickly retreated. Inflation will remain a concern for consumers, and it looks like it will be for some time. This sector does not look strong at all.

Consumer Staples: The consumer staples sector remains above the 50 sma. This sector had a slight pullback but is still showing strength. The consumer staples could make another test of its high in the coming weeks.


Indices Chart Review:

Russell 2000

It looks like the Russell will test its year low again this coming week unless it’s able to break through its 2053 level.

S&P 500:

The S&P closed above its 200 sma amid a strong move upwards and closed right at the 4481 level. It looks like the S&P could move upwards to test the 50 sma provided it doesn’t go below the 4481 area this coming week.

Dow Jones:

The Dow closed slightly below the 35157 level but above the 200 sma. The next level for the dow to test is the 50 sma which is right at the 35513 level.

Nasdaq:

The Nasdaq closed right below the 14177 level after briefly rising above it. The 14177 level is a crucial support level, and if it could rise above it, that would be a good sign.


Economic Review:

The employment situations report showed strong growth in both the private and non-private payrolls report, coming in above expectations. With this report, the market is expecting the FED to tighten in March with a possible fifty basis point hike.

The most robust growth in jobs was in the leisure/hospitality and service sectors. Initial unemployment claims also came in at a three-week low. The European Central bank left the door open for a rate hike this year, which was initially not a consideration.

Factory orders decreased for December. New orders for both durable and nondurable goods fell, although shipments increased. Productivity growth came in above expectations amid a slightly lower labor costs report indicating companies are navigating through the supply chain and coronavirus challenges.

The earnings report that surprised me the most was Facebook which suffered a loss drop in its stock price. Facebook dropped close to $100 and brought down the Nasdaq as well. Facebook’s user base has declined, and it spent a significant amount of money developing its metaverse. Its also involved in a dispute with Apple over privacy.

Amazon increased its earnings and revenues. Its investment in Rivian also paid off, helping to improve Amazon’s margins. The market’s reaction to the report showed in the charts with a large gap upwards to close above the 50 sma. Amazon also announced it will be raising its prime membership fee.

Volatility will be a constant in the markets for the foreseeable future. It looks like everyone is still awaiting the Fed’s decision on rate hikes. With tension in Ukraine rising as more troops are stationed in the area, concern about the oil supply, especially in Europe, is growing. There are talks of sanctions, and I wonder if the reports that China may back Russia are accurate?

China released its digital coin for a trial run during the Olympics, so I am interested in seeing how that goes.

It looks like a shift in strategy is upon us, from growth to value, as the market lulls over rising rates. Housing could significantly be affected by mortgage rates and the rising cost of materials and labor. Buying the dip in this volatile market could prove to be an outdated strategy.

A more prudent strategy could be investing in sectors that do well with higher rates like financials, healthcare commodities, and consumer staples. I’d be looking for companies that sell products or services that consumers will purchase regardless of the environment.


Past week’s cash flow:

Things are easing up as I cut off memberships that I didn’t need. Sure, it’s hard canceling Netflix and a few others, but I have to make these adjustments with the cost of living rising. My main goal is to pay off my credit cards and student debt. Until those goals are complete, I don’t think I resume discretionary spending freely.

Grade: C-

Reason: Some improvements were made.

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