Tom’s Weekly Newsletter April 5 2023

Originally published via our newsletter previously. Subscribe for early access!

A Bullish Day for the Stock Market Led by Big Tech Stocks

Today was a very strong day for the bulls.

All three of the major indices traded higher.  Considering the first two day of the trading week were pretty lackluster this is the first day this week where directional sentiment was clearly visible.

AMZN was up 3% on the day and META and NFLX were both up 2%.

On top of all this, the Regional Bank Sector ETF the KRE was up 1% which may not signal a true road to recovery for that sector just yet, but it didn’t weigh negatively on the market.  Let’s see if this leads to more bullishness.

Corners of the Market

SPY – SPDR S&P 500

The horizontal, solid green lines are drawn in to show a descending resistance line connecting lower highs and there is an ascending support line connecting the higher lows.

The two lines are converging forming a symmetrical triangle pattern on the chart.

SPY broke out above resistance today.  And it closed above that resistance.

So long as price maintains above resistance a future anticipated price move could be a move equal to the distance of the widest price points of the triangle; which is roughly 35-points.  (not a guarantee, but a possibility).

TLT – iShares 20+ Year Treasury Bond ETF

We have pointed out many times before that a Darknet S doesn’t necessarily mean a stock WILL trade lower, but in this latest instance it has pulled back in price.

S means that the price move higher from any of the Darknet signals prior, the B, S or A is potentially over.

We have a purple circle on the chart which is the gap in price for TLT.  Gaps tend to get filled and if it does TLT could pull back a bit more down to a hair over 102.

Right now there is a horizontal support a hair under 104 and if the support holds the pull back may be over for now.

Should it not, a fill of the gap wouldn’t be a surprise.

UUP – Invesco DB US Dollar Index Bullish Fund

USO – United States Oil Fund, LP

For a couple of days the old support price level of 62 was a new resistance, but USO has moved higher from that level since.

There is another emphasized, higher (and previous) support price level at 64.

The last two trading days haven’t proven to be a true resistance price yet.

Granted the ETF has stalled at this price it hasn’t rolled over and down from it just yet.

As the annotation in the chart images reads, today was a bearish reversal day.

USO may see some follow-through selling but the act it closed at or near this price the past couple of days still shows USO may hold up at this price level and maybe move higher from here.

GLD – SPDR Gold Shares

GLD is consolidating the past 8-trading days.

There is a Darknet S, but as discussed in a previous corner of the market the S means the up move from the prior B, (in this case) may be over (for now).

The green dotted, converging resistance and support lines represent a short in length symmetrical pattern.

Which is going to win out, the Darknet S and the stock stalls or retraces or the symmetrical triangle see a breakout to the upside?

Another technical observation is GLD’s price right now is resting at a previous resistance price and if it holds as support GLD has a chance at springing higher.

From the Desk of a CMT – Stocks to Watch CI & COST

The last post included commentary about Powell’s second day of testimony in front of Congress and that seems like a very long time ago.

The extraordinarily fast demise of multiple banks will tighten credit for commercial and private borrowers, with these effects taking time to work themselves through stock earnings seasons.

Although we’ve seen some sectors take an earnings season hit before the banking drama (semiconductors come to mind), it seems others will be queued up going forward.

I noticed MetLife’s chart looked a lot like the banking stocks and wonder to what extent investment performance was impacting stock price.

It’s such a different business model, but an older story about slowing growth didn’t quite align with the hit the stock experienced.

I mention Cigna (CI) in the title, and we’ll run through other insurance company charts to explore opportunities in these names.

COST continues to trade within the redrawn symmetrical triangle viewed a few months back and enough time has passed to be comfortable with the adjustment.

There are bearish signs for this stock, so another view of retail names is warranted.

A quick view of the Fibonacci chart appears in Figure 1 before moving on to a financial sector chart review.

Setting up a review list:

Web Site > Lists > Edit Lists

If a lot of time has passed since I updated a sector list, I like to download the holdings in a related ETF portfolio and copy the names into the list. 

Since that has been completed relatively recently (check out the article that posted on 9/28/22), I’ll skip that this week.

For the financials (XLF holdings):

JPM BAC WFC SPGI MS GS SCHW BLK C AXP MMC CB PGR CME PNC TFC USB AON ICE MCO MET COF AIG TRV AJG MSCI PRU AFL ALL MTB BK AMP DFS FRC TROW STT FITB HIG NDAQ RJF RF NTRS HBAN CFG PFG KEY SYF FDS CINF BRO WRB CBOE L CMA RE MKTX GL AIZ ZION LNC BEN IVZ (CI, added)

For consumer staples (XLP): 

PG PEP KO COST WMT MDLZ PM MO TGT CL EL GIS DG KMB ADM MNST SYY HSY STZ KR KHC KDP DLTR WBA CHD CLX MKC CAG K SJM TSN LW BG HRL CPB TAP

I like the stock chart feature in Tom’s Tools that allows us to scroll through a stock list. By navigating to the charts page (Stocks à Charts à Stock Charts) you can select Lists for your stock review rather than a single name. This will bring up the first symbol in the list and also provide a scrolling option just above the stock ticker.

To review the stocks in both lists the following settings were used:

• 400 trading days
• 20-day and 50-day simple moving averages (SMAs)
• Fibonacci levels
• RSI (14)
• MACD (6, 19)

MACD speed was increased to reflect the faster pace of declines. This is accomplished by decreasing the indicator setting.

Our staples list has some stronger/bullish charts in it, so we’ll continue to monitor COST specifically. It does seem to track by industry, with the retailers weaker.

Good news, chocolate appears to be bullish (HSY)!

The names listed below are generally hovering near Fibonacci levels that may serve as resistance and merit monitoring as we head into earnings season with a bearish bias.

Ideally a bounce to resistance will provide a lower risk entry if momentum remains bearish.

Financial: CB, TRV, MSCI, STT, HIG, FDS, CI

Figure 3 displays the chart for Cigna.

If momentum tools suggest resistance will hold at 265.60 (50.0% retracement level), it could provide a nice bearish entry with an expected move to support at 248.21 (61.8% retracement level).

Earnings are in 38 days, so if a set-up looks good next week, we’ll need to note the implied volatility (IV) environment and possibly take into consideration increased IV around earnings for shorter-termed options.

Patience is important in this and all market environments. Stocks don’t go straight up or straight down, so monitoring conditions is inevitable. 

A few things to consider right now:

• Markets fall faster than they rise, you may want to adjust the speed of some of your technical indicators. Be intentional with it.
• Be sure to review implied volatility levels and implement strategies that are appropriate for the conditions.
• Manage your risk (always, always).

Regards, Clare White, CMT

Thanks for the education, Clare!