Tom’s Weekly Newsletter July 13th, 2022

Tom Gentile

Posted in Newsletter

By: Tom Gentile on July 13th, 2022 • 6 mins read

Originally published on July 6th, 2022. Subscribe for early access!

Fed Minutes Released Today – Market Reaction

An immediate reaction to the release of the last Fed’s meeting minutes was one of a cat just being release from a cardboard box as it jumped around in a frenetic type manner before establishing a directional move.

See the intra-day chart image from Yahoo Finance.

Intra-Day Chart from Yahoo Finance - July 6th, 2022
Intra-Day Chart from Yahoo Finance – July 6th, 2022

Eventually, say about a half hour later the back and forth subsided and the markets, (represented by the SPY) rallied higher. Just when it looked like it would close near its highs a half hour before the close it sold off a bit.

This makes for the fourth day in a row SPY had a bullish reversal day and closed higher on the day.  It is the fourth day in a row in which the SPY has made a closing high (over the prior days high).

Things are bouncing, but for how long is what needs to be paid attention to as 390 on SPY still looks like a possible resistance point.

Tom Gentile
C1P: Chief 1-Percenter

Four Corners of the Market

SPY - SPDR S&P 500 
SPY – SPDR S&P 500 

One thing that gives an indication of an uptrend starting is when the security you are charting shows a higher low sequence.

This isn’t a sequence just yet as one time does not make a trend.

Even with this only being one higher pivot low, it may lead to higher prices off this bounce.

The key thing to keep an eye on from a technical stand point is the overhead price resistance price are that I see as 390, (the horizontal, green dotted line in the chart image above).

You may notice the Darknet ‘S’ signal on the chart which from a Darknet tool perspective means the up leg it is showing may stall or stop for now.

It isn’t a guarantee as the Darknet S signal can appear and continue higher before it stops or stalls.

TLT - iShares 20+ Year Treasury Bond ETF
TLT – iShares 20+ Year Treasury Bond ETF

We showed a bit lower resistance line last week so from that perspective it hit resistance already.

If you accept this slightly higher price resistance then you would note it did not need to hit that before rolling over.

The lows on TLT are getting higher like the SPY, the difference between the two is TLT had a bearish reversal day today where the SPY is closing at a 4-day new high.

There are more rate hikes to come which could put more pressure on TLT, and that may happen later in time, but there is no denying at least for a day it looks like the up leg could be over for TLT.

The inverse relation is being seen between bonds and equities with this rollover in TLT and the bit of bullishness going on in SPY, but one thing this market is teaching us is not to get complacent in your view of the direction of the markets.

UUP - Invesco DB US Dollar Index Bullish Fund
UUP – Invesco DB US Dollar Index Bullish Fund

The US Dollar is strong and may continue to stay strong.

UUP closed at a 52-week high today.

It is up about 15.6% from their 52-week low of $24.67 per share.

The UUP benefits greatly from a rising dollar due to its exposure against a basket of six world currencies.

We have a super-hawkish Fed.

With inflation at forty-year highs the Fed is aggressively raising interest rates.

And with more rates hikes expected in the near-term at least, this approach or course of action expected from the Fed leads to an expectation of the value of the dollar continuing to get a boost as well.

USO - United States Oil Fund, LP
USO – United States Oil Fund, LP

I ran a Fibonacci Retracement lookback of 200 trading days this morning on a session with a group of students / subscribers so as to try and find a price area that may be a support price on USO based on Fibonacci.

USO traded below the 38.2% pull back so one could anticipate a further move down to the 50% retracement.

Looking at price it seems like USO is trading at a 200-trading day price support intra-day around 71.50 and bounced to close at 73.67.

This is a possible price support, but I would want to see a bit more of a bounce before I get bullish.

GLD - SPDR Gold Shares
GLD – SPDR Gold Shares

I have told everyone that attends my live online sessions lately that I have trimmed my position in GLD.

I used to be a full-on gold bug, but I felt lightening my load was a good approach due to the chart not looking as strong as it has over the past 52-weeks.

We can see it broker support at 165 and like in USP I set the lookback to 200-trading days.

What I see now is a price area at 162 that could end up being a support for GLD.

I am not opening up new positions necessarily, but it does have my attention at this potential support price area.

From the Desk of a CMT: Keeping Things Short and Sweet this Week

MDLZ Case Study Update

The holiday rally on Friday resulted in a single close above the 200-day simple moving average (SMA); however, we’ve required two daily closes above it. When these requirements are added, it’s two consecutive closes.

I found MDLZ when tracking two relative strong sectors: healthcare and consumer staples. Although MDLZ is a consumer staple and in a stronger sector, it seemed weak heading into a convergence of moving averages. Just because a sector is relatively strong doesn’t mean it is bullish or that its components are bullish. If conditions allow, I’ll post that relative strength (RS) calculation next series. 

Figure 1 displays this chart with the 50-day & 200-day SMA’s and Fibonacci levels.

Figure 1: MDLZ Daily Chart with Fibonacci Levels and 50-day & 200-day SMAs (Tuesday, 7/5/2022)
Figure 1: MDLZ Daily Chart with Fibonacci Levels and 50-day & 200-day SMAs (Tuesday, 7/5/2022)

We’re using the Fibonacci levels to set a price target at $55.15 (the 50% retracement level) since the intermediate term bearish trend (as objectively identified by a downward trending 50-day SMA) suggests a low below the 38.2% to remain intact.

We’ll see if an update to the target is warranted.

As a reminder, here are the case study details (note earnings are estimated in 21 days):

Buy to open: 10 MDLZ Sep 55 puts @ $0.85 for a net debit of $850

  • Max Risk: $500 (put premium at $0.35)
  • Stock risk: 2 closes above the 200-day SMA (exit at the next open)
  • Timed Exit: August 19, 4 weeks prior to expiration
  • Profit target 1: 38.2% Fib level of 58.26, partial profits (40%)
  • Profit target 2: 50.0% Fib level of 55.15, remaining profits (60%)

Figures 2 & 3 display the case study position information and price and risk graphs, respectively.

Figure 2: MDLZ Sep 55 Puts on Tuesday, 7/5/2022
Figure 2: MDLZ Sep 55 Puts on Tuesday, 7/5/2022
Figure 3: MDLZ Price Chart & Risk Graph (Tuesday, 7/5/2022)
Figure 3: MDLZ Price Chart & Risk Graph (Tuesday, 7/5/2022)

I’m going to leave this article brief and focused on the current case study.

With layoffs announced at a variety of companies, this week’s job report could add to market volatility.

Regards,
Clare White, CMT


Thanks, Clare!

Tom Gentile
C1P: Chief 1-Percenter


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