Tom’s Weekly Newsletter May 3, 2023

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

Time to Assess Price Targets in the Event Equities Roll Over

The recent price action in US Equities is one in which they have peaked for now and started to slide back in pricing.

There are exceptions to this situation as securities like Microsoft and McDonald’s are trading at its 52-wk high and near it 52-week high respectively.

But others are sliding back from their recent highs.

This is mostly due to their recent earnings reports and forward-looking guidance.  One thing we’ll do in this weekly newsletter is place the Fibonacci Retracement tool on the Corners of the Markets where is makes sense to do so and see where, per the Fib’s, it looks like the sector ETF’s may slide to and hit a fib retracement level that could then become a support price for it.

Corners of the Market

SPY – SPDR S&P 500

TLT – iShares 20+ Year Treasury Bond ETF

TLT did pop in price since the Darknet B, Bullish signal last Wednesday.

The bearish reversal day today may be an indication the pop has happened, and this may be as far as TLT goes for now.

TLT hadn’t reached the overhead, downward sloping resistance and may still get there, but for now if it doesn’t and retraces from here, it may slide back to 104 support.

That may end up being where an extended ascending support line may match up as well.

Remember, the inverse trading relation between equities and bonds may see SPY (equities) trend higher if TLT slides back.

UUP – Invesco DB US Dollar Index Bullish Fund

USO – United States Oil Fund, LP

GLD – SPDR Gold Shares

From the Desk of a CMT – Closing Case Studies for Financials and a Sector RSI Scan

Two bearish case studies were reviewed last article (CB and STT); however, by the time the article posted CB was above its nearby Fibonacci level ($195.54) and STT had an exit for loss signal within 2 days.

I personally still like a low-risk entry – one that is close to the level where your exit for a loss is reached – but these can be shut down pretty quickly.

Figures 1 & 2 display the case study setup on April 4th along with back test data as of the close on April 25th for CB.

Figures 3 & 4, provide the STT case study setup on April 6th and back test data two closes later, when STT was above $76.62.

Given a close for CB at 195.46, the 195.54 exit was simply too tight.

It’s already been a rough earnings season for banks and it’s reasonable to expect this will be the case for other sectors as well. I have to express the real risk credit access provides to all types of business across the country, both public and private. Despite this environment, the same things come to mind to navigate it:

• Stay grounded in “what is” for stocks and sectors you watch by using objective tools to analyze them
• Recognize the lagging and leading nature of the tools you use
• Use rational money management rules
• Manage your risk by knowing your exit rules before entering a position, this includes a time consideration for options

Sector RS Scan

The Sector SPDR list used regularly for scans includes the 11 sector SPDRs and SPY:

XLB XLE XLF XLI XLK XLP XLU XLV XLY SPY XLRE XLC

Navigating to Stocks > Stock Rankers > RSI we can see how the sectors rank since the banking crisis in March.

I made some updates to the wizard which can be done by selecting “Show” under Wizard Criteria. Note the updates in Figure 5 in the Wizard Criteria box.

The 40 – 60 level in RSI is deemed a trend that’s neutral or in transition. Until recently, stocks and ETFs outside of that range were above 60 and even 80, but now we’re seeing the indicator move back up above 40 after falling below 20 pretty quickly.

Looking at the “pic” option, we see a decline for industrials today (XLI):

Following the same rhythm as we did with XLF, component stocks for XLI will be loaded using the XLI component stock folder so individual names can be reviewed. My current XLI stock list includes:

RTX UPS HON UNP CAT BA LMT GE DE ADP NOC ITW CSX ETN WM MMM FDX GD EMR NSC PH TT JCI TDG CTAS PCAR LHX PAYX CARR OTIS CPRT CMI 

ODFL ROK AME FAST VRSK GWW CSGP RSG URI EFX PWR FTV IR DAL DOV LUV XYL WAB EXPD BR IEX HWM JBHT J UAL TXT SNA LDOS SWK NDSN CHRW MAS ROL ALLE PNR AOS AAL HII RHI GNRC ALK

When you load a saved list in the chart controls, you’re able to scroll through the charts for the instruments in that list as seen in Figure 8. This makes for a quick assessment of the stocks in a particular sector. If you prefer to complete a scan, consider the same scan that was completed on the SPDR ETF list on XLI or even XLB, the second ETF listed in our initial scan. The premise is what was stronger may be weakening as earnings and economic data rolls out.

If a setup aligns with your style, be sure to note the earnings date and check implied volatility conditions.

We’ll run the scan again next week, which is once again, Fed week.

Regards,
Clare White, CMT

Thanks, Clare – Look forward to next week!