Nicoletti’s Notes – 03.22.2024

Market Review Week of March 22 24 – NOTES

Nicoletti’s Notes

Week of March 22nd, 2024


“Bringing only the facts you need to know to make your trading
simple and easy.”


Overall – Top Level Market Analysis

Market News, Indicators, Economic, & Sector Analysis




For a second day in a row, all three major
indexes hit new records this week.

One reason for this market optimism might stem
from the policymaking Federal Open Market Committee’s expectation for three
rate cuts this year even after a couple of hot inflation reports, according to
Art Hogan, chief market strategist at B. Riley Wealth.

In the housing market: Privatelyowned housing units authorized by
building permits in February were at a seasonally adjusted annual rate of
1,518,000. This is 1.9 percent above the revised January rate of 1,489,000 and
is 2.4 percent above the February 2023 rate of 1,482,000. Singlefamily authorizations in February
were at a rate of 1,031,000; this is 1.0 percent above the revised January
figure of 1,021,000. **Source:**


The Bank of Japan raised its short-term rates
from 0.10% to 0-0.10%, which is the first-time raising rates since 2007, but
the Bank of England left rates unchanged.


As widely expected, the Federal Reserve held its
key interest rate at a 23-year high, keeping upward pressure on borrowing costs
for many forms of credit.


The Fed has been keeping rates high to force
down high inflation, which has fallen significantly over the last two years,
but not yet to the Fed’s goal of a 2% annual rate.


The pending home sales index, also produced by
the association, fell 4.9% in January and dropped 8.8% from a year earlier.
That measure is taken at contract signing and is meant to foreshadow movements
in existing homes closings a month or two out.


Additional new home inventory would provide
opportunities for existing homeowners to trade up and put their homes on the
resale market. The median sales price was 5.1% above its year-earlier level in
January as the supply of existing homes for sale remained inadequate to meet
even the slowing pace of demand.


Home building data for February released on
Tuesday showed solid rebounds in building permits, housing starts and home
completions that should lift the supply of new homes for sale.


The National Association of Home Builders
reported on Monday that builder confidence improved due to lower mortgage rates
and strong demand, but supply-side issues continued to raise the cost of home


Nikkei 225 crosses 41,000 as Japan inflation
accelerates in February.


Oil prices settled slightly lower on Thursday,
pressured by weaker U.S. gasoline demand data and reports of a United Nations
draft resolution calling for a ceasefire in Gaza.


U.S. business activity held steady in March, but
prices increased across the board, suggesting that inflation could remain
elevated after picking up at the start of the year.


A surprise rate cut by Switzerland’s central
bank on Thursday helped push markets to new highs, as traders realized that
major central banks around the world would not necessarily wait for U.S.
Federal Reserve rate cuts before delivering their own.


Europe’s STOXX 600 fell 0.03%, after touching a
new all-time high, while London’s FTSE 100 rose 0.6% UK100, helped by
expectations that the Bank Of England would cut rates sooner than previously
thought. BoE Governor Andrew Bailey told the Financial Times that the expectation
of more interest rate cuts this year on a whole was not


Investment flows into gold in the week to
Wednesday reached their highest in almost a year, Bank of America Global
Research said.


Stock, Forex, Crypto Analysis

Euro hits highest level against Yen since 2008
at 164.33


Yen drops to lowest vs Euro since 2008.


GBPUSD dropped 0.5%, hitting a one-month low at
1.258, after a 1% drop on Thursday when the Bank of England left rates
unchanged. But the BoE revealed a more dovish tilt as two hawkish committee
members dropped their prior call for a hike.


Reddit shares jumped 48% in their IPO. The stock
opened at $47, hit a high of $57.80, and closed at $50.44.

This is the first social media company to go
public since Pinterest.

Google partnered with Reddit to access more
Reddit data to train AI models.


In extended trading, FedEx shares rose 13%. The
shipping company posted adjusted earnings that beat analysts’ estimates in its
latest quarter, but it missed revenue. Lululemon slid 11% after the athleisure
retailer posted weak guidance on the back of slowing growth in North America.


Ukrainian attacks on Russian refineries also
prompted investors to trade crude at higher prices, factoring in that the
strikes could hit global petroleum supplies.

Analysts say prolonged disruptions could force
Russian producers to reduce supply if they are unable to export crude oil and
face storage constraints.


The dollar had a second week of gains. The
dollar rose against all G-10 currencies except the yen, as the relatively
strong U.S. economy and high interest rates kept the carry trade alive. But the
Swiss rate cut, the first by a major central bank in Europe, marked a
definitive shift.


·      Insider Sales




Sector Analysis


Utility stocks are beating tech stocks so far in
March (up 3.2% vs 2.8%) in the S&P 500 and if history is any guide, April
will be a good month too.


The first full of month of Spring has been the
best month of the year for utility stocks 80% of the time over the past 20
years, BTIG chief market technician Jonathan Krinsky wrote Thursday, noting
that utilities have recently performed well even as interest rates have moved
higher, and “look to emerge out of a multi-month base.”


Consequently, he argues the Utilities Select
Sector SPDR Fund “looks timely here as a bearish-to-bullish reversal
candidate.” The average monthly gain for XLU is 2.15% every April over the past
two decades, Krinsky wrote.




What’s for in store for next week?


Source: Schwab

for Next Week:

We are still a
couple weeks away from the start of Q1 earnings season and there aren’t a ton
of potential catalysts for traders to focus on next week. Next Friday’s PCE
Prices report probably has the most potential to move markets (if it contains
any “surprises” vs. expectations), but markets have been able to
overlook “sticky inflation” data so far this year, so it’s unclear
what will really rattle the bulls at this point of the rally. To me, the
biggest risk to markets won’t really be on the radar until later this year, and
that’s the potential issues related to corporate debt refinancing. If inflation
remains sticky and rates remain relatively elevated, this could surface credit
concerns in some areas of the economy. Until then however, the economic data
continues to come in relatively strong and this bodes well for corporate
earnings. Back to next week’s outlook, the uptrend is still intact, and I see
little to get in the way of “more of the same” next week. Therefore,
my outlook for next week is “Slightly Bullish”. What could challenge
this outlook? Perhaps surprisingly hot PCE data would be enough to trigger some
kind of a profit-taking pullback.


Potential Market-moving Catalysts:


Monday (Mar.
25): New Home Sales

Tuesday (Mar.
26): Consumer Confidence, Durable Goods Orders, FHFA Housing Price Index,
S&P Case-Shiller Home Price Index

Wednesday (Mar.
27): EIA Crude Oil Inventories, MBA Mortgage Applications Index

Thursday (Mar.
28): Continuing Claims, EIA Natural Gas Inventories, GDP – Third Estimate,
Initial Jobless Claims, Pending Home Sales, University of Michigan Consumer
Sentiment – Final

Friday (Mar.
29): PCE Prices, PCE Prices – Core, Advanced International Trade in Goods,
Advanced Retail Inventories, Advanced Wholesale Inventories, Personal Income,
Personal Spending


Tuesday (Mar.
26): McCormick & Company (MKC), TD Synnex Corp. (SNX), GameStop (GME),
Concentric Corp. (CNXC), nCino (NCNO), Progress Software Corp. (PRGS)

Wednesday (Mar.
27): Cintas Corp. (CTAS), Paychex
Inc. (PAYX), Carnival Corp.
(CCL), Jefferies Financial Group (JEF),
Braze (BRZE)

Thursday (Mar.
28): Walgreens Boots Alliance (WBA), BRP Inc. (DOOO), Oxford Industries (OXM),
Semtech Corp. (SMTC)

Data, Rates & the Fed:

This week’s
Federal Open Market Committee (FOMC) meeting was the highlight on the economic
front. Here are the high-level takeaways:

       Fed funds rate unchanged at 5.25-5.50%

2024 GDP
outlook raised to 2.1% from 1.4%, citing higher labor force participation and

forecast bumped up 0.2% to 2.6%

Dot plots did
see some shifts but the year-end (2024) projection for the fed funds rate was
left unchanged at 4.625%, which suggests three 25-basis-point rate cuts in

If you consider
that the last FOMC meeting was back on January 30-31st and we received two hot
inflation prints from the CPI and PPI in between then and this week’s meeting,
there was a bit of angst from markets that the Fed would lean hawkish, but that
wasn’t the case. The fact that the Fed maintained its outlook for three rate
cuts in 2024 was interpreted positively by markets. Although the Fed can shift
their forecast as additional data points are received, as it has done so
several times over the past several years, investors responded by sending
stocks to fresh all-time highs this week.

week’s data on the housing market reinforced the notion of a strong economy:

Housing Starts:
1521K vs. 1420K expected

Permits: 1518K vs. 1450K expected (highest level since last August)

Existing Home
Sales: 4.38M vs. 3.94M expected

Another bright
spot in this week’s data was the Leading Economic Index (LEI), which posted a
surprise gain of +0.1% vs. expectations for a 0.1% decline. This represents the
first positive LEI read since February of 2022.

Yields appeared
to be on the verge of breaking out to the upside prior to this week’s FOMC
meeting but found relief following the relatively dovish message from the Fed.
On Monday, yields on the 10-Year Treasury (TNX) closed at a year-to-date high
of 4.34%, but have pulled back to 4.218% at the time of this writing.

Market hopes
around the potential for Fed rate cuts made a push higher this week. On a
week-over-week basis, the Bloomberg probability of a June rate cut moved up to
83% from 61% last Friday. However, as I mentioned above, Fed forecasts are
subject to change based on incoming data and there is no guarantee that we’ll
actually get three cuts this year.


S&P 500
Index (SPX – 9 to 5,232)

You may have
heard the trader axiom “the trend is your friend” and the chart on
the S&P 500 over the past five to six months helps illustrate why. The
index has steadily continued to notch fresh all-time highs every one to two
weeks, which is classic bull market behavior. But as an investor or trader you
always need to consider the alternate, or bearish in this case, perspective.
The biggest knock against the SPX’s ascent is that it has not experienced a 5%
or more pullback since late October, and historically the index encounters a
consolidation move of this magnitude three to four times a year on average. So,
the bearish perspective is that the SPX is overdue for a 5% pullback and mean
reversion is a reality. The problem with this thesis is that although it may
hold some validity, it doesn’t reveal anything about the timing of such a
pullback. One technical signal that may indicate such a pullback is underway is
a breach of a key support level. In the case of the SPX, it appears that
support has been coming in the form of the 20-day Simple Moving Average.
Therefore, if we get a close below this moving average perhaps this is a
trading signal to become a little more cautious or conservative in your long
exposure. If you want a “faster” signal, you can adjust to a lower
day count, say 10 days, or you can utilize the exponential moving average
(EMA), which gives more weight to recent price action. Near-term technical
translation: bullish.

20-day SMA
appears to be the first “line in the sand” in terms of support for
the SPX uptrend.

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performance is no guarantee of future results.

Semiconductor Index (SOX + 3 to 4,901)

Back on March
8th marked a key reversal day for SOX posterchild Nvidia (the stock gapped up
and rallied to a fresh all-time high of $974 only to reverse course and drop
over $100, creating a significant bearish engulfing candle on heavy volume) as
this started a textbook 10% correction for the semiconductor sector as a whole.
However, the correction appears to be bullish for the following reasons: a) the
correction was sharp and swift, which is characteristic of a bull market, and
b) the correction found interested buyers through price discovery and it
appears that the uptrend is attempting to resume. If you are bullish, you would
like to see the SOX notch a fresh “higher high” in the coming weeks
to confirm that the uptrend is still intact. We may have to wait for Q1
earnings season to get underway in mid-late April, but the price action looks
encouraging for now. Near-term technical translation: bullish.

underwent a textbook 10% correction from March 8th – March 19th; uptrend
remains intact

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performance is no guarantee of future results.


The Bloomberg
chart below shows the current percentage of members within the S&P 500
(SPX), Nasdaq Composite (CCMP) and 
Russell 2000 (RTY) that are trading above their respective 200-day
Simple Moving Averages. Most of the major U.S. indices notched fresh record
highs this week, so perhaps unsurprisingly, market breadth improved across the
board. In fact, market breadth on the S&P 500 index is just below a
three-year high today (81.96% vs. 82.16% on March 11th). Compared to last
Friday, the SPX (white line) breadth moved up to 81.96% from 78.36%, the COMPX
(blue line) expanded to 49.40% from 45.97%, and the RUT (red line) jumped to
60.30% from 52.44%.

market breadth near 3-year highs

Bloomberg L.P.

Market breadth
attempts to capture individual stock participation within an overall index,
which can help convey underlying strength or weakness of a move or trend.
Typically, broader participation suggests healthy investor sentiment and
supportive technicals. There are many data points to help convey market
breadth, such as advancing vs. declining issues, percentage of stocks within an
index that are above or below a longer-term moving average, or new highs vs.
new lows.

This Week’s
Notable 52-week Highs (73 today): Arista Networks Inc. (ANET – $1.07 to
$303.53), Citigroup Inc (C – $0.62 to $60.72), General Dynamics Inc. (GD +
$1.45 to $282.79), Hilton Inc. (HLT + $0.32 to $210.87), JPMorgan Chase &
Co. (JPM – $0.31 to $198.75), Tractor Simon Property Group (SPG – $1.35 to
$154.46), Valero Energy Corp. (VLO – $1.79 to $169.18)


This Week’s
Notable 52-week Lows (106 today): Asana Inc. (ASAN – $0.33 to $15.25), Atricure
Inc. (ATRC – $1.16 to $28.57), BioNTech SE (BNTX – $0.42 to $91.57), Boston
Beer Co. (SAM + $3.34 to $297.26), iRobot Corp. (IRBT – $0.26 to $8.14),
Jinkosolar Holding Company (JKS – $0.73 to $22.93), Spirit Airlines Inc. (SAVE
– $0.09 to $4.64), Utah Medical Products Inc. (UTMD + $0.22 to $68.75)



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