Markets are treading water and waiting

MARKET OUTLOOK: September 21st

Indecision awaits as the Fed finishes the¬†first day of the FOMC meeting. The same two motivations continue in the market… worry about the Fed hiking interest rates and next week’s OPEC meeting on reducing production quotas on Crude. They both have investors asking similar questions looking forward, but neither is in the process of providing answers… maybe these¬†respective meetings will shed light and direction allowing investors to move forward.

The upside movers on the day were healthcare (XLV), consumer staples (XLP) and Natural Gas (UNG). Natural gas cleared the $8.65 resistance and gapped higher on the day. Midcap gave up some of the gains from the previous session leaving it once again in the bottoming pattern. REITs (IYR), another benefactor of the Fed worries, held the upside move but failed to advance the project. Tomorrow starts the answers to all the questions relative to the Fed and hopefully they will provide succinct answers.

Biotech (IBB) downside pressure found some relief and bounced back above the $287 level and closed up nicely on the week pivoting off the previous low at $277. Watching to see if the upside regains any momentum or if this was just another bounce off support? Started higher, but like other sectors failed to hold the gains Monday. Tuesday the upside resumed and watching patiently to clear the July/August highs. Positive trend off the test of $277.  

REITs (IYR) have been lagging in response to interest rate worries along with some¬†talk from analyst downgrading the sector on valuations. The break of¬†support at the $82 level has tested the support at $78.75 and watching for a decision on the move. Yield relief in other sectors did not find its way to the REITs… watching to see how they unfold looking forward.¬†Pivot higher off the base and now looking for follow through relative to the Fed action. Early start on the upside move offered entry opportunity with a an entry at $80.50 and the stop is $79.¬†

Treasury yields broke from the trading range on worries about the Fed hiking rates. They cleared resistance at the 1.62% level and accelerated to the 1.7% mark to close the week. The thirty-year bond moved to 2.45% and equally broke from the range on the move. The short trade with TBT hit the entry at $32 on the move but has not made much progress since. The next FOMC meeting is now a topic of conversation relative action by the Fed. The downtrend is still clearly in play for the micro trend. TBT at $32 entry ($32.37 entry) Watching how this unfolds with the speculation at hand. Stop at $32.20. No changes in the rates on Monday  or Tuesday and watching the FOMC meeting announcement today. 

Gold (GLD) made a move below the support at $125.25 level again on Friday with the speculation in the sector remaining. The move is impacting the psyche of the metal near term and watching the downside opportunity if this continues below $125. The gold miners (GDX) are testing support at $25.25. The jury is still deliberating on the directional decision, but a break of this level could get ugly. No significant change on the day and remains at the $125.25 mark. 

Crude Oil moved to $43.86 Tuesday and held steady with modest gains on the day. Supply data last week showed more building in supply moving the price lower. Watching this week to see how it unfolds relative to the follow-up and the support at $43.40 broken on the close Friday. Supply speculation and the OPEC meeting remain a driver for the sector near term. Energy stocks fell 3.2% in response for the week breaking support at the $67.75 mark. Watching how this unfolds in response going forward. Supply data out today and watching how the market reacts to the news. 

Volatility index hit 20.55 last week showing anxiety over the FOMC decision. The anxiety towards news and speculation shows the need to be patient and manage the risk. I remain neutral for now on the anxiety levels in the market, but trading is keeping it interesting. Hit 15.9 on Tuesday without much change and watching the upside at 16.2 or higher on the close if anxiety is going to rise. 

The consensus on Tuesday was caution from investors as they turned their collective focus back to the FOMC meeting which ends today. We have to remain patient for now as the direction is decided short term by news and events. FOMC meeting concludes today with the OPEC meeting next week. Proceed with caution. 

Daily Scan Results:

TUESDAY’s Scans (9/20): Flat day with some interesting looks at moves in commodities and other sectors.

  • Natural Gas (UNG/DGAZ) the gap higher offered an entry on the¬†move above $8.65. Gap was tough to play, but the upside continued nonetheless. Watching how this unfolds in today’s trading.
  • Brazil (EWZ/BRZU) Looking for a¬†downtrend break on reversal pivot. $33.50 entry level to watch on the move higher.
  • Biotech (XBI) follow through on the move above resistance at $65. Positive trend in place for the large caps.
  • Energy short (XLE/ERY) clear $14.75 on the day will confirm the break higher. Watching for positive entry point as the price of crude struggles. If the¬†inventory data is negative the rally will accelerate.
  • Coal (KOL) upside and uptrend continues with the test of the 50 DMA and bounce higher. $11.25 next level to clear.

Other moves of interest on the day… SOYB, CURE, TMF, DBA and EURL.

MONDAY’s Scans (9/19): Mixed day with the buyers and sellers wrestling over the market outlook as it relates to the Fed and interest rates. Not much change in the scans as a result.

  • Volatility Index short (SVXY) small rally in stocks early helped the VIX move lower as investors wait for the outcome of the FOMC meeting.
  • Emerging Markets (EEM/EDC) buyers step back in as the rate hike lessens in opportunity. $64 entry if the upside continues for trading opportunity.
  • Small Caps (IWM/TNA) solid gain and bottom reversal move… watching how the upside unfolds with the entry opportunity at the $78 mark for the sector.
  • Real Estate REITs (URE/IYR) bottom reversal and looking for follow through. $121.50 level to watch.
  • Networking (IGN) uptrend remains in place and looking for a break to new high.

Other opportunities on the day… JNUG, EURL, XME, XBI, and CGW.

FRIDAY’s Scans (9/16): Another day of uncertainty pushes the indexes lower on the day with some pressure remaining on the downside for sectors. Patience is the key with the markets overall looking forward…

  • Russia short (RUSS/RSX) the downside is in play with the selling in crude oil. $11.50 entry is of interest this week.
  • Gasoline (UGA) cleared the $25.50 resistance and move up 3.1% on Friday despite the decline in crude prices. Looking for test and go on the move. Watching crude as well.
  • Crude Oil short (SCO/USO) downside in crude growing in momentum and break above the $100 mark offer another entry point for the commodity.
  • Gold Miners Short (DUST/GDX) moving lower and break support will offer a short trade on the miners short term.
  • Treasury Bonds (TMF) the pivot off the low offers a view of the selling on the bond reversing… watching to see how this unfolds moving forward. short trade still in place.

Other moves on Friday to watch… TMF, FAZ, ERY, ZSL, EDZ and YANG.

FRIDAY’s Weekly Scans (9/16): The week was volatile but managed to end positive. The scans are of interest as the upside sectors attempt play out. The following moves this week are of interest. Patience as the week unfolds.

  • Natural Gas (UGAZ) $41.60 breakout is a positive if we can follow through on the upside break from the trading range.
  • Semiconductors (SOXX/SOXL) positive recovery from the selling and now in position to carry higher.
  • Technology (TECL/XLK) solid rebound in technology help lead the broader NASDAQ index higher on the week. Looking for the follow through on the upside and break higher.
  • Biotech (XBI) a break above the $65 mark will be a entry point for the sector as it break from the current trading range.
  • Pharmaceutical (XPH) making a move from the test and trading range.
  • China Internet (KWEB) test reversal and in position to continue the move higher.

THURSDAY’s Scans (9/15): Upside back adding some confusion following the selling. For now, we have to be patient and let the story unfold as well as the opportunities from the anxiety over the Fed and interest rates.

  • Brazil (EWZ/BRZU) bounced off the test of support and looking for possible follow through if the Fed stands down on interest rates.
  • Semiconductors (SOXX/SOXL) watching the upside move in the sector as it provides leadership for the broad markets. Watch for upside follow-through.
  • China (FXI/YINN) upside move on Fed hope of not rate hike. Like Brazil, the emerging markets benefit from the news.
  • Emerging Markets (EEM/EDC) upside move reflects the hope of no rate hike and the impact on the global growth of the emerging markets.
  • Gasoline (UGA) nice move to resistance at $25.50 and looking for the break higher as a positive trade.

Other sectors to watch from today’s move… CURE, QLD, ERX, SVXY, and GXC.

WEDNESDAY’s Scans (9/14): Mixed day for the markets as investors jockey for clarity in buying and selling of stocks and sectors. Plenty to ponder as this unfolds. Us a defined strategy with risk controls on any positions.

  • Aluminum (JJU) jumps nearly 10% on the day? Watch to see how the base metal unfolds. No volume in the ETF, but opportunity is worthy of attention for the stocks. DBB is worth watching.
  • Copper (JJC) jump of 2.6% on the day completes the bottom reversal with a gap higher. Watching how this unfolds. But, it is part of the DBB trade upside.
  • Crude Oil short (USO/SCO) downside trade playing out again as pressure from the supply data weighs on the commodity. Move above $98 of interest on the short trade.
  • Energy short (XLE/ERY) Looking for move above $14.70 for short side trade on the sector.
  • Biotech (XBI) attempting to make a break through resistance and head higher. Watch for entry at the $64 level.
  • Financials short (XLF/FAZ) upside break through resistance of interest. $33 entry level to watch.

Other moves of note… SOXL, TECL, SVXY, KWEB, WEAT and URE.

 

Sector Rotation:

  • XLB –¬†Materials broke lower from the trading range and has continued lower testing $46.50 currently. The short trade is in play and target of $45.85 currently.
  • XLU – Utilities breaks support ($50.85) tested $38.50 and bounced? Watching how this¬†unfolds to start the week, but the short side or downtrend is in play with the move.¬†break higher from bottoming pattern is an¬†opportunity with $50 entry.¬†
  • IYZ – Telecom double top break of support at $33.35 produced the short side trade. The¬†bottoming range is what we need to watch currently. A move back above the $32.50 mark offers upside move and trade.¬†Led the downside with move back to the bottom of the range.¬†
  • XLP – consumer staples move below the¬†$54.06 and the¬†next support of $52.70 in play. Short side is the trade for the current move.
  • XLI – Industrials attempting to move lower¬†with break below the$57.25¬†mark.¬†Short side trade?¬†
  • XLE – Energy¬†is a house of cards with volatility in the commodity. The upside gave way to short term selling and back to support at $69.75 and testing lower on Friday.¬†Short side trade in play with a¬†break of $67.75.¬†
  • XLV – Healthcare¬†has successfully established a downtrend line off the July highs. The move below $71.78¬†would be a negative looking forward and we are watching how this unfolds on the week.
  • XLK – Technology¬†sideways trend breaks the $46.75 support and triggers a stop on the position. The bounce back is holding positive from the week. Looking for break through the top side resistance near term.
  • XLF – Financials¬†break below the $23.75 support and offer some downside as Fed action looms. The short side trade is of risk to the FOMC meeting. Watching as we move towards the ¬†meeting on Wednesday.
  • XLY – Discretionary Consumer¬†breaks $80.32 and puts the¬†sector is a negative light. Watching how¬†the $78 level of support holds. Short side trade is in place.

Overall markets remain is a watch and see mode. The selling is of interest relative to the short side, but the momentum is not convincing on the downside. The test of the trends are in place and we will watch to see how it unfolds. How much more will arise from the worries over the Fed short term? Wednesday will offer insight with the meeting and the announcement on rates. The shift in momentum both higher and lower raises plenty on concerns. The change in the direction day-to-day on adds to the worries.The key is extreme patience with the uncertainty exerting control short term.

WEEKLY RESEARCH NOTES:

The story lines behind the moves are always of interest to me. They validate if the move is just news or a sustainable event. I am always looking for sustainable events and news that are trade worthy. The following stories have my attention now and looking forward. These story lines are what impact the longer term view of the markets. With more individuals focused on the short term activity, we often lose sight of what is transpiring longer term and more importantly what is driving the trend.

  1. The markets¬†shifted the headlines to negative short term¬†and we are watching how it all unfolds. Crude Oil, the Federal Reserve, European stimulus, and interest rates have raised more concerns and the shift in momentum has investors concerned… watching this week to see how it all unfolds and which side wins the tug-o-war.
  2. Commodities showing some weakness with the rumored actions by the Fed on interest rates. The VIX showed the increase worries and speculation on the topic. Gold and miners tumbled in response to the speculation rates based on rumors and the Fed. There is time before the FOMC meeting Wednesday and the OPEC meeting next week that could keep the sector in limbo and volatile relative to news and speculation. Proceed with caution.
  3. The fact we have excessive cash on the sidelines validates the lack of belief looking forward. The broad indexes have responded well to the data prior to Friday and the uptrend has remained in place and keeping the uptrend moving. But, there is still the view the markets will fall on lack of growth without more stimulus. Patience is the key short-term, but the longer-term views remain positive for now. Watch, manage your stops, and remain focused on the data, not the emotions.
  4. The story line of the UK decision (Brexit) has been pushed aside for now and investors are focused on the US economy and earnings. That doesn’t dismiss the concern it only puts it on hold. We saw a¬†flash reaction of selling to the vote. We then had buyers step in and erase the selling. We still have the issue of the vote and the longer term ramifications. But, in the short term, the traders are in control with buyers exerting their muscle. Note the FOMC comments about Brexit impacting the decision not to hike rates… i.e. they are worried looking forward.¬†¬†
  5. NASDAQ 100 Index. –¬†This has been an index of interest as the earnings, revenue, and outlook to start the year were weaker. The downside did accelerate to test the lows from August of 2015. Since the lows in February, the upside move has been in control with two tests of support. The bounce back this week from the selling puts QQQ back above the¬†$116.39 support and in the previous trading range. The¬†stop @ $113.50 (longer term exit would be the $108.50 level.)¬†Looking for a follow through on the upside if this trend is to lead.
  6. The S&P 500 index held support at the 2120 level keeping the upside trend in place for the longer term perspective. 2185 resistance on the upside. Long-term views are on the upside, but the moves of late have put a dent in the belief. The short term is selling, but we have to be patient as this all unfolds.  and confidence is building among traders. I am on downside watch currently as this unfolds. SPY $210.80 entry. Stop @ $212. (longer term exit would be in the $203.50 range to allow for volatility should it return.) Patience as this continues to unfold moving forward. 
  7. The Russell 2000 Small-Cap index was able to break the downtrend line off the May 2015 high. The current trend remains and we will remain patient as volatility is part of the current trend higher. The reversal or pivot off the test lower in June hit entry for IWM at $114.50. Stop @ $117 (consolidation range low). Cleared resistance at the $120 mark moved to new highs and now testing support at the $120 level. (longer term exit would be in the $108 area of support.) Watching patiently as this unfolds.

As stated already, patience coupled with sound risk management is vital to protecting your money. 

Research Table: 

All trades are posted to the ‘Trading Strategies Table’. You can track them on the table as they are updated daily relative to stop adjustments and other actions for each position. If you have questions you can send them to Info@JimsNotes.com.

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“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.