Markets start week in neutral

OUTLOOK:  October 10th

The markets managed to do nothing to start the week and all is well. The scan show little change. The move in gold was a reaction to the global worries and interest rates remain in an upward swing. With earnings season kicking off on Thursday maybe everyone is posturing prior to the news. The overbought conversations continue to lead the headlines, but we will remain neutral to speculation thoughts and focus on the leadership and trend. No real changes as we head into the new week of trading.

Five sectors closed Monday on the upside with technology (XLK) and energy (XLE) leading the upside move. It was a quiet day as the buyers remain in control of the trend as the broad markets showed more pause for the cause, but the trends remain in a positive upslope. The downside was led by healthcare (XLV) and financials (XLF). The weakness is more a matter of jockeying for position than selling. We will remain patient as this all unfolds. The S&P 500 index closed down 4.6 points at 2544 as the upside remains in control. The biggest movers in the index were MU (Gap higher in the uptrend), NVDA (breaking from a consolidation pattern), HRB (bottom reversal), WMT (top of consolidation pattern), and PM (bottom reversal pattern in play). The downside leadership came from DVA, VIAB, ESRX, GE, and JNPR. Mixed activity on the downside led by the news in the drug retail sector. Gold (GLD) tested the next level at $120.45 support and bounced showing signs of positive to start the week. The dollar (UUP) jumps higher on the Fed comments and follows through on the break from the bottoming range. Held the move above the $24.08 level. The emerging markets (EEM) tested support $44.28 and moved back to the previous highs.  The Volatility Index (VIX) closed at 10.3 as the worries show some signs, but the buyers remain in control for now. The key is to remain disciplined within your trading strategy and not let the anxiety of the situation change your overall strategy. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans on Monday show little in terms of leadership either upside or downside. The VIX index (VXX) offered a glimpse of what the index does when stocks sell… watching how the VIX unfolds. Semiconductors (SOXX) posted a solid gain and gold miners (GDX) added to the upside. Bonds continue to struggle with interest rates holding near the current highs. Small Caps (IWM) remain in upside move. Wind energy (FAN) attempting to break higher from the current trading range. Base metals (DBB) remain positive on the upside for the markets . Overall the trends are positive in the broad indexes and leadership is more narrow than some want to believe… we continue to watch how this all unfolds. No big changes on Monday.

The buyers have engaged in putting money to work despite the challenges ahead. The belief in tax cuts, healthcare reform, peace with North Korea and the tooth fairy are keeping money flowing into growth stocks. There are plenty of mixed signals and with the Fed now engaged in liquidating their balance sheet there is pressure on bonds and the interest-sensitive sectors. Throw in the rattling this week above the rate hikes in December and you have more pressure on these assets. Technology, finanicals, and consumer discretionary posted positive weeks to lead the broad sectors. The key is to watch for rotation and number of sectors making new highs. The week was positive and managed to hold the upside for another week. The volatility has evaporated on the optimism short term. We all want to believe we can see forward, but the reality is we can only see today. Thus, we must do what our strategy tells us to do today, and tomorrow will take care of itself. Hard lessons to learn as our analytical brain wants us to believe we have the solution and can predict the future. Keep your stops in place and your eyes focused on the horizon taking what the market gives.

KEY, INDICATORS/SECTORS TO WATCH:

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare. There is no clear resolution to that issue and that has now led to money rotating to where is it has better opportunities and clarity. Nice upside move and follow through, but the sector has stalled near the highs. Entry $318. Stop $330 (adjusted). Uptrend remains in place from the vertical move higher. Large caps (XBI) breaking higher to lead the sector.  

REITs (IYR) The sector tested the $76 level of support and bounced back to resistance and tested, and bounced, cleared the $81 resistance… only to test lower again. We continue to focus on managing our risk and collecting our dividend versus the near-term volatility and uncertainty. This is a growth and dividend holding with a 4.2% dividend from our entry point in April. Entry at $75.75. Stop $76.25 (adjusted). Found support from selling this week and watching how it unfolds.  

Treasury yields (TNX) moved back to 2.37% last week as money continues to move towards growth and away from the Fed hike rumors. Just when you thought it was safe to go back into the water… the Fed changes its collective minds. The short side of bonds is in play at TMV gaps above $18.70 entry level. Watching how this unfolds near term. Stalled at the 2.35% mark and the move higher on Friday stalled with North Korea concerns. Momentum is for higher yields and lower bond prices (TBT). Gap higher to start the day, but they receded back to the flat line as the day progressed. 

Gold (GLD) Gold remains in a long-term uptrend with a broad trading range in play the last five months. The volatility within the trend is speculation and news driving money. The selling was more of the speculation, just as the buying is on speculation around the dollar and the Fed. The price of gold moves lower as the dollar gains strength and the Fed speculation of hiking interest rates. Testing the $120.45 support all week. $121.75 short entry on a downside move. Crude Oil has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue. The last three weeks the commodity has managed to fight its way back above the $50 level of resistance. Entry $50.20, Stop $49. Nice bounce to start the trading week. 

Crude Oil (USO) has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue. The last three weeks the commodity has managed to fight its way back above the $50 level of resistance. Entry $50.20, Stop $49. The move below $50 to end the week is a challenge for the upside trade with a topping pattern in play. Watching how it opens on Monday and honoring the stop if the downside resumes.

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The double bottom pattern clears $63.22 for entry and stop $65 (adjusted). The move above $67 completes the ‘V’ bottom pattern and puts the sector in a position to move higher. The positive momentum for the stocks comes from crude moving above the $50 level. The testing of the upside move is from crude moving back below the $50 level. Watching how it unfolds.

Volatility Index (VIX) This week remains at the bottom of the VIX index on the chart as investors are content to have faith in the current outlook. Back to the lows closing at 9.6 on the week. Short side trade of the index remains in play. Moving lower as buyers return to the scene. A spike higher in the VIX would not surprise me based on the current headlines and rumblings.  More upside hitting 10.3 as some nerves creep into the markets overall. 

The positive follow-through move for the week helps build some upside confidence again as investors continue to bounce on both sides of the market. The move to new highs for the S&P 500 (SPY) and the NASDAQ (QQQ) following suit this week. Financials (XLF) showed some upside with a new high. Technology (XLK) posted a new higher led by the semiconductors (SOXX) with solid buying on the week. There are issues in the commodities and interest-sensitive sectors. The Fed in play relative to interest rates. The drug retailers were challenged on the rumor that Amazon was eyeing getting into the sector. Emerging markets (EEM) are getting nervous as China (FXI) continues to lead the group. There are more questions than answers for this market and we will continue taking it one day at a time. Stay focused and disciplined in all trades or positions. Speculation remains the primary driver in the current market environment. The key remains patience and as the tug-o-war for position continues.

Daily Scan Results:

MONDAY’s Scan 10/9: Some modest testing on the day and watching to see how the week unfolds as the general consensus is a market that is overbought. My only suggestion is to realize that the market can remain irrational longer than you can remain solvent attempting to outsmart the direction.

  • Healthcare (XLV/CURE) double top forming on the chart and watching how it unfolds in the coming days. Uptrend remains intact and the hope for some type of reform in Washington remains a dream. Taking it one day at a time with a stop raised to $81.
  • Gold (GLD/UGL) bounced off support on Friday and followed through Monday with a solid upside move. Cleared $3940 resistance and added some hope to the metal. Patience as this unfolds and the buyers look for the opportunity in the metal. GDX moved higher as well clearing the $23.50 level.
  • Volatility Index (VIX/VXX) the upside bounce is purely a matter of too much optimism towards stock. It only takes a bad report or sneeze on Wall Street to disrupt this type of environment.  Looking to see if things heat up in the volatility circle.
  • Dollar (UUP) the greenback has turned higher reversing the downside trend. The move to the upside has come on the speculation surrounding the Fed and interest rates moving higher. Plenty of work to be done on the upside and we will let this unfold.
  • Semiconductors (SOXX/SOXL) leading the upside for technology again on Monday with a solid follow through on the upside. Taking what the market offers here and letting it run.

Slow day for markets overall as there was quasi holiday with banks and the government closed. Watching how tomorrow unfolds for the broad indexes.

FRIDAY’s Scan 10/6: boring day for the markets and the scans. Most moves came on news or rumors. We end the week in good shape overall and will look to how it unfolds next week.

  • Crude Oil (USO/SCO) downside move puts the buyers on notice and the short trade as an opportunity. SCO cleared $35.85 resistance and could offer a trade on confirmation. Natural Gas (UNG/DGAZ) short side cleared $26.24 entry level and followed through on Friday… UGA gave up the gains from Thursday and tested support at the $27.76 level. ERY setting up a bottom reversal pattern.
  • Gold Miners (GDX/NUGT) bottom reversal in play? Gold held support and looked positive on Friday with the North Korea missile rumors. Watching.
  • China (FXI/YANG) the upside trading was positive all week hitting new highs… the selling on Friday was minimal, but showed on the scan… the upside remains in play.
  • Homebuilders (ITB/NAIL) vertical move continues with a positive outlook on hurricane rebuilding. Adjust your stop to $56.
  • Treasury Bonds (TLT/TMV) Short side of bond still in play as the renewed talk about interest rates and the Fed were in the headlines on the jobs report Friday. TMV cleared resistance at the $19.40 level and looking for follow through and adding to the position on Monday.

Positive moves to watch… IGN, TECL, HACK, SOYB, SKYY, IAK, IHI, FDN, QQQ.

THURSDAY’s Scan 10/5: Positive day for large-cap stocks as the NASDAQ hits new highs joining the other major indexes. Taking the move for what it is and adjusting our stops according to the risk. Positive day for the current leaders…

  • Financials (XLF/FAS) Nice push to new highs again as the banks lead the charge. GS, C, SCHW, STT, and BAC leading the upside charge showing good diversification across the sector.
  • Technology (XLK/TECL) new highs for the sector finally. The upside push came from the leaders with large caps showing some muscles once again. PYPL, RHT, ADP, GOOG, and MSFT leading the move on the day.
  • China (FXI/YINN) back to lead the emerging markets again. EEM back to previous highs and YINN gapping to new highs. BABA, BIDU, SOHU,  HTHT leading the move.
  • Crude Oil (USO/UCO) bounced to move back above $50 and looking for next leg higher. Hurricane in the Gulf could help the speculation side grow. UGA rose off support as well.
  • Base Metals (DBB) continues to head higher showing positive momentum on the break from the flag pattern. Copper and steel both showing positive momentum. XME is a benefactor as well.

New highs… questions about correction? Manage your positions by managing the risk of the current environment. Raise your stops on short-term positions and manage your expectations on longer-term positions.

WEDNESDAY’s Scans 10/4: Positive day overall with some rotation back towards the laggards. Utilities, telecom, REITs and consumer discretionary led the upside on the day as money rotates again. The leaders take a break with tech, financials and energy leading the downside. Still taking what the market has to offer and managing the risk.

  • Homebuilders (XHB/NAIL) vertical acceleration continues for the sector as money flow bets on the need for housing following the hurricane disaster. Tax cuts are helping as well with investors believing in the story for now. Stops raised to $56.
  • Aluminum (JJC) breaking from the consolidation range and moving higher. Opportunity to add new position or add to existing positions.
  • Crude Oil (USO/SCO) short side of the crude trade cleared $36 on the chart. The price of crude has been under pressure this week as the analyst believe OPEC is increasing production again. Closing at $49.98 puts our eye on the downside follow through.
  • Gold Miners (GDX/NUGT) cleared $33.21 resistance and looking for a solid follow through upside. $34 entry is the rally or bounce follows through. GLD holding above the $120.45 mark.
  • Coal (KOL) moving upside as the bounce follows through. $14.87 level to clear upside for interest.
  • Semiconductors (SOXX/SOXL) moved back to the current high and looking for thru upside follow through short term.

Sectors moves worthy of attention… IYR, IBB, HACK, IYK, XLY, LBJ, EWZ, SPLV, and MOO.

TUESDAY’s Scans 10/3: Positive follow through to Monday and the leadership remains in play short term. Telecom gapped higher to lead the broad index and REITs, healthcare, and utilities struggled on the downside. More progress for stock as commodities also made move higher following some selling of late. Patience and discipline remain the keys moving forward.

  • Brazil (EWZ/BRZU) posted a solid upside gain on Tuesday to complete the reversal on the current test of support. The upside resumed and watching how this unfolds near term. $47.20 entry point for upside trade.
  • China (FX(/YINN) hit the $29.50 entry level on Monday and posted a solid follow through Tuesday. the gap to a new highs is a positive for the country ETF.
  • Emerging Markets (EEM/EDC) solid upside gain on commodities shifting directions Tuesday. The $107.35 resistance level was cleared on the gap higher and watching how this unfolds near term.
  • Gold Miners (GDX/NUGT) posted positive upside move and looking for the follow through on the bounce. Plenty of issues still facing investors as it relates to the commodities. Watching $33.20 resistance and how this all unfolds.
  • Homebuilders (XHB/NAIL) continued upside in the sector despite the rise in interest rates. Vertical move as we manage our risk with our stops raised to $55.70.

Watching… IYZ, DGAZ, KWEB, SOCL, SIL, EURL, DBB, KOL, and SOXL.

 

Sector Rotation: 

  • XLB – Materials continue the wave type pattern of rolling up and rolling down in an uptrend. The upside resumed in August and the positive wave has ensued. Watching how it unfolds this week after making move from the previous topping pattern. Entry $54.75, Stop $56.50 (adjusted). Break to new high and follow through last week in positive uptrend. 
  • XLU – Utilities are under pressure from the speculation of higher interest rates from the Fed. Breaks support and looking for a shift in momentum, but it has not appeared with rotation back towards growth stocks. Watching how this unfolds to start the week. Short trade alive and well on the break of the next support. Entry $53.50 for short trade and watching how it unfolds. SDP at $25.50 entry. Holding support with modest bounce. 
  • IYZ – Telecom has become more of a trading sector than the buy and hold historically. The volatility has increased and thus swing trading works better. Some buying? Some selling? Retested the lows as the downside took root and bounced off support. Moved back below the $30.95 mark last week and spike higher for entry $31 on Tuesday. Stop at $30.70. 
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The test of the $54.50 support and the August low at $54 are cause for concern. There little in terms of buyers and the bias remains on the downside. Break and confirmation lower offers short side opportunity.
  • XLI – Industrials moved sideways for two months and then back to the previous highs breaking out as money flow increases. The long-term uptrend remains in play and the move to a new high showing strength with some topping last week. Entry $69, stop $$69. 
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. Some of the uncertainty has come out of the sector with crude moving back above the $50 mark. Entry $65.20 with a stop at $66.50. Watching as this unfolds short term with the move above $67 holding to end the week. Testing on Friday.
  • XLV – Healthcare has been a big roller coaster ride with a promise to reform healthcare and then the failure to follow through. The test of support at $81 held this week and bounced to end the week. Watching how this unfolds and any opportunities that result. XBI broke from the flag pattern upside and offered opportunity. IHF equally bounced off support and looking positive again as well. Gap higher off support with follow through. Biotech driving higher along with Pharm this week… watching.  Test of the move higher and double top formation setting up. 
  • XLK – Technology tested near the current highs as the uptrend remains in place. Entry $48.50. Stop $56 (adjusted). Semiconductors tested support along with other subsectors. 50 DMA held as support and moved back to the previous highs. SOXX leading in the bounce off support. Break to new high Monday and nice follow through on Thursday to lead the uptrend. 
  • XLF – Financials pushed lower on worries about interest rates, the Fed, and N. Korea. The retest of support at the $23.82 level was a concern for the short-term uptrend. The move back above the $24.65 mark offered the entry at $24.75, stop $25.50 (adjusted). Nice upside momentum returned on speculation of rates moving higher. The upside has remained in play along with the rumors and the buyers willing to put money to work. Let it climb and manage the risk of the trade. 
  • XLY – Consumer Discretionary moved lower to support at the $88.50 level with retail earnings pushing stocks lower. Entry $83.50. Stop $88.50 (adjusted). The sideways movement remains in the sector as clarity is a challenge for investors as it relates to the consumer, but the sector did manage to clear $90.70 resistance back to the previous highs. XRT showing signs of positive upside with a reverse head and shoulder pattern breaking above $41.45.  Hit entry point at $41.50. Stop $40. Positive upside clearing the $90.70 resistance level on XLY to add to the position. 
  • RWR – REITs reacting to the current uncertainty around the Fed potential increase of rates. The longer-term view clearly shows the trading range and the opportunity to collect the dividend while investors continue to make up their collective minds on direction. We added the position in December on the move off the lows and continue to babysit the dividend of 4%. Big triangle pattern still in play. Moved lower on the interest rate rumors with the Fed. Another bounce off support to keep the trading range alive.  The move above $93 again is hopeful for move back to the previous highs. 

The positive move is back… investors like what they hear and see enough to put money to work and let the upside play out accordingly. Patience in taking what the market offers and nothing more. The move to new highs has come on rumors relative to tax cuts and renewed belief the Fed would hike rates prior to the end of the year. This is all good for now, but the rumor needs to validate moving forward or the move higher will unravel. Taking each trade and opportunity for what it is currently a trading opportunity in a news-driven environment. Patience and a defined strategy are a must in this environment. Practicing patience as this plays out with our stops in place.

Modest test to start the week and watching how it unfolds. 

FINAL NOTES:

Investors are happy with the upside activity. Traders are driving the short term swing opportunities. Our goal is to take the opportunities that meet our strategies and allow us to manage our money with the least amount of risk. The rationale for the current trading environment is the rumored belief the Fed will hike interest rates soon. The other is a political belief there will be tax cuts on the horizon and a bill to reform healthcare. Sinc the market trades looking forward and evaluates based on past data investors are buying in advance of the reality and using the data to confirm the belief. Now comes the challenge, the rumors becoming truth. The outlook for the economy is cloudy at best, the past data is not helping as it remains mixed with some good some bad. The positive results last week from the buyers keep the upside in play. Commodities, interest-sensitive sectors and bonds react to the interest rate moves and financials, industrials and technology are leading the upside move. Patience is the key for now. This remains a market driven by news more than facts. There are plenty of short-term trading opportunities, but the long-term remains less confident but has produced equal opportunities for those willing to be patient. We will proceed with caution and patience taking what comes our way and fits our strategy for investing both short and long-term.

ONE DAY at a time is the key for now. Take a longer-term view for your overall portfolio and manage the risk of your short-term trades accordingly. See you next week.

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