Distribution in NASDAQ feeds sentiment

OUTLOOK: Week of September 7th

More selling in the NASDAQ as leadership tests support. The index has now erased the gains from the break higher eight days ago. Semiconductors dumped 2.6% giving up the move above the $187 level and is testing lower again. Some headlines are stating this is the beginning of a correction… not sure how we can assume that with just two days of selling, but we will obviously watch how it unfolds and as always keep our stops in place. The SOXX are looking at the next support level of the 200 DMA and the $175 range. The key, for now, is to look at how many people are predicting a sell-off and the overall sentiment of the market. If they want to sell they will find a reason… the key is to not get caught up in the speculation. Manage your risk according to your strategy and let it play out. Prognostication will only cause stress. Today is the jobs report and it will either add to the anxieties that are building or give reason to right the ship. Either way stops in play, game plan ready, and let the opening bell ring.

The S&P 500 index closed down 10.5 points at 2878 as the index moves to the 20 DMA and is testing the new highs. The volume was higher on the selling the last two days. Consumer staples, REITs, and utilities closed on the upside as six of the eleven sectors closed in positive territory. Technology, energy, and financials led the downside on the day. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key. Important to note the building of negative sentiment in the VIX index.

The NASDAQ index closed down 72.4 points to close at 7922. The index closed at the 20 DMA and is testing the 7920 support. The consolidation pattern broke from the ascending triangle on above-average volume but has given back the gains and testing a key level of support near term. Large caps were leading the index, but the move the last two days has shifted sentiment behind the move. Practice patience along with a strategic approach to managing money. Stops in place and watching how this unfolds. QQQ stop hit at $182.40 for short-term trades.

Small Cap index broke from the consolidation pattern and continues the uptrend with a modest test on Wednesday. The leadership of this sector has been key to the bounce from the April lows. This a positive for the broad markets as it shows some money flow back towards growth stocks. The index remains in a positive uptrend.

Transports (IYT) moved back above the $200.53 mark, tested the move, and is building a consolidation pattern at the highs. The sector regained the uptrend and watching how this unfolds with a positive move on Wednesday. The positive moves in the shipping, trucking and logistics stocks are keeping the upside in play. Entry $192.50. Stop $202.50 (adjusted).

Gold (GLD) continues to build a base following the bounce at support near the $110 level. The dollar and geopolitics have been the catalyst for the downside. They have equally been the catalyst on the upside as the dollar moved lower and gold posted a solid gain in the reversal. Entry $114. Stop $111. The tariffs, dollar, and geopolitics are playing havoc… letting it settle and find some direction. The gold miners (GDX) bounced off the lows as well, but have since retreated and Tuesday dove lower followed by two days of attempting to find support. Metals and Mining (XME) building a base or bottom. Base metals (DBB) gapped lower on Tuesday to renew the downside move. Watching all as they deal with the speculative influences. These sectors are news driven and high-risk trades.

The dollar (UUP) closed above the key support $25.17 mark after some weakness Wednesday. The bounce comes following the move lower in the last two weeks. The bounce comes on the heels of talks about interest rates again following the ISM data. The overall the move higher is positive from my perspective, but there are many who think a weak dollar helps US companies. Simply not true… history validates a strong dollar favors the US despite the short-term setbacks.

Crude oil (USO) Crude bounced off the support at $64.22 as supply data showed more demand over the last few weeks, but supplies have been steady. The speculation about demand rising or production decreasing has been driving the commodity higher. The commodity closed at $67.77 down the last two day with some selling in the commodity. The follow through on the bottom reversal offered an opportunity for entry at $66.50. Stop $67.25 (adjusted).

Emerging Markets (EEM) the renewed talks with China, the dollar easing, and some optimism, had the sector moving off the lows. Tariffs talks are kryptonite to this sector as seen last week. The strong dollar on Tuesday added to the downside move as interest rates rose on stronger economic data. The selling continued on Wednesday. All the juggling in key sectors is keeping me out for now. Too many worries and uncertainty as this unfolds near term.

The Volatility Index (VIX) closed at 14.6 on Thursday as the anxiety levels move higher. Selling in large-cap and tech pushed anxiety higher again on Thursday. The background noise and worries can come back into play… now we watch to see what happens today. Short term the market is driven by emotions… trade accordingly by managing your risk. There is plenty on the stove that could boil over at any time… watching how this unfolds.

The week was was dull for the markets despite the move to new highs. The talk of an agreement with Mexico on tariffs was news… the indecision with Canada was expected… China continues to believe it should have special treatment… all is well in tariff land. Investors remain engaged with the markets and pushed the three of the major indexes to new highs. Where do we go from here? Time will tell along with the charts. Our job is not to prognosticate, but to manage the risk of our money based on our strategy and discipline both short and long-term. The NASDAQ higher in the uptrend to a new high. Semiconductors started the week with a push through resistance at $187 and the spent the rest of the week… resting. The S&P 500 ended the week at a new high with eight of the eleven sectors closing higher for the week. Healthcare, consumer discretionary, and technology were the leaders for the week as the index remains at the current highs. Economic data remains positive along with earnings and retail. Energy and crude oil bounced on a change in the supply data offering some opportunities in the sector. Utilities and REITs are watching interest rates as both test their current uptrends. The Fed remains determined to hike rates despite the soft patch we are experiencing in the current economic advancement. That is a concern looking forward. There is plenty of dynamics working in the markets overall and we will take it one day at a time as the trend remains positive. All we can do is manage our risk according to the charts and not speculate on what if… the greatest challenge for us all is not letting our emotions get involved in a process that requires a disciplined strategy and action.  Manage your risk and look on the horizon for answers to the trends.

NASDAQ suffered some distribution on Wednesday and Thursday. This raises questions for the index and the key sectors of leadership… two days is not a trend and we will watch how it unfolds with our stops in place. The decline in crude was worthy of note… utilities, industrials, consumer staples, and transportation showed some money moving towards the defensive sectors. Taking it one day at a time and letting the trend be the guide. 

(The notes above are posted daily based on the activity of the previous days trading)

KEY INDICATORS/SECTORS &LEADERS TO WATCH: 

Biotech (IBB) The sector broke from the consolidation pattern moved to a new 52 week high. The uptrend resumes along with the strength of the sector. Entry $116.75. Stop $118 (adjusted). Managing the risk and letting the upside run.  Big intraday activity Tuesday… big downside on Thursday and watching how this plays out today.  

Semiconductors (SOXX) Solid move above the $187 level to help the upside and the broader index. Looking at the longer-term weekly chart you can see the attempt to break from the triangle pattern with the 52 WMA as support. Tested at resistance near $191. Need the upside to resume for the broader markets. Positive upside on Tuesday. Consolidation on Wednesday. Selling below support on Thursday… Exited any trade positions we had open on the decline. Managing our risk on the trades and locked in a small gain… looking to see how this unfolds near term. Sentiment has definitely shifted towards the sector along with money flow. 

Software (IGV) The sector tested support, bounced, remains in an uptrend, and posted a new high. The long-term uptrend remains in play along with the near-term volatility. Watching how this unfolds to start the week. Entry $193.78. Stop $194.  Led the downside for tech with a 2.6% decline Wednesday. Held support on Thursday. 

REITs (IYR) The sector has been in a trading range and is testing the break higher. Entry $75. Stop $79.30 (adjusted). 3.8% dividend. Lower interest rates helping as well as the rotation to the defensive sectors… letting it play out with our stops in place. Double top pattern in play? Holding near the current highs. 

Treasury Yield 10 Year Bond (TNX) moved to 2.85% and holding support. Some buying of bonds on the collective worries. TLT has moved from support at the $118.60 mark and sits near the $121.68 resistance. They faced some selling as yields bounced modestly. Move back on Thursday to 2.87%… no clarity just consolidating. 

Energy stocks (XLE) The stocks bounced off support at $72 and back to the previous trading range. The bounce in crude was helped by the supply data and the stocks have followed the bounce. Watching how the crude move unfolds this week. Supply data is out again on Thursday. Creeping higher with crude oil some near-term resistance in place.  Some selling on lower crude prices as the 200 DMA comes in play again. Downside showing more promise technically.  

Housing (ITB) The housing market continues to slow as evidenced by the housing start data moving lower. Starts were up 0.9% versus the 8.3% expected. Permits up 1.5% after two months of declines. Why the sluggishness? Interest rates are pushing 5% and tariffs on products are impacting the cost of construction. Simply put it is a matter of affordability for consumers. The sector is attempting to hold support near the $37 level and is down more than 19% for the year. Bounce at support on Wednesday. No real change in the consolidation. 

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

Daily Scan Results:

THURSDAY’s Scans 9/6: The sellers are in play… or is this just a desire to take some profits under the current rationale? I am going to take the high road and state simply… when money wants to sell or rotate it will always find a reason to do so. Watching how the technology sector unfolds near term. The job report is out this morning and will be of interest. As far as the scans on Thursday… more of the same… defensive stocks are moving up, growth stocks are under pressure from selling. Watching how the money flow unfolds and the anxiety levels (VIX) rise.

  • Volatility Index (VIX/VXX) moved above the 14 level and showing a steady rise in anxiety for the index. $30.27 is resistance for the VXX move to become a possible trade. Watching how that plays out today. 
  • Utilities (XLU) added to the upside move. REITs (RWR) added to the upside. Consumer Staple (XLP) added to the upside. Defensive stocks in play. 
  • Large Caps in trouble… XLF, XLK, XLE, all moved lower. 
  • Energy (XLE, DRIP, IEV, SCO, SQQQ, TECS, SOXS, etc.) Downside moves are building momentum and looking at what it offers if they follow through… definitely on the watch list of interest. 
  • SPLV – showing how the rotation favors the defensive stocks in the low volatility portfolio. 

Plenty of issues, plenty of speculation, plenty of everything… the goal is to ignore the rumors and trade the charts as we see them… our strategy is to follow the trends short and long term. Two days of selling hasn’t changed the trends it has just put us on guard. Some sectors are weaker than others and may well offer a short side trade… we will take what the market offers and manage the risk accordingly. 

WEDNESDAY’s Scans 9/5: Some distribution in the NASDAQ offers a warning for the index on higher volume. The move in the defensive sectors helps Dow and S&P 500 hold steady. Transports, industrials, materials, large-cap drugs, all made positive moves higher. Looking for follow through on the moves and or back to the previous leadership… one day is not a trend or a reversal… looking how it unfolds moving forward. 

  • Utilities (XLU) nice push higher gaining 1.4% to keep the uptrend alive. 
  • Consumer Staples (XLP) bounced off the 200 DMA as support and maintains the current uptrend. 
  • Technology (XLK) declines to support and the 20 DMA. Uptrend remains in place but watching how it unfolds. TWTR, NTAP, MU, PYPL lead the downside day. 
  • Emerging Markets (EEM/EDZ) downside accelerates for the sector again. China (FXI/YANG) falls to lead the sector lower. The tariff news isn’t helping the cause. 
  • Crude Oil (USO/SCO) showing some weakness over the last two days… supply data out today and could have some influence short term. 

Selling in specific stocks and sectors… moves higher in specific stocks and sectors… investors looking at specific versus the whole. One day is not a trend and we will let this unfold and the leadership becomes defined.

TUESDAY’s Scans 9/4: Consolidation day for the broad markets as some sectors move higher and others digest the moves. Some profit taking and repositioning in the charts as well. Not enough to shift anything currently, but enough to get my attention and watch how it unfolds. 

  • Treasury Bonds (TLT/TBT) Bonds moved lower on higher yields as the ten-year bond hit 2.9%. The move came by way of the ISM data jumping higher. This opens the door for the Fed to hike rates on stronger economic outlook. Watching the short side trade in the bond if this continues. 
  • Natural Gas (UNG/DGAZ) the downside of natural gas continues to be a concern near term. Resistance at the $24.50 level is in place and the move lower on Tuesday only adds to the downside speculation. 
  • Gold Miners (GDX/DUST) they moved lower on the talks about higher interest rates and a stronger dollar impacting the price of the metal. Downside trade is back. 
  • Emerging Markets (EEM/EDZ) equally, the challenge of the dollar in play against the emerging markets. Downside gap lower and watching how it unfolds. 
  • Semiconductors (SOXX/SOXL) nice bounce higher to clear the next level of resistance… barely. I am watching how this unfolds with the leadership of the sector key to the move higher in the NASDAQ. 

Plenty of activity on Tuesday with the strong economic data coming from the ISM manufacturing sector. Today is the services data… watching the number and the response in the dollar and interest rates… they will tell us what traders believe as it relates to future Fed action on rates. The bond is in the middle of it as well falling on the rise in rates. All information we will watch and digest according to the charts. 

FRIDAY’s Scans 8/31: Sluggish day to end the week. The bantering between China and the White House continued along with comments from Canada about tariffs. Nothing new on that front. Investors watch and hope for a resolution to provide the next catalyst higher. The scans show little relative to change as the uptrend remains in play and the no rotation to speak of currently. We are willing to wait and see. Keep our stops in place. Make some minor adjustments. Take profits where they are offered. 

  • NASDAQ 100 (QQQ/TQQQ) solid week on the upside move. Adjusted stops to $182.50 on trade positions. The upside from software (IGV), semiconductors (SOXX), and networking (IGN) stocks have helped. AAPL and AMZN equally adding upside to the move.
  • Healthcare (XLV/CURE) upside remains in place for the sector as money flow continues. Large-cap biotech (XBI) and small cap (IBB) are adding to the upside. Providers (IHF) and medical devices (IHI) are heading higher as well.
  • Financials (XLF) remain a weak link as they test support at the $28.24 level again. No momentum and no real buyers in the sector near term.
  • Retail (XRT) leadership remains with mild test near the highs.

Solid week for stocks as they push to new highs. Some warranted taking profits as they turn vertical on the chart. We like to take some profits off the table and let the balance run with our stops in place. Managing risk is a daily effort. How you enter positions, how to manage positions, to taking money out of positions is the key to successful money management and peace of mind.

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

Sector Rotation of S&P 500 Index:

One big change of note concerning sectors… The Global Industry Classification Standard is making a change to the Telecommunications Services Sector. It will become the Communications Services Sector which sounds minimal but could have a significant impact going forward. They are adding NFLX, DIS, CSMSA, FB, and GOOGL. The new structure will be enforced by the end of September. This will make it more of a growth sector overall but could dampen some of the volatility the sector has experienced over the last two years.

  • XLB – Materials moved back above the $58.44 level and continues to consolidate on worries about tariffs, etc. Watching how it unfolds with the $60 resistance. Held support.
  • XLU – Utilities got relief as rates moved lower and cleared the resistance at $52.72 and accelerated on money rotation. Uptrend remains in play… entry $49.55. stop $52.50 (adjusted). Tested the move higher and watching as this unfolds. Nice bounce off support back at the highs. 
  • IYZ – Telecom moved above the $28.62 resistance with some momentum in the sector to the next resistance at $29.51. Entry $27.80. Stop $29.15 (adjusted). Nice bounce higher to keep upside trend in place. Back below support of $29.51
  • XLP – Consumer Staples has been in a gradual uptrend from the May lows, but they have faced resistance at the $54.92 mark. The test lower the last two weeks is raising some questions about the uptrend. Entry $50.50. Stop $53.25. Stops in place and let this unfold. Bounced at the 200 DMA.
  • XLI – Industrials made a move above the 75.72 mark again and cleared the highs of the range at $76.80. Entry $72.50. Stop $75.70 (adjusted). Need some momentum as it tests the break higher. Bounced at $76.80 support. 
  • XLE – The stocks bounced off support at $72 and back to the previous trading range. The bounce in crude was helped by the supply data and the stocks have followed the bounce. Watching how the crude move unfolds this week. Supply data is out Thursday. Some selling back to the 200 DMA.
  • XLV –  In June the sector bounced off $83.24 support. Then moved above the $86.74 resistance in July. Stalled at the $90.50 level and accelerated higher. Solid uptrend for the sector as we let trend run and manage our risk. Entry $83.25. Stop $90.50 (adjusted).  Small bounce as large-cap help. 
  • XLK – Technology remains a sector of volatility despite the renewed uptrend the last week. Entry $72. Stop $73.80. Letting this unfold and managing the risk and volatility.  Moved lower on some distribution. 50 DMA key support for the trend.
  • XLF – Sector bounced off the lows in July. Worked back above the $28.24 resistance. Tested the move back to the 200 DMA, bounced, and watching how this unfolds near term. Insurance is leading the sector higher. Entry $27.50. Stop $26.50. Nice bounce off support followed by some selling?  
  • XLY – Consumer remains a leader despite all the rumblings and worries. The sector broke from the rising triangle pattern adding to the upside trend. 50 DMA is the level to hold for the upside to continue. New highs on the solid move. small retreat from the highs. 
  • RWR – REITs have been in a clear uptrend since the February lows. Granted it has come with some volatility and speculation, but the upside is in place nonetheless. The lower rates and money rotation towards safety and defensive positions helped move the sector to a new high for the year. Entry $93.40. Stop $95. 3.8% dividend.  Bounced on Wednesday and holding near the highs.

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

FINAL NOTES:

New, tariffs, Fed, geopolitics, Turkey, Italy, White House, and economic data all remain in the headlines and in the minds of investors. They influence the day-to-day activity, but the real driver remains fundamentals. The economic growth, earnings growth, and positive sales growth are the keys. We have to focus on our own strategy and ignore the news. We have booked positive gains on positions. We have added others as we continue to take what the market gives. All of the economic data remains on track for growth, be it slow growth, but growth nonetheless. There is always something to worry about, but at the end of the day it is about the trend and we continue to see a positive uptrend for stocks despite the low volume. The S&P 500 index produced eight of the eleven sectors moving higher for the week. The volume remains on the low side. The NASDAQ managed to find some buyers as the semiconductors pushed through the next level of resistance. Both indexes closed higher for the week. healthcare, consumer discretionary, and technology offered leadership efforts for the week. Bonds reacted to rates move up to 2.85%. Utilities moved sideways but keep the upside trend moving. Crude moved higher on supply data. The dollar is resting near support. We need to find some conviction in stocks and money flow needs to rise if the trek higher is to continue. We will keep our focus on our strategy in the current market environment. We continue to manage all positions as trades until we gain some clarity on the longer term views. The long-term uptrends remain in place and we will manage our longer-term holdings in light of that trendline. The goal remains money management, not market speculation…

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

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

The goal of these notes is to allow you, the investor, to learn how to see the market development as the progression through the sector develop based on news, speculation, and data. Data drives long-term results and develops trends… speculation and news are short-term drivers and offer higher risk trading opportunities. Through the use of both technical and fundamental data, we can have greater confidence in our trading strategies with a disciplined approach to investing and managing the risk of our money.