Markets close higher for the week

OUTLOOK: February 4th 

The markets ended the week with some digesting and modest moves and managed to close the week with solid gains. There was the jobs report that was stronger than expected, but it was accompanied by some revisions which kept things in check. Corporate earnings are raising concerns for the 2019 outlook and it will be an underlying current if things don’t show some improvement in the first quarter. Overall great week and the markets move to a new month and new data. Watching how the manufacturing data along with the services show next week. Some news on the China trade talks… no deal… but, the leaders will talk again. In the end, we continue to have issues that create uncertainty and that keeps the markets in check… but, the FOMC meeting offered some solutions, for now, relative to the uncertainty about interest rates. Manage your stops and keep looking forward. 

The S&P 500 index closed up 2.4 points to 2706 and maintain the uptrend from the bounce at the December lows. The third leg has resumed after being wobbly at resistance. Watching how this unfolds.  Seven of the eleven sectors closed in positive territory on the day. Energy and technology were the leading sectors to close on the upside. The downside was led by consumer staples and REITs as some money rotates. The long-term trendlines are improving, but still, have work to be done to offer an entry signal. We will watch how the current activity unfolds and the impact on the trends longer term. SPXL entry $33.50, stop $38.38 (adjusted). 

The NASDAQ index closed down 17.8 points to close at 7263. The upside follow-through this week showed investors are in a good mood for now. The close was back above the 7103 mark and third leg higher advancing for now. The index has been the leader for the current move and the follow-through kept the leadership alive. Technology led the upside on earnings report from Apple and now Facebook added to the momentum. QQQ is our indicator near term. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark and holding. TQQQ entry $34.17. Stop $43.89 (adjusted). Got the move above the $162.48 resistance and watching how this unfolds with the positive advance this week. Manage our risk as we hit our next target at the $167.53 mark. 

Small Cap index (IWM) found some buyers as the third leg of the move higher accelerates in the current trend. The sector shifted to a leadership role as it tested and held the $144.65 level of support. Solid move to the next resistance point of $149.04 and puts the sector in good shape to continue this leg higher. Added a position on a move above the $133.78 mark. Entry $133.90. Stop $144.40 (adjusted)

Transports (IYT) bounced off support and looks positive with the move to resistance at $182.43. Clearing the $164.73 level offered upside trade opportunity. Entry $165. Stop $172.30 (adjusted). The gap higher was positive and the next target is $186.70. Watching with the stop in place. 

The dollar (UUP) fell on the news Wednesday as the Fed stands down on interest rates.  It bounced the last two days to regain some upside. The move higher last week was helped by the economic data and hopes of a trade resolution with China. Failed to hold the move back above the $25.53 support and closed Friday at $25.39 and renewing the move lower, but holding above the $25.25 support. New volatility in the dollar resulting from lower rates and what is perceived as a weaker stance for the dollar. Gold is the benefactor along with other currency… FXE/ULE hit entry at $109.75. FXY/YCL equally renewed the upside pattern at $87.50. 

The Volatility Index (VIX) closed at 16.1 on Friday with anxiety falling again after Fed puts concerns to rest over interest rates… for now. Watching how this unfolds with anxiety levels moving up and down. 

(The notes above are posted daily based on the activity of the previous days trading. The red comments are current day changes worth noting.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) The sector broke below support and finally bounced. $95.04 was the level to clear and did so with momentum. Entry $96. Stop $106.50 (adjusted). A solid test of the move at $107 resistance and hit the 200 DMA as resistance… small trading range at support and looking for a catalyst. Stop in place. 

Semiconductors (SOXX) Broke support at the $153 level… Solid bounce… some follow through. $153.13 cleared and added a trading position on the move… entry $78. stop $103 (adjusted). $105.24 sold half of the position. SOXL – Raised our stop – managing the risk. A target of $167.34 cleared with two solid days of upside moves. 

Software (IGV) Broke $167.88 and bounced back above the same level. The sector was oversold producing a solid bounce… and follow through. $167 level added a trading position. Entry $167.90. Stop $183.20 (adjusted). Raised stop – managing the risk. Cleared $189.29 to keep upside trend in play. 

REITs (IYR) Tanked on uncertainty from the Fed and the economic outlook. Broke $75.21 and bounced… trading opportunity on reversal above $75.21. Entry $75.25. Stop $81.50 (adjusted). Big move for the week as the Fed talks of no further rate hikes near term… benefits the sector short term. 

Treasury Yield 10 Year Bond (TNX) closed the week at 2.69% as yields remain below support and tested lower all week. Friday saw a modest bounce in rates finally as the bond has rallied. TLT keeping the uptrend alive off the November lows. Watching the balance between growth and Fed concerns. 

Crude oil (USO) worries about the IMF data on the global economy. Rising supply remains a concern and the move above $52.51 resistance starting to make some progress. OPEC production cuts are still rumored. US production slowed on the week. Sanctions on Venezuela have helped the upside resume. The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $16.97 (adjusted). Managing our risk and letting this play out. $52.51 resistance cleared and testing. 

Emerging Markets (EEM) Watching what happens as the bounce from the bottoming pattern follows through on the upside and stocks run higher. Rumors of trade resolutions and talks with China helped the index. Watching for the clarity to unfold. Cleared $40.88 and working on a double bottom pattern. Entry $41. Stop $40.50 (adjusted). 

Gold (GLD) moved above the $122.46 resistance digested it and moved higher. The dollar and geopolitics have been the catalyst for the metal… both up and down. The move in the dollar lower helped the metal move higher on Friday. Managing the risk. Entry $116.50. Stop $123.30 (adjusted). The gold miners (GDX) equally respond to gold moving with a solid gain. Watching how this unfolds near term with the metals and the miners moving together again… Entry $19.70. Stop $21.50 (adjusted). 

(The notes above are posted every weekend and updated daily in red)

FRIDAY’s Scans, February 1st: New month slow start… there was some juggling of sectors as money always looks for where it will be treated the best the fastest. Little change on the day with some digesting of the gains. Gold remains upside benefactor to a weaker dollar, energy posted a solid gain in catch up to crude moving higher, China tariff talks trying to move forward, and jobs report was solid. Overall solid day as we move to economic data for January and more earnings next week.

  • Energy (XLE/ERX) solid break through resistance and opportunity to add a position on the move. Parts may play out better than the whole.
  • Crude Oil (USO/UCO) adding some upside movement as some clarity shows in the data.
  • Semiconductors (SOXX/SOXL) made the next move through resistance to maintain some leadership in the technology sector.
  • China (FXI/YANG) downside reaction to no deal from the trade talks… but, there is a planned meeting with Trump and XI.
  • Cyber Security (HACK) solid upside the last two days adding some leadership to the technology sector.

Overall positive day and end to the week. Taking what the market offers with our eyes on the horizon. Stops adjusted… plans set for the coming week.

THURSDAY”S Scans, January 31st: Last day of the trading month and money flow was high. Plenty of positives on the day with good earnings news where it mattered. That allowed the missed earnings data to hide. News from the meetings with China was mixed and the leaders were hoping to accelerate an agreement… we will see how that works out. China needs a settlement as their economy is declining from the tariffs. Broad indexes follow through on the upside moves and all is well heading into Friday… Watching how it unfolds and managing our stops.

  • Utilities (XLU) accelerate on the upside as interest rates continue to decline to help the interest-sensitive sector.
  • Consumer Staples (XLP) break higher clear the 200 DMA and keep the uptrend in play.
  • Healthcare (XLV/CURE) breaks higher and gets the trend back on the upside after testing to the 200 DMA.
  • REITs (RWR/URE) accelerated trend getting help from lower interest rates. Adjusted the stop again.
  • Homebuilders (ITB/NAIL) break from the bottoming trading range to show the first positive signs in three months. Again, lower interest rates helping the outlook for housing.

China (FXI/YINN) breaks higher on optimism about trade talks. Watching for follow through in the country ETF and talks.

Overall solid follow through for the major indexes and the leaders. Lower interest rates are helping as well. Watching and managing our risk going forward.

WEDNESDAY’s Scans, January 30th: FOMC puts the halt to interest rate hikes for now. The return was a rally in stocks, a weaker dollar, global markets rallied, and gold posted solid gains. All is well… It was on Wednesday… how it unfolds is still a matter of news and reality. The talks with China start today and will be the next hurdle for the markets. Watching and taking it one day at a time. There is still plenty on the table and the earnings data is not that great looking forward. Not for me to decide… we will take what the market offers and keep moving forward.

  • Gold (GLD/UGL) solid upside continuation of the trend higher. Gold miners (GDX/NUGT) gain as well. SLV and SIL both moving higher along with the base metals (XME). Adjusted stops and let this run.
  • REITs (RWR/URE) upside continues as well with stops adjusted on the run higher.
  • Technology (XLK/TECL) upside breaks higher adding to trend. SOXX led the upside move on the day.
  • Brazil (EWZ/BRZU) solid break higher and the upside resumes. The Fed news helped the break higher and managing our stops.
  • China (FXI/YINN) upside breakout as the FOMC helped the cause and the start of meetings on tariffs. We will see how that unfolds and managing the stop on the positions.

QQQ, SPY, DIA all break above resistance and looking for the follow through to the move again…

FXE and FXY breaking back to the upside on the weaker dollar.

EURL making a positive break to the upside along with EEM on the weaker dollar and hope of better economics globally.

TUESDAY’s Scans, January 29th: FOMC meeting, earnings, and China trade talks starting all weighed in on the markets and kept it in check with some winning sectors and some losing ones. The broad indexes remain in limbo looking for direction. Technology led the upside and is leading the downside currently in the test. Watching, scanning and looking where money is flowing near term. Taking what the market offers and keeping our eye on the prize, not the news.

  • Gold (GLD/UGL) more upside for both the metal and the miners (GDX/NUGT). The uncertainty globally and a weaker dollar adding to the upside moves. Adjust stops and let it run. SIL and SLV are following the metal higher as well. Base metals (XME) made a solid move as well on the upside.
  • REITs (RWR/URE) upside added again and heading vertically as rates continue to hold near 2.7% helping the sector.
  • Treasury Bonds (TLT/TMF) posted solid gains on rates declining on the day. Watching how this responds to the FOMC announcements today. Stops remain at $18.40 on the position.
  • Brazil (BRZU/EWZ) still consolidating from the trend higher from the December lows. $37.52 is level to clear near term. Stop remains at $33.
  • Water (CGW) solid uptrend remains in play and moved higher on Tuesday.

Apple announced earnings after hours and was up 4% on comments from Tim Cook… watching what impact that will have on the technology sector today.

MONDAY’s Scans, January 28th: The worries remain for investors over trade, Fed, and earnings outlook. The selling early held into the close and the second failed attempt to break above resistance is a concern on the charts, we adjusted stops and watching how this unfolds moving forward. Not speculating anything at this point just protecting the short term gains on positions and looking where the next opportunities lie.

  • REITs (RWR/URE) continues the positive upside move and adjusted the stop.
  • Gold (GLD/UGL) solid follow through for the upside move and looking at adding to position if the move holds above the $122.46 mark. SLV moving higher again as well.
  • Gold Miners (GDX/NUGT) successful move above the $21.24 resistance. Watching for follow through an opportunity to add to the position. SIL making a similar move.
  • Solar (TAN) continues the vertical upside move… nice run, adjust the stop.
  • Regional Banks (KRE) keeping the uptrend alive and adjusted the stop.

Watching the move on Monday for follow through… patience and stops in place.

Update to follow the developments. These scans are looking for trends, reversals, breakouts, and other notes of interest.) 

Sector Rotation of S&P 500 Index:

  • XLB – New lows and found support… got the move above the $50.35 mark. Entry $50.50. Stop $52.25. Upside continues with an up and down week.  
  • XLU – The utility sector found support at $51.11… moved above $52.72. The PG&E bankruptcy news sent the sector lower… but, buyers returned and we are back above the $52.72 level again and managing our risk. Entry $53, Stop $52. Watching how interest rates play out with the sector. 
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $26.90 (adjusted). Nice follow through to close the week with a move back to the 200 DMA.  
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and looking for upside trade opportunity. $51.86 next level cleared and the 200 DMA… watching. Stop $50.50. 
  • XLI – Industrials to near-term low and bounced. $65 level to cleared for trade opportunity Entry $65. Stop $67.80 (adjusted). Upside leader with a solid move to end the week.  
  • XLE – Energy stocks bounced with the market. OPEC talks to cut production is helping the upside move clearing $58.20 and now $63 resistance. Entry $58.30. Stop $61.30. (adjusted). Got upside move in crude to help the cause this week on the upside move. 
  • XLV –  Healthcare fell to near-term lows and bounced. $85.74 level cleared for upside trades. Entry $85.25. Stop $88 (adjusted). Cleared $89 resistance and stalled with flag pattern and resumed higher for the week.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $63.45 (adjusted). Cleared $63.69 resistance and followed through upside. Semiconductors lead the upside for the sector… earnings setting the tone. Solid help from IGV and HACK on the week. 
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.10. Solid earnings boosted the sector and adjusted our stop. Modest test of the upside move.  
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $104 (adjusted). Cleared resistance at $105 and positive short term. $107.05 cleared and tested. 
  • RWR – REITs broke lower despite lower interest rates… bounced from lows clearing $93.21 resistance… positive upside move. Fed talk keeping rates in check and the buyers engaged. Move in rates on Friday worth our attention. 

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

FINAL NOTES:

Markets continue the bounce from the December lows with FOMC news helping the upside cause. The solid move higher and tone for the week kept the third leg of the move remains in play and we have adjusted our stops accordingly. The government shutdown is good for two more weeks and no real news. The hope of a trade agreement with China remains a beckon of light on the distant shore. Emerging markets, however, are trading like it is a done deal as EEM breaks from the trading range. Semiconductors (SOXX) are leading the upside move for the NASDAQ along with technology overall. 

All eleven sectors managed to close the week in positive territory as money rotates modestly. Energy, consumer staples and REITs led the upside for the week. Interest rates touch 2.63% on the ten-year bond on the Fed’s move to leave rates unchanged at the FOMC meeting. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers. As seen in the FOMC meeting the Fed remains the biggest influencer with a shift again on interest rates which have pushed the long end of the yield curve back below 3%. Tariff wars coming to an end would be a huge influence in the outcome looking forward. How this all unfolds is a matter of time and confidence and it a meeting takes place with Trump and XI.

Disciplined entry and exit points allow for you to manage your risk in up or downtrends. Investing and trading is a matter of a defined strategy implemented with discipline. It is not magic. It is not being a prophet. It is about following your strategy one day at a time. 

There are plenty of issues and plenty of speculation short-term. What we need is confidence in the outlook going forward… until that happens, expect more volatility and possible downside. Let it unfold… take the trades or opportunities offered… manage your risk and remember cash is a sector and there are times when it makes the most sense versus forcing something that really isn’t there… patience is a strategy as well. 

“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.