Volatility Picking Up

OUTLOOK MARCH 4th

Markets started the day higher and then some selling only to recover with minimal losses on the day. The uncertainty from last week is back and there is little in the news to help. Growth stocks were the hardest hit with healthcare and software struggling on the day. Volatility rose again with the index hitting 14.6 on the close, but spiked to 17 intraday. One question that looms is about the sellers… are they ready to engage and challenge the current trend? The catalyst would be a deal with China that does not include enforcement on technology theft… that is more likely than not based on past history with China. No deal has been proposed or seen in the light of day, thus rumblings are starting… watch, listen, and maintain your stops.

The S&P 500 index closed down 10.8 points to 2792 as it attempts to work through resistance at the current levels. The uptrend from the December lows remains in place. Some negative economic data is on the table to speculate about looking forward. Some sellers show up to sell the gap higher at the open. Four of the eleven sectors closed in positive territory on the day. REITs and basic materials were the leading sectors to close on the upside. The downside saw healthcare and telecom lead the way lower. The long-term trendlines have improved and are approaching the key levels 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 $42.85 (adjusted).

The NASDAQ index closed down 17.7 points to close at 7577. The intraday volatility picked up and some testing of the 200 DMA. The close above 7505 is positive, but we need to see some follow-through upside. The index has been the leader for the current broader market move. Software struggled on the day. 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 $47.45 (adjusted). Got the move above the $167.53 resistance and we hit our target at the $170.93 mark. There is some resistance at current levels along with the November high. Managing our stops and looking at $177.58 as our next target.

Small Cap index (IWM) the next leg of the move higher stalls in the current trend along with some testing. The sector shifted to a leadership role as it tested and held the $144.65 level of support. A solid move above resistance point of $155 along with testing 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 $152.25 (adjusted). $158.01 objective cleared but tested lower holding there for now. $162.50 remains the next target. Watching how key resistance levels unfold.

Transports (IYT) hit some resistance at the $192.42 level. The test back below the 200 DMA is worth our attention along with the test of 186.70 support. Clearing the $164.73 level offered upside trade opportunity. Entry $165. Stop $186.35 (adjusted). The solid move higher was positive overall for the current trend, but some concerns with the resistance. Watching with our stops in place.

The dollar (UUP) fell as the Fed talked to Congress and confirms its neutral stance on interest rates which would be expected. The buck bounced back on Friday to regain the upside momentum and continued on Monday. The move higher has my attention as it becomes the benefactor of a weaker global outlook becoming a safe haven for currency. The big question mark for the buck would be a resolution to the trade tariffs with China. The dollar closed at $25.77 and remains in a positive pattern holding support… Watching resistance at the $25.87 mark and China trade news.

The Volatility Index (VIX) closed at 14.7 on Monday and erased the move lower on Friday. Watching how this all unfolds with the sellers stirring intraday. Patience. SVXY trade is playing out nicely. Adjusted stop.

Economic data remains in an undefined category of so-so. Inventories for December rose 1.1% versus 0.4% in November… not a good number as it equates to slower sales… a fact that earnings reflected for the fourth quarter. This adds to the weaker retail sales data and existing home sales. GDP for Q4 is 2.6% vs 2.3% expected… party! However, it was 3.5% in Q3… Friday posted a weaker ISM manufacturing number to 54.2%. Personal income fell in January along with consumer sentiment. Core inflation remains tame and well within the Fed range… Weaker data is a warning sign for stocks. Watching how this unfolds moving forward.

(The notes above are posted daily based on the activity of the previous days trading. The BOLD/ITALIC 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). Cleared the $107 level to return to the previous trading range. Cleared $112 and a key resistance point this week. Hit $115 on the close Friday and watching how it moves to start the new week. Intraday volatility has my attention.

Semiconductors (SOXX) Broke support at the $153 level established the December lows and then started the current uptrend. $153.13 cleared and added a trading position on the move… A target of $182.37 cleared and watching how the sector unfolds. SOXL – Entry $78. stop $120 (adjusted). $105.24 sold half of the position. Gapped higher to start the week then tested back to support at $182.37 and bounced higher Friday… volatility in the sector and letting it play out for now. Intraday volatility has my attention.

Software (IGV) Broke $167.88 and bounced back above the same level to create the December lows and start the new trend. The sector was oversold producing a solid bounce… and follow through. $167 level added a trading position. Entry $167.90. Stop $200.45 (adjusted). Cleared $197.48 and moved to the previous highs from September and now new highs. Adjust stop and let it run. Big downside for the sector to start the week. Watching how this unfolds.

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 $82.50 (adjusted). Showing some volatility and uncertainty as interest rates rose all week. This is an interest sensitive sector… watching how the yields move next week.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.75% as yields bounce the last three days on weaker economic data. TLT gapped lower on the move in yields hitting stops on the bond and testing the $118.59 support levels. Watching the bond near term and interested in the short side trade should the yields continue higher.

Crude oil (USO) worries about the IMF data on the global economy give way to speculation about supplies moving lower on OPEC promise to lower production… again. Sanctions on Venezuela have been playing into the volatility as well. Plenty of issues, but the upside remains in play. The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $17.57 (adjusted). Managing our risk and letting this play out with our target $58.25 in sight.

Emerging Markets (EEM) Watching what happens as the bounce from the bottoming pattern follows through but is testing on uncertainty about trade and economic growth. Rumors of trade resolutions and talks with China helped the index but needs some reality to help. Watching for the clarity to unfold. Cleared $40.88 and broke higher from a double bottom pattern. Entry $41. Stop $40.50 (adjusted).

Gold (GLD) moved above the $126.02 resistance tested lower and then accelerated as the bid dropped out from under the metal. The dollar and geopolitics have been the catalyst for the metal… both up and down. The boost in the dollar and higher interest rates on the week worked against the metal and we hit our stop on our position. Entry $116.50. Stop $123.30 (STOP HIT). The gold miners (GDX) equally respond to gold moving lower… Entry $19.70. Stop $21.90 (HIT STOP). Watching how this moves to start the week. Downside continued to start the week.

MidCap (IJH) The uptrend from the December lows remains in play with the move above the $190.44 resistance. Small test for the week as this is the first sector to clear the key resistance levels and looking for others to follow. Entry $166.50. Stop $187.52. Tested lower to support at the 200 DMA and $190.44 level. Watching how this unfolds.

China (FXI/YINN) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Cleared resistance at $43.50 this week and reversed to test the same level as worries build on the trade agreement. The eight-month bottoming pattern is offering some hope. Entry $39.80. Stop $42.

(The notes above are posted every weekend and updated daily Bold Italics)

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

MONDAY’s Scan, March 4th: Mixed day as indexes started higher, sold lower, and bounced off the lows to end basically flat on the day. The intraday volatility is something to watch as we discussed last week. The sellers showed interest and it has my attention. Review your stops and manage your risk accordingly. No big changes on the day overall but some sectors of note below.

  • Software (IGV) fell 1.8% to lead the downside… important to note this puts the sector back below the September highs. Watching and adjusting our stops. HACK fell 2.1%.
  • Healthcare (XLV) tested the upside resistance of $93.32 then fell 1.3% on the day back to the bottom of the topping range. IHF fell 3%.
  • Telecom (IYZ) back below the $29.50 resistance and watching how the selling unfolds today.
  • Aerospace (ITA) fell 1.6% to add to the topping pattern.
  • Plenty of topping patterns in play as we watch how this unfolds.

Taking it one day at a time for now and letting the direction define itself.

FRIDAY’s Scans, March 1st: Solid day for stocks as the major indexes move higher on hopes of a trade agreement still in view. The economic data is putting some challenges in front of investors as they weigh the outcome of the data. Overall the trends remain on the upside and some testing continues to be the theme. No real sellers of yet, but we have our eyes open and stops in place.

  • Biotech (IBB) solid upside move on the day and the week. Adjusting stops and letting it run.
  • Consumer Discretionary (XLY) solid day and keeping the upside trend alive despite the weaker auto sales and lower income data for the consumer. Interest rates ticked higher on the week and watching how that unfolds as well.
  • Utilities (XLU) moved back to the December highs and facing some resistance at this level, but remains in a solid uptrend.
  • Gold (GLD) takes a plunge lower on higher dollar activity and higher interest rates. Hit our stops and watching the outcome going forward.
  • Medical Devices (IHI) great week to keep the upside move going. Cleared the September highs on Friday.

Taking precautions as economic data weakens… looking at where the opportunities lie as investors rotate some money during the week.

THURSDAY’s Scans, February 28th: Another month in the books as investors continue to struggle for direction. The testing remains in play and the sellers are still not engaging. Watching how this unfolds one day at a time… practicing patience. Not easy to sit on your hands, but playing some golf or going fishing helps. 

  • Gold (GLD) breaks the first level of support as speculation about inflation and safe haven investment evaporate. GLL looking good on the bottom reversal.
  • Emerging Markets (EEM) forming a double top as no resolution to China trade remains a thorn in the side of the sector. 
  • Pharmaceuticals (XPH) nice follow through on the break above resistance at the $41.04 level. 
  • Treasury Bonds (TLT/TMV) reversal in play as yields gain traction to push bonds lower… short side trade setting up. 
  • Spain (EWP) nice break higher from the bottoming pattern. Looking for a follow through. 

Slow week, but still finding some opportunities in the scans. 

WEDNESDAY’s Scans, February 27th: Another day of ups and downs with some bigger tests and rebounds in sectors. The semiconductors showed the most volatility on the day and we continue to watch how all of this unfolds. Testing is normal and the lack of sellers makes this of more interest as the news void is helping for now. Earning are almost done, trade is still being negotiated, and the Fed is quiet… that leaves us with economic data to dig through and it is okay… nothing to stir the markets in either direction currently. Taking what is offered and managing the risk.

  • Semiconductors (SOXX) tested support at the $182.38 level. Needs to hold here? A break is bad for technology overall.
  • Biotech (IBB) solid bounce off the $112 mark. Keeps the uptrend in play.
  • Bonds (TLT) yields jumped higher and bonds dropped in unison… back to the bottom end of the range. Watching how this unfolds and if stocks rally in unison with the rise in rates…
  • REITs (RWR) big rolling top for the chart… watching.
  • Gold (GLD) tested lower as the dollar moved higher on Mr. Powell’s comments. Watching support and outcome near term.

No big changes, just some saber rattling as everyone speculates on the outcome. Taking it one day at a time.

TUESDAY’s Scans, February 26th: A day of ups and downs without much changing overall. There is plenty to watch, but nothing is making much of an impact on the current environment. Mr. Powell confirmed the Fed is neutral for now and China continues to hammer out an agreement with the US on trade.

  • Crude Oil (USO/UCO) Mr. Trumps comments to OPEC sends crude lower and erasing half of the current gains. Watching and managing our stops.
  • Software (IGV) Solid move higher and watching the September highs as resistance currently. SOXX and others at similar levels.
  • China (FXI/YINN) big gap higher on the speculation around the trade agreement. Don’t chase it if you don’t have a position, and if you do, raise your stops.
  • Biotech (IBB/LABU) gapped higher and looks positive as it breaks from the resistance and sideways trading.
  • Greece (GREK) broke above the $7.62 mark and looking positive near term as it starts to break from the bottoming pattern.

All is well… right? Stop listening to the talking heads and let the market tell you where the top resides. It all will be clear in time… all we can do is manage our positions based on what we know… not what we think may happen.

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 $54.10. Upside continues with a move above the $54.15 mark. Hitting resistance at the $56 level at the top of the previous range. 
  • XLU – The utility sector found support at $51.11… moved above $52.72. Moved back above the $55.24 level again and hitting the $57.10 resistance. Watching and managing the risk. Entry $53. Stop $55.25. 
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $28.25 (adjusted). Cleared the 200 DMA and accelerated higher moving towards the September highs. Big negative on the day breaking below the $29.50 mark.
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and continued upside trend. $54.92 level of resistance to watch. Managing our risk. Entry $51.90. Stop $53.
  • XLI – Industrials moved to near-term low and bounced. $65 level cleared for trade opportunity. Entry $65. Stop $74.05 (adjusted). Upside leader with a move to $76.80… next level to clear. Gapped higher and continued the uptrend.
  • XLE – Energy stocks bounced with the market. OPEC talks to cut production is helping the upside move clearing $58.20 and now $67 is next resistance. Entry $58.30. Stop $64. (adjusted). Managing the risk. 
  • XLV –  Healthcare fell to near-term lows and bounced. $85.74 level cleared for upside trades. Entry $85.25. Stop $90 (adjusted). Watching and managing the risk. Some topping on the chart with a solid move on Friday. $93.52 next level to clear. Sold lower on the day with XPH, IHI, IHF all heading lower.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $68 (adjusted). $71 next level of resistance to clear and follow through. SOXX, IGN, HACK, SOCL, and IGV helping the cause on the upside.
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.50. Solid earnings boosted the sector and finally breaking above the $26.33 resistance. Need leadership from the sector. The parts struggled on the day with IGV, HACK heading lower.
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $107 (adjusted). Cleared resistance at $109.21 and positive short term. Retail data not great, but investors are looking forward not back… letting it play out.
  • RWR – REITs broke lower despite lower interest rates… bounced from lows clearing $93.21 resistance… positive upside move. Entry $88. Stop $95.98. Watching and managing the risk. Some profit taking? Interest rate moves bother investors in the sector.

(The notes above are posted Weekly based on the activity of the previous weeks trading. The BOLD/ITALIC comments are current day changes worth noting.)

FINAL NOTES:

Markets are testing and facing key resistance levels. The bounce from the December lows remain in play and the fourth leg higher in the current trend is testing. There are some issues facing investors as the trade agreement has not materialized, but hopes of a meeting in mid-March are on the table. Fundamental data is weakening. Some of this was expected based on the tariffs… but, the bigger issue will be how it unfolds moving forward. This was a week of testing and talking with Friday closing on a positive note.  There is plenty of news along with some not so good economic data on the week. We continue to emphasize sound money management. We have look at positions to take profits, adjust stops, and manage the risk of the current environment. The goal is to avoid speculation and follow our disciplined strategy for each position. Taking it one day at a time.

Seven of the eleven sectors managed to close the week in positive territory as money rotates modestly. Energy and technology led the upside for the week. Consumer staples and basic materials were the laggards as money rotates to safety on the week. Interest rates ended at 2.75% moving up more than 10 basis points. The ten-year bond moves lower on the higher rates. The dollar bounced with higher rates. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers.

Disciplined entry and exit points allow 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. 

“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.