Sellers are back

MARKET OUTLOOK FOR MARCH 7, 2019

Small and midcap stocks move lower leading the market to a down day. The challenges remain the same and the sellers are starting to take some shots at pushing stocks to the downside. The topping patterns are more prevalent on the charts. Transports look weak as well and all the technical signs are weakening short term. SOXX, IWM, MDY all break key support levels and the midcaps reverse the breakout higher with a confirmation on the move lower. This is a market in transition and stops are a must as we hit some stops on the day. Patience is the key along with discipline for now.

The S&P 500 index closed down 18.2 points to 2771 as its topping pattern continues to emerge on the chart. 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 challenge the buyers. One of the eleven sectors closed in positive territory on the day. Basic material was the leading sectors to close on the upside. The downside saw healthcare and energy lead the way lower. The long-term trendlines have improved and were approaching the key levels to offer an entry signal but have stalled. 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 70.4 points to close at 7505. The growth stocks struggled on the day with semiconductors leading the downside impact for the broad index. The close at 7505 is key near term support level for the index. The index has been the leader for the current broader market move. 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 $48.16 (adjusted). The resistance is holding, but some large-cap stocks are still in good positions to help… FB, GOOG, ROKU, and CSCO are all in good shape. Watching how this unfolds near term.

Small Cap index (IWM) the next leg of the move higher stalled, tested and broke $154.90 support. The sector has been in a leadership role as it tested and held the $144.65 level of support. Added a position on a move above the $133.78 mark. Entry $133.90. Stop $152.25 (adjusted). The accelerated decline on Wednesday is a concern. Our stops are in place and watching for a bounce recover today, if not more downside likely.

Transports (IYT) hit some resistance at the $192.42 level. The move back below the 200 DMA a negative along with the break below 186.70 support. This creating a divergence of activity and transports are a leading indicator for the economy. Clearing the $164.73 level offered upside trade opportunity. Entry $165. Stop $186.35 (STOP HIT). The break lower hit our near term stop as we watch how this unfolds short term.

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 the last four days to regain the upside momentum and continued on Wednesday. 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 $25.84 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 15.4 Wednesday and erased the move lower. Watching how this all unfolds with the sellers stirring showing signs of engaging. Patience. SVXY trade has played out nicely. Adjusted stop $50.

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 $109.17 (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. Wednesday shows why you watch and manage your risk. Downside break was ugly at 3.1%.

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. Break of the $182.37 level a negative on the day… watching how this unfolds… knowing this is an indicator for the large index.

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. A big downside for the sector to start the week. Watching how this unfolds. Added to the downside Wednesday and watching support at $201.

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. Reversal of direction as yields drop with stocks selling showing rotation to safety on the day. Bonds remain a positive with anxiety rising.

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. Some selling on Wednesday along with stocks.

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. Tuesday finally some buyers, but nothing to write home about.

MidCap (IJH) The uptrend from the December lows remains in play with the move above the $190.44 resistance. A 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 topping pattern unfolds. The chart takes a downside turn and breaks support. 1.3% tumble isn’t the end of the world, but it does get our attention as a break lower from the topping pattern… if confirms looking at the downside trade.

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. Upside back in play as the optimism over trade settlement continues to move stocks. KWEB made solid move on Tuesday.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

WEDNESDAY’s Scan, March 6th: the sellers take a shot and hit… some damage done, but the key will be follow through. The small and midcap declines broke the first key levels of support. The SOX index fell as well giving some cause for worry about the NASDAQ. The confirmation of the reversal in transports offers more worries as a leading indicator. The near term moves offers some concerns about a more serious test of the current trend. If this effort follow through 2678 would be the key level of support for the S&P 500 index. Taking it one day at a time.

  • Small Caps (IWM) break of support puts growth stocks on notice. The leadership of the sector is in question.
  • Midcaps (IJH) break of support adds to the questions for growth stocks.
  • Semiconductors (SOXX) breaks of support raises concern levels for the NASDADQ.
  • Healthcare (XLV) break of support a concern. The biotech (IBB) dump lower was most of the cause, but continued weakness in the providers (IHF), pharma (XPH) and devices (IHI) adding to the concerns.
  • Transports (IYT) added to the downside move and obviously a concern for the broader indexes.

Plenty of fuel for the fire on Wednesday as stocks move lower and add to the speculation of a test for the uptrend bounce from the December lows. Patience and focus on the goal not the noise. Stops will take you out of harms way should the downside materialize… the focus is on the next opportunities.

TUESDAY’s Scan, March 5th: Slow day for stocks overall. The sellers abated, but the buyers weren’t present either. Some big names like Facebook and Google are doing well, but there is not enough breadth to carry the markets higher. The good news is the sellers are not completely ready to engage. They attempted some selling on Monday but were denied control. Watching how this all unfolds and looking for the opportunities.

  • Telecom (IYZ) down for the second day and a concern. The sector has been a leading indicator of late for overall market movement. Watching the progression.
  • Transports (IYT) Almost anything bought by consumers is moved by transportation… if the stocks are lower ahead of the balance of the market… something isn’t right. Watching how this unfolds and what opportunities are created moving forward.
  • China (FXI/YINN) still moving higher after a test last week. Uptrend is a result and hope of a trade agreement. Buy on the rumor… sell on the news? Watching and stop in place.
  • Social Media (SOCL) solid upside move and break from the consolidation pattern at the current higher. Worth digging in and trading the individual stocks here as well.
  • Natural Gas (UNG/UGAZ) rising offering some opportunities short term on both stocks and commodity.

There is nothing more than to wait and see how the markets unfolds. There is a lack of conviction as seen in volume, breadth, and volatility… let it unfold, go play some golf, go shopping, or take a long drive… watching the market the last two weeks is like watching paint dry.

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. 

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. Cleared $57.12 resistance but needs a solid follow through.
  • 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 Monday breaking below the $29.50 mark. Leading the downside. Confirmed the break on Wednesday
  • 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. Broke support and watching how it unfolds.
  • 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.

Watching the overall weakness of the markets in the last few weeks. Need some type of positive catalyst or the sellers may get their way near term. The score is currently two sectors in an uptrend, six sectors consolidating, three sectors reversing lower.

(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.