Investors remain engaged

MARKET OUTLOOK FOR MARCH 13, 2019

The broad market indexes added to the gains posted on Monday as investors continue to show signs of hope. Inflation data softened to help ease the minds of investors looking forward, not to mention, keeping the Fed on the sidelines concerning any new rate hikes. The Dow struggled as Boeing continues to move lower on the problems with the 737 Max. Overall the outlook is still cloudy, but the economic data has shown positive signs in January compared to December data. Plenty to mull over and consider as this continues to unfold.

The S&P 500 index closed up 8.2 points to 2791 to recover from last weeks move lower as the index adds to Monday’s gains. It held 2678 as the key level of support. The uptrend from the December lows remains but is being tested currently. The buyers helped the last two days with a solid move higher to start the week. Ten of the eleven sectors closed in positive territory on Tuesday. Technology and energy were the leading sectors to close on the upside. The downside was led by industrials on the day. 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 (adjusted).

The NASDAQ index closed up 32.9 points to close at 7591. The growth stocks got a boost to start the week with growth and large caps leading the broad index. The close back above the 7505 is positive for the index. 7206 is the key level to hold should the sellers return. 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 test to $170.93 is in play and we are watching how this unfolds near term.

Small Cap index (IWM) the next leg of the move higher stalled, tested and broke $152.28 on Friday and bounced back above that level on Monday. Watching how the bouncing ball rolls. We triggered our stop in the sector and watching how this unfolds and what opportunities result. Need some signs of follow through or return to the downside?

Transports (IYT) hit some resistance at the $192.42 level. The test of the $182.43 mark Friday held and a bounce on Monday helping the cause to reverse the selling. The move to resistance at the $186.70 level failed, but watching how this unfolds near term. The break lower hit our near term stop as we watch how this unfolds.

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 week to regain the upside momentum and tested on Friday. The move higher has my attention as it becomes the benefactor of a weaker global outlook becoming a safe haven for currency. The dollar closed at $25.88 and remains in a positive pattern holding support… Watching as it clears resistance at the $25.87 mark.

The Volatility Index (VIX) closed at 13.7 on Tuesday moving lower with the buyers engaged and the anxiety evaporates for the day. Watching how this all unfolds with the sellers stirring showing signs of engaging. Patience.

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 jobs report was weaker not helping the outlook on Friday. The concern was job growth almost stalled with only 20,000 new jobs created. This continues to show a sharp slowdown in the economic picture in the first quarter. Weakest numbers since September 2017.

Retail sales rose 0.2% for January versus -0.1% expected. Much better than expected overall. The December numbers were revised lower making the data look much better than expected. Inflation data favoring rates remaining at the current levels and disengaging the Fed.

(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 with a 6.3% decline for the week. We hit our stops, locked in a nice gain, and now look to what the future has in store for the sector. $107 support is key and we will see how the new week unfolds. Held support and bounced 2% on Monday. Moved to the $112 resistance on Tuesday.

Semiconductors (SOXX) Broke support at the $182.38 mark and tested the $175.89 mark to end the week. Plenty of selling with the sector losing 1.7% for the week. Locked in a solid gain on our position and now look to the future for the next opportunity. Solid bounce to start the week and hold key support levels. Held the move above the $182.38 level on Tuesday.

Software (IGV) Broke $167.88 and bounced back above the same level to create the December lows and start the new trend. $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 then new highs. A big downside for the sector for the week as we manage our exit points. Watching how this unfolds. Solid bounce off support to start the week.

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 can’t decide on direction. This is an interest-sensitive sector… watching how the yields move next week. Continued higher on Monday. New high on Tuesday… solid advance in the sector.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.62% as yields fall on weaker economic data. TLT moved back to the top end of the current trading range after testing the $118.59 support levels. Watching the bond near term along with the volatility index.

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 as the current consolidation 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 $18.42 (adjusted). Managing our risk and letting this play out with our target $58.25 (crude price) in sight. No big changes as we reamin in trading range.

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). News from the European Union and the European Central Bank on the state of the economy is not good for the sector. Fell to support and watching how it unfolds. Big reversal with China leading the upside charge Monday. Added to the move higher on Tuesday.

Gold (GLD) moved lower to start the week and formed a bottom pattern with a gap higher on Friday. Watching how this unfolds with too much speculation in place with global outlook weakening along with the US economic data show weakness as well. Solid move higher to follow through on the Friday bounce.

MidCap (IJH) The uptrend from the December lows are testing with a move below the $190.44 support. Growth stocks have been under challenge the last six days and we will watch how it unfolds going forward. Bounced off support and looking for follow through.

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 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. Gapped lower on the ECB news and worries about global growth. Closed below $43.50 and negated the break higher… Watching. Big bounce from the selling on Friday and looking for the follow through. Nice addition on Tuesday on hope of agreement with the US.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

TUESDAY’s Scans, March 12th: another positive day following the selling on Friday and most of last week. Plenty of activity with stocks testing support and the opportunity to move higher in play. Taking it one day at a time and managing our risk accordingly. Plenty to like as well as be cautious about.

  • China (FXI) big jump off the recent lows as investors have mixed emotions on trade agreement and the economic outlook for China. Letting this unfold.
  • Utilities (XLU) benefactor to lower rates and money rotating towards safety. Solid upside gains the last three days.
  • NASDAQ 100 (QQQ) rallied back to the previous highs already and watching the individual leadership unfold.
  • Gold Miners (GDX) benefitting from the bounce in the metal… Letting this unfold near term.
  • Treasury Bonds (TLT/TMF) upside gaining traction as the money rotates towards safety. Letting it run for now.

Solid two day bounce in progress… watching how this unfolds with the challenges facing the economy and the global markets overall.

MONDAY’s Scans, March 11th: Solid day for stocks and with all the sectors closing on the upside all is well… right? Not so fast. The bounce was just that and we will see how strong it is moving forward. The positive is all our positions gained some breathing room. The bad news is our stops were hit on Friday in several sectors and we will watch to see if they recover enough to reenter any of them. Taking what the market offers and seeing how it unfolds.

FRIDAY’s Scan, March 8th: The jobs report was enough to start the day in negative territory as the US economy continues to show signs of weakness. I am looking for the opportunities in this shift of sentiment and where money is rotating. Money is always moving where it believes it will be treated the best the fastest. We see some emerging opportunities in the current activity.

  • Gasoline (UGA) cleared $25.50 for the first opportunity to add a position. The move from the trading range Friday offered the next. Watching how this continues to unfold.
  • Utiliites (XLU) cleared the $57.12 resistance and keeps the current uptrend alive… letting it play out and looking in the sector for individual leadership.
  • Bonds (TLT, BND) money rotating to safety again as worries rise about the state of economic growth. Trading opportunities in each currently.
  • Dollar (UUP) rising as the currency of choice in a sea of worries about the European Union and other global weakness.
  • Oil & Gas Production (DRIP) solid break higher in the sector despite the struggle for crude to break higher. Plenty of movement in the sector worthy of attention.

Overall the outlook is getting more cloudy and concerns are on the rise. The jobs report was just the latest issue seen in the US economy. We will continue to gather the facts and look where money rotates… we will rotate with it as long as the trend and the facts support the move.

THURSDAY’s Scan, March 7th: the sellers continued to engage and push stocks lower to the next level of support. We will let this unfold, but it is not unusual for trends to test. This is still a test and we would look at the 50 DMA as the level of support to hold. That would result in roughly a 5% test of the rise off the December lows. The key is to manage our money in the context of our objectives by each position held, not by emotions or the whole. With that in mind we watch how this unfolds and the opportunities it will present.

  • Small Caps (IWM) Mid Caps (IJH) continued lower. We hit our stops and booked our gains. The key now is finding support and the opportunity that arises.
  • NASDAQ 100 (QQQ) Tested support at the $170.93 mark and watching the move today… stops are in place.
  • Financials (XLF) break below support… negative sign. Brokers (IAI) banks (KRE/KBE) and insurance (KIE) leading the downside.
  • China (FXI/YANG) falls on news from the EU and growth. Watching how it handles this level of support.
  • Transportation (IYT) falls to $182.43 support. Watching this sector as an indicator looking forward.

Plenty of activity happening… jobs report out today. Watching how it unfolds and managing the risk accordingly.

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.

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 tested at the $54.15 mark again. Bounce as buyers return on Monday. Tested resistance at $55.95 on Tuesday.
  • 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.
    Bounce as buyers return on Monday. Solid upside follow through on Tuesday.
  • 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 breaking below the $29.50 mark. Watching. Bounce as buyers return on Monday. Moved back to the $29.50 resistance on Tuesday.
  • 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. Bounce as buyers return on Monday.
  • 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… stalled and testing the uptrend.
    Bounce as buyers return on Monday. Tested on Tuesday?
  • XLE – Energy stocks struggle on the week and gap lower on Friday around the talks of slowing global economy. Watching. Bounce as buyers return to start the week.
  • XLV –  Healthcare fell to the 200 DMA and testing support. Hit our stop on positions and watching how this previous leader unfolds. Bounce as buyers return on Monday. Bounce as buyers return on Monday. Solid follow through on Tuesday.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $68 (adjusted). $71 resistance to clear as the sector tests support. SOXX, IGN, HACK, SOCL, and IGV all part of the puzzle for the upside to continue. Bounced back above the $71 level again. Nice follow through on Tuesday.
  • 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 week with IHI, KBE, KRE, and IAI heading lower. Bounce as buyers return on Monday. Needs to follow through.
  • 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, but has tested on the downside this week. Consumer coming into question short term. Bounce as buyers return on Monday. Cleared $109.21 and holding.
  • 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. Moved back to the top of the current range on Monday and Tuesday, pushed towards new highs.

(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 support levels. The bounce from the December lows remain in play but will need some help from the buyers if this it to remain. Looking at the charts you can see the key levels of support coming into play… a break of these levels and the trend will shift to negative giving the sellers the upper hand in the current trends and momentum. There are some issues facing investors as the trade agreement has not materialized with China. Fundamental data is weakening. It is weakening globally as seen in the latest round of economic data from Europe and China. The US data for the first quarter is anything but stellar. This was a week of testing and speculating. The jobs report on Friday was not helpful. The bounce back from the early selling offered some hope heading into the new week of trading. 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.

Two of the eleven sectors managed to close the week in positive territory as money rotates towards safety. Utilities and REITs led the upside for the week. Energy and healthcare were the laggards as money looks for a new home. Interest rates ended at 2.62% forfeiting the gains from last week. The ten-year bond moves back to the top end of the range showing money rotation short term. The dollar bounced with talks of a slowing global economy becoming the currency of choice. 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.