Semiconductors lead markets higher

MARKET OUTLOOK FOR April 4th, 2019

Markets continue to find buyers with semiconductors leading the move on Wednesday. The sector is the first to hit new highs on the reversal from the December lows. Plenty of chatter about the major indexes not holding the early gains, but they did manage to close higher overall… sometimes trying to read too much into the intraday activity will make you crazy… on the other hand you have to watch the activity to see if there is profit taking emerging with investors selling into the rallies. For now, we will manage our stops and not the markets. There is good and not so good showing in the charts, the data, and the news.

The S&P 500 index closed up 6.1 points to 2873 and holding above the 2815 resistance level. The uptrend from the December lows remains in place and the last five days have recovered from the test of support. Five of the eleven sectors closed in positive territory on the day. Basic materials and technology were the leading sectors to close on the upside. The downside was led by consumer staples and energy as money continues to look for new opportunities. The long-term trendlines improved but are approaching the key levels to make or break the current trends. We will watch how the current activity unfolds and the impact on the trends longer term. SPXL entry $33.50, stop $44.50 (adjusted).

The NASDAQ index closed up 46.8 points to close at 7895. The large-cap stocks (QQQ) have been the leader for the move higher and managed to clear the March 21st high. The close back above 7597 support was positive to keep the current uptrend alive and well. Semiconductors bounced back above the key $187.41 level Friday and followed through the last three days to lead the way higher. 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 $55.55 (adjusted). Solid leadership in this sector and watching how it unfolds with the move above $180.28. The buyers have taken control near term.

Small Cap index (IWM) the next leg of the move higher stalled struggled with the $154.90 level again. Broke lower testing the $149.05 support and back to the resistance at $154.90. The trend from the February highs is down… Thus far. The chart is still not very convincing with the buyers not quite as robust and the volume on the low side. Watching how the bouncing ball rolls. We are looking at what opportunities result near term.

Transports (IYT) hit some resistance at the $192.42 level. The test of the $182.43 mark failed then bounced back above that level and $186.70 cleared on Friday. The big gains on Monday brought the $192.42 level back in play, but has failed to clear the resistance. Added a position at $188.30. Stop $182.43. Taking what the sector offers.

The dollar (UUP) The reaction to the FOMC pushed the buck to support at the $25.50 level. A dovish Fed willing to offer stimulus is not favored by the dollar… But, a weaker economic picture is helping the dollar currently. It is a matter of which news story holds the greatest belief for the buck. The big question mark for the buck remains a possible resolution to the trade tariffs with China. The ETF closed at $26 and remains in a positive pattern holding support… Watching as this continues to unfold.

The Volatility Index (VIX) closed at 13.7 on Wednesday moving higher as the tug-o-war remains between buyers and sellers. Watching how this all unfolds patiently.

Economic Data: April starts a new round of data for the month of March… looking for some improvement over February.

Monday… Retail sales fell 0.2% or 0.4% ex-autos. ISM manufacturing rose to 55.3 vs 54.2. Construction spending rose 1% vs 2.5% previous. Business inventories rose 0.8% vs 0.6% previous. More signs of a slowing economic picture.

Tuesday… Durable goods fell 1.6% vs 0.1% previous.

Wednesday… ADP employment report 129,000 vs 197,000. ISM services 56.1 vs 58.1 expected. Vehicle sales 17.5 million vs 16.8 million expected. Some good… some bad. Watching how markets respond overall.

It is all about the progress since rates were hiked by the Fed… we continue for the fourth straight month to see slowing in the data. Eventually this will show up in stock prices through earnings.

(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 selling resumed and tested the $107 support again… bounced back to the $112 level on Friday and watching how this unfolds this week. Added to the move higher on Monday… slow and steady goes the bounce.

Semiconductors (SOXX) Tested below the $187.41 support and managed to hold. Watching how this unfolds going forward. Solid gain higher on Monday and added 2.2% gain on Wednesday to follow through to new highs.

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 $202.60 (adjusted). Topping pattern in play and needed a move above the $210 level which happened on Friday… looking for a follow through. Solid follow through on Monday… New highs on Wednesday with uptrend alive and well.

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 $84 (adjusted). Managed to break above the trading range in a positive week of trading. Adjusted stop and letting it unfold. Tested lower Monday, but closed flat on the day… interest rates jumped on the 10-year bond. Tuesday bounced higher to resume the upside move.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.41% as yields fall on weaker economic data. TLT moved back to t he top end of the current trading range after testing the $118.59 support levels. Watching the bond near term along with the volatility index. Yields remain near the current lows this week. Jumped o 2.49% on Monday… some relief from the flight to safety. Upside resumes on Wednesday.

Crude oil (USO) showing resolve to work higher. 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 $21.50 (adjusted). Managing our risk and letting this play out with our test of support at $58.25 (crude price)… Prices jumped higher on the positive Monday globally with China stating things were improving economically… Continued higher on Tuesday to $62.58.

Emerging Markets (EEM) Watching as the bounce from the bottoming pattern moves sideways in a range of uncertainty about trade and economic growth. Rumors of trade resolutions and talks with China helped the index but needs some reality to follow through. 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. Jumped higher on the News from China… better economic picture? We will see if that is true. Looking for move through key resistance.

Gold (GLD) spiked lower again retesting support. Watching how the metal responds to a weaker dollar and improving economic picture in the US markets. Downtrend developing on the chart. Weaker on dollar and economic data.

MidCap (IJH) The uptrend from the December lows are testing with a move below the $190.44 support. Growth stocks have stalled with the large-caps taking the lead… watching how this unfolds going forward. Made the move above $190.44… hope remains for the upside move.

China (FXI/YINN) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Bounced off support at $43.50 mark. Talke of tariff agreement back on the table… but, we have heard this too long. The break from the eight-month bottoming pattern has stalled for now. Entry $39.80. Stop $42. News of improving PMI from a private rating service in China… perhaps, but doubtful… we will see how it unfolds… stocks jumped on the news.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

WEDNESDAY’s Scans, April 3rd: Semiconductors lead the day with a solid jump to new highs. The chatter about major indexes not holding the early gains was of interest, but Thursday and Friday will help sort out the winners and losers. White House offered positive comments on the China-US trade talks. progressing. OPEC production cuts having some impact on the price of crude near term. Taking it one day at a time… plenty of things to like and some not to like. Stick to your startegy and mange your risk.

  • Technology (XLK) semiconductors (SOXX) leading the upside move for now. This is key leadership for the broader indexes as stocks like AMD, MU, NVDA, and MSFT push higher.
  • Automobiles sales were better than expected… F jumped higher and breaks from the trading range. Worth our attention to review and scan the sector overall.
  • Energy (XLE) stocks are not trading in sync with the price of crude rising. The current resistance at $67 remains in play.
  • Biotech (IBB) pattern consolidation in position to break higher. Watching for the upside opportunity in the sector. XBI also showing some positive signs. Scanning the sector for stocks show solid leadership in play.
  • Social Media (SOCL) breaks from consolidation pattern to renew uptrend.

Overall market remains in an uptrend. Some sectors are doing better than others. Follow the leaders and remain disciplined in your approach to stocks and managing your risk.

TUESDAY’s Scan, April 2nd: Markets stalled as investors digest the news about the economy and the talking heads evaluate the current conditions. There was the talk from the White House about an interest rate cut… too much, too soon… watching how investors deal with the reality of a slowing economic picture. One day at a time and tightening stops.

  • REITs (RWR) moved to new highs again as interest rates hold near the 2.48% mark on the 10-year bond.
  • Crude Oil (USO/UCO) climbing again as it breaks from the consolidation range. Raised the stop on our position. UGA posted solid gain as well on the move.
  • Europe (EURL) bounced back nicely to clear $26.79 and resume the uptrend. Watching our stops and looking for more upside.
  • Small Caps (IWM) no participation to speak of from this sector. Without it… hard for me to believe the upside rally goes far.
  • Retail (XRT) reversed on Tuesday… not a good sign for the upside either. Watching how the parts unfold… some key areas not participating in the upside move.

No sellers showing up yet. Taking what the market offers one day at a time. Stops in place. Focus on the strategy and discipline not the emotions of the news.

MONDAY’s Scan, April 1st: Solid upside for the broad markets. Interest rates rose eight basis points, money rotated again towards large cap stocks, and small caps continue to lag. All in well on Wall Street and investors are happy… at least they were on the first day of the second quarter. Taking it for what it is and managing our risk.

  • S&P 500 index (SPY) clears the March highs and eyeing the 2018 highs. Positive move technically for the markets. Need to follow through.
  • Financials (XLF) big bounce off support thanks to the yields moving on the 10-year bond. Watching how this unfolds near term. Entry at $26.35 on confirmation.
  • Industrials (XLI) and Basic Materials (XLB) bounce nicely to regain their upside momentum after selling lower. Need some follow through near term.
  • China (FXI) solid upside gap higher on the new of better PMI in the country. Watching how that unfolds as well.
  • Technology (XLK) and Semiconductors (SOXX) nice upside move and pushing back to previous highs.

Overall positive day for stocks. New quarter, new money, new hope… Watching how this unfolds in the coming days. Manage your risk and never assume anything.

FRIDAY’s Scans, March 29th: Buyers return and show some resolve in putting money to work as the month ends. Economic data remains on the weak side and there will be plenty of data released next week relative to March. Watching how this unfolds and what opportunities are presented.

  • Markets overall (SPY/QQQ) bounced back to the top of the current range and are looking for buyers to follow through on the upside. Being patient for now.
  • Technology (XLK/SOXX) bounced nicely to end the week… still plenty of work to be done upside if the trend is to continue higher.
  • China (FXI/YINN) solid bounce off support and still looking for direction. Tariff issues remain unresolved and no real headway to speak of. Hong Kong (EWH) is trend higher breaking from the consolidation pattern.
  • Base Metals (DBB) gapped higher on Friday to clear resistance at the $16.76 level. Watching how the uptrend unfolds.

THURSDAY’s Scans, March 28th: The positive boost for stocks on the day as they remain in a trading range and flirting with uncertainty about the economic picture near term. The slowing signs of the US economy is being weighed against a possible trade agreement with China… patiently awaiting direction.

  • REITs (RWR) they remain on a roll as the treasury yields remain under pressure from a flight to quality. Investor fears are on the rise.
  • Utilities (XLU) plunge lower on the bounce in interest rates and questions about growth. Watching how this sector unfolds with our stops in place.
  • Crude Oil (UCO/USO) testing the break above $28.25 has my attention. Watching for upside bounce or the trend comes into question.
  • Treasury Bonds (TLT) the upside leadership is a result of a passive Fed. The interest rates are testing 2.37% on the ten-year bond and the rally in bonds is now back at the September highs.
  • Gold (GLD ) dumps lower as concerns about growth meet the hope of a China trade agreement. Watching short side trade opportunity.

Overall stocks remain in trading range with plenty of questions.

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 $55.95 mark again. Held support at the $54.15 mark and watching. A solid move above the $55.95 level and follow through.
  • XLU – The utility sector found support at $51.11… moved above $52.72 for entry. Cleared $57.10 resistance and showing some near term topping. Watching and managing the risk. Entry $53. Stop $56.25. Testing move to new highs? Higher interest rates playing havoc with the outlook.
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $28.25 (adjusted). Trying to clear the February highs. Nice break to a new high.
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and continued upside trend. Managing our risk. Entry $51.90. Stop $53. Cleared resistance at the $54.92 level. Adding upside on the week. Led the downside on Tuesday and Wednesday?
  • XLI – Industrials moved to near-term low and bounced. $65 level cleared for trade opportunity. Entry $65. Stop $74.05 (adjusted). broke below $74.15 and bounced Friday… Big upside move on Monday… watching how it unfolds.
  • XLE – Energy stocks bounced back with crude prices moving higher. Breaking from the trading range and plenty of uncertainty in the sector overall. Hit resistance again at the $67 level.
  • XLV –  Healthcare fell to the 200 DMA and bounced at support. Still not showing a lot of strength overall. Watch the parts for clues as
    XPH stalls, but IHI and IHF show some positive signs. Back to the top of the current range.
  • 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. Back to the leadership role for the broad markets.
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.50 (stop hit). Testing support $25.25. Solid bounce as rates on the 10-year bond rise.
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $109 (adjusted). Cleared resistance at $109.21 with a solid advance as it attempts to clear the $113.50 level. A positive break higher and showing some leadership.
  • RWR – REITs broke lower… bounced from lows clearing $93.21 resistance… positive upside move. Entry $88. Stop $96.50. Watching and managing the risk. Made move to new high last week.

(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 tested and held key support levels. The bounce from the December lows remain in play and watching how the buyers respond to the move up and down last week. Looking at the charts you can see the key levels of support holding, the key resistance levels remain in play as well. April is here and investors will decide how they like the economic data for March as it is released. Are the sellers done? Do the buyers have enough conviction to head to new highs? Plenty of question marks and only time will tell the outcome. There are some issues facing investors as the trade agreement has not materialized with China. Fundamental data remains on the weak side both domestically and internationally. We will take the positive week for what it was as we continue to emphasize sound money management. We will 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.

Ten of the eleven sectors managed to close the week in positive territory as money continues to move to look for a home. Industrials and basic materials led the upside for the week. Utilities were the laggard as money looks for a new home. Interest rates ended at 2.41% as they continue the trek lower. The ten-year bond moves higher breaking from the current range as money rotates to safety. The dollar bounced back as the global picture remains uncertain. 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.