News keeps markets in check

MARKET OUTLOOK FOR April 9th, 2019

Somebody mentioned there “might” be an expansion of the trade wars in Europe. The markets reacted as some investors take money off the table and now there are talks of there “might” be a correction brewing in stocks. The rumor mill is at work and that always gets my attention to manage the risk in the current environment. Adjusting stop, listening, and letting others react while we manage our money. Mr. Trump did state he was ready to implement $11 billion in tariffs against the EU over subsidies to Airbus. That didn’t sit well with Wall Street and most sectors and major indexes closed the day in the red. We now watch how this unfolds… follow through on the downside and break of the first levels of support will be negative. One day and two things that might happen don’t make them true. Follow your strategy and mange your money.

The S&P 500 index closed down 17.5 points to 2878 and ending the eight day run of closing higher. We continue to hold above the 2815 level. The uptrend from the December lows remains in place and we star our precautionary watch of the trend and support. Ten of the eleven sectors closed in negative territory on the day. We discussed the technical data showing the markets in overbought territory yesterday and maybe we are seeing self correcting in that matter. Utilities was the sole upside sector to close on the upside. The downside was led by industrials 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 $46.28 (adjusted).

The NASDAQ index closed down 44.6 points to close at 7909. The large-cap stocks (QQQ) have been the leader for the move higher and testing the move above the March 21st high. The 7597 support is the level to watch should the sellers gain control near term. Technology held up giving up some ground, but still in a leadership role. QQQ is our indicator near term and needs to hold $183.60. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark and holding. TQQQ entry $34.17. Stop $57.50 (adjusted). Solid leadership in this sector and watching how it unfolds with the move above $180.28.

Small Cap index (IWM) the sector has been in a consolidation pattern. The need to close above the $154.90 level was key to breaking higher to continue the previous uptrend. Need to hold above $156 and clear the Feb 25th highs to show positive progress in the current move. The dip of more than one percent on Tuesday was not a positive sign. Start of the current trend was the break lower testing the $149.05 support and back to the resistance at $154.90. The trend from the February highs was heading lower… it did reverse back to positive last week but is testing that move currently. The chart is still not very convincing with the buyers not quite as robust and the volume on the low side. We are looking at what opportunities result near term.

Transports (IYT) hit some resistance at the $192.42 level and showing a reversal topping pattern. The test of the $182.43 mark failed then bounced back above that level and $186.70 cleared. The big gains last week brought the $192.42 level back in play but have failed to clear the resistance. Added a position at $188.30. Stop $187.90 (adjusted). 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 globally is helping the dollar currently. The IMF revised GDP numbers lower for around the globe. 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 $25.98 and remains in a positive pattern holding support… Watching as this continues to unfold.

The Volatility Index (VIX) closed at 14.2 on Tuesday bouncing from the lows as the IMF warns of global growth slowing for the third time in six months. The tug-o-war remains between buyers and sellers near term. 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: quite with no news to speak of.

TUESDAY: Factory orders fell 0.5% and in line with expectations… not a great sign for growth. Job openings fell to 7.1 million from 7.6 million. Not a positive showing either… the numbers continue to favor a slowing economic picture.

WEDNESDAY: Consumer Price Index (CPI) due today. FOMC minutes released and will be watched closely. Federal budget is released as well.

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. By the way… those start at the end of the week.

(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 $115 level on Friday showing some buyers as small caps rise equally. Watching how this unfolds this week. $115 key level to move above. Failed to make progress and tested lwoer on Tuesday.

Semiconductors (SOXX) Tested below the $187.41 support and managed to hold. Solid gains higher for the week as the sector moves higher. Watching how this unfolds going forward. Entry $187.50. Stop $187.50 (adjusted). $195.87 key level cleared and at new highs. Tested lower on Tuesday and watching how it responds balance of the week.

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 back above the $210 level which happened on Friday… looking for a follow through. Showing some weakness in the sector near term. $209.90 key level to hold near term.

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 $85 (adjusted). Managed to break above the trading range in a positive week of trading. Adjusted stop and letting it unfold. Tested the move higher the last two days.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.5% as yields bounce back following the big decline on weaker economic data. Watching the bond near term along with the volatility index. Yields remain near the current lows even with the modest bounce.

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)… The OPEC cuts are being rumored to have impacted supply. Watching for facts. Trading above the 200 DMA. Small decline Tuesday on the IMF data reducing growth targets globally. Supply data out today as well.

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 $42 (adjusted). News from China helping on the week, but the details are what will matter moving forward. Adjusting the stop and letting it unfold. $43.80 key level to hold.

Gold (GLD) spiked lower again retesting support. Watching how the metal responds to the ups and downs of the dollar and global economic picture. Downtrend developed on the chart. Moved to $122.46 and the next level to clear if the upside is to resume. Added to the move on Tuesday aided by the IMF news.

MidCap (IJH) The uptrend from the December lows are tested with a move below the $190.44 support. They have now managed to move higher and Friday cleared the February highs completing the reversal. Entry $190.45. Stop $188. $194.84 level to clear currently. Tested Tuesday moving lower and watching how it responds.

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. Talk of tariff agreement back on the table… but, we have heard this too long. The break from the eight-month bottoming pattern finally getting some follow through. 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. Cleared $45.21. Held in the world of news on Tuesday.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

TUESDAY’s Scans, April 9th: Mr. Trump helps fuel the fire on tariffs with Europe, the IMF lowers global growth estimates, and investors take some money off the table. Overall not a terrible day, but the talking heads were given a platform based on the news. Throw in earnings beginning and this may get interesting going forward. No need for reaction only management of money. Our stops are in place and we will watch how this unfolds.

  • Energy (XLE) gave back the gains and testing the break from the consolidation range. Watching crude oil (USO) as well.
  • Gold (GLD) gains some traction on the IMF data. This is worth watching as well… will money rotate to gold in response… only if it views the weakness as longer term.
  • Financials (XLF) tested on Tuesday… $26.33 level to hold… remember earnings start in this sector on Friday.
  • Small Caps (IWM) tested the move higher and watching how this plays out with growth stocks under pressure. IBB also tested on the day.
  • Retail (XRT) another key sector in consolidation phase. The last two days are testing the bounce from support at the $43.66 mark.

MONDAY’s Scans, April 8th: Interesting day for stocks as they started lower and then buyers stepped in to take them back to positive territory. The news is back as a key driver on the day. Boeing downgraded, OPEC driving oil prices, earnings upgrade and downgrades moving stocks, and news of a trade deal getting closer. Keep your focus and manage the risk as we let this all unfold.

  • Crude Oil (USO/UCO) moving higher and adjusting our stop. Gasoline (UGA) same issue.
  • Apple (AAPL) trade entry at the $176 level continues to rise nicely. Adjust your stops and manage the risk of the short term opportunity.
  • Energy (ERX) $19.80 entry playing out. The move above $23.60 gave second entry point with confirmation on Monday.
  • Commodities (GSG) moving higher with oil driving the upside. DBC clearing resistance $16.16.
  • Banks (KRE) solid bounce off support and watching as we approach earnings in the sector.

FRIDAY’s Scans, April 5th: Jobs report leads the market modest higher to end the week on a positive note. The energy sector was the leadership on the day as crude continues to march higher. Utilities, healthcare, and consumer discretionary helped lead the markets. All is good in the wonderful world of stocks. We will continue to watch the current rotation and the opportunities that are unfolding.

  • Energy (XLE) breaks from the trading range to clear $67 and offer another entry point for the sector. Digging into the sector for leadership offers some solid upside opportunities. HES, XOM, FTI
  • Consumer Discretionary (XLY) adding to the upside run in the sector. Adjusting our stop accordingly. Solid leadership from HOG, DG, DHI.
  • Biotech (IBB) attempting to break higher from the consolidation pattern. LABU clearing $64 for entry point. Needed the leadership from small caps to help the sector move higher.
  • Homebuilders (NAIL) solid break higher the last two days. Lower interest rates helping the cause.
  • Crude Oil (USO/UCO) continues to move higher in solid uptrend. Watching how this unfolds with supply cuts from OPEC and sanctions on two major oil producing countries. Adjusted stops.

Positive week overall for stocks as the buyers remain engaged. Watching, adjusting, and managing our money.

THURSDAY’s Scans, April 4th: Software sees some selling. Industrials and basic materials move higher. Consumer discretionary moving higher. Some rotation of money, but not enough to raise any flags. Watching how the jobs report impacts trading. Following the money and looking where the opportunities lie.

  • Basic Materials (XLB) breakout continues to follow through and digging into the leadership offered some short term opportunities. FCX, CE, FMC, NEM, and SHW. Taking what the market offers.
  • Industrials (XLI) trying to break through resistance and offer some leadership. Watching SWK, IR, FDX, MAS, and CMI.
  • Commodities… SGG, WEAT, CORN, SOYB, NIB all moved higher on the day… watching how this unfolds. DBA spiked in a reflection of the move.
  • Retail (XRT) cleared resistance at the $45.50 mark. M, URBN, ZUMZ, FL, and AEO show upside opportunities.
  • Software (IGV) downside move has my attention as we manage our stops.

Jobs report due out Friday AM. Watching the rotation.

Other moves of note… TWTR, GG, MSFT, AAPL, FB, T, F, MU, AMD.

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.

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 has moved into a leadership role with the climb above $55.95. Testing
  • 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 $56.75. Topping pattern showing on the chart and letting this unfold with stops in place. Consolidation phase.
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $28.25 (adjusted). Cleared the February highs and continued the uptrend. Hitting new highs.
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and continued upside trend. Managing our risk. Entry $51.90. Stop $54.25 (adjusted). Cleared resistance at the $54.92 level. Testing the break higher. Remains in an uptrend.
  • XLI – Industrials moved to near-term low and bounced. $65 level cleared for trade opportunity. Entry $65. Stop $74.05 (adjusted). Back to resistance at the $76.80 mark and watching. Facing resistance at February highs. Pulled back to $75.72 support.
  • XLE – Energy stocks bounced back with crude prices moving higher. Breaking from the trading range and plenty of uncertainty in the sector overall. Watching for follow through on the move above $67. Attempting to confirm the break higher. Tested the break higher and watching.
  • 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. Consolidation pattern in place… Consolidation phase.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $73.50 (adjusted). Trading near the October highs and resistance. SOXX, IGN, HACK, SOCL, and IGV all part of the puzzle for the upside to continue.
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $25.76. Stop $25.50. Cleared $26.33 level of resistance and watching. Moved to the 200 DMA. Tested Tuesday.
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $113.50 (adjusted). Cleared resistance at $113.50 level. Taking on a solid leadership role for the last two weeks.
  • 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. Tested last two days.

(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 and have bounced back near the October highs as resistance. The S&P 500 has been up for seven days running. The leadership remains in place and the small caps joined the upside effort to end the 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 decided they like the economic data thus far for March. There are earnings on the horizon as we get first quarter results from companies. 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 weaker 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 move with some rotation. Financials and basic materials led the upside for the week. Consumer staples were the laggard as money looks for a new home. Interest rates ended at 2.5% as they got a small bounce from the trek lower. The ten-year bond moves higher 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.