Slow day for stocks

MARKET OUTLOOK FOR April 12th, 2019

Split decision on Thursday as half the sectors move higher and the other half move lower. It was a day of juggling and boring activity. The start higher on Wednesday didn’t follow through and it was another day of jawboning. The charts continue to show some topping patterns and the technical data shows a lack of conviction in the trend. That said, we have to let it unfold. We are not here to be prophetic about the market direction but to manage our money relative to the direction. There are plenty of downgrades on earnings, talk about the 2950 resistance on the S&P 500 index, topping patterns, and weaker economic data… is all of this adding up to a self-fulfilling prophecy about a test or correction in stock prices? Watching with our stops in place as it all unfolds in the coming weeks.

The S&P 500 index closed up 0.1 points to 2888 and no real change on the day. We continue to hold above the 2815 level. The uptrend from the December lows remains in place and watch the trend and support. Seven of the eleven sectors closed in positive territory on the day. The industrials and financials were the leading sectors resuming their respective trends. Healthcare and REITs led the downside on the day and continue to show a topping pattern. 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 16.8 points to close at 7947. 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, but the index recovered those losses on Wednesday. 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 and has tested the move this week. 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. Thursday the index cleared the resistance with a solid move higher… watching for follow through to end the week. 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 and now we look to clear the resistance. Added a position at $188.30. Stop $190.50 (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 $25.02 and remains in a positive pattern holding support… Watching as this continues to unfold.

The Volatility Index (VIX) closed at 13.02 on Thursday moving lower on positive stock activity. Tuesday the IMF warned of global growth slowing for the third time in six months adding some volatiilty. 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) was tame. The overall prices rose 0.4% vs 0.2%. in February. Year-over-year was up 1.9%. Core rose 0.1% in March and 2% year-over-year. Average wages rose 1.3% vs 1.9%. The FOMC minutes released and no real changes or alarms to speak of. It was a calm day for data.

THURSDAY: Weekly jobless claims were below expectations at 196k. Producer Price Index (PPI) showed a sharp rise of 0.6% versus the 0.3% expected. This is a not a good sign for profits as these prices have to be based on to the consumer or the impact earnings. Another item added to the watch list of concerns.

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 today.

(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. Tested lower on Tuesday, bounced back on Wednesday, tested lower on Thursday. Clearly indecision on direction.

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 bounced back on Wednesday. Some topping on the charts.

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. Solid move higher on Wednesday and held Thursday.

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 building a topping range.

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. Topping pattern on the 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 Wednesday showed an increase in US supply. Some delayed selling on the supply data Thursday.

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. Big test on Thursday… rumors out again relative to China.

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 and Wednesday aided by the IMF news. Thursday forfeited all the gains and tested support again.

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 and bounced back on Wednesday.

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. Thursday news took the sector lower and failed to hold the move above $45.21. Watching.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

THURSDAY’s Scans, April 11th: earnings, economic data, international trade questions, China tariffs, etc. etc. etc. The news is keeping the market in limbo this week as investors attempt to make a decision based on the future impact and outcome. Looking forward is always a tricking thing as we can see illusions that don’t exist. We saw some struggles in healthcare/biotech stocks, emerging markets, and oil. We saw some positives in banks, industrials, and transports. Taking what the market offers and managing our risk.

  • Financials (XLF) bounced in front of banks earnings on Friday… watching how the sector performs in light of earnings.
  • Biotech (IBB) tumbled back to support again and in a tight range for now. The move impacted the small cap (IWM) sector as well. XLV fell 1.2% and tested the 200 DMA.
  • Crude Oil (USO/UCO) tested lower as OPEC ponders increasing production. This a day after the increase in US supply data. Watching how this unfolds relative to crude and energy prices.
  • China (FXI) moved lower on speculation.
  • Gold (GLD) gave up all the gain of late… retest support.
  • Homebuilders (NAIL) nice bounce back and move higher the last two weeks.

WEDNESDAY’s Scans, April 10th: News settles and stocks rise slightly on the day. Nothing stirring on the day as some money continues to rotate. The good news thus far is money looks to be staying in the markets versus heading to cash. Bank earnings start on Friday and Thursday and will offer some insight into the economic picture. Taking what the markets offer one day at a time.

  • Telecom (IYZ) breaks higher from consolidation and following through. Positive leadership from ZAYO, IRDM, ACIA, and VSAT.
  • Small Cap (IWM), Midcap (IJH), and biotech (IBB) all moved upside on Wednesday rebounding from the selling on Tuesday… watching how the growth stocks are responding.
  • Gasoline (UGA) big jump on supply data. Adjusting the stop and letting it run.
  • Networking (IGN) solid break from flag pattern. Looking for follow through and scanning the leadership. PLT, VSAT, and COMM.
  • Emerging Markets (EDC) moving higher after breaking from the trading range.

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.

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 and solid move on Wednesday upside.
  • 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. Tested the 200 DMA as selling hit the sector on Thursday.
  • 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. Upside remains in play.
  • 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 with earning starting on Thursday.
  • 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 and bounced back.

(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.