MARKET OUTLOOK FOR June 4th, 2019
Mexican tariffs were not enough now the DOJ/Fed is looking at anti-competitive tactics in large-cap tech. Google, Apple, Amazon all fell on the news. Facebook wasn’t mentioned, but one would assume they will be in the mix. One would assume if you poke the bear long enough eventually it will react. There are those who believe this is long overdue, but the timing of it seems odd. Again, it is not our to do understand, but to manage money based on what the market gives. If you look at the charts of these four stocks you will note exit signals were hit previous to yesterday. If you were holding them yesterday they confirmed those exit points. If you are still holding them today… you are acting on emotions… not a disciplined strategy for managing risk. The goal is to keep our money out of harm’s way.
The S&P 500 index closed down 7.6 points to 2744 still below the 200 DMA and confirming the downside trend from the May highs. Tariff threats took a back seat to antitrust allegations. Just what the broad indexes need… more uncertainty. Interest rates remain a concern with the 10-year bond yield at 2.08% on Monday. It was at 2.6% when the selling started in April. The good news is nine of the eleven sectors closed higher on the day as basic materials and energy led the upside. The downside came from technology and consumer discretionary both giving up support levels and adding to the downtrend. The long-term trendline remains in question as they are tested on the downside move. Looking for the next opportunity.
The NASDAQ index closed down 120.1 points at 7333 and confirms the break below the 7597 support level and the 200 DMA. Technology stocks broke lower on the antitrust investigation. QQQ is our indicator as it confirmed the close below the $174.43 level of support and closed below the 200 DMA. The four companies in question make up a significant percentage of the index. Short side signal still in play for the index. Entry was the confirmation of the break below the $177.58 level. SQQQ in play. Entry $41.40. Stop $45 (adjusted & sold 1/4 @ $47.50). Short trade was big benefactor on Monday adjust stop.
Small Cap index (IWM) the sector broke below the $146.714 support and Monday showed some interest from buyers. The sector is below the March 22nd lows. The short side set up remains on the chart. TZA $10.45. Stop $10.45 (adjusted). Watching for the oversold sector to bounce…
Transports (IYT) hit some resistance at the $200.53 level and the index reversed on some solid selling. The last week+ has pushed the sector lower breaking the $182.43 support and adding to the downside. Monday there were some signs of a bottom… Watching how the current activity unfolds with no positions currently. Short side entry set up with break lower. $182.43 level failed to hold.
The dollar (UUP) The big question mark for the buck remains the trade tariffs with China. Lack of a deal will favor the dollar short term. The hope of a deal will hurt the dollar. Friday and Monday the news the Fed would intervene on interest rates moving lower hurt the rise of the dollar. The ETF closed at $26.18 and tested the 50 DMA. The uptrend remains in play, but the last two days put a dent in the move higher. Watching as this continues to unfold.
The Volatility Index (VIX) closed at 18.8 as worries about tariffs (add Mexico to the list) continue to play havoc with investors emotions. Throw in Monday’s news of antitrust action and you have more emotions in play. Uncertainty is the key issue at hand. Interest rate worries remain in the mix with the ten-year bond approaching 2%. Uncertainty in the markets and it is impacting investors.
UVXY moved back to the $37.50 level (entry) and watching how it unfolds. Stop $38. As noted the response on the open Friday spiked the index and we locked in gains on 1/3 of the position ($40.75 exit on 1/3 for 9% gain Friday… sold another 1/3 Monday $41.50.) and raise the stop to breakeven on the balance. This is a high-risk trade and has to be managed by the headlines and market movement daily.
Economic Data: Some positives in the data for the month of March… showing sound improvement over February.
MONDAY, June 3rd: ISM manufacturing was 52.1 vs 52.6 expected and down from 52.8 in April… there is slowing in the economy and the data is starting to confirm. Yield curve impact? Yes. Uncertainty impact of growth? Yes. If the Fed is engaged it will have to act soon on interest rates. Construction spending was flat versus 0.3% expected. Motor vehicle sales were better than expected at 17.4 million versus 16.9 expected. Key data is pointing to a slowing economy.
FRIDAY, May 31st: Personal income rose 0.5% beating expectations. Consumer spending was higher by 0.3% also beating expectations. Core inflation was in inline at 0.2% keeping the Fed happy. Chicago PMI 54.2 better than previous and consumer sentiment was off as tariff worries rise. Overall it was a positive news day for the economic picture.
THURSDAY, May 30th: Weekly jobless claims met expectations, consumer spending was slightly better helping the retail sector, and pending home sales index fell into negative territory at -1.5% versus up 3.8% previous. Mixed data remains.
WEDNESDAY, May 29th: No News
TUESDAY, May 28th: No news
It is all about the progress and the data of late has been more mixed than previously. There are still some sectors showing signs of growth, but overall it is still slowing. Monday started a new month and we will get plenty of data from May to digest and ponder. The renewed chatter on tariffs isn’t going to help things looking forward. Interpret the data versus following our emotions. Let the trend be your friend… and for now, that is down.
(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 found support near the $101 mark. The break lower was the small-cap stocks struggling. We don’t hold any positions in the sector currently. Looking for some clarity in the sector. The short side trade needs to confirm the break below $101. Bottom? Watching.
Semiconductors (SOXX) Watching the downside pressure as the sector continued lower on the week. The close below $182.38 was a negative and the short side trade in the sector (SOXS) in place. Watching how the downside unfolds with key support at the $175.89 mark. The consolidation pattern is of interest near term. Bottom? Watching.
Software (IGV) The uptrend reversed at the $167 level remains in play with a consolidation pattern near the highs. We hit our stops at $214.80 and continue to watch how this unfolds and what opportunities it brings. Support at the $204.53 is the level to watch for now. Reaction and ripple effect of the antitrust investigation.
REITs (IYR) Sideway trading range for now. Interest rates continue to fall, but the economic picture lacks clarity thanks to the tariff talks. Holding for now and letting the news settle. Broke $75.21 and bounced… trading opportunity on reversal above $75.21. Entry $75.25. Stop $85 (adjusted).
Treasury Yield 10 Year Bond (TNX) closed the week at 2.14% and down 18 basis points as money rotates to safety. Watching how this unfolds near term and what action the Federal Reserve will take. TLT is a hold if you own bonds. Flight to safety related to the China & Mexico tariff threats. TLT hit entry at $124. TMF entry $20.26. Stop $23.50. Rates are falling off a cliff as they approach 2%. Bonds are the benefactor.
Crude oil (USO) Worries about the supply data this week pushed crude below the $58.25 support. Tanked on Thursday and Friday in response to the tariff news, but also the lack of drawdown in US supply data. Short side trade playing out well for now. Entry SCO $ 15.75. Stop $18.2 (adjusted). NOTE: speculation, emotions, and worries create opportunities.
Emerging Markets (EEM) The downside found support and held with a modest bounce off the lows this week. China helped, holding steady on news of talks still in motion on tariffs. Regained the $40.25 support and watching how this unfolds. Short side trade entry hit (EDZ) at $45.55. Stop $51.50 (Stop Hit). Bounce reversal follows through… $41.23 level to clear for an opportunity.
Gold (GLD) built a base of support and tried to start an upside move on worries about trade. The move above $121 was a positive and entry-level opportunity if you believe things will worsen globally. Speculation would say… YES. However, I avoid speculation of this type. The upside confirmed and broke higher on Mexico tariff threats… but, the real move came on the heels of speculation the Fed would cut rates, which in turn weakens the dollar, which favors gold. $122.50 entry level. Watching how this unfolds. Spiked higher on bonds, dollar, reacting to the antitrust and economic data.
MidCap (IJH) The sector continued lower with the broad indexes last week. The move below the $182.55 mark was another negative for the trend. No positions as we look for the next opportunity. Bottom? Watching.
China (FXI/YINN) the country ETF is a good benchmark for what is taking place with the current news and tariffs. The bottom has now been established at the $40 level with some consolidation on the week. We did trade the short side of this with YANG. Entry $42.70. Stop $54.60 (adjusted). Watching with the downside in play. Bounce reversal in play?
(The notes above are posted every weekend and updated daily Bold Italics)
DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT
MONDAY’s Scans for June 3rd: Mixed news and mixed moves in the broad markets and specific sectors. Technology is hit by the rumored antitrust investigation from the DOJ. Energy stocks bounce, dollar tanks, gold spikes, defensive stocks seeing some buying, and some bottoming patterns emerge. Yes, technically stocks are oversold. But, I know one thing, markets can remain irrational longer than I can remain solvent trading against them. Stay focused. Manage risk. Have a defined strategy for every position. Avoid speculation and rumors. Trade what you know, not what you think.
- Bottoming patterns to watch… IWM, FXI, XLF, IYT, XLE, SOXX
- Vertical moves to manage… TMF, GLD, UVXY, SCO, SQQQ
- Opportunities… SIL, NUGT, IGV, XLV, IBB
- Key Issues… Interest rates, tariffs, economic data, antitrust, all are creating their respective level of uncertainty. They all have an influence on the markets short term… the longer term issues are how they impact growth moving forward.
FRIDAY’s Scans for May 31st: All hell broke loose on the speculation surrounding tariffs, interest rates, and the geopolitics. Gapped lower from the opening bell with a modest attempt to bounce, but close at the lows of the day. This move confirmed the downtrend again from the May highs. No need to chase short side trades on Friday. We have some positions on that benefitted from the move and we adjusted stops. Bonds have gone vertical on the interest rate moving lower and we raised stops on those positions. Watching how the news unfolds over the weekend and taking what the market has to offer.
- Adjusted stops on TMF, YANG, SOXS, UVXY, SCO, and others. Manage your risk and remember that markets decline nearly three times faster than the rise. Reaching oversold levels technically.
- Moves of interest on Friday… GLD/NUGT, DGAZ, SCO, UVXY, FAZ, SIL.
- Brazil (EWZ/BRZU) adjust stop on the move higher.
- Small Caps (IWM/TZA) adjust stop on the move lower.
- Financials (XLF/FAS) downside could accelerate if the Fed steps in and lower interest rates. Hurst margins for the banks. Watching.
THURSDAY’s Scans for May 30th: Held support. Volume on the low side. Not exactly promising for a reversal setup. The sellers, my view, still have the upper hand and the bias remains on the downside. The Trump tweet after-hours about tariffs on Mexico with an exact start date will impact stocks on Friday. Watching and taking the setups from Wednesday as our cue. Short side is in play and letting the day unfold. Don’t trade on emotions focus and remain disciplined. Manage your stops accordingly and make the adjustments necessary based on the moves Friday.
- Short Oil & Gas Production (DRIP) entry $13.50. Stop $12.25. Raised stop on SCO $16.75. Raised stop on ERY $48.
- Commodities running… WEAT, CORN, JJGTF, SOYB, DBA… raising stops and taking some profits on the move.
- Brazil (EWZ/BRZU) raised stop on move higher. Entry $25.72. Stop $25.72 no loss on the trade now.
- Treasury Bonds (TLT/TMF) running as rates decline and money rotates to safety. Raise the stop $22.
- Small Caps (TZA/IWM) manage the stop on the move higher.
- NASDAQ 100 (QQQ/SQQQ) Manage the position as the volatility picks up.
WEDNESDAY’s Scans for May 29th: The break at key support levels puts everyone on guard. There are plenty of issues facing investors with geopolitics, tariffs, inverted yield curve, Iran, North Korea, Russia, and more. Too much uncertainty for investors to have the confidence to put more money at risk. The reality is money rotating to bond or safe havens. The break lower set up short side trades for many sectors as well as the broad indexes. A sympathy bounce would off the opportunity to put on trades in these areas if you have not already. Watching for how today unfolds.
- Semiconductors (SOXX/SOXS) Tested support at the $175.89 mark and bounced. Need to close above $180 for a reversal to have a chance… otherwise looking for adding to the short side trade.
- Small Caps (IWM/TZA) closed below the $149.04. Needs to close above the $150.27 level to have reversal opportunity. If not looking to add to TZA position.
- NASDAQ 100 Index (QQQ/SQQQ) closed below the $177.58 mark. Needs to close back above the $178.20 level or the downside remains. SQQQ $41.39 entry.
- Brazil (EWZ/BRZU) closed above the $25.72 resistance… of interest for short term trade opportunity.
- S&P 500 index (SPY/SDS) Broke above $34 entry level. Watching how today unfolds.
Downside in play and watching how this unfolds today. If it bounces we will give it a day and look for the sellers to reemerge or the buyers to show some conviction. Patience.
TUESDAY’s Scans for May 28th: Downside resumes as investors turn worries to the inverted yield curve. From my view, it is a reason to sell not the cause. The charts are the cause. The micro trend from the May 3rd high is lower… we are at key levels of support at the September, November, December, February highs… break here could mean more downside for the broad markets. Watching the short side set up and looking where the best opportunities lie should we break lower. Patience and discipline is the key.
- VIX Index (UVXY) hit entry point on Tuesday and watching how today unfolds. Entry $37.50. Stop $35.
- Technology (TECS/XLK) leading the downside move with semiconductors. The entry $15.72. Stop $15.06. Watching how the day unfolds.
- Small Caps (IWM/TZA) break above the $10.45 level entry.
- Treasury Bonds (TLT/TMF) upside in play and added to the move on Tuesday as rates continue to tumble. Stop to $21.75.
- Semiconductors (SOXX/SOXS) short side accelerating. Adjust your stops and manage the risk of the sector.
- NASDAQ 100 (QQQ/SQQQ) set up the short side with a move above the $41.39 mark. Watch and set stop at the $40.50 mark tight stop of it is a false break.
Other issues to pay attention to if you have positions… CORN run away upside $16.10 current stop on that move. SOYB gapped higher form the consolidation pattern. WEAT gapped higher and adjusting stop to $5.45. Financials (FAX) setting up for upside trade.
Sector Rotation of S&P 500 Index:
- XLB – Selling resumes breaking support at the $54.15 mark and watching $52.49 now as support. Bottom reversal?
- XLU – The utility sector found support at $51.11… moved above $52.72 for entry. Cleared $57.10 resistance. Entry $53. Stop $58.45 (Stop Hit). Bounced following three days of selling. Upside resumes.
- IYZ – Telecom facing$29.50 resistance and looking for near term direction. Some good news in the sector on the Huawei delays… still a challenge for the sector if the sanctions are put in force. Testing the $28.62 level of support again.
- XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and entry $51.90. Stop $56 (Stop Hit). Moved lower and watching how it unfolds. Bottom? Watching.
- XLI – Industrials moved below support $74.17 and the 200 DMA. Watching. Bottom?
- XLE – Energy stocks have struggled on the uncertainty about supply and production. Crude moved lower and the downside followed in stocks accelerated offering a short side entry on the break of support. ERY – Entry $39.60. Stop $51.40 (adjusted). Watching how this unfolds on speculation. Bottom? Solid bounce on Monday.
- XLV – Healthcare fell below the 200 DMA and accelerated. The cause of the doom-and-gloom for the sector is a proposed “Medicare for All” healthcare from Washington. Obviously rumor-driven… Found support bounced, offered reversal trade at $86.80 entry. Stop $88.50 (stop hit). A big move lower and hit our stop on the position. Moved to $86.74 support level.
- XLK – Technology sold and looking for support. Gapped lower with semis leading the downside move. Spiked lower on Antitrust allegations.
- XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $25.76. Stop $26.50 (stop hit). Fed back in the picture as interest rates tumble. Watching FAZ trade. Entry $8.91. Bottom?
- XLY – Consumer stocks under pressure of late and looking at how it manages with support at the 200 DMA. Sold lower on news.
- RWR – REITs broke lower… bounced from lows clearing $93.21 resistance… positive upside move. Entry $88. Stop $97 (adjusted). Watching and managing the risk as it attempts to maintain the uptrend. Collecting the dividend and letting it unfold.
(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.)
WHAT DID WE LEARN:
MONDAY: That the government can keep adding to the challenges the market faces. I am not a conspiracy theorist, but the timing of this in conjunction with the tariffs is interesting. Regardless the outcome of the day was reactionary selling. How it unfolds will only be known in time. We avoid the areas of news, trade what we know, and let the rest settle itself out. Speculation is easy, disciplined trading is hard.
FRIDAY: Worry about trade is taking stocks lower. The big question… will this really happen or is there a resolution? The more investors believe it will happen the more the markets will price it into stocks. Volatility picked up, but not at crazy levels yet. The course of action for me is taking what the market gives… some short side trade currently. Manage the risk of the trade… adjusted our stops higher. And, focus on what we know, not what we think. Plenty of speculation flying in every direction currently. Patience is key.
THURSDAY: A modest bounce attempt, but an after-hours tweet from Trump is likely to give the control back to the sellers. Speculation reigns! We have established some short side trades… we will manage them according to the responses. Taking what the market offers and make the most of the opportunities given based on the risk we are willing to accept. We still have plenty of cash as a cushion and ready to deploy when the opportunities are right.
WEDNESDAY: More selling and a break of key support levels across the board. The break offers short side signals in most sectors and indexes. This raises the questions of a bounce reaction… if so, it offers a clearer entry point on the downside should it resume. IF the downside accelerates will it take out the sellers as profit taking will bloom on the gains? Key is not to speculate but to trade accordingly. Watching how the day unfolds Thursday and what signals we confirm and which we set up further. Patience and discipline.
TUESDAY: The sellers are back and remain in control of the direction. The headlines were worried about the inversion of interest rates… the reality is investors are worried about the trend of the charts and the uncertainty of the future growth level for the stocks. We follow the trends, not the news. We study the underlying fundamentals, not speculation. The micro trend is on the downside. The underlying fundamentals are mixed or neutral at best. Take the trades that fit your risk tolerance and let the rest unfold one day at a time.
We remain in heavy cash positions for now. Looking for the opportunities worthy of the risk. Taking our time to understand the current environment of emotions versus logic. Patience wins the race in periods like this.
Markets lower as the news of additional tariffs on Mexico rattled an already nervous investor. The indexes closed in the red for the week again with the S&P 500 index dropping another 2.4%. The index is currently down 6.5% since the highs in May. The sellers are in control of trend near term. Friday only embolden them as the news continues to favor the downside trade. We exited where the risk rose and we added positions where the risk was appropriate for our terms. Economic data was on mixed with some good news on Friday, but it was lost in the tariff talks. Rotation is in play as money heads to safety and cash. This is where we find ourselves as well. Plenty of question marks and only time will tell the outcome. We will continue looking at positions to take profits, adjust stops, and manage the risk of the current environment. Holding cash is not a bad thing during uncertain periods… remember one thing… you can make up for lost opportunities, but the loss of principle is much harder to regain. The goal is to avoid speculation and follow our disciplined strategy for each position. Taking it one day at a time.
Eleven of the eleven sectors managed to close the week in negative territory as money continues to move with some rotation. Consumer staples and energy led the downside for the week and raising new questions about the trend. Gold rose, the dollar was flat, and the economic data was overall mixed with some positive points where they count. Four sectors are moving sideways in consolidation patterns. Seven sectors are in micro downtrends. Crude broke lower for the week as supply data worries investors. We continue to take this one day at a time. There are 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.