Market Outlook for February 12th
Two days of more upside as stocks hit new highs. Tuesday the large-cap stocks faded after the FTC announced they were looking into acquisitions from GOOG, AMZN, AAPL, FB, and MSFT. That put a damper on those stocks leading the NASDAQ and S&P 500 to struggle to close higher on the day. The small caps and semiconductors managed to push higher and post solid upside on the day. Overall the markets remain positive for the week and optimistic. We remain cautious and disciplined.
The S&P 500 index closed up 5.6 points to 3357. The index hit new highs for the week and posted solid gains overall. Nine of the eleven sectors closed higher on the day with telecom and energy leading the way. The downside was led by technology and consumer staples. Money flows into stocks on for the week has been positive. Watching, listening, and managing the current risk.
The NASDAQ index closed up10.5 points at 9638. The index continued to new highs positive trend returns. The NASDAQ 100 large caps struggle as the FTC requests sent the mega caps lower. Semiconductors pushed higher on the day to follow through on the bounce and now back near the previous highs. We are managing our risk and looking at what unfolds near term.
Small-Cap Index (IWM) The sector continues to lag since the highs on January 16th… The negative turn off the January 18th high found support at the $160.17 mark and is holding for now… watching. Two positive days higher and back to the previous resistance at $166.80.
Transports (IYT) The sector moved to $200.55 and hit resistance. Reversed and broke support at the $192.42 level. Found support at the 200 DMA and remains in the current trading range. Worries about the virus in China hanging over the index. Needs to clear the $196.75.
The Dollar (UUP) The buck has returned to the upside accelerating all week. Fed is back adding liquidity in the repo market helping the buck. China’s tariff relief on Wednesday pushes the buck higher along with crude. Holding on the upside move. Watching the Fed testimony.
The Volatility Index (VIX) Anxiety reversed near 15 on the week but remains elevated despite the buying all week. We closed at 15.4 and watching how the new week unfolds. The sellers are still around as the index remains at 15.1.
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
MidCap (IJH) The sector followed small caps lower breaking support at $203. Bounced early in the week showing some signs of life, but that ended and back near the $204 support. Solid two-day upside move.
Biotech (IBB) The sector hit highs at the $124 mark and since became indecisive. The double top pattern played out breaking below $117.90. Then bounced off the lows. Cleared $117.92 and $120.89 resistance working towards the previous highs. Finding some resistance at the previous highs. Stalled again at the previous highs. resistance $123.91.
Semiconductors (SOXX) January 24th intraday reversal to close lower was a negative sign for the sector. Found support and bounced, but still not looking ready to resume the uptrend. Watching how this unfolds in the new week. $247.56 level to hold. Solid upside this week to follow through and back to the previous highs.
Software (IGV) The sector tested the lows of the trading range and bounced at support in October. The steady grind higher has not been easy. The test of support held and the upside resumed with some small tests along the way. Closed the week near the highs and watching how this unfolds. Large caps weigh on the sector on FTC inquiry.
REITs (IYR) The sector has turned into one giant consolidation pattern. The upside resumed clearing the $93.50 resistance and hitting the $96 resistance… watching. Big boost higher from the Fed liquidity moves. Cleared $96 resistance.
Treasury Yield 10 Year Bond (TNX) The yield closed moved to 1.65% and then reversed back to 1.57% to close the week… still seeing money flow to bonds despite the rally in stocks. Something to watch. Bond yield remains below 1.6%.
Crude oil (USO) Crude moved to $64.22 on speculation. Crude fell to $50 on the speculation falling short and the China virus. Watching how this plays out with the downtrend in play. SCO hit stop but still on the watch list if the downside resumes. No movement for the week.
Gold (GLD) The upside in gold was driven by speculation of the rate cuts and global weakness overall. Geopolitics played a part in the China trade agreement. Now throw in the virus fears and it breaks from the consolidation pattern at $146.60. UGL entry $46.90. Stop $52.15 (Stop Adjusted). Letting it unfold. Remains in a trading range.
Emerging Markets (EEM) Downside accelerated on the coronavirus forfeiting all the upside from December. IT did bounce at the 200 DMA, but volatility remains on speculation. Watching and letting this unfold. Bounced on rumors of the coronavirus being under control…
China (FXI/YANG) Finally gets a trade deal to help the upside trend emerge… then the coronavirus erases all the gains. Watching how it unfolds. Bounced on the news of the virus is under control? Watching.
(The notes above are posted every weekend and updated daily Bold Italics)
DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT
TUESDAY’s Scans for February 11th: The markets remains in a positive trend currently and money flow is positive overall. There are some question marks in sectors, but the overall push it higher. Semiconductors, Brazil, China, Emerging Markets, Solar, Energy, and Europe sectors all posted a solid upside on the day and for most continue the upside move.
- Semiconductors (SOXX/SOXL) Pushed higher again moving back near the previous highs.
- NASDAQ 100 (QQQ) struggled to hold gains on the day closing flat as the FTC investigation into acquisitions by large-cap stocks push the index down following the news. Watching how this unfolds going forward.
- Europe (IEV/EURL) positive upside continues with the ETF pushing back towards previous highs.
- Emerging Markets (EEM) and China (FXI) moved higher on the second day of lower numbers being reported from the virus. Still, a very uncertain situation that is having a huge impact on China.
- Healthcare (XLV/CURE) moving back towards the previous highs.
FRIDAY’s Scans for February 7th: The markets find their way lower on the day after a solid start. Profit-taking? I would say there were some as the technical data on the charts are not support the move we see higher. It doesn’t mean the buyer won’t remain engaged… it just means the move is contrary to the data. Watching and letting this unfold one day at time with our stops in place. We did hit stops on several positions this week locking in some solid gains. We will see how this all plays out.
- Semiconductors (SOXX/SOXS) The sector continues to show some weakness technically. Close below the $254 support levels again on Friday… letting it play out.
- NASDAQ 100 (QQQ) showing a positive upside on the week and positive leadership from the large-cap stocks.
- Crude Oil (USO/SCO) downside remains in play as the supply data remains elevated. Hopes of a quick recovery from the coronavirus are fading and the downside risk remains.
- Small Caps (IWM) still not looking good overall. The weakness in the chart is confirmed by the declining money flow. Money has rotated out of the sector.
- Treasury Bonds (TLT) the reversion of the yield curve was positive on the week, but the sharp move higher for the bond Friday was a concern worth our attention moving forward.
THURSDAY’s Scans for February 6th: Large-cap stocks lead the day and we see some not so great moves in semiconductors, small, and midcap stocks. I am not convinced by the move in the last four days, but it doesn’t matter what I think I follow the market. But, that said, I did raise stops and continue to manage the risk as I see it. Cautionary signs in the semis and other sectors are keeping me on my toes.
- Technology (XLK) still leading the markets overall. Watching how semiconductors unfold. Some topping in software as well.
- Consumer (XLY) solid leadership as earnings validate the consumer is still engaged.
- Crude Oil (USO) remains near the current lows and watching.
- Gold (GLD) attempting to bounce again.
- Transports (IYT) still weak. Small caps (IWM) still lagging. Energy (XLE) still in a downtrend.
WEDNESDAY’s Scans for February 5th: Solid day for stocks again. We did see some rotation of money and we did see some softness after the gap higher at the open. Stocks ended the day higher as we continue to follow the upside move and adjust our stops accordingly. The economic data was positive as well on the day as January data continues to show solid improvement. Important to watch the rotation as money looks for new sectors and growth.
- Crude Oil (USO/SCO) upside bounce hit our stop on the short trade. Now watching to see if the reversal has any strength or just a one-day event.
- Biotech (IBB) solid addition to the reversal. Watching how far it runs.
- Healthcare (XLV) cleared $103.19 resistance and showing some leadership again.
- Transports (IYT) solid upside move as some fears of the virus eases.
- Small Caps (IWM) solid upside as money flow rises in the sector.
- Software (IGV) saw some rotation out as money flow fell. Watching how this leader plays out near term.
(The Scans are done daily and left on the page for one week to allow you to see the progression of the opportunities or warnings.)
Sector Rotation of S&P 500 Index:
- XLB – Basic Materials bounced at support $58.10 level and back near the previous highs. Remains in long term uptrend and watching.
- XLU – Utilities are the current benefactor of lower rates and money looking for safer havens. Rolling top on the chart. Adjust stop on the vertical move.
- IYZ – Telecom picked up volatility with the markets and tested the $29.50 level of support. Holding for now with modest bounce on the week. Solid break higher on Tuesday.
- XLP – Consumer Staples remains in the uptrend and in a near term trading range at the current highs.
- XLI – Industrials held support at $81.10. Managing the risk that is. Attempting to break to new highs.
- XLE – Energy remains in downside move as anxiety rises about China and consumption. Hit stop on ERY locked in solid gain. Watching.
- XLV – Healthcare breaks lower from the topping pattern. Closed below the 50 DMA and support at 101. Bounced and watching.
- XLK – Technology in an uptrend and showing a flag pattern at the current levels. Watching how leadership unfolds.
- XLF – Financials have been in a trading range with IAI being the key leader within the sector. Watching as it hits resistance again at the previous highs. At new highs.
- XLY – Consumer Discretionary tying to be the bright spot for the markets. Holding solid uptrend. Breaks higher to follow through on the upside move.
- IYR – REITs moved lower on higher interest rate concerns. The test of support at the $90.50 held and bounced… Solid upside follows through. Entry $93.50. Stop $93.50. Closed the week near the highs. Fed, dollar, and interest rates helping the break higher clearing resistance.
There are currently no sectors in a sideways or consolidation trend. Ten sectors are in confirmed uptrends. One sector in a confirmed downtrend. The result is SPY in an uptrend short term. We have to remain patient and let this all unfold. Remember the parts make up the whole.
(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.)
Tuesday: I took a break on Monday, but the news remains consistent at this point as it relates to politics, geopolitics, the virus, the economy, the Fed liquidity push, and earnings. That has helped the markets move higher the last seven trading days, but now the government wants to step in… The FTC inquiry into acquisitions put a cloud over the large-cap stocks and watching how that storyline unfolds. The Fed testimony to congress started Tuesday and will end with the Senate on Wednesday… no real news as Powell continues to justify the liquidity dump into the repo markets and more. Never fight the Fed. Taking this one day at a time and letting the truth unfold.
The coronavirus remains center stage but ignored all week. Why? Simply put liquidity from the Fed and China. Both are putting money into the economic system for different reasons, but that money is making its way into the markets. All the speculation that was causing grief two weeks ago was nonexistent this week. Money flow was highs, volume was higher, and thus stocks were higher. We need to focus on what is happening and not on what could happen. Let the future unfold and manage the risk that is. The earnings season has been positive with some solid results posted again this week. The data points will be important to how this unfolds moving forward. Economic data remains okay as January shows improvements all around. That provided some hope as well to investors. Yields on the ten-year treasury bond rose to 1.57% unable to hold the move earlier to 1.65% The dollar remains strong. Gold is holding near the current highs with worries still backing the metal. Money is rotating to where it will be treated the best. Energy has taken the worst hit as crude prices continue to decline. Watching with interest how the new week unfolds… the profit-taking on Friday got my attention with the afternoon selling. Proceed with caution and discipline. The key is to watch the trend, know which side the Fed is on, and ultimately the data will establish the longer-term trend. We remain focused on what is working and what is failing. Therein lies the opportunities. Manage your risk accordingly and let this unfold… one day at a time.
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.