Stocks start week slowly

Some more rotation as money exits technology and semiconductors… money movest towards the recovery stocks like industrials, basic materials, and financials. The Dow led the day with a 1.3% gain and small caps added to their upside move from last week. Gold moved higher again on the day as the metal continues to see money flow. Transports jumped higher as airlines gain momentum on stimulus money being considered again. The markets remain in a positive trend overall but some testing at the highs currently. Taking it one day at a time as all the data and news combine to develop some rotation near term.

In The News:

Short news notes of interest… 1) The S&P 500 index is on a seven-day win streak as the index continues to move higher. Leadership is taking a pause and some new leadership is emerging… how strong and how far does it lead? 2) The President extended $400 unemployment checks through an executive order on Sunday… it will be challenged by the courts, but he is trying to get something done other than politics between the house and senate. 3) The dollar bounced to start the week showing some signs of life. Remember the correlation to the precious metals near term as they have gone vertical on rising money flow. 4) TopBuild (BLD) gained 5% on Monday as the housing-related stock shows solid earnings. The sector has been a solid leader as the housing market continues to show upside. 5) Royal Caribbean (RCL) cruised higher Monday despite sharp earnings losses as the outlook for bookings continues to be solid. Marriott (MAR) also was on the weak side, but showing optimism looking forward. 6) Kodak stocks plummet 28% as the government blocked loans to produce vaccines based on wrongdoings.

The S&P 500 index closed up 9.1 points to 3360. It was up 0.27% on the day as the index continues to move higher. The index held the first level of support at 3214 last week and bounced. Corporate earnings are showing the impact of the shutdown and it is worse than some imagined, but then overall earnings have been positive helping the index. Eight of the eleven sectors closed in positive territory. Energy and industrials were the leaders of the day. Technology and healthcare were the weakest sectors on the day. The VIX index moved to 22.1 as positive stock bias keeps the index moving lower.

The NASDAQ index closed down 42.6 points at 10,968 giving up the 11k mark. The index closed down 0.39% for the day. The overall movement on the day was challenged as the technology sector turned lower to hamper the index. The NASDAQ 100 index (QQQ) was down 0.43% for the day and tested the new highs. The $260 level (adjusted) is the stop as we adjust and watch. Semiconductors (SOXX) closed down 0.01% for the day and tested the highs. Technology (XLK) was down 0.28% for the day testing the highs. Watching how this unfolds moving forward as some believe the top is in…

Small-Cap Index (IWM) The sector broke from the consolidation pattern and cleared the June highs this week. Some solid moves as money flow rose and investors were willing to take on risk. Stop $149 currently. Entry $144.75. Added 1% to start the week a positive sign for the upside follow through.

Transports (IYT) The sector moved above the $167.50 resistance as airlines and trucking helped the move. June high cleared this week as a solid move higher for the sector. Entry $167. Stop $176. Solid uptrend in play and managing the risk. Gapped higher on airline stocks leading. Adjusted the stop and watching how this unfolds.

The Dollar (UUP) The dollar broke lower from a consolidation pattern and has moved into a trek lower. The EU stimulus package news didn’t help. There is a concern about the dollar moving into a free-fall near term as other nations’ economies bounce. Solid bounce the last two days… making a bottom?

The Volatility Index (VIX) Fell modestly throughout the week and the index settled at the 22.2 mark and lower on the week. Watching for clarity here as investor emotions are not rattled… yet.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector remains challenged as growth stocks still not in favor, but it did manage to break from the consolidation pattern and is testing the June highs. Needs to follow through on the upside. Index clears 193.35 resistance and breaking higher.

Biotech (IBB) The sector broke higher from the consolidation pattern and hit new highs only to reverse and move lower. The $134 mark is support and a break lower would be a short side trade opportunity. Topping pattern remains in play.

Semiconductors (SOXX) The sector remains in an uptrend but challenged by some volatility of late as it pushed to new highs. Money flow tailed off in the sector this week. Taking what is offered and managing the risk. $282 stop. Holding in place near the highs… for now.

Software (IGV) The sector established a bottom at $185 and bounced. Stop at $287 (adjusted). Entry $205.10. A consolidation wedge pattern has formed on the chart and has our attention. Watching how it unfolds near term based on the downside Friday. Testing lower.

REITs (IYR) The sector collapsed as talk of defaults in the commercial debt market spooked investors. The Federal Reserve has stepped in to stem the downside. The current pattern shows consolidation with an attempt to break higher… watching as it needs to follow through.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.563% up slightly from 0.53% last week. TLT has been a benefactor of the fear trade emerging again. Bonds made a key move higher and watching as they consolidate. Entry $161. Stop $163.55 (adjusted). Cup and handle patter on the chart breaking higher.

Crude oil (USO) Crude moved to $41.60 on the week holding steady near the highs but down slightly from the high intraweek. The data is showing a reduction in production based on the cuts from OPEC+. The EIA raised the forecast for the consumption of the balance of 2020 helping the commodity. I continue to like the long-term outlook with entry at $13.81 and a two-year target of $45. In addition, there are trading opportunities in and around the commodity. Adding to the upside move.

Gold (GLD) The metal tested lower to $158.94 support and bounced giving a trade opportunity in the metal… added at $158.90. Stop at $185 (adjusted). Broke from a consolidation pattern and has a vertical move in play on the chart. Adjusting stops on the move and letting it run. Dollar rise on Friday played into some downside. Continues to hit new highs.

Emerging Markets (EEM) Broke from the consolidation pattern as money flowed into the Asian markets lifting the index. Now testing the move higher on tension with US-China rising. The BRIC index fund also showed a break higher. Watching the dollar and taking what is offered short term as it unfolds.

China (FXI/YANG) Gapped lower again to end the week. The news from China about tariffs, TikTok, and others keeping a lid on the upside. Watching and letting this unfold.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

MONDAY’s Scans for August 10th: No big movements as technology and the NASDAQ continue to test the pattern. Some rotation into the recovery stocks as small caps, financials, industrials, transports, etc. move upside again. Will the mega-caps and the technology join them going forward? Will there be another leg higher for the current trend? All questions worthy of answers, but only time will tell. Watching how this unfolds in the coming days.

  • Energy (XLE) solid moves back to the previous highs… need to break from the trading range and bottoming pattern. OIH looking solid and leading the sector.
  • Industrials (XLI) clear the June highs and looking positive overall… showing some near term leadership.
  • Financials (XLF) breakout confirmed with solid follow-through.
  • Small Caps (IWM) Adds to the move above the June highs.
  • Dow Jones Industrial Average (DIA) Solid upside to clear the June highs and exert some leadership.

FRIDAY’s Scans for August 7th: Interesting day following the unemployment data as technology stocks sold off and financials rose. The Regional Banks (KRE) moved up 4.4% on the day leading the larger sector higher. Large caps led the downside for the NASDAQ with the NASADAQ 100 index down more than one percent on the day. The takeaway… some profit-taking on the day and some buying in the laggards. The dollar moved higher and interest rates move up as well. There is plenty to evaluate and plenty to ponder, but most of all there is plenty of risks to manage.

  • Regional Banks (KRE) broke from the trading range to resume a near term uptrend. Worth scanning the sector for the leaders.
  • Hotel and Motel REITs jumped 6.2% on the day breaking from a bottoming pattern as well. SVC, PEB, CPLG, and FCPT show solid patterns in the uptrends.
  • Integrated Shipping and Logistics sector jumped 4.6% to break higher is a solid uptrend from the March lows. UPS, FDX, ATSG, and RLGT all boast solid uptrends.
  • Solar (FAN) continues to push higher as the alternative energy powers on… 🙂 FSLR, CSIA, and SOL all pushing higher.
  • Food Distribution sector broke higher this week from a consolidation pattern. This shows some promise as restaurants continue to improve overall, but the small mom and pops struggle. CORE, PFGC, SYY, and USFD all broke higher.

THURSDAY’s Scans for August 6th: The leadership returned to technology and the NASDAQ as the Fab Five continue to lead the upside. This is good now, challenging moving forward. The valuations will have to adjust to maintain the current growth spectrum. But, it is not ours to reason why or why not, but to manage the trend and the risk associated with the rise. Gold remains in a vertical trajectory and we adjusted our stops accordingly. The rotation stalled on the day and we continue to take what is there day to day.

  • Technology (XLK) breaks to new highs again… adjusted the stop.
  • Semiconductors (SOXX) stalled the last two days and watching how it unfolds near term.
  • Treasury Bonds (TLT) moved to the April highs… a break above this level gets interesting for the flight to safety storyline.
  • Silver (SLV) three consecutive gap days higher… stops, please.
  • Copper has moved above the January highs and continues to lead the base metals (DBB).

WEDNESDAY’s Scans for August 5th: More upside for the broad markets driven by small and midcaps on the day. The Dow got some leadership from Disney to take the index higher. Stimulus being negotiated as governments struggle to keep the economy going amid the shutdown. It is fairly simple to see the cause and effect of this issue, but the majority fail to act accordingly. This is a free-market system and should be allowed to act freely with the established guidelines. Then, and only then, will the US economy improve? Until then play defense with positions and take what is offered until some type of normal is established.

  • Gold (GLD) another new high… Gold Miners (GDX) new highs. Silver (SLV) vertical new highs. Silver Miners (SIL) new highs. Agriculture (DBA) solid break from consolidation pattern. Base Metals (DBB) new highs. Commodities (DBC) new highs near term. Thanks to the dollar (UPP) at two year low.
  • Consumer Discretionary (XLY) breaks higher as the consumer (XRT) remains alive and well with government stimulus.
  • Crude Oil (USO) breaks to five-month high… weaker dollar at work. Gasoline (UGA) in position to break from the consolidation pattern.
  • Small Caps (IWM/TNA) breakout move added to our positions and looking for a run higher near term.
  • Novavax (NVAX) Phase 1/2 trials for covid vaccine were promising pushing the stock up 22% on the news. Up 335% since the first announcement of a promising vaccine in May.

TUESDAY’s Scans for August 4th: Upside in play for the day as the indexes trade from low to high. The futures were trading flat to lower to open the day and then the buyers stepped in to steadily climb throughout the day. The catalyst as seen by the talking heads was the stimulus package be negotiated by Congress. Which begs the question, what happens when it passes? Buy on the rumor sell on the news? Watching patiently with our stops in place and our eyes on the objective.

  • Semiconductors (SOXX) posted yet another new high. Adjusted our stop on the move and watching how technology (XLK) moves overall.
  • Energy (XLE) led the day gaining 2.4%. Crude (USO) has been higher the last two days moving to $41.68.
  • Small Caps (IWM) made a clean move above the resistance at the July highs. The next hurdle is the June highs. Slow upside in play and managing our stops.
  • Financials (XLF) downside worries in the sector as the banks struggle on zero percent interest rates and more stimulus. Not a good environment for earnings.
  • Gold Miners (GDX) solid test and bounce… gained 4.5% on Tuesday and back to the previous highs. Gold (GLD) was up more than 2% on the weaker dollar in light of excessive stimulus.

(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 cleared $60 resistance and tested the move this week… watching how it unfolds near term. Stop $60. Positive upside on stimulus news.
  • XLU – Utilities found support again at the $55.24 mark and bounced. Trading higher in the current range and moving back towards the previous highs.
  • IYZ – Telecom found support again at the $27 level and bounced. Moved off support and heading back towards the previous highs in a solid uptrend line.
  • XLP – Consumer Staples remains in uptrend off the June support test at $57. Stop $61. A solid break higher for the week.
  • XLI – Industrials moved sideways and managed to break above resistance at the $71.43 level. A positive break higher for the week clearing resistance and moving towards the June highs. Cleared the June highs.
  • XLE – Energy broke the trendline moving lower and found support as the downtrend remains in play. Struggling to find any momentum. Watching the downside bias. Top of the current range and needs to break higher. OIH leading.
  • XLV – Healthcare broke above the $104 resistance. Watching as it posted a solid follow-through. Turned sideways the last three weeks as earnings are playing into the trend.
  • XLK – Technology posted solid bounce on the week to keep the uptrend in play. Stop $105 and letting this play out near term. Testing the highs.
  • XLF – Financials made a move higher on Friday as the regional banks make move upside. Watching and managing our positions. Follow through on upside move.
  • XLY – Consumer Discretionary remains in the uptrend. The bump in consumer spending was positive, but still watching the chart. Broke higher on news about the stimulus.
  • IYR – REITs have struggled with interest rates, vacancies, and covid talk about people moving out of cities. Broke from the bottoming pattern and still moving sideways to higher. Trying to break to the upside again.

The trends are being challenged by news and investor activity. Plenty of consolidation patterns and watching how they unfold going forward. We have positions based on our defined strategies and managing the risk accordingly. Using the six-month charts as an indicator for the short term view… Eight sectors are in confirmed uptrends as the consolidation phase continues. Three are consolidation patterns showing indecision from investors, and none are in a downtrend. The result for SPY is in a move to sideways trend short term with upside the bias for the week. The leadership is seeing some rotation as money flow shifts directions.

(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:

Monday: Good start to the week as DIA and IWM lead the upside rotation. QQQ testing as technology slows upside move. XLF, XLB, XLI all taking on money flow as money searches for a new home. Energy attempting to break higher from the bottoming pattern and homebuilders continue to move higher on data. Taking what is offered and managing the risk.

Weekend Wrap & Outlook… The coronavirus remains a headline impacting markets as the data remains confusing, alarming, and along political lines. The economic data this week focused on jobs. The ADP report showed a slowing in the private sector, jobless claims fell again for the sixth week, and the unemployment rate fell to 10.2% in July. Overall positive data, but the concern if forward-looking. Will the economy continue to climb despite the shutdowns that persist around the country. Despite the rhetoric, the broad indexes posted a positive week as the investor psyche positive about the future outlook for the economy. The S&P 500 index was the catalyst for the week closing up 3.2% on the week. The Fed and the Treasury continue to debate more stimulus as politics get in the way of a near term resolution. Mrs. Pelosi said… NO Deal to the Senate and White House. This will play into the markets the longer it takes to structure a deal. The reopening process is being challenged by decisions around the virus and its spread. The VIX index moved down to 22.2 and back to the February lows. We continue to find opportunities near term to put money to work even in some sectors that have been lagging. Our job remains to manage the risk accordingly. All eleven sectors posted gains for the week to show the positive trend in money flow. Technology saw money flow shift to positive again as earnings in the tech sector impress. Crude oil remains near the highs and closed at $41.60 a barrel. Watching the current up and down movement in the broad markets as uncertainty finds a home in investors’ minds. The goal remains to manage money not the markets or the pundits in the media. Let the future unfold and manage the risk that is. Track the data. Know where the markets stand relative to the facts. Money rotates to where it will be treated the best. Watch the trend, know which side the Fed is on daily, 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.

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.