Apple lowers guidance and markets follow

Market Outlook for February 19th

Apple lowered its revenue guidance due to China’s plant closures and the consumption impact of the coronavirus. That rattled investors and the markets turned lower on the day. Albeit nothing dramatic, but it was enough to get investor’s attention. The virus remains in the headlines as everyone looks to find a solution and what the impact will be on the global economies. Apple is likely to be just the beginning of what will take place moving forward. The greater challenge is finding a cure to the virus. Not much headway is being made… at least from what we know. We continue to monitor the ups and downs as we manage our risk accordingly.

The S&P 500 index closed down 9.8 points to 3370. The index closed slightly lower for the day bouncing back from the lows of the day. One of the eleven sectors closed higher on the day with utilities leading the way. That shows some money moving to safety again. The downside was led by financials and energy as both see money flow decline. Watching, listening, and managing the current risk.

The NASDAQ index closed up 1.5 points at 9735. The index was essentially flat on the day bouncing off the lows of the day. The NASDAQ 100 large caps held steady overcoming the negative news from Apple. Semiconductors moved lower on the day after hitting resistance at 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. A positive week overall as the sector moves back to the previous resistance at $168.10.

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.

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, but also promised to lower commitment levels. China’s tariff relief helped the buck higher along with crude. Gapped higher clearing 26.85 resistance.

The Volatility Index (VIX) Anxiety reversed to 13.7 on the week but remains elevated despite the buying all week. Watching how the new week unfolds. Moved higher on the Apple news. 14.8


MidCap (IJH) The sector followed small caps lower breaking support at $203. Bounced higher for the week showing some signs of life as the sector moves back towards the previous highs.

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 again.

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 leadership. Watching how this unfolds going forward. Lost 1.2% on Tuesday on concerns about earning relative to China.

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 at new highs and providing needed leadership. Continued higher despite market worries.

REITs (IYR) The sector broke from the consolidation pattern and put in five solid days of upside gaining 4.3% for the week. Money flow shows rotation into the sector as some investors look for safety.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.58%. It has been mixed with money flow moving up and down. The result is a bottoming pattern. Watching TLT for signs of a reversal. 1.55% on Tuesday.

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. There is a bottoming pattern on the chart as the sector watches what takes place in China. Cleared $52.29 and setting up for a reversal at the low.

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 to the top of the six-week consolidation pattern at $149. UGL entry $46.90. Stop $52.15 (Stop Adjusted). Letting it unfold. Broke higher from the consolidation pattern on worries about stocks.

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. Lower on Tuesday with concerns about virus impact.

China (FXI/YANG) Finally gets a trade deal to help the upside trend emerge… then the coronavirus erases all the gains. Solid bounce off the lows and $42.72 is the level to clear currently. Watching how it unfolds.

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


MONDAY’s Scans for February 18th: Worries about Apple revisions to their revenue forecast sent some investors to the exit. Some saw opportunities. The end result was mixed activity in stocks with semiconductors moving lower, gold moving higher, the dollar making gains, and bonds moving higher. Not the kind of day you want to see with indecision on the direction as well as leadership. Taking it in stride and managing what we know as we try to avoid the speculation.

  • Gold (GLD/NUGT) the upside breakout is a positive for the metal and the miners were equally a benefactor on the day breaking higher from a consolidation pattern. Silver (SLV) followed with a move higher.
  • Natural Gas (UNG/UGAZ) bottom reversal is unfolding with positive move off the lows.
  • Semiconductors (SOXX) still not looking good on the chart with some consolidation and move lower at resistance.
  • Financials (XLF) struggled to start the week. Watching.
  • Treasury Bonds (TLT) money flow picked up as yields declined and money moved towards safety.

Markets Closed for Presidents Day.

FRIDAY’s Scans for February 14th: More fear about Covid-19 virus… great name. Some rotation on the week as REITs rise along with utilities. Two defensive sectors seeing money flow. Technology remains in a leadership role despite the lagging semiconductors. Economic data is positive, earnings have been positive, and geopolitics have taken a backseat to the virus. All things are showing money flow is positive and the Fed remains engaged in the money supply. The upside is in play and we continue to manage our risk accordingly.

  • Energy (XLE) the sector continues to struggle as money flow is negative. Crude (USO) did bounce off the lows and is showing some signs of life. Oil services (IEZ) is showing a bottoming pattern as well.
  • Small (IWM) and Mid Cap (IYR) are hitting resistance at the previous highs… need some leadership from the growth stocks.
  • NASDAQ 100 (QQQ) solid leadership from the large-caps the last two weeks. Closed at new highs and adjusted our stops. NVDA led the upside Friday with positive earnings.
  • Internet (FDN) cleared the July highs and continues to show a positive uptrend.
  • Gold (GLD) moved back to the top of the consolidation range. The dollar has slowed the ascent helping along with some hope in China.

THURSDAY’s Scans for February 13th: Breaking a few eggs to make an omelet… investors remain uncertain about the virus and that keeps the markets in check. Throw in the Fed stating they were going to reduce the amount of money being put into the repo market and you get a very mixed day and an uncertain outlook for Friday. Proceeding with caution.

  • Gasoline (UGA) a refinery fire at Exxon pushed the price of gas higher, but it stalled at the 200 DMA… watching how this unfolds.
  • Utilities (XLU/UPW) upside accelerates again as money rotates to safety.
  • REITs (IYR/URE) breakout accelerated the last three days.
  • Homebuilders (ITB/NAIL) solid leadership resumes.
  • Midcaps (IJH) positive move back to the previous highs… needs to follow through.

WEDNESDAY’s Scans for February 12th: Positive upside for the markets on the news relative to lower new cases for the coronavirus… Watching how the reality of that unfolds. For now, the leading sectors hit new highs and the optimism level lifts on the news. Take what the market offers and manage the risk of the move.

  • Semiconductors (SOXX) pushed to new highs. Showing some leadership again, but volume is a concern. Let it unfold.
  • Solar (TAN) the vertical move continues. Manage your risk.
  • Gasoline (UGA) reverses and clears the bottoming pattern.
  • Energy (XLE/ERX) bottoming pattern in play.
  • Healthcare (XLV), Providers (IHF) move higher in a positive trend.

TUESDAY’s Scans for February 11th: The markets remain 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.

(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. Broke higher to continue the uptrend. Raised stop. Continuing to move higher. Safety winning.
  • IYZ – Telecom picked up volatility with the markets and tested the $29.50 level of support. Held and moved back to the previous highs finding some resistance.
  • 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. Solid break to new highs.
  • XLE – Energy remains in downside move as anxiety rises about China and consumption. A bottoming pattern in play. Weakness to start the week.
  • XLV – Healthcare breaks lower from the topping pattern. Closed below the 50 DMA and support at 101. Bounced back to the previous highs.
  • XLK – Technology in an uptrend and providing leadership. Parts are doing well with IGV and IGN leading.
  • XLF – Financials have been in a trading range as moves back to the previous highs. We need some interest in the sector with money flow and volume lagging.
  • XLY – Consumer Discretionary tying to be the bright spot for the markets. Holding solid uptrend.
  • IYR – REITs moved lower on higher interest rate concerns. The test of support at the $90.50 held and bounced… Solid upside. Entry $93.50. Stop $96 (adjusted). Moved vertical posting solid gain for the week.

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: Markets start the holiday week with a negative tone from Apple. How this unfolds will be of interest as the impact of the virus globally is still unfolding, but you can bet it will not be good. We will watch and evaluate as the data unfolds about the coronavirus. The Empire State manufacturing index rose to 12.8 from 4.8 previous… a positive sign for the economy. There have been positive signs in the January data and it offers some optimism looking forward.

The coronavirus remains center stage the number of cases continues to rise. The markets have remained positive overall. Why? Simply put liquidity from the Fed and China. Both continue to put 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 higher, volume was higher, and 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 continues to be positive with 77.4% of the stocks reporting in the S&P 500 index have beat expectations. The data points will be important to how this unfolds moving forward. Economic data remains okay as January shows improvements all around with the exception of industrial production. Yields on the ten-year treasury bond fell to 1.58% unable to hold the upside move. 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 as seen this week in REITs. Energy has taken the worst hit as crude prices continue to decline. Watching how the price of crude reacts moving forward as the commodity did find a bottom. Watching with interest how the new week unfolds… 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.