OUTLOOK: Week of November 5th
The markets ended the week on a sour note with the sellers back in control thanks to the earnings news from Apple. As we know uncertainty breeds speculation and in turn, it is generally negative. Apple earnings were positive and beat expectations… it was the announcement that they would no longer provide unit sales numbers for iPhone and other products… speculation, they are hiding something. The result, the stock fell more than six percent. The truth behind the change is more of Apple’s revenue is coming from their services business and they want investors to focus on that more than product sales. The unintended consequences of this move may continue going forward… but, it is worth watching for the opportunity behind the selling. The ripple effect pushed the NASDAQ down more than one percent on the day and technology fell two percent. Following the weekend of rest maybe investors will think differently… I wouldn’t count on it… they are probably dreaming up some theory of speculation that will include the election. Yes, that is on Tuesday next week and will additionally invite some speculation based on the outcome. Rest up… you are going to need it to face a new week of speculation and volatility.
The S&P 500 index closed down 17.3 points at 2723 as the index moves lower after an attempt to push higher. Big intraday swing with an outside day on the chart. The bounce did manage to hold on, but the legs are wobbly. A move above the 2726 mark offered a short-term entry on the long side… but, failed to confirm on Friday. Only two of the eleven sectors closed higher with telecom and consumer discretionary leading the day. The weakest movers on the day technology and REITs. Worries remain along with a whole list of issues. The last four weeks investors hit the sell button on stocks and despite the bounce midweek, the bookends were negative. The charts are not pretty and the damage done will take something positive to reverse the psyche as well as the trend. The chart additionally broke the long-term trendlines off the January/February 2016 low triggering exits on long-term positions as well. Short side in play with the index down from the September high. Looking for some consolidation and a decision on direction up or down this week.
The NASDAQ index closed down 77.1 points to close at 7356. The index broke above the 7297 previous support showing some positive momentum for the week. The good news was the index did manage to bounce off the low of 6922 in the bounce higher. Midweek provided a bounce, but Friday put a different twist on the move with plenty of work left to do. QQQ is our indicator near term as we watch to see how the leaders respond… currently, the bounce is in place following a test of the $162.48 support. We cleared $170.93 resistance, hit the 200 DMA and closed Friday at $169.38 and holding. Some positive moves this week came from MELI, STX, MU, CTRP, and AAL. This is a good sign as the laggards lead the bounce… The previous leaders were also participating until the Apple news. Watching to see how the week unfolds…
Small Cap index made a solid move higher on Thursday to clear resistance as the $152.28 level and reverse the trend lower… and held in positive territory on Friday. I am taking the move for what it is… a bounce currently on modest volume. We need to clear the $154.90 mark to offer some upside opportunity. Willing to see how this one plays out going forward.
Transports (IYT) moved back above the key level of $182.43… the acceleration lower was negative for the sector, but the bounce is holding for now. This sector has been a negative indicator for the broad markets as the downside gained momentum. The bounce is in play for now and watching how this one unfolds relative leadership for the Dow index. Airlines showing some positive moves off their respective lows.
The dollar (UUP) moved higher again on Friday on news holding above the $25.53 resistance. Watching as the buck shifts gears on the day. The overall move higher is positive from my perspective, but there are many who think a weak dollar helps US companies. Simply not true… history validates a strong dollar favors the US despite the short-term setbacks.
Gold (GLD) Gold gapped higher to recover from the selling to break from the consolidation at the current highs again. Watching to see if this can follow through on the upside this time. Watching how it responds to the move as it has drifted lower the bounced back. The dollar and geopolitics have been the catalyst for the metal… both up and down. The gold miners (GDX) equally respond to gold moving higher. Watching how this unfolds near term with the metals and the miners moving together again… at least on Thursday.
Crude oil (USO) Crude remains in a speculation trend of uncertainty. The moves over the last six to seven months have been driven by speculation. The current downside from the October 3rd high is about the speculation of higher demand being driven by Iran sanctions not panning out on the supply data. The retest of support at the $66 level failed to hold… the break lower keeps the downside in play and watching how it responds. The commodity closed at $63.14 on Friday breaking below support at $64.22.
Emerging Markets (EEM) bounced… followed through after the test lower again. That accelerated retesting the September lows and spiked below that level with a bounce at $37.88. A nice reversal in play with an attempt to clear $41 level of resistance… Too many questions in this sector with China providing the biggest question marks on trading tariffs. Emotions are high along with selling volume.
The Volatility Index (VIX) closed at 19.5 on Friday with anxiety levels dropping some from recent concerns. The calming on the last few days of trading shows the buy side influence on the psyche of investors. Watching how the new week unfolds.
Investors made an attempt midweek to push stocks off the current lows and were successful until the Apple news on Friday turned things a little sour. The charts remain in a bounce mode with some rollercoaster activity to keep things interesting. I am not convinced that some of the selling wasn’t money moving to the side in advance of the elections on Tuesday. Watching how this all unfolds with the second leg of the move lower still in play. It is decision time on the charts with the bounce back to key resistance levels. If the move is to reverse now is the time for the buyers to step up and be counted. We will see how this unfolds in the coming week. There are no changes on the tariff front with China. The Small-Caps did offer some upside hope on the week. Technology was leading the way until Apple rocked the boat. The S&P 500 tried to clear the 2740 resistance and we will watch how that unfolds in the coming week. Ten of the eleven sectors closed the week in positive territory showing some hope. Basic materials, telecom, and financials led the upside move some money looked for positive movement. We remain in the midst of an official correction on the NASDAQ down more than 10% from the high. The question remains about a recovery, bounce, buyers, something to reverse the downside momentum… There is plenty of dynamics working in the markets overall and we will take it one day at a time. All we can do is manage our risk according to the charts and not speculate on what if… the greatest challenge for us all is not letting our emotions get involved in a process that requires a disciplined strategy and action.
(The notes above are posted daily based on the activity of the previous days trading. The red comments are current day changes worth noting.)
KEY INDICATORS/SECTORS &LEADERS TO WATCH:
Biotech (IBB) The sector broke lower… bounced and managed to clear the $107 level of resistance and hold it Friday… Watching how the week unfolds and looking at the upside opportunity if it presents itself.
Semiconductors (SOXX) bounced off the $155 support… cleared the $167.34 level of resistance. Looking at how this unfolds in the coming week and what opportunities are presented. CRUS, MLNX, SLAB, MPWR, and ADI showed positive charts and moves for the week.
Software (IGV) The sector broke support at the $178.87 and bounced back this week. Watching the $185 resistance and opportunity if it unfolds.
REITs (IYR) indecision showing on the chart following the decline to support at $75.20… The 200 DMA in play again as the sector attempted a move higher midweek. Interest rates moved higher causing some angst. Watching how this unfolds without chasing the rabbit.
Treasury Yield 10 Year Bond (TNX) closed the week at 3.21% reversing the downside move. The positive bounce midweek in stocks pushed rates higher again. Watching how this unfolds in the coming week. The short side of bonds back in play TMV.
Energy stocks (XLE) The stocks confirmed the move lower to start the week, bounced, and sold again on Friday. $68.82 is the level to clear if we are going to make any progress on the upside near term.
(The notes above are posted every weekend and updates are added in red daily as they change or develop.)
Daily Scan Results:
FRIDAY’s Scans 11/2: The positive move reverses as the sellers step in on the Apple news. The size of Apple’s market cap impacted all the sectors and indexes in which it resides. That said, it did impact the market psyche as well. Investors don’t like uncertainty and it did introduce some hint of speculation. The reality could be investors wanting to get out of the election speculation that will be in full bloom his week. The news is back in the driver’s seat for now and we will let this unfold and take what the market gives going forward.
- Telecom (IYZ) positive move above resistance at the $28.60 level… watching what this presents.
- Consumer Discretionary (XLY) positive bounce and follow through clearing the $107 resistance and follow through. Watching the opportunities this week. SBUX, ULTA, M, HRB, and ROST looking good on the charts.
- Financials (XLF) held the $26.30 level and watching how it plays out in the coming week. MET, CBOE, GS, and others below making positive moves.
- Emerging Markets (EEM) positive bounce last four days and looking at the 40.88 mark as an opportunity on the upside. Good volume on the move as well.
- Brazil (BRZU) upside continued following some consolidation The positive trend is in play and the follow through gives us an opportunity to add to our existing positions.
Some hope faded on Friday… but, the bounce is still in play. Monday will be key to how this unfolds near term. Patience is the key along with managing our risk accordingly.
WEDNESDAY’s & THURSDAY’s Scans: Another positive day for stocks as they moved higher again but failed to hold the intraday high and did so on lower volume… no conviction in the move. Traders are in control of the near term activity with the longer term money still on the sidelines. My view is more consolidation at this level as the next leg is determined. Patience as we let this unfold and look for the best opportunities.
- Technology (XLK) made a solid move higher from the lows. FLT, AMD, ADP, PYPL, XLNX showing some positive moves on the chart to lead. Worth scanning the sector overall.
- Telecom (IYZ) added to the move on Tuesday… leaders rising. S, TMUS, GRMN added to list from Tuesday.
- Financials (XLF) added a positive move to the bottoming pattern. ICE, PNC, RF, JPM, BBT, NDAQ showing positive charts on move.
- Semiconductors (SOXX) positive follow-through from Tuesday… MPWR, ON added to list from Tuesday.
- NASDAQ 100 index (QQQ) positive move to add to Tuesday gains. TMUS, ISRG, ADP, PYPL, XLNX show positive charts for the last few days. Worth scanning the sector overall.
Positive day for the broad markets and several sectors. The challenge remains direction… it will take more than this to turn the trend from the downside. Watching how today unfolds and looking for some consolidation to set the tone for the next move… up or down.
TUESDAY’s Scans 10/30: A positive day for stocks, but still, there is plenty of work to be done. As stated above we need leadership… some is emerging within the old leaders and it will take more to get the indexes overall to reverse course. The goal is to look, measure, and have a strategy for our positions going forward. Patience and discipline win the race.
- Drugs (XPH) flag pattern, but scanning the leaders of the sector. PCRX, HZNP, JNJ, MRK
- Telecom (IYZ) big bounce and leadership on Tuesday. ATNI, VZ, JNPR
- Retail (XRT/XLY) flag pattern and positive move Tuesday. HZO, ASNA, IMKTA, JWN, DKS, KR
- Semiconductors (SOXX) bottoming pattern. Watching for follow through. CRUS, INTC, XLNX, MLNX
- Consumer Staples (XLP) breaking through resistance with solid move Tuesday. KR, MKC, EL, WMT, WBA, KO
Some positive moves in the sectors on Tuesday. This does not change anything in the current downtrend. However, we do look for some upside movers within the consolidation near the current lows. Leadership is the key to any trend and now is the time to look for the leadership in the activity currently. IF the downside resumes and the third leg develops we will trade that move as well… understand the environment you are in and act accordingly… forcing your will or beliefs on the markets never works out well.
MONDAY’s Scans 10/29: Big swings in a volatile day. Overall the charts held the lows from last week and we are looking for some consolidation near term. The second leg lower has added another 3+ percent to the losses and now puts the S&P 500 index down 9.8% from the September high. The NASDAQ is down more than 13%. Correction mode for investors, but more importantly decision time for this leg lower. Watching and letting this unfold near term.
- Energy (XLE/ERY) continued the downside move with crude oil finding near-term support. Stop at $47 on the move to protect the gains. GASX stop at $28 on the move as well. Crude (SCO) ‘V’ bottom pattern moving sideways… stops raised as it unfolds.
- Biotech (IBB/LABD) showing some consolidation… willing to take some profit from the short side trade.
- NASDAQ 100 (QQQ/SQQQ) raised stop and watching how this unfolds.
- China (FXI/YANG) downside resumed on the tariff rumors.
- Volatility Index (VXX) topping pattern… watching to see if investors are ready to take a break from the anxiety and sell side for now?
Plenty to watch, plenty of speculation, plenty of news… all moving markets short term. The downside is in control… any reversal will have to find some convincing data or news to change the trend. One day at a time.
Update to follow the developments. These scans are looking for trends, reversals, breakouts, and other notes of interest.)
Sector Rotation of S&P 500 Index:
The bounce finally materialized and then some speculation on Apple’s news Friday gave cause for a pause. Plenty to watch, some things to own, some things to sell… there is always opportunity in the volatility until the trend presents itself again. Taking what the market gives.
- XLB – ‘V’ bottom in play and $54.20 level to clear… watching how this plays out near term.
- XLU – The utility sector is in a trading range and watching interest rates as Friday pushed the sector back to support at the $52.72 level.
- IYZ – Telecom fell to support at the $27.63 mark and bounced back to resistance at the $28.62 mark again. Parts are better than the whole currently and watching for the opportunities.
- XLP – Consumer Staples held support at the $51.86 mark and moved back to the previous highs. Need to clear the $54.92 mark upside to continue. The defensive money is rotating.
- XLI – Industrials broke lower and below the $71.43 support. The bounce back to this level needs some help near-term and watching how the bounce unfolds.
- XLE – Energy stocks fell with the market and confirm the downside trade as breaks support and accelerated lower. The bounce was positive, but not convincing as crude continued lower for the week. Watching.
- XLV – Healthcare broke the uptrend from the May lows and breaking the 50 DMA as the trendline. Held $86.74 support and the 200 DMA. Bounce in play.
- XLK – Technology breaks lower opening short side trade. 200 DMA came back into play, but Apple stalled the upside move. Watching.
- XLF – Financials move back above the $26.33 and presented some hope. The parts are better than the whole as we scan for the opportunities. (see above)
- XLY – Consumer is under pressure from interest rates and Fed talk. Held support at $102.50 and bounced clearing $107 and looking for the opportunity in the move. Parts are of more interest with scans showing the key leadership in the sector.
- RWR – REITs have been under pressure from interest rates. Bounced at $88 support… tried to clear $91.20, but reversed on the interest rate climb on Friday… Watching.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
Markets attempted to bounce off the current lows but failed to follow through on Friday. There is plenty of anxiety from investors and the news from Apple on how they will report earnings going forward did not settle well and prompted too much speculation. Ten of the eleven sectors managed to close the week in positive territory offering some hope looking forward. We continue to take this one day at a time. There is plenty of influencers in the markets currently. We have discussed the tariffs, interest rates, geopolitics, earnings, the economic picture, and many other issues over the last few months and they continue to stimulate speculation. The Fed is currently the biggest influencer on investors psyche and they aren’t helping with the continued comments on inflation and higher rates to stall growth. Next week we will get to speculate on the election results… what will they influence and how they will impact the economic picture. How this all unfolds is a matter of time. There is no reason to panic just follow your strategy… it, your strategy, is the calm in the storm… stops take you out of positions and protect principle when things go south. Short side trades work well when markets turn lower. Disciplined entry and exit points allow for you to manage your risk. Investing and trading is a matter of discipline. It is not magic. It is not being a prophet. It is about following your defined strategy one day at a time.
There is plenty to do short-term. Let it unfold… take the trades or opportunities offered… manage your risk and remember cash is a sector and there are times when it makes the most sense versus forcing something that really isn’t there… patience is a strategy as well.
“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.