Are the markets finding a bottom?

Market outlook for August 8th

The big question of the day… is the bottom in… at least for now? The opening bell was not promising as the indexes fell to Monday’s lows and the buyers stepped in to close flat on the day. Was that the test needed to entice buyers to step in and buy stocks? We will see today how it all responds. As we stated yesterday, taking it one day at a time and one worry at a time. Nothing has changed except the VIX index. It spiked to 23.2 to start the day and closed at the 19.3. The worry factor remains high overall and volatile intraday. Stay focused and most of all stay disciplined.

The S&P 500 index closed up 2.2 points to 2883 and testing the 2815 level of support of support again. The focus on China/US trade remains in the headlines and the banter continues. Six of the eleven sectors closed higher on the day with basic materials and consumer staples leading the move. The downside was led by energy and financials. We adjusted our stops and continue managing our short side trades… we will manage the risk as it is presented. The long-term trendline comes back into question with the move lower breaking the trendline from the December lows.

The NASDAQ index closed up 29.7 points at 7862 and holding support for the day. Technology stocks rebounded from the beating on Monday, but remain under pressure from the sell-side. QQQ held support at the $180.73 level once again. Managing the short side trade on the move lower last week and managing the risk. SQQQ entry $32.55. stop $36.12.

Small-Cap Index (IWM) The upside move stalled in a trading range near the $154.90 mark and broke lower testing the $146 level of support. Emotionally charged activity in the sector currently. No positions currently in the sector.

Transports (IYT) The sector was in an uptrend that included some volatility but dropped 2.5% on the tariff threats. Dropped 3.2% on the currency devaluation. Modest bounce on Tuesday and watching as this unfolds. No positions currently.

The dollar (UUP) The dollar moved higher but retreated on the tariff comments. Retreated further on China’s yuan move Monday. Held steady on Tuesday and watching how this unfolds going forward. Closed at $26.49. Watching the Yen (FXY/YCL) as it is the current benefactor of the tariff talks.

The Volatility Index (VIX) closed at 24.5 Monday after moving higher on speculation about the Fed… then the Trump tariffs, and now currency devaluations. The move to 19.4 Wednesday after peaking early in the day showed the buyers stepping but remains near the highs. UXVY moved through the $25.28 entry-level. Stop $35. Taking what the market offers here. Friday sold 1/3 at $32. Monday sold 1/3 at $37. Hit stop on the balance.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector has moved to the $190.44 support. The downside is a reaction to the current environment of the markets. Testing the March lows Monday with modest bounce on Tuesday.

Biotech (IBB) The sector remains at support near the $104 level and looking for a catalyst to push higher. Waiting patiently for clarity. Testing the $101 support.

Semiconductors (SOXX) The consolidation pattern at the high breaks lower on the news from the Fed and new tariff play from the White House… both news and speculation driven… the reality for semis is tariffs… the sector stands to get hit the worst. Added short side trade with SOXS. Fell 4.3% leading the downside move on Monday. $192.43. Held support on Tuesday.

Software (IGV) Hit new highs and reversed on the Fed/tariff news the balance of the week. Hit our stop, locked in gains, and watching how this unfolds moving forward. Fell 3.8%… looking for support. Held on Tuesday.

REITs (IYR) The upside trend remains on the long-term chart. The test of support at $87.50 bounced. Patience with our long term positions and short term watching how interest rate market unfolds. Moved back to the $88 level of support on Monday.

Treasury Yield 10 Year Bond (TNX) Fed only cuts 0.25% and rates nudged lower… Trump threatens tariffs and rates nose dive to 1.85% expanding the inverted yield curve. The flight to quality on fear of stocks falling further send treasury bonds higher… TLT/TMF trade in play. Yields moved to 1.73% flight to safety continues for money. Adjust stop on TLT trade.

Crude oil (USO) Big downside on the tariff threats from the White House. Bounce on Friday helped the cause, but crude is awaiting clarity on tariffs and how each country will respond. Moved lower on Tuesday? Watching how oil responds to the current environment. Dropped 4.7% on supply data and speculation. Watching as it tests the June lows.

Gold (GLD) The upside in gold has been driven on speculation of the rate cut and global weakness overall. Watching as the consolidation pattern near the highs as speculation is rampant about tariffs and interest rates. Jumped higher on speculation… let it (GLL) run and adjust your stops. Spiked higher on Wednesday as money is speculating on where the best home is… and for now gold wins.

Emerging Markets (EEM) Broke lower from the trading range as tariff threats add to the worries about an economic slowdown. Break below $42.30 could offer a short side trade opportunity. Hit entry point on short and gapped lower on the end of trade talks with China. EEV entry $42.80. Stop $47.24. Gapped lower on Monday… adjust the stop on short trade. Bounced on Tuesday watching with a stop in place.

China (FXI/YANG) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Watching the move lower play out as Mr. Trump makes his intentions clear… as does China. Broke support at $42 and the downside is back in play. YANG Entry $49.75. Stop $59.18. Gapped lower on Monday… adjust stop on short trade. Small bounce Tuesday.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

WEDNESDAY’s Scans for August 7th: No big changes in the charts as they test lower and bounce back. The leadership is based on speculation and rotation not facts. Gold made big move higher, crude moved lower, and the speculation headlines remain in charge.

  • Gasoline (UGA) dipped lower to test support as crude move to the June lows. Short side trade is in play and looking at this key level of support.
  • Homebuilders (NAIL/ITB) made solid upside move with interest rates hitting near their lows of 2016.
  • Gold (GLV/GLD) remains in upside trend. Adjusted stop on position.
  • Manage the risk on downside trades if the upside finds

TUESDAY’s Scans for August 6th: It was a bounce that changed nothing. The headlines are full of speculation and what-ifs… There are some good setups for trading the bounce and then there are some good setups for trading the downside. For example, KO is in a position to trade higher, while AXP could trade lower. We have to watch and let this unfold. Taking a shot in the dark is not always a good thing without the aide of night vision goggles. Watching how Wednesday unfolds.

  • Social Media (SOCL) watching the parts with MTCH moving higher after-hours.
  • Semiconductors (SOXX) again it is about the parts not so much the whole. KLAC, CREE, and TSM are a few with good upside setups with a follow-through.
  • Financials (XLF) solid bounce for banks. Watching and breaking down the parts.
  • Treasury Bonds (TLT) watching for the top. Adjusting the stop in the event money rotates back to risk on.
  • Gold (GLD/GLL) watching for the top. Adjusted stops and letting this play out at the new highs.

MONDAY’s Scans for August 5th: More selling as currency devaluation brings out global sell-off in stocks. Why ask now what to do with stocks? That question should have been answered with stops in place to protect your money. Short side trade setups have played out well and we have to adjust our stops and let this unfold. You would have to expect a bounce at some point as the oversold indicators are flashing on the charts. Watching how today unfolds and we will lock in some gains on trades and let the rest play out. The scans all show cliffs on the charts as the last three day concluded in a 5.6% decline in the S&P 500 index and a 6.8% decline in the NASDAQ… Look at stop adjustments. Watch how Tuesday unfolds.

FRIDAY’s Scans for August 2nd: More selling equals confirmation of the downside move. Not sure how long this selling will persist as it is news dependent on the White House, China, and the Fed. I only see the charts reacting and the trade opportunity presented… the risk is managed with stops and letting this unfold one day at a time.

  • Russia (RSX/RUSS) topping pattern breaks to the downside and follows through short side trade option. entry $10. stop $10.75.
  • NASDAQ 100 Index (QQQ/SQQQ) followed through on the downside break. entry $33.98. stop $33.26.
  • Semiconductors (SOXX/SOXS) continued selling in the sector as it is believed to get hit the hardest by the tariffs. entry $42.90. stop $45.10
  • Energy (XLE/ERY) downside confirmed as crude prices struggle on tariff threats. entry $45.28. stop $45.76.
  • Treasury Bonds (TLT/TMF) upside continues with a flight to quality. entry $24.62. stop $25.75.

THURSDAY’s Scans for August 1st: Danger ahead… Mr. Trump really knows how to get the attention of the market… even though he was trying to get the attention of Mr. Powell. The ripple effect of his threats to enact new tariffs rattle investors as it creates new uncertainties about the economy and global growth. Watching how this unfolds in the coming days.

  • Gold (GLD) spiked higher on the inflationary worries around tariffs.
  • Semiconductors. (SOXX/SOXS) in the crosshairs of tariffs fall 2% confirming the short side trade in the sector.
  • Emerging Markets (EEM) and Chian (FXI) both accelerate on the downside. Adjusted our stops – tariffs don’t help either sector.
  • Treasury Bonds (TLT/TMF) accelerate on the upside as money runs for safety. Adjust stop on TMF trade.
  • NASDAQ 100 Index (QQQ/SQQQ) triggers short side entry as we manage the risk of the trade.

(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 – Broke support again… banked profit. Watching how this unfolds. Monday moved to $55.95 support?
  • XLU – The utility sector broke higher at $59 clearing the top of the trading range. Starting a topping pattern/trading range again.
  • IYZ – Telecom cleared $29.50 resistance moved lower in response to the Fed. AND Mr. Trump. Retesting the June lows.
  • XLP – Consumer Staples moved lower, bounced and hit new highs and remains in the uptrend despite the test last week. Rotation of money to safer havens helping… watching the upside move. Broke below the June lows.
  • XLI – Industrials remains volatile in an established sideways trend. Stop $77.50. Testing the May lows.
  • XLE – Energy stocks have struggled on the uncertainty about supply and production. Broke the $62.15 level of support. Established a short side position in the sector. Broke the May lows.
  • XLV – Healthcare continues to deal with the proposed “Medicare for All” healthcare from Washington. Obviously rumor-driven… Watching for the next opportunity. Broke the $89.58 support. Bounced back on Tuesday?
  • XLK – Technology sold as semiconductors and software tumble lower. Established a short side trade in SOXS. Tested the $75 support. Bounced on Tuesday.
  • XLF – Financials held up on the Fed news… but, failed on the Trump tariff news. Tested $27.30 support. Watching. Moved to the 200 DMA. Solid bounce on Tuesday. Sold on Wednesday.
  • XLY – Consumer stocks respond to the tariffs… testing $118.10 support. Gapped lower $114 support? Solid bounce on Tuesday & Wednesday.
  • IYR – REITs pushed to new highs, tested, moved back to new highs, and testing again… letting it unfold. Tested the $88 support.

There is currently one sector in confirmed short term uptrend. Nine sectors in consolidation or sideways trends. One in a confirmed downtrend. The result is SPY in a confirmed sideways trend. This is a big adjustment based on the current market environment. 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.)

FINAL NOTES:

Wednesday found support again and bounced to close flat on the day. I will take that as a win with the test on the downside surviving. How do the buyers trade it now? Are they ready to step in? Watch and manage your risk accordingly. Taking it one day at a time and managing our money and risk. Cash is a sector and we will use it along with those fitting our risk profile.

Markets got the answer from the Fed and the speculation of a half-point cut was not realized. The results, a dip in stocks. Mr. Trump added to the excitement with his promise of new tariffs. Monday China lowers currency and triggers more selling. The question is will the downside continue? Because the amount of the cuts were less than expected it opened the door to more speculation around the Fed and future decisions. Mr. Trump didn’t wait… he walked through the door and added tariffs to the excitement. The Fed has been using a resolution to tariffs as a reason not to cut rates… Welcome, Mr. Trump as he takes that excuse away. China trade is a key point of issue that remains for investors as the trade talks just escalated to a new level… they are scheduled to resume in September… now there are questions of if it will happen. Currency wars were added to the issues on Monday by China. Crude oil speculation remains in the news as prices crept back above the $58 level… They spiked lower to $53 level on comments about tariffs… modest bounce and definitely on our watch list. And let us not forget the inverted yield curve for bonds as yields moved lower in response to the Fed actions at the FOMC. They closed the Monday at 1.73% in response to fear and flight to safety. Focus on facts like economic data, earnings, and global data reports. The ISM manufacturing data for July fell to 51.2% and the ISM services data dropped to 53.7% showing weakness in the economy. July added 164,000 jobs in line with expectations but failed to offset the new on tariffs. Within all of this data lies the opportunities we are all looking for. FOMC gave some insight to the Fed and the market’s response gave some insight to investors, Tariffs renewed added a new dimension of speculation… we will manage our risk accordingly and focus on what we know versus speculation.

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.