Buyers go all in

The long weekend didn’t affect the spirit of buying the NASDAQ and large-cap stocks. The index rose 1.67% on the day and closed above the Feb/March resistance. The S&P 500 index posted another new high adding 1.4% to Thursday’s gains. The ISM services data jumped higher to join the manufacturing data for March showing positive growth in the economic picture. The data points have been positive across the board and bring into question how long the Fed will be engaged in buying bonds. Rates are rising and along with the positive outlook for jobs. Plenty to ponder as the week continues to unfold. Stay focused, manage the risk that is, and let this all unfold one day at a time.

Short news notes of interest…

  • The jobs report showed 916,000 new jobs added in March. Earnings declined by four cents. This was much higher than expected and the fact there was no wage inflation added to the value of the report to investors. The Fed is likely to not t act on the data relative to interest rates near term. Overall positive data for the markets.
  • ISM services data showed a similar increase in March as the manufacturing data moving higher to 63.7% from 55.3% in February. Again, positive news for markets and the Federal Reserve.
  • Watching crude oil (USO) as it fell 4.4% on Monday… offering some insight into what traders are thinking relative to supply and the latest OPEC meeting. If economic recovery remains constant the upside should remain in play.
  • NASDAQ 100 (QQQ) stocks showed positive moves on Monday and worthy of some additions based on the moves and the data. MSFT, AAPL, TSLA, FB, and WBA all offered something to trade.
  • Consumer durable and consumer discretionary on the move higher. Watching the consumer trends shows positive outlook for both ETFs.

Sector Rotation and the S&P 500 Index:

The S&P 500 index closed up 58 points to 4077. It was up 1.44% on the day. The index moved through resistance at the 3984 levels and hit a new high on the close. Money flow was flat and volume was still below average for the move. Ten of the eleven sectors closed in positive territory as the market finds some buyers to start the week. The VIX index closed at 17.9 and was slightly higher. The index remains is running higher on speculation and we will take what it offers with a cautious eye. The long-term trends remain on the upside.

Monday: Buyers stayed diligent on Monday as they continued to put money to work. The data from the economic outlook was positive and the leadership came from the consumer discretionary and technology sectors. The only laggard on the day was energy declining 2.4%. Transports closed at new highs and utilities broke clear of near-term resistance. An overall positive day for the index and the sectors.

  • XLB – Basic Materials remains in an uptrend and closes the week at new highs after testing. Adjusted our stops and watching. New highs.
  • XLU – Utilities found support at $61.75… watching how this unfolds. Rising interest rates don’t help the sector. Broke from the trading range and tested the break. ‘V’ bottom break higher.
  • IYZ – Telecom now shows a triple top on the chart and Thursday closed above the top of the range… needs to follow through to complete the breakout move. New highs.
  • XLP – Consumer Staples found support at the 200 DMA and moved higher… it has tested the move since and watching how it unfolds.
  • XLI – Industrials broke from the trading range and rose to new highs. The test lower held and now we let it play out with stops in place. New highs.
  • XLE – Energy surged higher the last month and rose to near term highs. The fall in crude prices pushed stocks lower finding support at $48. Keeping our eye on a move above the $50.50 level. Tested lower remains in the range.
  • XLV – Healthcare bounced at support and struggled to move back above the 50 DMA. It managed to break higher offering entry for XLV $115.50. We own IHF ($246.50) as the leader in the sector. Managing our risk.
  • XLK – Technology found a way to break from the consolidation pattern on the week. Money flow is higher after testing support… watching the break added a position at $133.50 entry. Stop $130. Added to break from consolidation pattern to previous highs.
  • XLF – Financials are forming a consolidation pattern on the chart. Watching and looking for a break back to the upside. Patience with our stops in place.
  • XLY – Consumer Discretionary has moved sideways following the test lower in February. Showing positive signs from retail and plenty of stimulus yet to be spent. New highs.
  • IYR – REITs made a run to new highs as hopes of reopening the country will benefit the retail space available along with a return to offices. Watching and managing the risk of positions. DRE, CSGP, PCH and others breaking higher. New highs.

Using the six-month charts as an indicator for the short-term view… Eight sectors are in confirmed uptrends with some sideways activity the last six weeks. Three are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for S&P 500 index is an uptrend short term with a reversal bias on the charts short term. We remain defensive and cautious about the broad index.

(The notes above are posted at the end of each week based on the activity of the previous week’s trading. The BOLD/ITALIC comments are the current day changes worthy of note.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

The NASDAQ index closed up 225.4 points to 13,705 as the index was up 1.67% on the day and closed well above the 12,977 support. The index got a boost as the growth and large-cap stocks see positive acceptance the last three days. Money flow was higher and reversing the downtrend. Watching how the growth stocks respond. The NASDAQ 100 index (QQQ) was up 2% adding to the upside from last week. The $312 support is in the rearview mirror for now. Semiconductors (SOXX) closed up 2% breaking higher and following through to new highs. Technology (XLK) moved up 2.07% and breaks higher from the consolidation pattern showing leadership again. Watching and managing our risk.

Semiconductors (SOXX) The sector remains volatile but managed to break higher from the consolidation pattern. The upside move came on above-average volume and strong leadership. This renewed leadership offers some hope to the NASDAQ overall. We added a position in SOXL. Entry $34. Stop $41.63. Adjusted stops on move to new highs.

Software (IGV) The sector showed volatility again after testing the current lows. The up and down activity shows the uncertainty in the sector. The upside returned after going higher with the rest of the technology space. Added to the upside move.

Biotech (IBB) The sector broke lower from the January highs and has struggled since. The sellers pushed the sector to the 200 DMA and bounced… not overly convincing in the action. Watching for opportunities. Entry $150. Stop $145. The upside was not overwhelming.

Small-Cap Index (IWM) The sector moved below the 50 DMA as the sellers too control of the near term direction. The bounce off the lows this week was a positive along with clearing the 50 DMA… watching with no positions currently. The upside was not overwhelming.

MidCap (IJH) The sector tested the 50 DMA bounced off support and watching how it responds to the bounce off support. The upside was not overwhelming.

Retail (XRT/RTH) The retail sector continues to find buyers and maintain the uptrend. The sector remains in favor despite the GME craziness. Taking what is offered and managing the risk. Added to the upside move.

Emerging Markets (EEM) The sector tested lower, found support, and moved back to resistance near term. The dollar is an issue along with global concerns about the virus. Patience.

Transports (IYT) The sector has been showing positive signs and leadership for the Dow. Tested lower, but held and moved back to new highs to end the week. The uptrend remains in play. Raised stops. New highs.

The Dollar (UUP) The dollar has bounced of late as a safe haven move globally. The bottoming pattern validated the upside move on the chart with the dollar up 4.3% since January. The rise is due to the rise in treasury yields helping the dollar. The Fed let the capital retention requirement expire on March 31st put on banks during the pandemic. That will have a positive impact on both. Heading lower on positive economic data.

The Volatility Index (VIX) Volatility closed at 17.2 breaking below the previous support. This is a positive near term as investor anxiety subsides on the stimulus and infrastructure spending. Small bump higher.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.67% up from 1.66% last week. Rates have been rising on inflation fears… negative for bonds. The bonds (TLT) have declined nearly 15% since the highs in January. Raise your stops and protect the gains on the short positions. TBT entry $17.84. Stop $21.04 (adjusted).

Crude oil (USO) Crude moved to $61.41 from $60.99 last week. The commodity rose on Thursday despite the news that OPEC+ will gradually increase production in the coming quarter. Many believed they would continue with the cuts.. Watching as supply and demand will now come into play weekly based on production levels changing. Fell 4.4% on the data and outlook for OPEC and supplies.

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. The break of support at $166.50 finds support at the $157.29 mark and a small bounce… watching. The bottom reversal remains in play… Entry $162.45. Stop $156. Watching the dollar.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

MONDAY’s Scans for April 5th: The markets added to the upside move from last week as growth stocks continue the bounce. Looking for a test of the move higher and some opportunities in the test. Technology, consumer, and cyclicals leading the upside move. The energy sector struggled with crude oils move down by more than four percent on the OPEC news impacting forecast on supply data. There is plenty to like short term, but the volume remains on the light side of trading. Manage the risk and let it unfold.

  • Semiconductors (SOXX/SOXL) more upside as the sector hits new highs. Raised our stops and letting it run for now. Willing to take some profit on Tuesday based on the open.
  • NASDAQ 100 (QQQ/TQQQ) hit new highs and raised our stop on trades added last week. Manage the risk near term and look for the opportunities within the index.
  • Dollar (UUP/UDN) testing despite the positive economic data. Worries around more spending coming from the White House proposal of 2.4 trillion dollars infrastructure. Watching how this impacts commodities near term.
  • Google (GOOG) jumped four percent as the high court rules against Oracle in their elongated dispute over software. Added to the gap higher from the trading range.
  • Homebuilders (ITB/NAIL) running higher as the outlook for demand remains positive for the sector.

FRIDAY: Markets closed for Good Friday.

THURSDAY: Scans for April 1st: It was no April fools day as money flow rose and investors put money to work to start the new month. The NASDAQ and S&P 500 moved higher showing a broad move in the indexes. With the long weekend in front of us we added some positions, raised stops on others, and will do our homework to see what opportunities hold the most promise looking forward. Money flow and volume are saying caution. Talking heads are saying stocks run higher. We will let it all unfold and take what is offered.

  • Semiconductors (SOXX/SOXL) raised our stop on the run higher and watching how the leadership holds up.
  • Treasury Bonds (TLT) rates have settled in near the 1.7% level on the ten-year bond giving some reprieve to the downside activity. Watching and managing the risk of our short side positions.
  • NASDAQ 100 Index (QQQ/TQQQ) upside bounce from the test lower is a positive… Entry offered at the $324 mark.
  • Energy (XLE/XRE) solid move higher on the bounce in crude prices and the OPEC news. Watching of entry position if holds the move above the $50.10 level.
  • Software (IGV, SKYY) upside in the sector as the technology sector finds buyers. IGV entry at $340.20 Wednesday. SKYY $87.35 Thursday. Managing the risk.

WEDNESDAY: Scans for March 31st: End of the month, end of the quarter, will money flow rise? Good question as we face a three-day weekend. We will see if there is a follow-up to the rise in the NASDAQ on Wednesday. Semiconductors, cloud software, biotech, and other growth sector posted a solid day, but remain challenged by the current environment of the market. There is still a lack of clarity and direction in the markets near term. We will remain patient and take what is offered.

  • Semiconductors (SOXX/SOXL) the sector added to the upside bounce from last week and we adjusted our stop on the position added last Friday. Stop is not $38 locking in a nice gain if the bounce reverses near term.
  • Drugs/Healthcare (LABU, IBB, XPH, XLV) found support finally and attempting a bottom reversal trade opportunity. Manage the risk and trade accordingly.
  • China (FXI/YINN) attempting a bottom reversal pattern. Hit entry point on Wednesday and managing the risk of the trade.
  • Crude Oil (USO/SCO) downside bias in play as the supply data shows some build up last week. Not a trend. The OPEC+ meeting is Thursday… looking for short side trade based on the data… Patience.
  • Cloud Computing (SKYY) nice bounce and bottom reversal short term… looking for the opportunity if it follows through. PTON, ZM, NOW, CDNS showing some development.

TUESDAY: Scans for March 30th: More of the same as leadership is lacking… money is jumping around, but the lower volume shows a lack of interest on investors’ part. Willing to wait and see how this unfolds. There was some downside in commodities on the day as the dollar gapped higher. There is still an issue related to the virus hurting the outlook with renewed fear tactics from CDC and Mr. Fauci is back taking credit for the vaccines. Plenty of news and little relative to direction. Taking it slow and catching up on my golf.

  • Gold (GLD) Gapped lower on the dollar gapping higher. Watching the commodity as the pressure remains on the downside.
  • Crude Oil (USO/SCO) Moved lower as the Suez Canal reopened and supply concerns rise. The is the OPEC+ meeting this week as well. Watching for the opportunity with my bias on the downside.
  • NASDAQ 100 Index (QQQ) Testing support… looking at the downside trade if it breaks lower. Not a lot of hope for the upside as tech and large-cap growth stocks remain out of favor.
  • Housing (ITB) Solid data from the FHFA Housing Price Index as prices increased 1%… can this sustain as interest rate continue to rise, hitting their fourteen-month high.
  • Transportation (IYT) the backup in shipping and moving goods remains a long-term challenge currently. Thus, the sustainability of the sector remains positive. Railroads are leading, but trucking is doing well along with airlines.

(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.)

FINAL NOTES:

Monday: Positive start to the week as money finds its way into the markets again. The question is how long does the run last? Good question, but not one you can answer easily without speculation. I am looking for a test of the move higher in the NASDAQ to offer more opportunities near term. We have to be patient, take what is offered, and manage the risk that is. The challenges remain, but for now, investors are putting money to work.

Weekend Wrap & Outlook… The market shifts sentiment again as buyers put some money to work. The NASDAQ found support and broke higher from the trading range offering some opportunities on the move. The S&P 500 index broke to new highs showing some leadership again. Economic data is leaning towards growth aided by the stimulus. The economic data shows a positive bias overall with the normal question marks in a recovery. Shipping is leading as there is a backlog of products sitting on docs around the world. Pandemic restrictions and closures continue to show up in the supply of products and raw goods. The move by countries and states to shut down doesn’t help the fear factor. Energy has been volatile on the news but posted solid gains to end the week on OPEC data. The balancing act for both consumers and investors remains a challenge. The bond market got a reprieve of late with rates holding near the 1.7% mark on the ten-year bond. The dollar has settled following the move higher of late. Overall some positives are arising from the previous negatives.

With that in mind, the markets closed the week with a broad-based move to the upside. The cyclicals are leading and growth stocks are lagging. Value /dividend stocks are in favor over growth and thus they are acting more like growth stocks. Commodities have cooled as money exits for greener pastures of current moves. The long-term trends remain on the upside but I remain cautious about the current environment. For the week technology and REITs led the upside. The VIX index closed at 17.2 and showing some easing of anxiety near term. Watching the current movement in the broad markets as money continues to rotate to where it is treated best.

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.

“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 develops 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 your trading strategies with a disciplined approach to investing and managing the risk of our money.