Buyers push stocks higher cautiously

OUTLOOK: April 13th

The broad markets moved higher on the day, but investors remain cautious. Volume remains on the weaker side and some selling in the last hour put a negative twist on the day. Financials and technology led the way with both bouncing back from the selling on Wednesday. Industrials and basic materials were better as well with crude oil heading above the $67 mark and hitting a new four-month high. REITs and utilities struggled on the day as interest rates ticked back above the 2.8% mark on the ten-year bond. Overall a simple move upside and the 50 DMA becomes the next hurdle for stocks. Still taking it one day at a time and patiently taking what the market gives.

The S&P 500 index closed 21.8 points at 2663 holding above the 200 DMA and moving to resistance at teh 2675 mark. The chart is holding the long-term trendlines off the January/February 2016 low. The current pattern could still unfold on the upside by clearing 2575, but the downtrend could be reestablished as well by breaking 2575, flip a coin in the news-driven environment. The whipsaw action has been a challenge for establishing positions. With the trade negotiations, and now Russia, ongoing expect more volatility. The downside remains below 2765 for the short side interest and SPXS hit the entry level at $28.20… added a position at $28.50 as a hedge. It has been an up and down ride as we adjusted the stop at $28.50. Hit the stop on the close Thursday and watching how today unfolds relative to following through on the upside attempt.

The NASDAQ index moved back to the 7103 level of resistance and closed at 7140. The move above this level is a positive for the current consolidation to move higher. The last three weeks have shown big swings as the buyers and sellers fight for direction. Too many international issues remain in the headlines and plenty of dynamics in place as the White House makes moves that rattle investor confidence. Patience is required along with a strategic approach to managing money. SQQQ entry $17.85, stop $17.65 (Stop Hit). Semiconductors and technology are leading the upside for the broad index.

Small Cap index is leading the bounce off the current lows with some solid moves toward resistance at the $154.90 mark. Two days of low volume isn’t helping the cause, but the leadership is a positive. Watching how the opportunity unfolds near term… positive move above $152.53 on Tuesday and solid follow through on Thursday.

Gold (GLD) moved back above the $126.02 mark after a test lower last week and spiked higher on the Russia interaction on Wednesday. With some calm on in the media storm on Thursday the metal moved back to $126.62 and remains in the current trading range. Failure to hold the move higher is an indication of the news driving. The gold miners (GDX) made the move back above the $21.92 mark from the bottoming pattern in play. The break above this level offered a trade opportunity and followed through on Wednesday. Despite the move in the metal the stocks held up well on the day. Base metals (DBB) moved lower in the downtrend and gapped below the 200 DMA. The bounce last week showed some life in the metals and Monday cleared $18.36 entry level for a trade. Entry $18.36, Stop $18.75 (Hit Stop). Selling or profit taking hit the sector on Thursday with a calm in the news. I used a tight stop as the move was all news related… took a small gain and looking for the next opportunity.

The dollar (UUP) bounced some on Thursday after the move lower with pressure from the global picture weighing on the buck. The move helped commodities near term and now we watch to see how this unfolds… the news isn’t over just quiet on the day.

Treasury Bond yields moved to 2.83% Thursday on optimism after testing lower last week. The move helped financials bounce back and hurt the bond as they lost ground on the move. The utilities and REITs also reacted to the move on Thursday. Watching to see how this plays out with the yield remaining in a trading range. The hope and fear emotions continue to push the yields around along with bond prices. The bond is nothing more than a conduit with the uncertainty in play for stocks. Interesting battle of money rotating on worries relative to trade wars. Patience is needed for now.

Crude oil (USO) moved back above the $61.60 mark Friday… bounced to $63.42 on Monday… and $67.07 on Thursday as uncertainty remains around the inventories, production, global discord, and the dollar. The news is driving and oil hit a new near-term high. The dollar relationship remains in play influencing the price of crude along with worries of ramping up production in the US on the price move above $60. News about overproduction hit the wires last week but was countered this week by Russia and Syria issues. Too much talk and not enough data to support the current moves.

Emerging Markets (EEM) dumped lower breaking $47.90 support and testing the short side. It did manage a bounce the last few days to move to $48 again. The dollar, tariffs, trade wars, and interest rates are all playing into the volatility of the sector. We will let the market speak and we will decide what trend to trade.

The Volatility Index (VIX) closed at 18.4 as investors worry calm, but the tariff wars and international discord remain in the background. We sold all of our positions last week as the buyers came to the aide of stocks. The move Wednesday will keep me in tune with what is taking place, but for now, we see how it unfolds in the face of new worries. FOMC meeting, tariffs, antitrust lawsuits, Mr. Trump, Russia, Syria, etc. all adding to the investor anxiety. We banked a nice gain on the trade the last ten days and look to see how it unfolds going forward.

There is plenty on the table relative to dynamics and agendas from the government, economic data, traders and investors alike, but the emotions injected into the market now raises questions about direction and momentum. The ABCD pattern broke to the downside and retest of the February low last week followed by more volatility and testing this week. The key is patience and taking what the market offers versus our emotions. Simply put there is plenty to ponder about what will and will not impact the markets both short and long-term… My goal is to manage money, not markets. Manage my risk based the current environment coupled with my strategy for each position. The key is to stay focused on the horizon, not the rear-view mirror. 

Wednesday was a hot mess with Russia and the White House bantering over Syria and missiles. A lower open was salvaged throughout the day, but most indexes still closed in the red… the inability to follow through up or down is the current challenge. Thursday was a positive day for the broad markets mostly due to no real news. The advance towards the beginning of earnings is on deck and we look for some positive response overall. Too many things in the mixing bowl to decipher and it is keeping everyone content to watch and trade the opportunities short term with not much being said or focused on the long-term outlook. Uncertainty is present and neither the buyers or the sellers are exerting effort to control the direction. 

(The notes above are posted daily based on the activity of the previous days trading)

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare. The sector has taken on an emotional ride of ups and downs based on the current belief and market trends. The downside is in play again as we break the $105.30 support and the February lows being tested on Friday. A short signal on the break of the $104 level. LABD entry $39.30. Stop $37.40 (Stop Hit).  Bounce off the lows… and follow through on the bounce from Monday. Watching the bounce opportunity as we hit the stop on our short position. Wednesday held the bounce along with Thursday as we look to the $107 mark to clear.  

Semiconductors (SOXX) bounced off the low at the $166 level and established a new high. It has retreated on the selling sending the sector lower… It did manage a bounce early in the week then retreated again on Friday. Selling confirms the short side trade entry at $12.30, stop $11.80.  The bounce held on Wednesday added to it on Thursday and $181.60 level of resistance to clear now. 

Software (IGV) hit new highs and closed below the $171.11 support on the test lower. Watching how this sector holds up near term… Some downside selling Monday added to the downside pressure. No positions currently and the short side is being watched. Moved back above $171.11 level and watching to see if it can gain any upside momentum. So far so good. 

REITs (IYR) The sector remains in a trading range as it continues to build a base. Interest rates have been the challenge overall… looking for the opportunity to add a position and collect the dividend long term. Moved back above $75 and holding. Reacted to interest rates and move back below the $75 mark. 

Treasury Yield 10 Year Bond (TNX) moved to 2.77% this week as money is jumping around looking for the best opportunity. The rolling top activity moved below the 2.79 support and watching how this impacts the bond sector. Waiting for some clarity on the bond near term. Yields bounced to 2.83% pushing bonds lower, but showing some movement in money back towards stocks… not much. 

Energy stocks (XLE) The sector tested the $67 level of support again and remains in the bottoming range. Entry at $68.85 is of interest if the upside validates the move. The short side is a big question as oil continues to test the uptrend moving back to $61.60 level on Friday. Watching patiently for direction. Cleared $68.82 on the upside to break from the current trading range. The move in crude the last three days gave cause for the buying. Looking to hold the move and establish a position if the move confirms. Entry $70, Stop $67.70. Held the move on Thursday and may test it before any advance. 

Natural Gas (UNG) forming a bottoming pattern currently after falling more than 19% off the January highs… watch for the next opportunity in the commodity. The downside continues breaking below the next support retesting the lows and keeping the downside in play. $21.50 level of support held and small bounce. Needs to clear $22.69 for upside to convince. 

The NASDAQ tested the 6909 support again in a volatile week. The S&P 500 index tested the 200 DMA again and closed at 2604. The bias is negative and volatility is alive and well. Leadership is testing the downside move as financials and technology lead the downside moves. Short trade entries hit and testing with the volatility daily. News on tariffs are still in the picture and providing volatility. The President is attacking Amazon just to add to the excitement. VIX index remains above 20. Money is rotating with some headed to the safety of bonds and some to cash. There is no shortage of speculation and news. The key is to keep your focus on your trading strategy and not the emotions of the day to day swings in the market. The downside bias remains and a break from the February 9th lows will only serve to accelerate that bias.

No real change as the market pushes slightly higher as earnings begin… need some conviction to show up in the volume… the buyers were positive on Thursday, but below average volume again… news is driving and that puts me in caution mode waiting for the next opportunity. 

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

Daily Scan Results:

THURSDAY’s Scan 11/13: positive upside on the day with some selling in the last hour. Looking to clear the 50 DMA next to add some interest to the current move off the lows. Patience remains a key element in the current environment with too much news and not enough buyers. The scans once again produce the obvious moves on the day and some things to watch…

  • Leaders – Financials (XLF), technology (XLK), industrials (XLI), small caps (IWM) and basic materials (XLB) all moved to resistance and a push through would offer some opportunities in the sector or the leading stocks.
  • Laggards – Treasury bonds (TLT/TBT), REITs (IYR), utilities (XLU), consumer staples (XLP) all moved with interest rates on the downside. Looking at possible short side trades as this unfolds.
  • Limpers – S&P 500 index (SPY), NASDAQ (QQQ), Dow (DIA) all pushed to resistance and looking for the move through these levels as well as the 50 DMA to confirm the upside bounce off the current lows.
  • Thursday Charts of Interest: SOXL moved above $152.73 and needs to follow through on the upside. LABU moved to the $84.18 resistance and needs to climb through the resistance. TECL cleared $117.37 resistance and looking for follow through. TQQQ moved above $144.90 and looking for follow through. TMV setting up the double bottom as interest rates creep higher. CURE looking for a break from the bottoming pattern. TNA cleared $69.41 for positive bottom reversal follow through. Plenty of patterns in play as the consolidation continues and the leadership is thin.
  • ETFs to Watch: HACK, IEZ, KRE, EURL, IAI, IGN, IHF, SKYY, EWI, FDN, IWC

WEDNESDAY’s Scan 4/11: Some positive, some negative… not much changed. Commodities are moving in response to the banter in the international politics. Stocks remain worried and holding support. Bonds are flat. Interest rates are lower. The dollar is moving down. I am watching and waiting for the direction to unfold. Good time to play golf.

  • Energy (XLK/ERX) held gap higher and added to the upside as crude moved above $66. Took a position in the stocks and we will manage with a tight stop to see how much upside there is in the sector. The upside trade is crude is working as well… both are news driven and need to be managed accordingly. UCO, OIH, UGA, FCG also opportunities.
  • Gold Miners (GDX/NUGT) break above resistance offered upside trade same as energy… news driven and needs to be managed aggressively. Tight stops and watching how it unfolds near term. SLVP also upside move.
  • Brazil (EWZ/BRZU) bounced for the second day off the current lows and watching for an opportunity short term. Crude is moving, commodities overall are moving, and that helps the country ETF.
  • Biotech (IBB/LABU) held the upside move as it clears $77.04 resistance. Trade opportunity in the bounce and follow through. $98.60 target.
  • Treasury Bonds (TLT/TMF) upside back as interest declined slightly… interesting to watch how this unfolds with money still rotating to safety. Upside trade opportunity is back and watching.

Letting this unfold one day at a time and taking what the market offers without bias… Niether side can decide who will win the battle for direction.

TUESDAY’s Scan 4/10: Some positive takeaways from the upside move with volume higher and breadth better. The challenge remains conviction about the move and too many issues flying around in the media. Taking it for what it is and keeping our powder dry for the next opportunity. Russia remains in the headlines, crude gaps highs, inflation talks are back, trade deficits continue drive talks with China, and the White House remains resolute on trade. Outside of that earnings are on the table again. The news is driving and that keeps it interesting day-to-day.

  • Energy (XLE/ERX) breaks the upside resistance of the trading range to clear $68.82 and we look for the follow through to above average volume move.
  • Telecom (IYZ) moved to resistance at $27.63 on a positive gain. Watching for follow through.
  • Technology (XLK/TECL) nice upside gain on the day. Needs to clear $66.15 resistance to offer any upside opportunities. NVDA, STX, MU, AMD, KLAC led the upside move.
  • Basic Materials (XLB) attempted to move above the 200 DMA resistance in the bottoming pattern. Watching how it unfolds going forward. FCX, EMN, DWDP, LYB, VMC led the upside on the day.
  • Healthcare (XLV/CURE) bottom pattern attempts to break above resistance at the $81.81 mark. IBB and IHE are helping the upside attempt in the sector.

Leaders… commodities DBA, DBC, DBB all moving higher on rumors and sanctions. Biotech (IBB) followed through on the bounce off lows. Technology, semiconductors, energy, financials, and consumer all had positive days, but there is still plenty of work to do.

Patterns… seeing some possibilities to break from consolidation patterns. Need to see some upside follow-through today if they are to evolve. Patience as today will give some insight.

Charts to Watch… XLE, IBB, SOXX, FXI, USO, XLK, QQQ, GREK, KWEB, IEV, MOO

MONDAY’s Scan4/9: No big changes on the day with the move higher early being erased by the selling later. The modest bounce helped ease some of the anxiety from the selling on Friday, but still leaves plenty of question marks and less clarity. The scans were interesting as Russia (RSX) and biotech (IBB) offered moves to watch.

  • Russia (RSX/RUSS) big downside move as US sanctions hit aluminum and other materials. The downside trade has been building momentum, but this was not expected… now we see how it unfolds.
  • Aluminum (JJU) soared as prices rose on the sanctions were enforced by the US. They started moving off the lows last Thursday and Friday with the spike higher on Monday.
  • Biotech (IBB/LABU) bounced off the lows from Friday but failed to hold all the gains from earlier in the day. Still worth watching how this unfolds off the low.
  • Crude Oil (USO/UCO) bounced with the lower dollar, but also the issues in Russia had some impact along with the Chinese tariffs. No decision on a direction yet as the commodity remains in the trading range.
  • Europe (IEV/EURL) made move above resistance at $36.24. Watching to see if the ETF can break from the bottoming consolidation pattern. $36.80 is level to clear on the upside for an opportunity.

Leaders… definitely seeing some upside in commodities JJU, WEAT, JJG. Biotech (IBB) bounced off the lows. Financials (XLF) holding in the bottoming range and software (IGV) bounced back to resistance. Plenty of work left to be done.

Patterns… bottoming is still the key… need some momentum to break higher if that is the direction we are going… but, equally we need momentum on the downside if that is the direction.

Charts to Watch… RSX, IBB, IEV, USO, EFA, SCJ, DBB, EWQ, SOYB, JJU, WEAT, MOO, CORN

FRIDAY’s Scan 4/6: The downside returned as the President has to one-up China on talking about tariffs. We will let this unfold into the new week and see how the buyers and sellers decide on the direction. The scans return to the downside efforts prior to the three-day bounce last week. Testing again at key support levels will test the resolve of both sides. Patience is the key.

  • Biotech (IBB/LABD) reversed lower to test the support and the short side trade is back in play clearing the $40.21 resistance. Looking to add to the trade on the short side with confirm.
  • Semiconductors (SOXX/SOXS) negative trading day to end the week puts the short side back in position to gain momentum. The move above $13.52 is the entry point with a confirm of the move. TECS also makes move as the sector struggles.
  • NASDAQ 100 (QQQ/SQQQ) the downside is still lurking on the move back towards $20. A move above this level would offer some short-term opportunities int he short side of the trade.
  • China (FXI/YANG) the downside is where the challenge lies for the country ETF. Tariffs are not a win for the country any more than the US. Watching how the downside opportunity unfolds.
  • Emerging Markets (EEM/EDZ) downside is alive and well with all the rumbling about the tariffs. The winners and the losers are being juggled by investors trying to get in front of the inevitable.

Leaders… still looking for the catalyst in either direction currently. Tough week for all and willing to give it room to unfold.

Patterns… bottoming ranges, double bottoms, and consolidation… all need a catalyst good or bad… willing to wait for now.

Charts to Watch… XLF, FXI, IBB, XLE, SCO, SOXX, QQQ, SPY, DIA, USO, WEAT, TLT

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

 

Sector Rotation of S&P 500 Index:

One big change of note concerning sectors… The Global Industry Classification Standard is making a change to the Telecommunications Services Sector. It will become the Communications Services Sector which sounds minimal but could have a significant impact going forward. They are adding NFLX, DIS, CSMSA, FB, and GOOGL. The new structure will be enforced the end of September. This will make it more of a growth sector overall but could dampen some of the volatility the sector has experienced over the last two years.

  • XLB – Materials moved below the February low and the 200 DMA… downside in play and looking for support to hold near the $56 mark again. Solid gain with a bottom reversal in play. 
  • XLU – Utilities have been under pressure from the speculation of higher interest rates from the Fed and a weaker dollar. I have been looking for support and the next opportunity as the fear evaporates and reality settles in. $48.55 entry. Stop $47.50. This does pay a 3% dividend and willing to stick with the slow-moving sector for now. Tested lower on interest rate moves. 
  • IYZ – Telecom has become more of a trading sector than the buy and hold historically. The volatility has increased and thus swing trading works better. Some buying? Some selling? The downside accelerates with stocks selling on Friday. Short side remains in play. bottom reversal? Watching the $27.63 level. 
  • XLP – Consumer Staples broke the February lows and finally found support near $51. Bottom reversal pattern in play and watching how this unfolds with $53.15 resistance to clear. Patience as we start the week of trading. 
  • XLI – Industrials moved to support at the 200 DMA and bounced modestly… returned to test and the downside is still the trend.  
  • XLE – Energy sold to bottom of the range at $67 and remains in a bottoming trading range. No traction and erased the bounce from Thursday. $68.82 is level to clear on the upside. Cleared $68.82 (entry) upside to break from the trading range. Got the confirmation of the move and trade opportunity with a follow through on Thursday. 
  • XLV – Healthcare has been up and down following the Feb 9th low. ABCD pattern broke to the downside offers short side trade. Watching how it unfolds along with the broad markets as it bounced off $79.50 support.  Cleared $81.81… watching for trade opportunity. 
  • XLK – Technology tested $64 support, bounced, and made positive progress, but gave it back on Friday’s selling. Large-cap tech challenging the downside with SOXX and IGV breaking support. Watching how the week starts. Positive move in bottoming pattern.
  • XLF – ABCD pattern breaks with downside bias… tested the February 9th low and held. Letting this unfold and then we will take what the market offers. Bottoming pattern remains with positive move on Thursday.
  • XLY – Consumer Discretionary sold to support at $99.40. Bounced on Thursday and reversed on Friday. Watching how it unfolds near term. 
  • RWR – REITs reacting to the current uncertainty around the hike in interest rates. Bounced off the $82.75 support and moved above $85.65 resistance. Tested on the selling Friday and letting this unfold near-term. Interest rate move impacts sector Thursday.

News about the trade wars and tariffs with China continues to be the sticking point for the broad markets.Three-day bounce is erased on Friday as the President continues to banter with the Chinese. The reality is still to be determined and in the meantime, we look for the best opportunities as they unfold.  No time for speculation on the realization of earnings and more data on the way this week.  

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

FINAL NOTES:

The ABCD pattern broke with a downside bias and caught support, bounced, sold again. The question remains about direction and volume. There is a lack of conviction from either side as the volume remains below average. The leaders are still in place and could easily make the move on the upside with enough conviction from the buyers.  All eleven sectors on the week moved lower. The S&P 500 index closed lower on the week overall. The bounce off support failed leaving the direction in question and volatility is alive and well with the VIX index at 21.4. The key is to focus on the strategy you want to take during the current market environment. News and speculation drive the short term while fundamentals drive the long term. I trade both and have specific strategies for both. Short term we are in a process of testing the February 9th lows. A break of that level would signal a big negative technically for the broad indexes. Leadership is rolling over and the sentiment has shifted near term. We will start the week with earnings data for the first quarter… The goal remains money management, not market speculation… our downside bias has been confirmed and we will take what the market offers and manage the risk.

ONE DAY at a time is the key for now. Take a longer-term view of your overall portfolio and manage the risk of your short-term trades accordingly.

“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.