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Jims Notes

Intraday volatility raises plenty of questions

By | Jims Notes, Research Post | No Comments

OUTLOOK: July 28th

Volatility index jumps as investors anxiety rises over the Fed comments at the FOMC meeting. Oil continues to rally on hope, technology goes on a wild ride, financials respond to the Fed moving lower, energy stocks finally buy in and rise along with crude, and the dollar finds a bottom? Biotech declines in earnest after the Senate failed to find a way to reform healthcare. It was a confusing day for bonds as interest rates rose despite the Fed action at the FOMC meeting. Transports (IYT) dumped more than 3% showing a negative response to the current stance from the Fed and the outlook economically. The decline in transports is a negative from many viewpoints. The end result was another mixed day on Thursday and investors continue to look for a defined direction in correlation to the rumors and speculation currently flying around the broad markets. Patience with your positions and risk management with your stops.

Six sectors ended Thursday on the upside with telecom (IYZ) and energy (XLE) leading the upside. The follow through to the FOMC meeting was muted and the rationale behind the pricing and demand remain a key question. Technically speaking the rise in the current leadership is questionable and the challenge remains the same… follow the leaders and let the market determine the direction, not our hopes and dreams.  The dollar found some buyers on the day despite the recent selling and the believers are growing relative to an upside move. On the downside, financials did lead along with industrials (XLI) and healthcare (XLV). The outlook for stocks remains mixed based on what you believe near term about the economic outlook and the Fed actions. The S&P 500 index closed down 2.4 points to close at 2475 holding near the new highs. The leadership for the index Thursday came from ADP (gap up and break from trading range), TSCO (Gap and completed the bottom reversal), VZ (gap up and completed the bottom reversal), OLRY (reversal pattern and resistance at $201), and KIM (break out from bottoming pattern). Earnings are driving the gaps higher and the upside favors the news of the week. Gold (GLD) moved through the $117.38 resistance last week as the buyers step back into the metal. $120.45 next level to clear on the upside as Fed sets the tone for the metal. The dollar (UUP) moved lower on the dovish outlook from the Fed and their shift to liquidate their balance sheet. The emerging markets (EEM) gapped higher from the trading range to new high and holding. The Volatility Index (VIX) closed at 10.1 with intraday activity in response to the uncertainty. Watching how it unfolds today as an opportunity if it continues higher. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans for Thursday, as seen by the comments above, were interesting and all over the board. Biotech (IBB) returned to a leadership role… except on the downside. Worth watching how that unfolds in the coming days assuming the Senate does nothing. Semiconductors (SOXX) moved the opposite direction many have been hoping for. The downside move raises questions about the strength of the upside move in the broader indexes. Gold miners (GDX) gave up some of the gains from Wednesday but remain in a positive position for now. USO continued higher after it triggered a buy signal for the commodity earlier this week. Gasoline (UGA) back to the May highs and resistance… following the move in crude for now. Natural gas (FCG) is moving higher as well with investors jumping on the bandwagon for higher crude prices. Retail (XRT) made a positive move for the day… the chart remains in a double bottom pattern. The rise in rates sent the treasury bond (TLT) lower and added confusion to the Fed comments from Wednesday. Watching how it unfolds with a full day of trading to end the week as everyone continues to digest what the Fed action… or inaction, really means for the markets. It is important to follow the money and not your emotions. Some rotation in place and some pattern breaks and setups currently based on the rotation. Taking what the market gives and watching for trends, reversals, support, and volume… they will lead you to what is moving and the best opportunities for trades currently.

The comments from Yellen created a shift in sentiment and mindset of how this all unfolds short term. The ECB made similar comments from the central bank and added to the push for lower rates and rotation to sectors benefitting from such a move. The undercurrent of worry has been replaced with greed to rotate where money benefits from the current beliefs. The VIX index has moved to the lowest points again as the market follows the pied piper Fed. There is plenty to ponder both positive and negative going forward. Earnings started and like the markets have seen mixed response. As stated above the biggest moves have come from positive earnings. The financials positives have been offset with the Fed view on interest rates. Volume is moving lower, commodities are a benefactor of the weaker dollar, emerging markets are benefitting from the dollar, and the euro is spiking higher. The data is weaker, earnings are a question mark, but stocks moved to new highs on the week. The key word remains to be PATIENCE. Not something many traders like. We all want to believe we can see forward, but the reality is we can only see today. Thus, we do what our strategy tells us to do today and tomorrow will take care of itself. Hard lessons to learn as our analytical brain wants us to believe we have the solution and can predict the future. Despite all the talk, the buyers have been willing to hold the line and put money to work when the opportunity is right. Keep your stops in place and eyes focused on the horizon taking what the market gives. The market remains a challenge overall with the yo yo effect in full bloom.

Speculation, as it relates to the Fed’s comments, oil prices, and a weaker dollar, are driving the direction currently… watching how this unfolds today with plenty of talk and speculation again overnight. 

KEY, INDICATORS/SECTORS TO WATCH:

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare overall has the attention of traders.The flag pattern held the $309 support level and bounced back to the previous highs and moving through resistance to end the week. Entry at $319.57, Stop $316 (adjusted). Positive week for the sector overall. All eyes on the Senate vote… disappointment as nothing gets done again… Thursday showed how disappointment is hurting the sector with the break below $319.57. 

REITs (IYR) had been lagging in response to interest rate worries related to the Fed promise to hike rates multiple times this year. The sector tested the $76 level of support and bounced back to resistance and tested, and bounced… The shift in outlook for the Fed on holding rates steady now has shifted money back to the sector. We continue to focus on managing our risk and collecting our dividend as this all unfolds. This is a growth and dividend holding with a 4.2% dividend currently. Entry at $75.75. Stop $76.25 (adjusted). Upsdie benefactor of the Fed comments and decision. 

Treasury yields moved back to the 2.4% level as the Fed talked of raising interest rates. The move to 2.23% this week came on the comments from Ms. Yellen and the Fed taking on a more dovish role towards rates. Just when you thought it was safe to go back into the water… the Fed changes its mind. TLT rallied on the comments and watching for the opportunity to unfold on a follow through. $124.10 entry, stop $122. Yeilds rose to 2.3% and TLT responds with a negative move. The outlook for bonds is now in question as the Fed takes a different stance on the outlook for rates. 

Gold (GLD) Gold remains in a long-term uptrend. The volatility within the trend is speculation and news driving money. The selling was more of the speculation, just as the current buying is on speculation the dollar and the Fed will remain neutral. Bounced off support at the $114 level, cleared resistance at the $117.38 mark (entry) and heading towards the $120 target currently. All indicators point towards a continued move higher near term. Stop $117. Posted gains in response to the Fed and weaker dollar

Crude Oil has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue, but the weaker dollar is having some influence near term. The move to $42 brought plenty of speculation, but the bottom reversal moved back to $46.50 and a double bottom pattern. Watching as the commodity continues to be at a point of indecision and volatility on the news as seen on Friday’s selling. There is no clarity short term and watching how it unfolds without a position currently. Nice bounce in crude as speculation on supply and consumption rise along with the price. Throw in a declining dollar and you have the upside currently in play… hit the entry point for the commodity on Tuesday. 

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The move lower and test of the $63.70 level kept the downside in question… but, the bounce on the rise in crude only adds to the confusion. $66.25 level to watch for opportunity. Followed oil prices higher finally, but not overly convincing in the volume response. 

Volatility Index (VIX) This week was more interesting for the index closing at 9.38 and near the lows as no one seems to show interest in worrying about the current trend of the markets. There is not enough movement outside of spikes to warrant any changes in the near-term outlook. Watching patiently to see if anxiety picks up or if investors remain content with the status flow. SVXY in Play. Some movement in response to the Fed… watching for how it unfolds. Are nerves creeping into the markets? 

The sectors were rotating again this week as the comments from Yellen and ECB puts money in motion. The bounce in telecom (IYZ), utilities and REITs (IYR) thanks to interest rate talks from Fed. Financials (XLF) were weaker on earnings and the talk on interest rates. Emerging markets (EEM), euro (FXE), gold (GLD), agriculture (DBA), metals (DBB), and silver (SLV) all moved higher on the weaker dollar (UDN). This is a point of inflection for the markets and one to validate on the charts and not just on the news. Watching how all of it unfolds and where the opportunities lie. The S&P 500 and Dow indexes moved to new highs with lower volume in place. Our job is to let the opportunities develop… have a strategy for trading or investing in them… and then managing the process based on our belief and disciplined approach. Sounds simple? It is except for the six inches between our ears that process what we hear as it impacts our beliefs. Have a strategy for every position and trade/invest according to the strategy… don’t let the news or others sway you from the task at hand.

Watching from the scans… UCO (nice follow through above $15.08 entry), KWEB (nice upside in play), KRE (positive move then negative response to the Fed), YINN (holding near the highs), SOXL (made move higher and reversed on Thursday), SOCL (negative move on Thursday worth note) and QLD (leading upside move with big volatility on Thursday).

JJC (verticle move higher), TMF (positive response to the Fed in question), ERX (looking for positive follow through $26.72 level to clear.), XME (positive uptrend), FCG (double bottom break out), and TNA (stalled and testing the upside move). 

Crude (USO) added to the upside. Gold Miners (GDX), silver (SLV, SIL), semiconductors (SOXX), and Europe (IEV) all adding positive moves. 

Thursday was mixed with biotech (IBB) leading the downside moves. IHI, XPH and IHF also responded on the downside and are all worth watching for short opportunities should the negative momentum build. 

Daily Scan Results:

THURSDAY’s Scans (7/27): Mixed response and follow through to the Fed meeting. Interest rates rose, the dollar rose, crude rose and biotech fell along with technology. We have to take it for what it is… speculation and watch how it all unfolds in the coming days.

  • Biotech (IBB/LABD) downside move raises question short term on direction. The break of the $319.57 support is on my list today.
  • Semiconductors (SOXX/SOXS) downside move was of interest as the leadership for both technology and the NASDAQ are key. Watching how this unfolds.
  • Crude Oil (USO/UCO) remains positive as the believers take control near term. Energy (XLE/ERX) moved higher as well, but still not convincing in the move.
  • Question marks in IWM, RSX, EEM, and TLT. Watching these sector moves as indicators near term.
  • Gasoline (UGA), natural gas (UNG, FCG), retail (XRT), oil services (OIH), oil exploration (IEO), telecom (IYZ) and consumer discretionary all made positive upside moves to watch near term.

Watching how investors respond overall to the Fed and the data. Earnings adding an interesting mix with some positive numbers helping. One day at a time with the news being digested.

WEDNESDAY’s Scans (7/26): Fed puts in motion their plan to divest their balance sheet causing rates to decline, dollar to decline, gold to rise and commodities to rise. Now let the speculation begin as to what all of this means for stocks. Short term the response is positive, but we have to remain cautious and diligent in our process of managing our money.

  • Gold Miners (GDX/NUGT) upside set into motion on the Fed action or inaction towards interest rates. Watching how it follows through.
  • Siver (SLV/SIL) upside in play with the reversal complete and positive momentum on the Fed.
  • Semiconductors (SOXX/SOXL) reversal complete? Looking for the upside follow through on the move near term.
  • Financials (XLF/FAZ) downside in play? speculation says yes and we will watch to see how the sector responds to the move by the Fed.
  • Chinese Internet (KWEB) continuation of the upside move in play with solid gains on Wednesday… China (GXC/YINN) doing well also.

Patience is the key for now as we head towards the new future created by the Fed… at least for now.

TUESDAY’s Scans (7/25): Positive day as earnings were the driver for some upside and the commodities for the other. Throw in some negative from healthcare and the Senate vote and you have the drivers for the day. The question is sustainability in the face of all the negative sentiment from the investment community and media. Watching and managing what the market gives.

  • Crude Oil (UCO/USO) upside follows through and entry hit for the commodity.
  • Energy (XLE/ERX) upside moves in response to oil finally… looking for the next opportunity if the upside follows through. $26.30 on the close is of interest.
  • Copper (JJC) gapped higher and FCX followed as a leading indicator.
  • Small Caps (IWM/TNA) holding the move above $57.46 and finally added to the upside move on Tuesday.
  • Financials (FAS/XLF) nice move from the consolidation and looking for follow through. FOMC meeting results will have an influence on the sector.
  • Retail (XRT) double bottom pattern in play with a move above the $41 level trade opportunity.

Still plenty of questions as the market unfolds… answers are still few and far between as speculation remains the driver… watch the Fed today.

MONDAY’s Scans (7/24): More mixed reviews from the market, but the upside bias is still in place and the bigger question remains around the catalyst that will or will not move the markets up or down. Patience with all the news on tap the next few days.

  • Natural Gas (UNG/DGAZ) More downside for the commodity and the trade entry was hit at the $26.24.
  • Crude Oil (USO/UCO) the $15.01 level is where the move needs to go if the upside is going to make it near term. Proceed with caution.
  • Russia (RSX/RUSS) downside in the country ETF is building again after moving up nicely over the last month. Watching how this unfolds.
  • Social Media (SOCL) nice move back to the current highs and the uptrend is fully in play. Move above $30.50 a positive for the current trend.
  • NASDAQ 100 (QQQ/QLD) breaking to new highs and the old regime is leading the way as large caps renew their strength and influence over the index.

Practicing patience and looking for the next best opportunity the market presents.

FRIDAY’s Scans (7/21): Another mixed day of rotations and watching how the news pushes money to where it will be treated the best the fastest. The long term charts still show upside trends and the Fed influence is keeping the trend positive.

  • Natural Gas (UNG/DGAZ) downside returns for the commodity. Short side setup again presents an opportunity for a follow through move.
  • Crude Oil (USO/SCO) negative move returns as the price of crude declines on Friday. Watching how that unfolds. Energy (ERY) short trade also in place if the price of crude follows through on the downside move.
  • Biotech (IBB/LABU) upside break from the consolidation pattern is positive for the sector and continuation of the uptrend.
  • Gold Miners (GDX/NUGT) upside in play near term, but the downtrend line is what to watch off teh February high. Break higher would validate the reversal and positive uptrend opportunity.
  • Treasury Bonds (TLT/TMF) upside is back with the Yellen comments on interest rates. Entry hit at $21 for upside trade.

Some other charts to watch this week… ULE, SLV, SLVP, CURE, TAN, XLU, RUSS, QLD.

 

Sector Rotation:

  • XLB – Materials moved higher pushing above the $50 level and moving toward 2015 high. Hit the entry at $48.50 with a stop at $52.75 (adjusted and taken on Wednesday). It has now moved to a new high clearing the $54 mark, tested and hit a new high on Friday.
  • XLU – Utilities broke above the $52 to clear the sideways trading range finally. Took exit at $52.75 as the selling is still in question despite the bounce on Friday off support at the $50.88 level. Still looking for the opportunity in the move. The interest rate talk from the Fed could help it we move above the $52.25 level I have interest. Fed comments are positive for bonds… rally on. Entry $52.25, Stop $51. Upside resumes after the FOMC comments.  
  • 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. Watching for now how this unfolds as sector moved back above the $31.35 mark. Entry $31.60, Stop $30.90. Some buying? watching how the bottoming process plays out with some positive earnings data. 
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The Fed talks last week to stand still on rates put a positive reversal in play. Watching for a move above $55 to get my interest near term. Some help in the upside bounce off the low as earnings help the sector.  
  • XLI – Industrials – remains in a positive uptrend since the break higher in November. Entry $67, Stop $66. The positive trend was questioned on Friday with the downside move. An uptrend in place as the money flow remains positive but watching how it starts the week.
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. There is still the issue of uncertainty towards the stocks. Held $63.70 support and bounced as the dollar weakness helps the price of crude. To many question marks for now to take any positions. Scanning the sector is the only way to trade currently up or down. A small bounce in response to the commodity move. Clears $66.60 there is some interest in an upside trade. 
  • XLV – Healthcare hit the low and established a pivot reversal relative to rumors around the election… then the election… attempted upside move and trend reversal… but, failed to hold the move. The second attempt with double bottom worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $78.50 (adjusted). Patience is key as this unfolds. Stops in place with the run higher and test. The bounce off support is a positive, but not convincing… Senate vote looms as well. Upside riding on speculation of reform still in place. A negative response to the Senate vote and the downside has come into play for now. Watching how this unfolds. 
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend breaks short term and test of support at the $54.75 mark in play. Entry $48.50. Stop $54 (adjusted). Semiconductor weakness is the key to how this unfolds near term… they bounced and so did the sector. Give room for this trade to work upside. Big intraday volatility for the sector with semi’s leading a negative charge. 
  • XLF – Financials pushed lower on earnings and Fed talk on interest rates. Earnings were good… not great, but worrisome in light of the Fed. That failed to impact the stocks and thus, the downside was in play. Entry $23.85, Stop $24.50 (adjusted). The break above that range was positive as the upside showed some strength, but still cautious as seen in the stalled move. Patient for now. The higher interest rate gig is off the table from the Fed. A negative response to the Fed announcement. 
  • XLY – Discretionary Consumer broke above resistance with a positive trek higher. Entry $83.50. Stop $88.50 (adjusted). Had a positive break to new highs and some leadership from the sector to boot… testing that move at support as the topping pattern unfolds. Cleared $90 resistance and watching. Positive day for retail with XRT attempting to break from a double bottom pattern.
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as money made some rotation. The longer term view clearly shows the trading range and the opportunity to collect the dividend while investors continue to make up their collective minds on direction. We added the position in December on the move off the lows and continue to babysit the dividend of 4%. Tested the bottom end of the range and bounced on the Fed comments and now has room to breathe again… patience is key. Positive response to the Fed. 

Rotation is back as the Fed talk on interest rates, a weaker dollar, weaker economic picture, and earnings are all pushing money around. I am cautious and optimistic on some sectors and avoiding other. As stated above we will take what the market offers and trade with tighter stops as money looks for the best opportunity. Disciplined strategies are the key to keeping your money versus rolling the dice and hoping for the best.

Interesting rumblings about the FOMC meeting as money rotates in response to the action taken. The weaker dollar favors the mulitnationals and commodities… watching how this will unfold near term. The negative movement in technology, biotech, and semiconductors got the attention of traders on Thursday… watching how the last trading day of the week unfolds with the rise in volatility in play. 

FINAL NOTES:

The market transitioned with the movement of money or rotation still very much in play. The Fed talk on interest rates helped REITs, utilities, telecom, and other interest sensitive sectors bounce off the current lows. Financials struggle on earnings and Fed interest rates talks. Crude moved lower on speculation about supply… again. There is always money in motion and opportunities in the move both short and long term. We have to let it all unfold. The rationale for the moves currently means investors are willing to follow the news and rationale for moving money. The question lies in their conviction or is it just hot money chasing returns. Healthcare is a benefactor of late on speculation around changes coming from Washington… We have to remain patient and make strategic decisions based on planned trades. The longer term charts are still in an uptrend with some rotation in the activity last week. Sectors remain mixed on the week with some higher and some testing the uptrends. There are plenty of opinions on how this will play out moving forward but I am willing to put my stops in place and let the market decide how and when the music stops and everyone scrambles for safety. Earnings are mixed and adding some interest in on a stock by stock basis versus the whole. The broad markets remain news driven and looking for the longer term catalyst and belief. The short-term trend off the November lows had a dip and then some sideways movement to a new high. Keep your stops in place and let the opportunities present themselves up or down. Practice patience as this all unfolds day-to-day.

The longer term trend off the February 2016 low is fully intact on the upside. Don’t forget the longer term view can offer greater clarity than the short term news. Sectors to watch moving forward: 1) Healthcare and the outcome of any reform… the belief has been for that to materialize and any action in Congress will be key… the volatility as it is entertained by the Senate… puts it back in the news. Watching biotech (IBB) and all the components of this sector as it broke near term support and bounced back on news. 2) Financials were the leader from the November low and then failed as interest rates remained low. The move higher on Fed talk relative to higher rates is now in jeopardy as the Fed now believes rates will remain low long term. The downside risk is rising on those comments and we will have to manage the money accordingly.  3) Energy remains a sector under pressure from supply and demand… too much supply and not enough participation in cutting or limiting supply. Watching how the short term impacts the longer term view currently. Energy stocks posted some gains this week on the heels of the rise in crude relative to the weaker dollar. 4) Telecom and consumer staples bounced as the interest rate talk from the Fed offered an olive branch to them on the upside. 5) Emerging markets found renewed hope with the weaker dollar positive money flow to the global market. For now, it has taken a leadership role in the short term trend off the December low positive. China is leading the upside charge. 6) Semiconductors are a bellwether for the growth stocks and they turned lower leading tech down as well as the NASDAQ. The test of support in SOXX, XLK and QQQ held, bounced, and are in place to resume the upside leadership. 7) The dollar is becoming a bigger story line than I would like. The drop is on the heels of Washington wanting a weaker currency for better export opportunities. It has never worked in history to devalue currency for growth. The move has helped gold, emerging markets, and the bond. Bigger declines last week in the buck are negative and there is no help from the Fed on the horizon… watch how this all unfolds and managing our stops on all positions daily.

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

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Fed leaves plenty of questions

By | Jims Notes, Research Post | No Comments

OUTLOOK: July 27th

Gold rises as the dollar drops in reaction to the Fed statement. As we said yesterday, the market would react to the Fed good or bad and the comments from the Fed would determine how investors see the near term. The slow as we go statement with rates left unchanged and the emphasis now on unwinding the debt on their balance sheet left some speculating a weaker dollar, higher gold, higher commodities and lower interest rates. The outcome will validate in the coming weeks what the masses believe, but for now, that is the reaction from traders. What about stocks? The consensus is positive for now as the technology and interest sensitive stocks moved higher. The speculation and news are driving and short term that is setting new highs, and we will see how it all unfolds relative to the winners and the losers.

Six sectors ended Wednesday on the upside with utilities(XLU) and REITs (RWR) leading the upside. The response to the FOMC comments led to the bond moving higher as yields declined and interest sensitive stocks benefited. There is plenty of talk about what this will mean for financials and commodities on opposite sides of the move. XLF broke from the pennant pattern Tuesday and gave up most of those gains on Wednesday. The downside is the outlook as the belief is banks will make less from this stance by the Fed. The upside will be to commodities as the dollar gets weaker on the stance by the Fed on interest rates. On the downside, financials did lead on Wednesday along with basic materials (XLB) and healthcare (XLV). The outlook for stocks remains mixed based on what you believe near term about the economic outlook and the Fed. The S&P 500 index closed unchanged at 2477 holding the new highs. The leadership for the index Wednesday came from BA (gap up and acceleration in the uptrend), T (Gap and first attempt on bottom reversal), AMD (break from wedge consolidation pattern), BIIB (reverse head and shoulder pattern), and AMP (breakout and continuation of the uptrend). Earnings are driving the gaps higher and the upside favors the news of the week. Gold (GLD) moved through the $117.38 resistance last week as the buyers step back into the metal. $120.45 next level to clear on the upside as Fed sets the tone for the metal. The dollar (UUP) moved lower on the dovish outlook from the Fed and shift the balance sheet. Downside move confirmed on Fed comments. The emerging markets (EEM) gapped higher from the trading range to new high and holding. The Volatility Index (VIX) closed at 9.6 slight upside in response to the FOMC comments. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans for Wednesday showed some positive reaction to the Fed in gold (GLD) and commodities (DBC) as the dollar (UDN) declines. USO gapped higher and triggered a buy signal for the commodity with the third day of gains. Gold miners (GDX) added to the upside clearing $22.81 resistance and in a position to break the downtrend line off the February high. Silver (SLV) equally responded on the upside with a gain to break the reverse head and shoulder pattern. Crude oil (USO) rose again, semiconductors (SOXX) working on upside reversal, China (FXI) added to the uptrend, and Europe (IEV) added to the uptrend as well. How all of this unwinds is the where we have to be patient and take what the market gives overall. The broad indexes remain at new highs and investors are adding to their positions on the current move higher. Based on the comments from the Fed the markets favored commodities, weaker dollar, stronger bonds, and technology sector. Watching how it unfolds with a full day of trading as everyone sleep on the directive given by the Fed. It is important to follow the money and not your emotions. Some rotation in place and some pattern breaks and setups currently based on the rotation. Taking what the market gives and watching for trends, reversals, support, and volume… they will lead you to what is moving and the best opportunities for trades currently.

The comments from Yellen created a shift in sentiment and mindset of how this all unfolds short term. The ECB made similar comments from the central bank and added to the push for lower rates and rotation to sectors benefitting from such a move. The undercurrent of worry has been replaced with greed to rotate where money benefits from the current beliefs. The VIX index has moved to the lowest points again as the market follows the pied piper Fed. There is plenty to ponder both positive and negative going forward. Earnings started and like the markets have seen mixed response. As stated above the biggest moves have come from positive earnings. The financials positives have been offset with the Fed view on interest rates. Volume is moving lower, commodities are a benefactor of the weaker dollar, emerging markets are benefitting from the dollar, and the euro is spiking higher. The data is weaker, earnings are a question mark, but stocks moved to new highs on the week. The key word remains to be PATIENCE. Not something many traders like. We all want to believe we can see forward, but the reality is we can only see today. Thus, we do what our strategy tells us to do today and tomorrow will take care of itself. Hard lessons to learn as our analytical brain wants us to believe we have the solution and can predict the future. Despite all the talk, the buyers have been willing to hold the line and put money to work when the opportunity is right. Keep your stops in place and eyes focused on the horizon taking what the market gives. The market remains a challenge overall with the yo yo effect in full bloom.

Positive moves in crude, bonds, and mining… speculation around the fed and oil prices are driving currently… watching how this unfolds today with plenty of talk and speculation overnight. 

KEY, INDICATORS/SECTORS TO WATCH:

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare overall has the attention of traders.The flag pattern held the $309 support level and bounced back to the previous highs and moving through resistance to end the week. Entry at $319.57, Stop $309. Positive week for the sector overall. All eyes on the Senate vote… disappointment as nothing gets done again… watching how today unfolds in response to all the news and rambling about the process. 

REITs (IYR) had been lagging in response to interest rate worries related to the Fed promise to hike rates multiple times this year. The sector tested the $76 level of support and bounced back to resistance and tested, and bounced… The shift in outlook for the Fed on holding rates steady now has shifted money back to the sector. We continue to focus on managing our risk and collecting our dividend as this all unfolds. This is a growth and dividend holding with a 4.2% dividend currently. Entry at $75.75. Stop $76.25 (adjusted). Upsdie benefactor of the Fed comments and decision. 

Treasury yields moved back to the 2.4% level as the Fed talked of raising interest rates. The move to 2.23% this week came on the comments from Ms. Yellen and the Fed taking on a more dovish role towards rates. Just when you thought it was safe to go back into the water… the Fed changes its mind. TLT rallied on the comments and watching for the opportunity to unfold on a follow through. $124.10 entry, stop $122. Yeilds decline to 2.2% and TLT gains in response… FOMC meeting resulted in no change in rates. 

Gold (GLD) Gold remains in a long-term uptrend. The volatility within the trend is speculation and news driving money. The selling was more of the speculation, just as the current buying is on speculation the dollar and the Fed will remain neutral. Bounced off support at the $114 level, cleared resistance at the $117.38 mark (entry) and heading towards the $120 target currently. All indicators point towards a continued move higher near term. Stop $117. Posted gains in response to the Fed and weaker dollar

Crude Oil has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue, but the weaker dollar is having some influence near term. The move to $42 brought plenty of speculation, but the bottom reversal moved back to $46.50 and a double bottom pattern. Watching as the commodity continues to be at a point of indecision and volatility on the news as seen on Friday’s selling. There is no clarity short term and watching how it unfolds without a position currently. Nice bounce in crude as speculation on supply and consumption rise along with the price. Throw in a declining dollar and you have the upside currently in play… hit the entry point for the commodity on Tuesday. 

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The move lower and test of the $63.70 level kept the downside in question… but, the bounce on the rise in crude only adds to the confusion. $66.25 level to watch for opportunity. Followed oil prices higher on Tuesday. Rested on Wednesday even with oil rising. 

Volatility Index (VIX) This week was more interesting for the index closing at 9.38 and near the lows as no one seems to show interest in worrying about the current trend of the markets. There is not enough movement outside of spikes to warrant any changes in the near-term outlook. Watching patiently to see if anxiety picks up or if investors remain content with the status flow. SVXY in Play. Some movement in response to the Fed… watching for how it unfolds. 

The sectors were rotating again this week as the comments from Yellen and ECB puts money in motion. The bounce in telecom (IYZ), utilities and REITs (IYR) thanks to interest rate talks from Fed. Financials (XLF) were weaker on earnings and the talk on interest rates. Emerging markets (EEM), euro (FXE), gold (GLD), agriculture (DBA), metals (DBB), and silver (SLV) all moved higher on the weaker dollar (UDN). This is a point of inflection for the markets and one to validate on the charts and not just on the news. Watching how all of it unfolds and where the opportunities lie. The S&P 500 and Dow indexes moved to new highs with lower volume in place. Our job is to let the opportunities develop… have a strategy for trading or investing in them… and then managing the process based on our belief and disciplined approach. Sounds simple? It is except for the six inches between our ears that process what we hear as it impacts our beliefs. Have a strategy for every position and trade/invest according to the strategy… don’t let the news or others sway you from the task at hand.

Watching from the scans… UCO (nice follow through above $15.08 entry), KWEB (nice upside in play), KRE (positive move then negative response to the Fed), YINN (holding near the highs), SOXL (making move to continue the previous uptrend), SOCL (holding near highs) and QLD (leading upside move).

JJC (verticle move higher), TMF (positive response to the Fed), ERX (looking for positive follow through), XME (positive uptrend), FCG (double bottom break out), and TNA (stalled and looking for upside follow through.) all on Tuesday. 

Crude (USO) added on Wednesday to the upside. Gold Miners (GDX), silver (SLV, SIL), semiconductors (SOXX), and Europe (IEV) all adding positive moves. 

Daily Scan Results:

WEDNESDAY’s Scans (7/26): Fed puts in motion their plan to divest their balance sheet causing rates to decline, dollar to decline, gold to rise and commodities to rise. Now let the speculation begin as to what all of this means for stocks. Short term the response is positive, but we have to remain cautious and diligent in our process of managing our money.

  • Gold Miners (GDX/NUGT) upside set into motion on the Fed action or inaction towards interest rates. Watching how it follows through.
  • Siver (SLV/SIL) upside in play with the reversal complete and positive momentum on the Fed.
  • Semiconductors (SOXX/SOXL) reversal complete? Looking for the upside follow through on the move near term.
  • Financials (XLF/FAZ) downside in play? speculation says yes and we will watch to see how the sector responds to the move by the Fed.
  • Chinese Internet (KWEB) continuation of the upside move in play with solid gains on Wednesday… China (GXC/YINN) doing well also.

Patience is the key for now as we head towards the new future created by the Fed… at least for now.

TUESDAY’s Scans (7/25): Positive day as earnings were the driver for some upside and the commodities for the other. Throw in some negative from healthcare and the Senate vote and you have the drivers for the day. The question is sustainability in the face of all the negative sentiment from the investment community and media. Watching and managing what the market gives.

  • Crude Oil (UCO/USO) upside follows through and entry hit for the commodity.
  • Energy (XLE/ERX) upside moves in response to oil finally… looking for the next opportunity if the upside follows through. $26.30 on the close is of interest.
  • Copper (JJC) gapped higher and FCX followed as a leading indicator.
  • Small Caps (IWM/TNA) holding the move above $57.46 and finally added to the upside move on Tuesday.
  • Financials (FAS/XLF) nice move from the consolidation and looking for follow through. FOMC meeting results will have an influence on the sector.
  • Retail (XRT) double bottom pattern in play with a move above the $41 level trade opportunity.

Still plenty of questions as the market unfolds… answers are still few and far between as speculation remains the driver… watch the Fed today.

MONDAY’s Scans (7/24): More mixed reviews from the market, but the upside bias is still in place and the bigger question remains around the catalyst that will or will not move the markets up or down. Patience with all the news on tap the next few days.

  • Natural Gas (UNG/DGAZ) More downside for the commodity and the trade entry was hit at the $26.24.
  • Crude Oil (USO/UCO) the $15.01 level is where the move needs to go if the upside is going to make it near term. Proceed with caution.
  • Russia (RSX/RUSS) downside in the country ETF is building again after moving up nicely over the last month. Watching how this unfolds.
  • Social Media (SOCL) nice move back to the current highs and the uptrend is fully in play. Move above $30.50 a positive for the current trend.
  • NASDAQ 100 (QQQ/QLD) breaking to new highs and the old regime is leading the way as large caps renew their strength and influence over the index.

Practicing patience and looking for the next best opportunity the market presents.

FRIDAY’s Scans (7/21): Another mixed day of rotations and watching how the news pushes money to where it will be treated the best the fastest. The long term charts still show upside trends and the Fed influence is keeping the trend positive.

  • Natural Gas (UNG/DGAZ) downside returns for the commodity. Short side setup again presents an opportunity for a follow through move.
  • Crude Oil (USO/SCO) negative move returns as the price of crude declines on Friday. Watching how that unfolds. Energy (ERY) short trade also in place if the price of crude follows through on the downside move.
  • Biotech (IBB/LABU) upside break from the consolidation pattern is positive for the sector and continuation of the uptrend.
  • Gold Miners (GDX/NUGT) upside in play near term, but the downtrend line is what to watch off teh February high. Break higher would validate the reversal and positive uptrend opportunity.
  • Treasury Bonds (TLT/TMF) upside is back with the Yellen comments on interest rates. Entry hit at $21 for upside trade.

Some other charts to watch this week… ULE, SLV, SLVP, CURE, TAN, XLU, RUSS, QLD.

THURSDAY’s Scans (7/20): Another boring day as indexes remain content for now.

  • Biotech (IBB/LABU) upside bias that needs to break above the $72 level to keep upside in play.
  • Healthcare (XLV/CURE) hit $44.65 previous high and looking to follow through as the sector remain positive.
  • Utilities (XLU/UPW) upside in play on the Fed interest rates stance. Taking the trade for what it is… news in motion.
  • Europe (IEV/EURL) rally on the ECB comments… similar to US Treasury comments… same results… positive for the stocks.
  • Euro (ULE) upside on weaker dollar accelerating.

Overall this is a trading market with moves driven by news and speculation… that is fine as long as you have a strategy to trade the news. Upside bias remains in place as the central banks intervene to keep the rally going.

Sector Rotation:

  • XLB – Materials moved higher pushing above the $50 level and moving toward 2015 high. Hit the entry at $48.50 with a stop at $52.75 (adjusted and taken on Wednesday). It has now moved to a new high clearing the $54 mark, tested and hit a new high on Friday.
  • XLU – Utilities broke above the $52 to clear the sideways trading range finally. Took exit at $52.75 as the selling is still in question despite the bounce on Friday off support at the $50.88 level. Still looking for the opportunity in the move. The interest rate talk from the Fed could help it we move above the $52.25 level I have interest. Fed comments are positive for bonds… rally on. Entry $52.25, Stop $51. Upside resumes after the FOMC comments.  
  • 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. Watching for now how this unfolds as sector moved back above the $31.35 mark. Entry $31.60, Stop $30.90. Some buying? watching how the bottoming process plays out. 
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The Fed talks last week to stand still on rates put a positive reversal in play. Watching for a move above $55 to get my interest near term. Some help in the upside bounce off the low as earnings help the sector.  
  • XLI – Industrials – remains in a positive uptrend since the break higher in November. Entry $67, Stop $66. The positive trend was questioned on Friday with the downside move. An uptrend in place as the money flow remains positive but watching how it starts the week.
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. There is still the issue of uncertainty towards the stocks. Held $63.70 support and bounced as the dollar weakness helps the price of crude. To many question marks for now to take any positions. Scanning the sector is the only way to trade currently up or down. A small bounce in response to the commodity move. 
  • XLV – Healthcare hit the low and established a pivot reversal relative to rumors around the election… then the election… attempted upside move and trend reversal… but, failed to hold the move. The second attempt with double bottom worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $78.50 (adjusted). Patience is key as this unfolds. Stops in place with the run higher and test. The bounce off support is a positive, but not convincing… Senate vote looms as well. Upside riding on speculation of reform still in place. A negative response to the Senate vote. 
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend breaks short term and test of support at the $54.75 mark in play. Entry $48.50. Stop $54 (adjusted). Semiconductor weakness is the key to how this unfolds near term… they bounced and so did the sector. Give room for this trade to work upside. Small rally as NASDAQ leads
  • XLF – Financials pushed lower on earnings and Fed talk on interest rates. Earnings were good… not great, but worrisome in light of the Fed. That failed to impact the stocks and thus, the downside was in play. Entry $23.85, Stop $24.50 (adjusted). The break above that range was positive as the upside showed some strength, but still cautious as seen in the stalled move. Patient for now. The higher interest rate gig is off the table from the Fed. A negative response to the Fed announcement. 
  • XLY – Discretionary Consumer broke above resistance with a positive trek higher. Entry $83.50. Stop $88.50 (adjusted). Had a positive break to new highs and some leadership from the sector to boot… testing that move at support as the topping pattern unfolds. Cleared $90 resistance and watching. 
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as money made some rotation. The longer term view clearly shows the trading range and the opportunity to collect the dividend while investors continue to make up their collective minds on direction. We added the position in December on the move off the lows and continue to babysit the dividend of 4%. Tested the bottom end of the range and bounced on the Fed comments and now has room to breathe again… patience is key. Positive response to the Fed. 

Rotation is back as the Fed talk on interest rates, a weaker dollar, weaker economic picture, and earnings are all pushing money around. I am cautious and optimistic on some sectors and avoiding other. As stated above we will take what the market offers and trade with tighter stops as money looks for the best opportunity. Disciplined strategies are the key to keeping your money versus rolling the dice and hoping for the best.

Interesting rumblings about the FOMC meeting as money rotates in response to the action taken. The weaker dollar favor the mulitnationals and commodities… watching how this will unfold near term.

FINAL NOTES:

The market transitioned with the movement of money or rotation still very much in play. The Fed talk on interest rates helped REITs, utilities, telecom, and other interest sensitive sectors bounce off the current lows. Financials struggle on earnings and Fed interest rates talks. Crude moved lower on speculation about supply… again. There is always money in motion and opportunities in the move both short and long term. We have to let it all unfold. The rationale for the moves currently means investors are willing to follow the news and rationale for moving money. The question lies in their conviction or is it just hot money chasing returns. Healthcare is a benefactor of late on speculation around changes coming from Washington… We have to remain patient and make strategic decisions based on planned trades. The longer term charts are still in an uptrend with some rotation in the activity last week. Sectors remain mixed on the week with some higher and some testing the uptrends. There are plenty of opinions on how this will play out moving forward but I am willing to put my stops in place and let the market decide how and when the music stops and everyone scrambles for safety. Earnings are mixed and adding some interest in on a stock by stock basis versus the whole. The broad markets remain news driven and looking for the longer term catalyst and belief. The short-term trend off the November lows had a dip and then some sideways movement to a new high. Keep your stops in place and let the opportunities present themselves up or down. Practice patience as this all unfolds day-to-day.

The longer term trend off the February 2016 low is fully intact on the upside. Don’t forget the longer term view can offer greater clarity than the short term news. Sectors to watch moving forward: 1) Healthcare and the outcome of any reform… the belief has been for that to materialize and any action in Congress will be key… the volatility as it is entertained by the Senate… puts it back in the news. Watching biotech (IBB) and all the components of this sector as it broke near term support and bounced back on news. 2) Financials were the leader from the November low and then failed as interest rates remained low. The move higher on Fed talk relative to higher rates is now in jeopardy as the Fed now believes rates will remain low long term. The downside risk is rising on those comments and we will have to manage the money accordingly.  3) Energy remains a sector under pressure from supply and demand… too much supply and not enough participation in cutting or limiting supply. Watching how the short term impacts the longer term view currently. Energy stocks posted some gains this week on the heels of the rise in crude relative to the weaker dollar. 4) Telecom and consumer staples bounced as the interest rate talk from the Fed offered an olive branch to them on the upside. 5) Emerging markets found renewed hope with the weaker dollar positive money flow to the global market. For now, it has taken a leadership role in the short term trend off the December low positive. China is leading the upside charge. 6) Semiconductors are a bellwether for the growth stocks and they turned lower leading tech down as well as the NASDAQ. The test of support in SOXX, XLK and QQQ held, bounced, and are in place to resume the upside leadership. 7) The dollar is becoming a bigger story line than I would like. The drop is on the heels of Washington wanting a weaker currency for better export opportunities. It has never worked in history to devalue currency for growth. The move has helped gold, emerging markets, and the bond. Bigger declines last week in the buck are negative and there is no help from the Fed on the horizon… watch how this all unfolds and managing our stops on all positions daily.

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

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Hope springs eternal with FOMC meeting today

By | Jims Notes, Research Post | No Comments

OUTLOOK: July 26th

Let the speculation begin… crude price rise on the hope demand is rising? Financials stocks rally on the hope the Fed will hike rates today? Interest rates rise on the outlook for the FOMC meeting today and Santa is coming in July. Give earnings the credit as they were the only reality of the day with CAT, UTX, DD, LLY, MCD all posting solid numbers to help the Dow jump early. The S&P 400 and 600 jumped higher as well on the day. So much for all the talk in the media and among investors, about a big correction in the markets. For now the buyers are still engaged, speculation is still rampant, and earnings remain mostly positive. FOMC decision day and all eyes will be on the comments from the Fed as well as their actions towards interest rates.

Seven sectors ended Tuesday on the upside with financials (XLF) and energy (XLE) leading the upside. The response to earnings gave the initial boost to the markets and then some speculation added to the movement for the day. XLF broke from the pennant pattern to keep the short term uptrend alive. Energy continues to attempt to break the long term downtrend on the chart, and telecom (IYZ) continues to work on the bottom reversal pattern. The downside was led by healthcare (XLV) as the Senate failed to pass any healthcare reform. Utilities (XLU) responded to the positive move in interest rates with interest sensitive stocks worried about the FOMC decision. The outlook for stocks remains mixed based on what you believe near term about the economic outlook and the Fed. The S&P 500 index closed up 7.2 points at 2477 and adding a new high. The leadership for the index last week came from FCX (gap up and break out cup pattern), RRC (first attempt on bottom reversal), NEM (gap up from bottoming trading range), CAT (breakout and new high), and MCD (breakout and new high). Solid move for the day, but plenty of doubts and worries remain for the overall markets. Gold (GLD) moved through the $117.38 resistance last week as the buyers step back into the metal. $119.53 next level to clear on the upside as rates and dollar bounce on Tuesday stall the rally. The dollar (UUP) remains lower on the dovish outlook from the Fed and now the ECB on interest rates. There was a small upside on Tuesday. The emerging markets (EEM) gapped higher from the trading range to new high and holding. The Volatility Index (VIX) closed at 9.4 (doji day) as Fed and ECB make everyone happy about the outlook for the economy and interest rates. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans for Tuesday showed some positive reaction in crude oil as the upside continues with speculation of higher demand and lower production… again? USO gapped higher and triggered a buy signal for the commodity. The energy (XLE) stocks were on the upside finally following the belief in crude moving up. Watch the inventory data today as a catalyst to the commodity and stocks if it validates the rumors. Biotech (IBB) broke higher from the flag pattern but reversed when the Senate couldn’t make any headway on healthcare reform. Natural gas (UNG) made a positive move after declining to support last week. Copper (JJC) made a gap move upside to continue the trend. Treasury bonds (TLT) dumped lower on a spike in interest rates… watching how the Fed influences this speculation again. Miners (XME) jumped (break from cup pattern) in response to gold and metal prices rising. Natural gas (FCX) stocks attempting to break from a double bottom pattern. Small cap (IWM), retail (XRT), financials (XLF), gasoline (UGA) and homebuilders (XHB) also added positive moves on the day. Watching how it unfolds with the FOMC meeting today. It is important to follow the money and not your emotions. Tuesday showed some interesting money flow and we will watch to see how that unfolds today. Some rotation in place and some pattern breaks and setups currently based on the rotation. Taking what the market gives and watching for trends, reversals, support, and volume… they will lead you to what is moving and the best opportunities for trades currently.

The comments from Yellen created a shift in sentiment and mindset of how this all unfolds short term. The ECB made similar comments from the central bank and added to the push for lower rates and rotation to sectors benefitting from such a move. The undercurrent of worry has been replaced with greed to rotate where money benefits from the current beliefs. The VIX index has moved to the lowest points again as the market follows the pied piper Fed. There is plenty to ponder both positive and negative going forward. Earnings started and like the markets have seen mixed response. As stated above the biggest moves have come from positive earnings. The financials positives have been offset with the Fed view on interest rates. Volume is moving lower, commodities are a benefactor of the weaker dollar, emerging markets are benefitting from the dollar, and the euro is spiking higher. The data is weaker, earnings are a question mark, but stocks moved to new highs on the week. The key word remains to be PATIENCE. Not something many traders like. We all want to believe we can see forward, but the reality is we can only see today. Thus, we do what our strategy tells us to do today and tomorrow will take care of itself. Hard lessons to learn as our analytical brain wants us to believe we have the solution and can predict the future. Despite all the talk, the buyers have been willing to hold the line and put money to work when the opportunity is right. Keep your stops in place and eyes focused on the horizon taking what the market gives. The market remains a challenge overall with the yo yo effect in full bloom.

Positive moves in crude, financials, and mining… speculation around the fed and oil prices are driving currently… watching how this unfolds today with plenty of news on tap. 

KEY, INDICATORS/SECTORS TO WATCH:

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare overall has the attention of traders.The flag pattern held the $309 support level and bounced back to the previous highs and moving through resistance to end the week. Entry at $319.57, Stop $309. Positive week for the sector overall. All eyes on the Senate vote… disappointment as nothing gets done and forfeit some gains… watching how today unfolds in response to all the news and rambling about the process. 

REITs (IYR) had been lagging in response to interest rate worries related to the Fed promise to hike rates multiple times this year. The sector tested the $76 level of support and bounced back to resistance and tested, and bounced… The shift in outlook for the Fed on holding rates steady now has shifted money back to the sector. We continue to focus on managing our risk and collecting our dividend as this all unfolds. This is a growth and dividend holding with a 4.2% dividend currently. Entry at $75.75. Stop $76.25 (adjusted).

Treasury yields moved back to the 2.4% level as the Fed talked of raising interest rates. The move to 2.23% this week came on the comments from Ms. Yellen and the Fed taking on a more dovish role towards rates. Just when you thought it was safe to go back into the water… the Fed changes its mind. TLT rallied on the comments and watching for the opportunity to unfold on a follow through. $124.10 entry, stop $122. Yeilds jump to 2.32% and TLT falls 1.3% in response… FOMC meeting today will tell more. 

Gold (GLD) Gold remains in a long-term uptrend. The volatility within the trend is speculation and news driving money. The selling was more of the speculation, just as the current buying is on speculation the dollar and the Fed will remain neutral. Bounced off support at the $114 level, cleared resistance at the $117.38 mark (entry) and heading towards the $120 target currently. All indicators point towards a continued move higher near term. Stop $117. Holding as dollar and rates respond to the Fed today. 

Crude Oil has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue, but the weaker dollar is having some influence near term. The move to $42 brought plenty of speculation, but the bottom reversal moved back to $46.50 and a double bottom pattern. Watching as the commodity continues to be at a point of indecision and volatility on the news as seen on Friday’s selling. There is no clarity short term and watching how it unfolds without a position currently. Nice bounce in crude as speculation on supply and consumption rise along with the price. 

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The move lower and test of the $63.70 level kept the downside in question… but, the bounce on the rise in crude only adds to the confusion. $66.25 level to watch for opportunity. Followed oil prices higher on Tuesday. 

Volatility Index (VIX) This week was more interesting for the index closing at 9.38 and near the lows as no one seems to show interest in worrying about the current trend of the markets. There is not enough movement outside of spikes to warrant any changes in the near-term outlook. Watching patiently to see if anxiety picks up or if investors remain content with the status flow. SVXY in Play. 

The sectors were rotating again this week as the comments from Yellen and ECB puts money in motion. The bounce in telecom (IYZ), utilities and REITs (IYR) thanks to interest rate talks from Fed. Financials (XLF) were weaker on earnings and the talk on interest rates. Emerging markets (EEM), euro (FXE), gold (GLD), agriculture (DBA), metals (DBB), and silver (SLV) all moved higher on the weaker dollar (UDN). This is a point of inflection for the markets and one to validate on the charts and not just on the news. Watching how all of it unfolds and where the opportunities lie. The S&P 500 and Dow indexes moved to new highs with lower volume in place. Our job is to let the opportunities develop… have a strategy for trading or investing in them… and then managing the process based on our belief and disciplined approach. Sounds simple? It is except for the six inches between our ears that process what we hear as it impacts our beliefs. Have a strategy for every position and trade/invest according to the strategy… don’t let the news or others sway you from the task at hand.

Watching from the scans… UCO (nice follow through above $15.08 entry), KWEB (nice upside in play), KRE (positive move from the pennant pattern), YINN (holding near the highs), SOXL (watch the earning data from Tuesday), SOCL (holding near highs) and QLD (leading upside move).

FAS, JJC, TMV, ERX, XME, FCG, and TNA moves on Tuesday added to the positive scans for the week. 

Daily Scan Results:

TUESDAY’s Scans (7/25): Positive day as earnings were the driver for some upside and the commodities for the other. Throw in some negative from healthcare and the Senate vote and you have the drivers for the day. The question is sustainability in the face of all the negative sentiment from the investment community and media. Watching and managing what the market gives.

  • Crude Oil (UCO/USO) upside follows through and entry hit for the commodity.
  • Energy (XLE/ERX) upside moves in response to oil finally… looking for the next opportunity if the upside follows through. $26.30 on the close is of interest.
  • Copper (JJC) gapped higher and FCX followed as a leading indicator.
  • Small Caps (IWM/TNA) holding the move above $57.46 and finally added to the upside move on Tuesday.
  • Financials (FAS/XLF) nice move from the consolidation and looking for follow through. FOMC meeting results will have an influence on the sector.
  • Retail (XRT) double bottom pattern in play with a move above the $41 level trade opportunity.

Still plenty of questions as the market unfolds… answers are still few and far between as speculation remains the driver… watch the Fed today.

MONDAY’s Scans (7/24): More mixed reviews from the market, but the upside bias is still in place and the bigger question remains around the catalyst that will or will not move the markets up or down. Patience with all the news on tap the next few days.

  • Natural Gas (UNG/DGAZ) More downside for the commodity and the trade entry was hit at the $26.24.
  • Crude Oil (USO/UCO) the $15.01 level is where the move needs to go if the upside is going to make it near term. Proceed with caution.
  • Russia (RSX/RUSS) downside in the country ETF is building again after moving up nicely over the last month. Watching how this unfolds.
  • Social Media (SOCL) nice move back to the current highs and the uptrend is fully in play. Move above $30.50 a positive for the current trend.
  • NASDAQ 100 (QQQ/QLD) breaking to new highs and the old regime is leading the way as large caps renew their strength and influence over the index.

Practicing patience and looking for the next best opportunity the market presents.

FRIDAY’s Scans (7/21): Another mixed day of rotations and watching how the news pushes money to where it will be treated the best the fastest. The long term charts still show upside trends and the Fed influence is keeping the trend positive.

  • Natural Gas (UNG/DGAZ) downside returns for the commodity. Short side setup again presents an opportunity for a follow through move.
  • Crude Oil (USO/SCO) negative move returns as the price of crude declines on Friday. Watching how that unfolds. Energy (ERY) short trade also in place if the price of crude follows through on the downside move.
  • Biotech (IBB/LABU) upside break from the consolidation pattern is positive for the sector and continuation of the uptrend.
  • Gold Miners (GDX/NUGT) upside in play near term, but the downtrend line is what to watch off teh February high. Break higher would validate the reversal and positive uptrend opportunity.
  • Treasury Bonds (TLT/TMF) upside is back with the Yellen comments on interest rates. Entry hit at $21 for upside trade.

Some other charts to watch this week… ULE, SLV, SLVP, CURE, TAN, XLU, RUSS, QLD.

THURSDAY’s Scans (7/20): Another boring day as indexes remain content for now.

  • Biotech (IBB/LABU) upside bias that needs to break above the $72 level to keep upside in play.
  • Healthcare (XLV/CURE) hit $44.65 previous high and looking to follow through as the sector remain positive.
  • Utilities (XLU/UPW) upside in play on the Fed interest rates stance. Taking the trade for what it is… news in motion.
  • Europe (IEV/EURL) rally on the ECB comments… similar to US Treasury comments… same results… positive for the stocks.
  • Euro (ULE) upside on weaker dollar accelerating.

Overall this is a trading market with moves driven by news and speculation… that is fine as long as you have a strategy to trade the news. Upside bias remains in place as the central banks intervene to keep the rally going.

Sector Rotation:

  • XLB – Materials moved higher pushing above the $50 level and moving toward 2015 high. Hit the entry at $48.50 with a stop at $52.75 (adjusted and taken on Wednesday). It has now moved to a new high clearing the $54 mark, tested and hit a new high on Friday.
  • XLU – Utilities broke above the $52 to clear the sideways trading range finally. Took exit at $52.75 as the selling is still in question despite the bounce on Friday off support at the $50.88 level. Still looking for the opportunity in the move. The interest rate talk from the Fed could help it we move above the $52.25 level I have interest. Fed comments are positive for bonds… rally on. Entry $52.25, Stop $51. Some selling in front on the FOMC meeting. 
  • 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. Watching for now how this unfolds as sector moved back above the $31.35 mark. Entry $31.60, Stop $30.90. Some buying? watching how the bottoming process plays out. 
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The Fed talks last week to stand still on rates put a positive reversal in play. Watching for a move above $55 to get my interest near term. Some help in the upside bounce off the low as earnings help the sector.  
  • XLI – Industrials – remains in a positive uptrend since the break higher in November. Entry $67, Stop $66. The positive trend was questioned on Friday with the downside move. An uptrend in place as the money flow remains positive, but watching how it starts the week.
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. There is still the issue of uncertainty towards the stocks. Held $63.70 support and bounced as the dollar weakness helps the price of crude. To many question marks for now to take any positions. Scanning the sector is the only way to trade currently up or down. A small bounce in response to the commodity move. 
  • XLV – Healthcare hit the low and established a pivot reversal relative to rumors around the election… then the election… attempted upside move and trend reversal… but, failed to hold the move. The second attempt with double bottom worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $78.50 (adjusted). Patience is key as this unfolds. Stops in place with the run higher and test. The bounce off support is a positive, but not convincing… Senate vote looms as well. Upside riding on speculation of reform still in place. Negative response to the Senate vote. 
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend breaks short term and test of support at the $54.75 mark in play. Entry $48.50. Stop $54 (adjusted). Semiconductor weakness is the key to how this unfolds near term… they bounced and so did the sector. Give room for this trade to work upside. Small rally as NASDAQ leads
  • XLF – Financials pushed lower on earnings and Fed talk on interest rates. Earnings were good… not great, but worrisome in light of the Fed. That failed to impact the stocks and thus, the downside was in play. Entry $23.85, Stop $24.50 (adjusted). The break above that range was positive as the upside showed some strength, but still cautious as seen in the stalled move. Patient for now. The higher interest rate gig is off the table from the Fed. Positive anticipation of the FOMC meeting. 
  • XLY – Discretionary Consumer broke above resistance with a positive trek higher. Entry $83.50. Stop $88.50 (adjusted). Had a positive break to new highs and some leadership from the sector to boot… testing that move at support as the topping pattern unfolds. Cleared $90 resistance and watching. 
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as money made some rotation. The longer term view clearly shows the trading range and the opportunity to collect the dividend while investors continue to make up their collective minds on direction. We added the position in December on the move off the lows and continue to babysit the dividend of 4%. Tested the bottom end of the range and bounced on the Fed comments and now has room to breathe again… patience is key.

Rotation is back as the Fed talk on interest rates, a weaker dollar, weaker economic picture, and earnings are all pushing money around. I am cautious and optimistic on some sectors and avoiding other. As stated above we will take what the market offers and trade with tighter stops as money looks for the best opportunity. Disciplined strategies are the key to keeping your money versus rolling the dice and hoping for the best.

Interesting rumblings about the FOMC meeting as money rotates in favor of a rate hike from the Fed. Watching to see how this unfolds today. 

FINAL NOTES:

The market transitioned with the movement of money or rotation still very much in play. The Fed talk on interest rates helped REITs, utilities, telecom, and other interest sensitive sectors bounce off the current lows. Financials struggle on earnings and Fed interest rates talks. Crude moved lower on speculation about supply… again. There is always money in motion and opportunities in the move both short and long term. We have to let it all unfold. The rationale for the moves currently means investors are willing to follow the news and rationale for moving money. The question lies in their conviction or is it just hot money chasing returns. Healthcare is a benefactor of late on speculation around changes coming from Washington… We have to remain patient and make strategic decisions based on planned trades. The longer term charts are still in an uptrend with some rotation in the activity last week. Sectors remain mixed on the week with some higher and some testing the uptrends. There are plenty of opinions on how this will play out moving forward but I am willing to put my stops in place and let the market decide how and when the music stops and everyone scrambles for safety. Earnings are mixed and adding some interest in on a stock by stock basis versus the whole. The broad markets remain news driven and looking for the longer term catalyst and belief. The short-term trend off the November lows had a dip and then some sideways movement to a new high. Keep your stops in place and let the opportunities present themselves up or down. Practice patience as this all unfolds day-to-day.

The longer term trend off the February 2016 low is fully intact on the upside. Don’t forget the longer term view can offer greater clarity than the short term news. Sectors to watch moving forward: 1) Healthcare and the outcome of any reform… the belief has been for that to materialize and any action in Congress will be key… the volatility as it is entertained by the Senate… puts it back in the news. Watching biotech (IBB) and all the components of this sector as it broke near term support and bounced back on news. 2) Financials were the leader from the November low and then failed as interest rates remained low. The move higher on Fed talk relative to higher rates is now in jeopardy as the Fed now believes rates will remain low long term. The downside risk is rising on those comments and we will have to manage the money accordingly.  3) Energy remains a sector under pressure from supply and demand… too much supply and not enough participation in cutting or limiting supply. Watching how the short term impacts the longer term view currently. Energy stocks posted some gains this week on the heels of the rise in crude relative to the weaker dollar. 4) Telecom and consumer staples bounced as the interest rate talk from the Fed offered an olive branch to them on the upside. 5) Emerging markets found renewed hope with the weaker dollar positive money flow to the global market. For now, it has taken a leadership role in the short term trend off the December low positive. China is leading the upside charge. 6) Semiconductors are a bellwether for the growth stocks and they turned lower leading tech down as well as the NASDAQ. The test of support in SOXX, XLK and QQQ held, bounced, and are in place to resume the upside leadership. 7) The dollar is becoming a bigger story line than I would like. The drop is on the heels of Washington wanting a weaker currency for better export opportunities. It has never worked in history to devalue currency for growth. The move has helped gold, emerging markets, and the bond. Bigger declines last week in the buck are negative and there is no help from the Fed on the horizon… watch how this all unfolds and managing our stops on all positions daily.

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

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Markets mixed to start the trading week

By | Jims Notes, Research Post | No Comments

OUTLOOK: July 25th

Interesting start to the week with the NASDAQ moving to another record close and the S&P 500 ended slightly in the red. There are some issues facing investors this week with the Senate vote on healthcare reform on Tuesday according to the President. FOMC meeting on Wednesday… second quarter GDP on Friday… then there are earnings to deal with all week. The anticipation of these events could have kept money on the sidelines, but then the news of the day was nonexistent.

Two sectors ended Monday on the upside with financials (XLF) and technology (XLK) leading the upside. AAPL, FB, and GOOGL were enough to keep the sector in positive territory. The downside was led by utilities (XLU) as worry about the FOMC meeting this week rises. interest rates rose as well on the day showing concern in the bond market about the Fed meeting. Consumer discretionary (XLY) moved lower as earnings data hampered the sector. The outlook for stocks remains mixed based on what you believe near term about the economic outlook and the Fed. The S&P 500 index closed down 2.6 points at 2470 and holding near the new highs. The leadership for the index last week came from XRX (gap up and breakout), WYNN (double bottom gap higher), NRG (follow through on gap and run), INCY (wedge triangle breakout), and CFG (reversal on support test). Some positive moves in individual stocks with question marks hanging over sectors and the broad index. Watching for the opportunities from this as we move forward. Gold (GLD) moved through the $117.38 resistance last week as the buyers step back into the metal. $119.53 next level to clear on the upside. The dollar (UUP) remains lower on the dovish outlook from the Fed and now the ECB on interest rates and accelerates downside to end the week. The emerging markets (EEM) gapped higher from the trading range to new high and holding. The Volatility Index (VIX) closed at 9.4 as Fed and ECB make everyone happy about the outlook for the economy and interest rates. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans for Monday showed some opposite reaction to energy prices versus Friday with natural gas (UNG) and crude (USO) moving higher on the day. The energy (XLE) stocks were on the downside despite the gain in crude. The speculation drivers is keeping the average investor out of energy. Russia (RSX) still moved lower as well. Biotech (IBB) broke higher from the flag pattern and continuation of the upside trend on Monday. Gold miners (GDX) reversed again and failed to break the downtrend line. Watching how it unfolds with the FOMC meeting on Wednesday. Treasury bond (TLT) reacted to the bump higher in yields waiting on the Fed’s news following the FOMC. Healthcare (XLV) attempting to complete the cup pattern in the current uptrend. The Senate vote on Tuesday  will have something to say about the sector near term. The euro (ULE) is climbing nicely as the dollar falls (UDN). China (FXI) continues to hold near the highs and KWEB has moved back to the previous highs. Social Media (SOCL) made a move back to the current highs. Regional banks (KRE) posted a solid bounce as well on the day, but remains in flag pattern. It is important to follow the money and not your emotions. Some rotation in place and some pattern breaks and setups currently based on the rotation. Taking what the market gives and watching for trends, reversals, support, and volume… they will lead you to what is moving and the best opportunities for trades currently.

The comments from Yellen created a shift in sentiment and mindset of how this all unfolds short term. The ECB made similar comments from the central bank and added to the push for lower rates and rotation to sectors benefitting from such a move. The undercurrent of worry has been replaced with greed to rotate where money benefits from the current beliefs. The VIX index has moved to the lowest points again as the market follows the pied piper Fed. There is plenty to ponder both positive and negative going forward. Earnings started and like the markets have seen mixed response. As stated above the biggest moves have come from positive earnings. The financials positives have been offset with the Fed view on interest rates. Volume is moving lower, commodities are a benefactor of the weaker dollar, emerging markets are benefitting from the dollar, and the euro is spiking higher. The data is weaker, earnings are a question mark, but stocks moved to new highs on the week. The key word remains to be PATIENCE. Not something many traders like. We all want to believe we can see forward, but the reality is we can only see today. Thus, we do what our strategy tells us to do today and tomorrow will take care of itself. Hard lessons to learn as our analytical brain wants us to believe we have the solution and can predict the future. Despite all the talk, the buyers have been willing to hold the line and put money to work when the opportunity is right. Keep your stops in place and eyes focused on the horizon taking what the market gives. The market remains a challenge overall with the yo yo effect in full bloom.

KEY, INDICATORS/SECTORS TO WATCH:

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare overall has the attention of traders.The flag pattern held the $309 support level and bounced back to the previous highs and moving through resistance to end the week. Entry at $319.57, Stop $309. Positive week for the sector overall. All eyes on the Senate vote… upside depends on the outcome to a large extent. 

REITs (IYR) had been lagging in response to interest rate worries related to the Fed promise to hike rates multiple times this year. The sector tested the $76 level of support and bounced back to resistance and tested, and bounced… The shift in outlook for the Fed on holding rates steady now has shifted money back to the sector. We continue to focus on managing our risk and collecting our dividend as this all unfolds. This is a growth and dividend holding with a 4.2% dividend currently. Entry at $75.75. Stop $76.25 (adjusted).

Treasury yields moved back to the 2.4% level as the Fed talked of raising interest rates. The move to 2.23% this week came on the comments from Ms. Yellen and the Fed taking on a more dovish role towards rates. Just when you thought it was safe to go back into the water… the Fed changes its mind. TLT rallied on the comments and watching for the opportunity to unfold on a follow through. $124.10 entry, stop $122.

Gold (GLD) Gold remains in a long-term uptrend. The volatility within the trend is speculation and news driving money. The selling was more of the speculation, just as the current buying is on speculation the dollar and the Fed will remain neutral. Bounced off support at the $114 level, cleared resistance at the $117.38 mark (entry) and heading towards the $120 target currently. All indicators point towards a continued move higher near term. Stop $117.

Crude Oil has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue, but the weaker dollar is having some influence near term. The move to $42 brought plenty of speculation, but the bottom reversal moved back to $46.50 and a double bottom pattern. Watching as the commodity continues to be at a point of indecision and volatility on the news as seen on Friday’s selling. There is no clarity short term and watching how it unfolds without a position currently. Nice bounce in crude after selling to end the week. patience as this all unfolds. 

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The move lower and test of the $63.70 level kept the downside in question… but, the bounce on the rise in crude only adds to the confusion. $66.25 level to watch for opportunity.

Volatility Index (VIX) This week was more interesting for the index closing at 9.38 and near the lows as no one seems to show interest in worrying about the current trend of the markets. There is not enough movement outside of spikes to warrant any changes in the near-term outlook. Watching patiently to see if anxiety picks up or if investors remain content with the status flow. SVXY in Play. 

The sectors were rotating again this week as the comments from Yellen and ECB puts money in motion. The bounce in telecom (IYZ), utilities and REITs (IYR) thanks to interest rate talks from Fed. Financials (XLF) were weaker on earnings and the talk on interest rates. Emerging markets (EEM), euro (FXE), gold (GLD), agriculture (DBA), metals (DBB), and silver (SLV) all moved higher on the weaker dollar (UDN). This is a point of inflection for the markets and one to validate on the charts and not just on the news. Watching how all of it unfolds and where the opportunities lie. The S&P 500 and Dow indexes moved to new highs with lower volume in place. Our job is to let the opportunities develop… have a strategy for trading or investing in them… and then managing the process based on our belief and disciplined approach. Sounds simple? It is except for the six inches between our ears that process what we hear as it impacts our beliefs. Have a strategy for every position and trade/invest according to the strategy… don’t let the news or others sway you from the task at hand.

Watching from the scans… UCO, KWEB, KRE, YINN, SOXL, SOCL and QLD. 

Daily Scan Results:

MONDAY’s Scans (7/24): More mixed reviews from the market, but the upside bias is still in place and the bigger question remains around the catalyst that will or will not move the markets up or down. Patience with all the news on tap the next few days.

  • Natural Gas (UNG/DGAZ) More downside for the commodity and the trade entry was hit at the $26.24.
  • Crude Oil (USO/UCO) the $15.01 level is where the move needs to go if the upside is going to make it near term. Proceed with caution.
  • Russia (RSX/RUSS) downside in the country ETF is building again after moving up nicely over the last month. Watching how this unfolds.
  • Social Media (SOCL) nice move back to the current highs and the uptrend is fully in play. Move above $30.50 a positive for the current trend.
  • NASDAQ 100 (QQQ/QLD) breaking to new highs and the old regime is leading the way as large caps renew their strength and influence over the index.

Practicing patience and looking for the next best opportunity the market presents.

FRIDAY’s Scans (7/21): Another mixed day of rotations and watching how the news pushes money to where it will be treated the best the fastest. The long term charts still show upside trends and the Fed influence is keeping the trend positive.

  • Natural Gas (UNG/DGAZ) downside returns for the commodity. Short side setup again presents an opportunity for a follow through move.
  • Crude Oil (USO/SCO) negative move returns as the price of crude declines on Friday. Watching how that unfolds. Energy (ERY) short trade also in place if the price of crude follows through on the downside move.
  • Biotech (IBB/LABU) upside break from the consolidation pattern is positive for the sector and continuation of the uptrend.
  • Gold Miners (GDX/NUGT) upside in play near term, but the downtrend line is what to watch off teh February high. Break higher would validate the reversal and positive uptrend opportunity.
  • Treasury Bonds (TLT/TMF) upside is back with the Yellen comments on interest rates. Entry hit at $21 for upside trade.

Some other charts to watch this week… ULE, SLV, SLVP, CURE, TAN, XLU, RUSS, QLD.

THURSDAY’s Scans (7/20): Another boring day as indexes remain content for now.

  • Biotech (IBB/LABU) upside bias that needs to break above the $72 level to keep upside in play.
  • Healthcare (XLV/CURE) hit $44.65 previous high and looking to follow through as the sector remain positive.
  • Utilities (XLU/UPW) upside in play on the Fed interest rates stance. Taking the trade for what it is… news in motion.
  • Europe (IEV/EURL) rally on the ECB comments… similar to US Treasury comments… same results… positive for the stocks.
  • Euro (ULE) upside on weaker dollar accelerating.

Overall this is a trading market with moves driven by news and speculation… that is fine as long as you have a strategy to trade the news. Upside bias remains in place as the central banks intervene to keep the rally going.

 

Sector Rotation:

  • XLB – Materials moved higher pushing above the $50 level and moving toward 2015 high. Hit the entry at $48.50 with a stop at $52.75 (adjusted and taken on Wednesday). It has now moved to a new high clearing the $54 mark, tested and hit a new high on Friday.
  • XLU – Utilities broke above the $52 to clear the sideways trading range finally. Took exit at $52.75 as the selling is still in question despite the bounce on Friday off support at the $50.88 level. Still looking for the opportunity in the move. The interest rate talk from the Fed could help it we move above the $52.25 level I have interest. Fed comments are positive for bonds… rally on. Entry $52.25, Stop $51. Some selling in front on the FOMC meeting. 
  • 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. Watching for now how this unfolds as sector moved back above the $31.35 mark. Entry $31.60, Stop $30.90. Some selling in response to the bond market. 
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The Fed talks last week to stand still on rates put a positive reversal in play. Watching for a move above $55 to get my interest near term. Some selling to start the week. 
  • XLI – Industrials – remains in a positive uptrend since the break higher in November. Entry $67, Stop $66. The positive trend was questioned on Friday with the downside move. An uptrend in place as the money flow remains positive, but watching how it starts the week.
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. There is still the issue of uncertainty towards the stocks. Held $63.70 support and bounced as the dollar weakness helps the price of crude. To many question marks for now to take any positions. Scanning the sector is the only way to trade currently up or down.
  • XLV – Healthcare hit the low and established a pivot reversal relative to rumors around the election… then the election… attempted upside move and trend reversal… but, failed to hold the move. The second attempt with double bottom worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $78.50 (adjusted). Patience is key as this unfolds. Stops in place with the run higher and test. The bounce off support is a positive, but not convincing… Senate vote looms as well. Upside riding on speculation of reform still in place. 
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend breaks short term and test of support at the $54.75 mark in play. Entry $48.50. Stop $54 (adjusted). Semiconductor weakness is the key to how this unfolds near term… they bounced and so did the sector. Give room for this trade to work upside. Small rally as NASDAQ leads
  • XLF – Financials pushed lower on earnings and Fed talk on interest rates. Earnings were good… not great, but worrisome in light of the Fed. That failed to impact the stocks and thus, the downside was in play. Entry $23.85, Stop $24.50 (adjusted). The break above that range was positive as the upside showed some strength, but still cautious as seen in the stalled move. Patient for now. The higher interest rate gig is off the table from the Fed.
  • XLY – Discretionary Consumer broke above resistance with a positive trek higher. Entry $83.50. Stop $88.50 (adjusted). Had a positive break to new highs and some leadership from the sector to boot… testing that move at support as the topping pattern unfolds. Cleared $90 resistance and watching. 
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as money made some rotation. The longer term view clearly shows the trading range and the opportunity to collect the dividend while investors continue to make up their collective minds on direction. We added the position in December on the move off the lows and continue to babysit the dividend of 4%. Tested the bottom end of the range and bounced on the Fed comments and now has room to breathe again… patience is key.

Rotation is back as the Fed talk on interest rates, a weaker dollar, weaker economic picture, and earnings are all pushing money around. I am cautious and optimistic on some sectors and avoiding other. As stated above we will take what the market offers and trade with tighter stops as money looks for the best opportunity. Disciplined strategies are the key to keeping your money versus rolling the dice and hoping for the best.

Interesting rumblings about the FOMC meeting as money rotates in favor of a rate hike from the Fed. Watching to see how this unfolds the next two days. 

FINAL NOTES:

The market transitioned with the movement of money or rotation still very much in play. The Fed talk on interest rates helped REITs, utilities, telecom, and other interest sensitive sectors bounce off the current lows. Financials struggle on earnings and Fed interest rates talks. Crude moved lower on speculation about supply… again. There is always money in motion and opportunities in the move both short and long term. We have to let it all unfold. The rationale for the moves currently means investors are willing to follow the news and rationale for moving money. The question lies in their conviction or is it just hot money chasing returns. Healthcare is a benefactor of late on speculation around changes coming from Washington… We have to remain patient and make strategic decisions based on planned trades. The longer term charts are still in an uptrend with some rotation in the activity last week. Sectors remain mixed on the week with some higher and some testing the uptrends. There are plenty of opinions on how this will play out moving forward but I am willing to put my stops in place and let the market decide how and when the music stops and everyone scrambles for safety. Earnings are mixed and adding some interest in on a stock by stock basis versus the whole. The broad markets remain news driven and looking for the longer term catalyst and belief. The short-term trend off the November lows had a dip and then some sideways movement to a new high. Keep your stops in place and let the opportunities present themselves up or down. Practice patience as this all unfolds day-to-day.

The longer term trend off the February 2016 low is fully intact on the upside. Don’t forget the longer term view can offer greater clarity than the short term news. Sectors to watch moving forward: 1) Healthcare and the outcome of any reform… the belief has been for that to materialize and any action in Congress will be key… the volatility as it is entertained by the Senate… puts it back in the news. Watching biotech (IBB) and all the components of this sector as it broke near term support and bounced back on news. 2) Financials were the leader from the November low and then failed as interest rates remained low. The move higher on Fed talk relative to higher rates is now in jeopardy as the Fed now believes rates will remain low long term. The downside risk is rising on those comments and we will have to manage the money accordingly.  3) Energy remains a sector under pressure from supply and demand… too much supply and not enough participation in cutting or limiting supply. Watching how the short term impacts the longer term view currently. Energy stocks posted some gains this week on the heels of the rise in crude relative to the weaker dollar. 4) Telecom and consumer staples bounced as the interest rate talk from the Fed offered an olive branch to them on the upside. 5) Emerging markets found renewed hope with the weaker dollar positive money flow to the global market. For now, it has taken a leadership role in the short term trend off the December low positive. China is leading the upside charge. 6) Semiconductors are a bellwether for the growth stocks and they turned lower leading tech down as well as the NASDAQ. The test of support in SOXX, XLK and QQQ held, bounced, and are in place to resume the upside leadership. 7) The dollar is becoming a bigger story line than I would like. The drop is on the heels of Washington wanting a weaker currency for better export opportunities. It has never worked in history to devalue currency for growth. The move has helped gold, emerging markets, and the bond. Bigger declines last week in the buck are negative and there is no help from the Fed on the horizon… watch how this all unfolds and managing our stops on all positions daily.

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

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Mixed week for stocks with upside bias still in play

By | Jims Notes, Outlook, Research Post | No Comments

OUTLOOK: Week of July 24th

The week ends with another mixed day as investors continue to look for a catalyst to sustain the move to new highs. Interest sensitive sectors continue to take the leadership role on comments from the central banks relative to interest rates. The news driven market theme continues with plenty of speculation and conversation on what happens next. The reality is no one knows… it is a matter of collective belief by investors that will determine the trends both short term and long term. For now, the bias still remains with the buyers.

Five sectors ended Friday on the upside with telecom (IYZ) and utilities (XLU) leading the upside and energy (XLE) and industrials the losers on the downside. The interest sensitive sectors continue to add as they recover from the selling from the hike in interest rates from the Fed. The financials (XLF) continue to lag near term with the Fed statements on being in a holding pattern puts out the fires about higher rates. The rotation to telecom and utilities for the week was evident in the chart and the 2%+ gains posted. The S&P 500 index closed unchanged at 2472 and holding near the new highs. The leadership for the index last week came from VRTX (gap up and breakout), NFLX (double bottom gap higher), SNI (bottoming pattern gap higher), CTAS (descending triangle breakout), and COF (reversal gap higher). Earnings influenced the leaders last week in a positive way among the leaders. Watching for the opportunities from this as we move forward. Gold (GLD) bottoming progress with a gap above the $115.86 level and to the $117.38 resistance cleared on Friday as the buyers step back into the metal. The dollar (UUP) remains lower on the dovish outlook from the Fed and now the ECB on interest rates and accelerates downside to end the week. The emerging markets (EEM) gapped higher from the trading range to new high and holding. The Volatility Index (VIX) closed at 9.36 as Fed and ECB make everyone happy about the outlook for the economy and interest rates. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans for Friday showed some reaction to energy prices with natural gas (UNG) and crude (USO) moving lower on the day. The move impacted energy (XLE) stocks on the downside and energy sensitive countries like Russia (RSX).  Biotech (IBB) broke higher from the flag pattern and continuation of the upside trend. Gold miners (GDX) continue the move off the bottom and in a position to break the downtrend off the February high. Treasury bond (TLT) continue to rally on the Fed outlook for interest rates near term. Utilities (XLU) and telecom (IYZ) are equal benefactors of the move along with REITs (IYR). Healthcare (XLV) attempting to complete the cup pattern in the current uptrend. The euro (ULE) is climbing nicely as the dollar falls (UDN). The volatility index (VXX) continues to show little to no anxiety with money in a mild rotation near term. It is important to follow the money and not your emotions. Some rotation in place and some pattern breaks and setups currently based on the rotation. Taking what the market gives and watching for trends, reversals, support, and volume… they will lead you to what is moving and the best opportunities for trades currently.

The comments from Yellen created a shift in sentiment and mindset of how this all unfolds short term. The ECB made similar comments from the central bank and added to the push for lower rates and rotation to sectors benefitting from such a move. The undercurrent of worry has been replaced with greed to rotate where money benefits from the current beliefs. The VIX index has moved to the lowest points again as the market follows the pied piper Fed. There is plenty to ponder both positive and negative going forward. Earnings started and like the markets have seen mixed response. As stated above the biggest moves have come from positive earnings. The financials positives have been offset with the Fed view on interest rates. Volume is moving lower, commodities are a benefactor of the weaker dollar, emerging markets are benefitting from the dollar, and the euro is spiking higher. The data is weaker, earnings are a question mark, but stocks moved to new highs on the week. The key word remains to be PATIENCE. Not something many traders like. We all want to believe we can see forward, but the reality is we can only see today. Thus, we do what our strategy tells us to do today and tomorrow will take care of itself. Hard lessons to learn as our analytical brain wants us to believe we have the solution and can predict the future. Despite all the talk, the buyers have been willing to hold the line and put money to work when the opportunity is right. Keep your stops in place and eyes focused on the horizon taking what the market gives. The market remains a challenge overall with the yo yo effect in full bloom.

KEY, INDICATORS/SECTORS TO WATCH:

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare overall has the attention of traders.The flag pattern held the $309 support level and bounced back to the previous highs and moving through resistance to end the week. Entry at $319.57, Stop $309. Positive week for the sector overall.

REITs (IYR) had been lagging in response to interest rate worries related to the Fed promise to hike rates multiple times this year. The sector tested the $76 level of support and bounced back to resistance and tested, and bounced… The shift in outlook for the Fed on holding rates steady now has shifted money back to the sector. We continue to focus on managing our risk and collecting our dividend as this all unfolds. This is a growth and dividend holding with a 4.2% dividend currently. Entry at $75.75. Stop $76.25 (adjusted).

Treasury yields moved back to the 2.4% level as the Fed talked of raising interest rates. The move to 2.23% this week came on the comments from Ms. Yellen and the Fed taking on a more dovish role towards rates. Just when you thought it was safe to go back into the water… the Fed changes its mind. TLT rallied on the comments and watching for the opportunity to unfold on a follow through. $124.10 entry, stop $122.

Gold (GLD) Gold remains in a long-term uptrend. The volatility within the trend is speculation and news driving money. The selling was more of the speculation, just as the current buying is on speculation the dollar and the Fed will remain neutral. Bounced off support at the $114 level, cleared resistance at the $117.38 mark (entry) and heading towards the $120 target currently. All indicators point towards a continued move higher near term. Stop $117.

Crude Oil has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue, but the weaker dollar is having some influence near term. The move to $42 brought plenty of speculation, but the bottom reversal moved back to $46.50 and a double bottom pattern. Watching as the commodity continues to be at a point of indecision and volatility on the news as seen on Friday’s selling. There is no clarity short term and watching how it unfolds without a position currently.

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The move lower and test of the $63.70 level kept the downside in question… but, the bounce on the rise in crude only adds to the confusion. $66.25 level to watch for opportunity.

Volatility Index (VIX) This week was more interesting for the index closing at 9.38 and near the lows as no one seems to show interest in worrying about the current trend of the markets. There is not enough movement outside of spikes to warrant any changes in the near-term outlook. Watching patiently to see if anxiety picks up or if investors remain content with the status flow. SVXY in Play. 

The sectors were rotating again this week as the comments from Yellen and ECB puts money in motion. The bounce in telecom (IYZ), utilities and REITs (IYR) thanks to interest rate talks from Fed. Financials (XLF) were weaker on earnings and the talk on interest rates. Emerging markets (EEM), euro (FXE), gold (GLD), agriculture (DBA), metals (DBB), and silver (SLV) all moved higher on the weaker dollar (UDN). This is a point of inflection for the markets and one to validate on the charts and not just on the news. Watching how all of it unfolds and where the opportunities lie. The S&P 500 and Dow indexes moved to new highs with lower volume in place. Our job is to let the opportunities develop… have a strategy for trading or investing in them… and then managing the process based on our belief and disciplined approach. Sounds simple? It is except for the six inches between our ears that process what we hear as it impacts our beliefs. Have a strategy for every position and trade/invest according to the strategy… don’t let the news or others sway you from the task at hand.

Daily Scan Results:

FRIDAY’s Scans (7/21): Another mixed day of rotations and watching how the news pushes money to where it will be treated the best the fastest. The long term charts still show upside trends and the Fed influence is keeping the trend positive.

  • Natural Gas (UNG/DGAZ) downside returns for the commodity. Short side setup again presents an opportunity for a follow through move.
  • Crude Oil (USO/SCO) negative move returns as the price of crude declines on Friday. Watching how that unfolds. Energy (ERY) short trade also in place if the price of crude follows through on the downside move.
  • Biotech (IBB/LABU) upside break from the consolidation pattern is positive for the sector and continuation of the uptrend.
  • Gold Miners (GDX/NUGT) upside in play near term, but the downtrend line is what to watch off teh February high. Break higher would validate the reversal and positive uptrend opportunity.
  • Treasury Bonds (TLT/TMF) upside is back with the Yellen comments on interest rates. Entry hit at $21 for upside trade.

Some other charts to watch this week… ULE, SLV, SLVP, CURE, TAN, XLU, RUSS, QLD.

THURSDAY’s Scans (7/20): Another boring day as indexes remain content for now.

  • Biotech (IBB/LABU) upside bias that needs to break above the $72 level to keep upside in play.
  • Healthcare (XLV/CURE) hit $44.65 previous high and looking to follow through as the sector remain positive.
  • Utilities (XLU/UPW) upside in play on the Fed interest rates stance. Taking the trade for what it is… news in motion.
  • Europe (IEV/EURL) rally on the ECB comments… similar to US Treasury comments… same results… positive for the stocks.
  • Euro (ULE) upside on weaker dollar accelerating.

Overall this is a trading market with moves driven by news and speculation… that is fine as long as you have a strategy to trade the news. Upside bias remains in place as the central banks intervene to keep the rally going.

MONDAY’s Scans (7/17): Boring day without much to discuss. The scans were boring and the outlook remains the same of wait and see… the earnings and economic data have not been enough to drive and now we watch to see how it all unfolds.

  • Natural Gas (UNG/UGAZ) small bounce and still in bottoming pattern.
  • Gold Miners (GDX/NUGT) small bounce in response to the price of gold moving higher.
  • Silver (SLV) positive coattail riding for the metal.
  • Copper (JJC) nice follow through on the upside move.
  • Miners (XME) solid move to the upside following the break through resistance at the $30.50 level.

Practicing patience for now and watching how tomorrow unfolds.

FRIDAY’s Scans (7/14): A positive day with the rotation based on the Fed comments and investors beliefs. Take what the market gives… nothing more, and avoid the speculation that is present.

  • Biotech (IBB/LABU) positive week… worth scanning the leaders for the opportunities. FOLD, HRTX, SGMO, FLXN, and PRTA are some that showed up.
  • China (GXC/YINN) the upside gaps are coming from a weaker dollar and money looking for the best home short term. Cleared the $23.18 mark and has not looked back yet.
  • NASDAQ 100 (QQQ/TQQQ) downtrend channel looking for upside move if the rally continues in the broad markets… $108 level to break. NVDA, WDC, CTRP, EBAY, and PYPL showing positive leadership currently.
  • Financials (XLF/FAZ) earnings not great, interest rate talk from the Fed and a sector that lacks buyers is now on the ropes heading into next week. $16.95 entry for a short trade is now of interest… watch, patience, and execution strategy are key.
  • Semiconductors (SOXX/SOXL) positive ‘V’ bottom and looking for a follow through on the move above $96. Entry if the trade follows through.
  • Energy (XLE/ERX) another bottom reversal attempt… if oil climbs on the weaker dollar the upside trade holds some opportunity. $26.25 level to watch for a trade. APA, CHK, DVN, HAL, and RIG all showing positive moves.

Markets are in transition again as the Fed repositions the outlook for interest rates and the economic picture. Watching how it unfolds to start the week and focused on the opportunities with a cautious approach and strategy.

Sector Rotation:

  • XLB – Materials moved higher pushing above the $50 level and moving toward 2015 high. Hit the entry at $48.50 with a stop at $52.75 (adjusted and taken on Wednesday). It has now moved to a new high clearing the $54 mark, tested and hit a new high on Friday.
  • XLU – Utilities broke above the $52 to clear the sideways trading range finally. Took exit at $52.75 as the selling is still in question despite the bounce on Friday off support at the $50.88 level. Still looking for the opportunity in the move. The interest rate talk from the Fed could help it we move above the $52.25 level I have interest. Fed comments are positive for bonds… rally on. Entry $52.25, Stop $51. 
  • 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. Watching for now how this unfolds as sector moved back above the $31.35 mark. Entry $31.60, Stop $30.90.
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The Fed talks last week to stand still on rates put a positive reversal in play. Watching for a move above $55 to get my interest near term.
  • XLI – Industrials – remains in a positive uptrend since the break higher in November. Entry $67, Stop $66. The positive trend was questioned on Friday with the downside move. An uptrend in place as the money flow remains positive, but watching how it starts the week.
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. There is still the issue of uncertainty towards the stocks. Held $63.70 support and bounced as the dollar weakness helps the price of crude. To many question marks for now to take any positions. Scanning the sector is the only way to trade currently up or down.
  • XLV – Healthcare hit the low and established a pivot reversal relative to rumors around the election… then the election… attempted upside move and trend reversal… but, failed to hold the move. The second attempt with double bottom worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $78.50 (adjusted). Patience is key as this unfolds. Stops in place with the run higher and test. The bounce off support is a positive, but not convincing… Senate vote looms as well. Upside riding on speculation of reform still in place. 
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend breaks short term and test of support at the $54.75 mark in play. Entry $48.50. Stop $54 (adjusted). Semiconductor weakness is the key to how this unfolds near term… they bounced and so did the sector. Give room for this trade to work upside. 
  • XLF – Financials pushed lower on earnings and Fed talk on interest rates. Earnings were good… not great, but worrisome in light of the Fed. That failed to impact the stocks and thus, the downside was in play. Entry $23.85, Stop $24.50 (adjusted). The break above that range was positive as the upside showed some strength, but still cautious as seen in the stalled move. Patient for now. The higher interest rate gig is off the table from the Fed.
  • XLY – Discretionary Consumer broke above resistance with a positive trek higher. Entry $83.50. Stop $88.50 (adjusted). Had a positive break to new highs and some leadership from the sector to boot… testing that move at support as the topping pattern unfolds. Cleared $90 resistance and watching. 
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as money made some rotation. The longer term view clearly shows the trading range and the opportunity to collect the dividend while investors continue to make up their collective minds on direction. We added the position in December on the move off the lows and continue to babysit the dividend of 4%. Tested the bottom end of the range and bounced on the Fed comments and now has room to breathe again… patience is key.

Rotation is back as the Fed talk on interest rates, a weaker dollar, weaker economic picture, and earnings are all pushing money around. I am cautious and optimistic on some sectors and avoiding other. As stated above we will take what the market offers and trade with tighter stops as money looks for the best opportunity. Disciplined strategies are the key to keeping your money versus rolling the dice and hoping for the best.

FINAL NOTES:

The market transitioned with the movement of money or rotation still very much in play. The Fed talk on interest rates helped REITs, utilities, telecom, and other interest sensitive sectors bounce off the current lows. Financials struggle on earnings and Fed interest rates talks. Crude moved lower on speculation about supply… again. There is always money in motion and opportunities in the move both short and long term. We have to let it all unfold. The rationale for the moves currently means investors are willing to follow the news and rationale for moving money. The question lies in their conviction or is it just hot money chasing returns. Healthcare is a benefactor of late on speculation around changes coming from Washington… We have to remain patient and make strategic decisions based on planned trades. The longer term charts are still in an uptrend with some rotation in the activity last week. Sectors remain mixed on the week with some higher and some testing the uptrends. There are plenty of opinions on how this will play out moving forward but I am willing to put my stops in place and let the market decide how and when the music stops and everyone scrambles for safety. Earnings are mixed and adding some interest in on a stock by stock basis versus the whole. The broad markets remain news driven and looking for the longer term catalyst and belief. The short-term trend off the November lows had a dip and then some sideways movement to a new high. Keep your stops in place and let the opportunities present themselves up or down. Practice patience as this all unfolds day-to-day.

The longer term trend off the February 2016 low is fully intact on the upside. Don’t forget the longer term view can offer greater clarity than the short term news. Sectors to watch moving forward: 1) Healthcare and the outcome of any reform… the belief has been for that to materialize and any action in Congress will be key… the volatility as it is entertained by the Senate… puts it back in the news. Watching biotech (IBB) and all the components of this sector as it broke near term support and bounced back on news. 2) Financials were the leader from the November low and then failed as interest rates remained low. The move higher on Fed talk relative to higher rates is now in jeopardy as the Fed now believes rates will remain low long term. The downside risk is rising on those comments and we will have to manage the money accordingly.  3) Energy remains a sector under pressure from supply and demand… too much supply and not enough participation in cutting or limiting supply. Watching how the short term impacts the longer term view currently. Energy stocks posted some gains this week on the heels of the rise in crude relative to the weaker dollar. 4) Telecom and consumer staples bounced as the interest rate talk from the Fed offered an olive branch to them on the upside. 5) Emerging markets found renewed hope with the weaker dollar positive money flow to the global market. For now, it has taken a leadership role in the short term trend off the December low positive. China is leading the upside charge. 6) Semiconductors are a bellwether for the growth stocks and they turned lower leading tech down as well as the NASDAQ. The test of support in SOXX, XLK and QQQ held, bounced, and are in place to resume the upside leadership. 7) The dollar is becoming a bigger story line than I would like. The drop is on the heels of Washington wanting a weaker currency for better export opportunities. It has never worked in history to devalue currency for growth. The move has helped gold, emerging markets, and the bond. Bigger declines last week in the buck are negative and there is no help from the Fed on the horizon… watch how this all unfolds and managing our stops on all positions daily.

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

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.