OUTLOOK: November 22nd
The broad markets moved higher putting an end, for now, to the downside movement and chatter. We can call this a turkey rally or Santa rally if you want, but the move to a new high on average volume is a definite positive for the charts. The question… will it last or follow through? Today is turkey eve and you can expect a low volume trading day and Friday will be a half day of trading. The Fed minutes will be released today as well and should provide some news for fodder, but little in terms of direction from the Fed. Consumer sentiment out today as well and expectations are little changed. As stated yesterday, the small caps (IWM) made a positive move on the upside and followed through in yesterday’s mini-rally hitting a new high. Watching how today unfolds in response to the move higher on Tuesday.
Eleven sectors moved higher with the major indexes posting solid gains on the day. Technology (XLK), telecom (IYZ) and healthcare (XLV) led the upside on Tuesday. With all the sectors pushing higher with technology, but financials, utilities, energy and consumers staples made very modest moves on the upside. It was the laggards in telecom, healthcare, industrials and basic materials that made the biggest moves. The downside move was led by the Volatility Index (VIX) falling to 9.7 and near the previous lows. Any anxiety that was present last week has disappeared this week. Interest rates remain a hot potato with the up and down tug-o-war over the Fed making a decision on rates prior to year-end. The broad indexes looked impressive on the chart, the sectors leading the move were the laggards, and the leaders remain solid. Plenty of question marks still remain relative to the overall move and we will let this all unfold moving forward… for now, put on your rally caps.
The S&P 500 index closed up 16.8 points at 2599 and moved to a new high on the day. The uptrend remains in control of the index with an average volume on the move. The rolling top gives way to new highs as the buyer’s rally. The biggest movers in the index were JEC (gap higher from trading range), TRIP (confirming the bottom reversal), MDT (break higher from the consolidation pattern), VIAB (bottom reversal confirmation), and CSRA (break higher starts bottom reversal). The downside leadership came from SIG, CPB, UA, INTU, and ADI. Mixed activity with consumer cyclical leading the downside. The broad index moved to a new high and the leadership for the last thirty days has come from technology, consumer discretionary, and REITs… getting some rotation of late with consumer staples, consumer discretionary, and telecom leading over the last ten days.
Gold (GLD) retested the $120.45 support after the move upside… but, still in the trading range. The dollar (UUP) moved lower on the worries about tax cuts and yield curve breaking support at $24.50, but bounced on Monday… patience. The emerging markets (EEM) tested the $45.40 level of support and gapped to a new high breaking from the trading range. The Volatility Index (VIX) closed at 9.7 erasing the near-term worries… at least for now. The rumblings continue relative to the lack of a clear tax cut bill from Congress and worries about the outlook for the economy relative to a flattening yield curve. Watching how this unfolds moving forward with the holiday weekend. The key is to remain disciplined within your trading strategy and not let the anxiety of the situation change your mind. Manage your risk and stay focused on the horizon, not the rear-view mirror.
(The notes above are posted daily based on the activity of the previous days trading)
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. There is no clear resolution to that issue and that has now led to money rotating to where is it has better opportunities and clarity. The downside broke support at the $311 level and remains challenged by the lack clarity about Washington more than anything at this point. Bottom reversal started? Watching how this one unfolds… hit our stop on short trade.
REITs (IYR) The sector tested the $76 level of support and bounced back to resistance and tested, and bounced, cleared the $81 resistance… only to test lower again… and bounce again. We continue to focus on managing our risk and collecting our dividend versus the near-term volatility and uncertainty. This is a growth and dividend holding with a 4.2% dividend from our entry point in April. Entry at $75.75. Stop $76.25 (adjusted). Testing again finding support at $79. Ended the week back above $81 again… letting this play out as a long-term position.
Treasury yields (TNX) moved to 2.35% last week as talk of the Fed hiking interest rates renews despite the talk of tax-cuts stalling in Washington. We still have the price of crude climbing and a stronger dollar impacting the rates as well. Willing to let this unfold for now as the rumors and speculation create a lack of clarity for bonds. Head and shoulder pattern on the chart currently.
Gold (GLD) Gold remains in a long-term uptrend with a broad trading range in play the last five months. The volatility of the trend is speculation and news driving money. The selling speculation on the rumors of the Fed hiking interest rates tested the $120.45 support. The bounce on to end the week back to resistance at $123.05 is what we will watch in the coming week of trading. Moved lower in the trading range to start the week with a high move in the dollar.
Crude Oil (USO) has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue. The last seven weeks the commodity has managed to fight its way back above the $50 and $52.50 levels of resistance and confirm an uptrend off the June low. Entry $50.20, Stop $54 (adjusted). The price continues to bounce around with a deline to $55 only to find buyers on Friday. Watching data points as there was a build in supply last week… patience remains the key. Moving back towards the previous highs modestly.
Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production had not resulted in any real measurable cut that would impact prices. The double bottom pattern clears $63.22 for entry and a stop at $66 (adjusted). Investors reacted to the decline in price this week and found support at the $67 mark. Watching how this unfold in the coming week of trading.
Volatility Index (VIX) The negative week pushed the intraday volatility, but the buyers keep the index from accelerating higher following the spike above 14 only to close the week essentially unchanged at 11.4. Still watching how the anxiety levels start the trading week. Moved lower to 9.7 as worries subside in holiday trading.
The S&P 500 index remains near the current highs with a small attempt of a rolling top. The willingness of the buyers to keep stepping in at each attempt by the sellers to push the index lower shows some resolve. I remain cautious overall. The rotation of money is showing as REITs, consumer staples, and utilities takes a leadership role. Patience is required with the markets overall with news leading the parade and the data points not offering enough to keep the long-term money engaged.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
Daily Scan Results:
TUESDAY’s Scans 11/21: the buyers engage to take the broad index to a new high… again. S&P 500 (SPY) hit new highs on the move as technology (XLK) leads the upside move. The bounce in consumer discretionary, consumer staples, and REITs continued to help. The NASDAQ (QQQ) rallied to new highs as well a broad move in the index stocks. Volume, however, was a bit on the low side. Plenty of questions about the move higher, but it is turkey day and black Friday. All built on the hope of better than expected holiday season.
- China (FXI/YINN) gapped higher to confirm the upside with the move above $35. Good for our positions, bad for any attempt to add to the position which was the plan.
- Homebuilders (ITB/NAIL) gapped higher as the vertical move resumes. Manage your stops on the position we added at $74.10. Stop $76.60. Longer-term positions stop moved to $74.
- Emerging Markets (EEM/EDC) $120 trade positions added… raise your stops on the gap higher to break even. longer-term positions move stops to $$115.
- Semiconductors (SOXX/SOXL) Trade positions added at $160… raise stop to break even. Longer-term $150 stop. Uptrend remains firmly in play along with the leadership of the sector. IGN, SOCL, HACK, IGV and SOXX all leading higher… adjust the stops accordingly in each of these as well.
- Brazil (EWZ/BRZU) upside follows through on the bottom reversal pattern. Move stop to break even. Hit resistance intraday and closed with a doji candle… watching how today unfolds.
Plenty of positive moves on Tuesday… we need to manage our positions and let the speculators speculate. The entries over the last week played out well on the day, but now we manage by adjusting our stops. The long-term holdings are adjusted on this move as well. We give them more room to deal with any volatility on the horizon. Paitence and discipline are the key to sound money managment.
MONDAY’s Scans 11/20: Some positives in the scans Monday with some leadership in the small caps (IWM) returning. The semiconductors (SOXX) moved upside as well on the day. Financials (XLF) got a boost from the regional banks (KRE) and now reside at key resistance. Energy (XLE) is sitting on support at $67 and looking for a catalyst from crude oil which is stuck at the $56ish level. Natural gas (UNG) is back to struggling on the downside confirming the move below $6.40… watching DGAZ as short side trade. Metals and mining (XME) looking positive with the bottom reversal in play. Homebuilders (ITB/NAIL) continues to add to the upside move… adjust your stops accordingly. Solar (TAN) resuming the uptrend. Broker-Dealers (IAI) made a solid break higher providing some leadership to the financials. Networking (IGN) continues vertical move upside with ANET, JNPR, UBNT and ADTN all adding solid moves. Positive day for the scans… just need to follow through on the upside moves.
- Semiconductors (SOXX/SOXL) upside resumes with a move back to the previous highs… watching for near-term rally higher $165.50 entry trade.
- Retail (XRT) upside breakout at $42 and looking for the confirmation move. This is speculation trade on the upside as we move towards the holidays and optimism about the consumer buying more than projections. The question is will the brick-and-mortar be the winner over e-commerce? AMZN and others will be in the mix. Remember our long-term trade in Walmart (WMT) will also be a benefactor from online sales.
- China (FXI/YINN) moving back to the previous highs… looking for a confirmation with the move above $35 near term and trade on the break through resistance.
- Brazil (EWZ/BRZU) confirmed the move above $37.52 and entry for an upside trade on the bottom reversal. $43 target short-term and stop at $35.
- Emerging Markets (EEM/EDC) broke higher to clear resistance and achieve a new high. The move through the $120 resistance is an opportunity to add to our current long-term positions with a trade. Stop $110 and watching.
Positive trading day for the broad indexes as investors continue to engage in the upside move. Risk management within our current strategy is the key to managing the current market environment.
FRIDAY’s Scans 11/17: mixed day that closes lower and no follow through to the buying on Thursday. Telecom (IYZ) was the leader for the week along with consumer staples (XLP) and consumer discretionary (XLY)… mixed company as investor jockey for leading sectors and stocks. Energy (XLE) closed higher on the day but ended the week as the leading downside sector. Homebuilders (IYT/NAIL) continue the upside ascent on hope and storm recovery. Gasoline (UGA) bounced from recent selling. Silver (SLVP) move higher in the day. Social Media (SOCL) confirmed new highs. Small caps (IWM/TNA) confirmed the reversal. High yield bonds bounce off current lows (FHY). Plenty of topping patterns in place as well as some bottom reversals. Looking for direction currently and practicing some patience as this unfolds.
- Crude Oil (USO, UCO) bottom reversal test and move back towards the previous highs. Rumors and speculation created the volatility, supply data created the selling. Watching who wins in the coming week.
- Brazil (EWZ/BRZU) nice bounce on the reversal and watching how it unfolds. Hit the first entry level at $37.52 and $39.75 is next level to clear. Some patience needed as the economic uncertainty is the challenge.
- Gold Miners (GDX/NUGT) bounce in gold pushes the mining stocks higher. The bottoming pattern is worth watching if gold (GLD) clears resistance. $31.02 level to watch.
- Treasury Bonds (TLT/TMF) looking for how this storyline unfolds as well. Plenty of speculation relative to Washington DC and the tax cuts or should we say lack of tax cuts. Upside will be the winner if nothing happens near term.
- Telecom (IYZ) follows through on the bottom reversal and watching for the trading opportunity if it continues. $28.55 level to watch.
Another week of indecision and we remain patient as this all unfolds.
THURSDAY’s Scans 11/16: The buyers step in on lower volume, but they showed up and pushed the indexes back near the previous highs. Where does this leave us? Watching just as we have the last six weeks. We continue to take what the market offers, but we are also looking at how the speculation, worries, and lack of action in Washington impact the markets looking forward. Nine of the sectors bounced back from the selling earlier in the week. Brazil (EWZ/BRZU) finally found some buyers in a bottom reversal… needs to follow through upside and clear $37.52. Emerging markets (EEM/EDC) bounced back from selling to keep trading range in place. China (FXI/YINN), biotech (IBB/LABU), semiconductors (SOXX/SOXL), small caps (IWM/TNA) bounced after testing key support at the $60 level. KWEB erased the head and shoulder pattern with upside move. Social media (SOCL) and Cloud computing (SKYY) both moved to new highs in the uptrend. Retail (XRT) made a positive move above $40.25 in an attempt to resume the uptrend.
- Technology (XLK/TECL) moved back to the previous highs as semiconductors (SOXX) bounce back from moving lower. Networking (IGN), software (IGV), social media (SOCL) are also adding to the upside trend.
- Telecom (IYZ) followed through on the reversal attempt on Wednesday and we will look to clear the $28.35 level to have interest in a trade.
- Consumer Staples (XLP) cleared the $54.76 resistance after a test on Wednesday. Positive continuation of the bottom reversal.
- Volatility Index (VXX/SVXY) short side resumes as the anxiety fades with the buyers engaged on Thursday. $103.60 level to clear today.
- NASDAQ 100 (QQQ/TQQQ) upside resumed with a move back to the previous highs. The leadership here is key if the uptrend is to remain. Plenty of opportunities if we follow through on the move from Thursday.
Some stocks to watch are COT breaking higher from a trading range. SYF breaking higher from consolidation in an uptrend. TIME gapped higher on positive news relative merger with AT&T. HIMX breaking from trading range to new high. QCOM in flag pattern after gap higher. WMT our long-term holding gapped higher on positive strides at gaining market share online. NKE a short-term holding broke from the trading range to continue bottom reversal.
WEDNESDAY’s Scans 11/15: Down day for stocks as money rotates based on the evolving belief there will be no tax cuts, no healthcare reform, and the Fed will hike rates in light of the current yield curve worries. The beliefs are taking root and money is heading where it will be treated the best based on current outlook. The VIX index is validating the rise in worries as the index peaked at 14 on the day and closed at 13.1. The VXX/UVXY trade is in play and managing the risk of the trade. Crude oil (USO) moved lower again on the day, but the real downside is in the energy stocks with the oil services (IEZ) dipping nearly 2% and has erased most of the gains in the last three days. Semiconductors (SOXX) fell but remain in an uptrend. Small caps (IWM/TZA) continue to drift lower with the short side trade gaining near-term momentum. Consumer Staples (XLP) stalls at resistance $54.67.
- Russia (RSX/RUSS) hit the entry point as the selling accelerated on the decline in crude oil. Entry $24.92, stop $24. Watching how this worry unfolds… expect a bumpy ride.
- Oil Services (IEZ/DRIP) downside is building steam for energy stocks on lower prices in crude. The short side ETF has confirmed a bottom reversal and offers a trade opportunity. ERY for the broader sector moving lower.
- Treasury Bonds (TLT/TMF) upside is back with the decline in yields. Watching how this unfolds with the $22 level on TMF attractive for adding a position if the worries continue relative to the yield curve.
- China (FXI/YANG) the country is joining others in moving the emerging markets (EEM) lower. Test of support is in play and a break lower offers a downside trading opportunity. Entry $6.75.
- Natural Gas (UNG/GASX) bottom reversal in the short side ETF. UNG back below the $6.40 level and watching how this unfolds.
The market continues the rotation mode as new realities of old beliefs evolve. Tax cuts headed to a vote today in the House and not the same version as the Senate… unlikely to happen anytime soon. Healthcare reform on the back burner. Fed speculation of raising rates gaining traction again. Flattening yield curve worry rising into the headlines and adding a new twist to the Fed story. Economic data flattening helps the yield curve story. All of this is key for the current environment as the newly revised belief solidifies and stocks rotate to accommodate the belief.
- XLB – Materials continue the wave type pattern of rolling up and rolling down in an uptrend. The upside resumed in August and the positive wave has ensued. Cleared $58 and continues to hold near highs. Entry $54.75, Stop $56.50 (adjusted). Broke the first level of support at $58.44, but found buyers to move back to $58.45. Watching how the new week unfolds. Moved above the $58.45 mark offering entry a trade in the sector with longer-term holding.
- XLU – Utilities have been under pressure from the speculation of higher interest rates from the Fed, but they have attracted buyers the last four weeks. A nice move above resistance at $53.65 and solid move to confirm entry at $53.80. Stop $55.24 (adjusted). Testing the move higher with support at the $55.25 mark. More selling to start the week.
- IYZ – Telecom has become more of a trading sector than the buy and hold historically. The volatility has increased and thus swing trading works better. Some buying? Some selling? Retested the lows as the downside took root and broke support at $30.40. The bounce last week was positive and looking for confidence to add a position on the upside… $28.55 level to watch. buyers remain engaged for now. target is $29.50 for the bounce and bottom reversal.
- XLP – Consumer Staples moved lower on economic worries and higher interest rates. The break of the $54.50 support put the downtrend is in play again. The buyers returned to recapture the upside momentum. A continued move higher from the low last week hitting resistance at the $54.76 mark.
- XLI – Industrials moved sideways for two months and then back to the previous highs breaking out stalling at the $73 level. The long-term uptrend remains in play and the move sideways broke support and hit stop. Watching how the downside unfolds. bottom reversal in play with follow through. $71.43 level to clear for entry.
- XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. Entry $65.20 with a stop at $66.50. Watching as this unfolds short term with the move back to $67 support unfolds. Positive bounce to end the week and looking for follow through.
- XLV – Healthcare has been a big roller coaster ride with a promise to reform healthcare and then the failure to follow through. The test of support at $81 back in play as the uncertainty returns. Watch the parts as well as the whole here… IHF, IHI, XBI, XPH. Test lower begins to struggle again. $81.80 level to watch for trade on break from the current trading range.
- XLK – Technology uptrend remains in place with more new highs. Entry $48.50. Stop $60.50 (adjusted). Semiconductors hitting new highs. SOXX leading in the bounce off support. New highs tested on earnings and watching how it unfolds this week. new highs.
- XLF – Financials pushed lower on worries about interest rates, the Fed, and no tax cuts. The retest of support at the $25.82 level was a concern for the short-term uptrend. Hit stops testing the next level of support and watching how the direction unfolds with banks (KBE) finding some buyers. KRE and IAI adding upside moves.
- XLY – Consumer Discretionary moved back near the previous highs and remains in a sideways trend. Entry $83.50. Stop $90.50 (adjusted). The clarity about the consumer is a challenge for investors, but the sector did manage to clear $90.70 resistance and the previous highs. The uptrend is in play. Turkey rally on – watching how the retail (XRT) continues to add to the move.
- RWR – REITs reacting to the current uncertainty around the Fed potential increase of rates. 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%. Big triangle pattern still in play (weekly chart). Watch how the week unfolds. Testing of the move higher as interest rate worries rise and trading at the ranges high. Interest rate worries are back, but holding near the highs.
Modest trading week as uptrend remains with the leaders and the laggards are still in play as the indecision overall remains. This is a market driven by sector and not an overall belief. Taking what the market offers and nothing more. Four sectors are trending higher, two trending lower, and five moving sideways… about what you would expect in the current environment. We have to remain disciplined in our approach to investing our money. The goal is risk management as the storylines continue to unfold.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
Investors are happy with the upside activity as it relates to earnings currently. Traders are driving the short term swings and opportunities. Our goal is to take the opportunities that meet our strategies and allow us to manage our money with the least amount of risk. The rationale for the current trading environment is more speculation than fact. The economic data remains mixed and earnings have the same theme of some good, some bad, but enough to keep the buyers engaged. The political belief is there will be tax cuts on the horizon and a bill to reform healthcare, but the lack of progress has stalled the upside in stocks. Since the market trades looking forward and evaluates based on past data investors have been buying in advance of the reality and hoping the data will confirm the belief. Now comes the challenge, the rumors becoming truth. The outlook for the economy is cloudy at best, the past data is not helping as it remains mixed with some good and some bad. Patience is the key for now. There are plenty of short-term trading opportunities, but the long-term remains less confident but has produced equal opportunities for those willing to be patient. We will proceed with caution and patience taking what comes our way and fits our strategy for investing both short and long-term.
ONE DAY at a time is the key for now. Take a longer-term view of your overall portfolio and manage the risk of your short-term trades accordingly.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese proverb
The goal of these notes is to allow you, the investor, to learn how to see the market development as the progression through the sector develop based on news, speculation, and data. Data drives long-term results and develops trends… speculation and news are short-term drivers and offer higher risk trading opportunities. Through the use of both technical and fundamental data, we can have greater confidence in our trading strategies with a disciplined approach to investing and managing the risk of our money.