OUTLOOK: September 21st
The market remains in swing mode. The swing to the upside the last few weeks looks to test as money rotates and takes a breather on the day. No big selling except in natural gas. No big buying and everyones watches as we conclude the trading week. The day-after syndrom from the FOMC meeting didn’t offer much insight. The uptrends remaind in place and the speculation and chatter are at a dull murmur. Watching how the day unfolds as we take what the market offers one day at a time.
Three sectors closed Thursday on the upside with industrials (XLI) and financials (XLF) leading the upside move. The upside in financials pushed the sector higher following the move through resistance. Industrials are one of the leading sectors which sounds odd unto itself. Consumer staples (XLP) and telecom (IYZ) helped lead the downside. REITs (RWR) and telecom rounded out the moves lower. Plenty of mixed reactions to the FOMC decision to leave rates and start to liquidate their balance sheet in October. Treasury bonds moved lower as yields on the ten-year bond rose to 2.27% as money rotates from bonds to other opportunities. The S&P 500 index closed down 7.6 points at 2500 and a test of the move higher. The biggest movers in the index were APC (follow through on the double bottom breakout), SLG (bottom reversal breakout), BBY (bottom reversal start), ADS (attempt to start a reversal), and MRO (cleared resistance and continued upside). The downside leadership came from COTY, AGN, CLX, RMD, and KR. A mix of sectors leading the downside Wednesday. Gold (GLD) breaks support at the $123 level looking at downside follow through. The dollar (UUP) jumps higher on the Fed comments helping the buck find some buyers, but tests on Thursday. The emerging markets (EEM) are breaking out to a new high with a modest test on the move in the dollar. The Volatility Index (VIX) closed at 9.7 as the worries subside and stocks rise on optimism. The key is to remain disciplined within your trading strategy and not let the anxiety of the situation change your overall strategy. Manage your risk and stay focused on the horizon, not the rear-view mirror.
The scans on Thursday were noninteresting. No real changes in the key sectors as SOXX continues to test, crude oil remains near the $50 level, financials hold the upside move, healthcare stalls with no help from Congress, and geopolitics stalls in the headlines. The downside was led by natural gas (UNG) failing to break through resistance, copper (JJC) testing lower, and the energy subsector testing lower as well. Nothing was bad enough to stir interest but willing to watch how it unfolds. The upside scans were filled with the inverse ETFs as money rotates on the day. Defense (ITA) continues higher, financials (XLF) added to the move upside, oil services (IEO) showed positive moves, pharma (XPH) posted upside day, and the volatility index (VIX) continues to move towards the previous lows showing investors lethargy or confidence near term. There are opportunities if you have the patience to dig and then manage the risk of the positions. Patience as the opportunities unfold.
The key word remains to be PATIENCE. Not something many traders like. We started the week with some positive upside move and managed to hold the upside. There remains plenty of volatility in direction and each week holds something new to consider. We all want to believe we can see forward, but the reality is we can only see today. Thus, we must 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. Keep your stops in place and your eyes focused on the horizon taking what the market gives.
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. Nice upside move and nice follow through to add a position. Entry $318. Stop $325 (adjusted). Flag pattern in place from the vertical move higher. Flag pattern in play and nothing happening in the news to help.
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, and has now cleared the $81 resistance… 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). Nice bounce for the week closing above the $81 resistance. Looking for the follow through to start the week. Moved below the $81 support? Watching how the sector responds to the Fed puts pressure on the interest sensitive stocks.
Treasury yields (TNX) moved back to 2.2% last week as money continues to find safety. Just when you thought it was safe to go back into the water… the Fed changes its collective minds. TLT rallied on worries and money rotating to safety. $124.10 entry, stop $122. Bounce in yield to end the week and looking to see if the bottom is in for the move lower. Bonds moving higher in return (TLT). Yields are moving higher on the Fed move dump balance sheet. The yields move to 2.27% as investors like the outlook for Fed dumping their balance sheet of bonds.
Gold (GLD) Gold remains in a long-term uptrend with a broad trading range in play the last five months. 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 hit the $123 target. Stop $124.20 (adjusted). Gold miners (GDX) cleared resistance as well at $24.27 and moved higher. Entry $23 hit, Stop $24 (adjusted). The test back to key support put the exit point now at the $24 level. The dollar is key for now. The price of gold moves lower as the dollar gains strength and the Fed action. Broke the $123.05 support and watching the downside short trade. Today’s response to the move will be telling.
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 last two weeks the commodity has managed to fight it’s way back to the $50 level of resistance. Watching how this unfolds at the current levels. Still, has not cleared the resistance at the $50 mark with any follow through. Watching how it concludes the week.
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 double bottom pattern clears $63.22 for entry and stop $65 (adjusted). Watching how it unfolds to start the week after the test on Friday. Positive momentum continues for the stocks as crude holds near the $50 level. Looking for the move above $67 to complete the ‘V’ bottom.
Volatility Index (VIX) This week was less volatile and more consolidation. Back to the lows closing at 9.7 on the day. Short side trade of the index remains in play.
The positive move for the week helps build some upside confidence again as investors continue to bounce on both sides of the market. The move to new highs for the S&P 500 (SPY) and the NASDAQ (QQQ) hitting the previous highs gives hope to most for the uptrend follow through. Energy (XLE) showed some improvement until Friday with a move lower. Financials (XLF) showed some upside with a small test on Friday. Semiconductors (SOXX) cleared the next level of resistance and showing positive uptrend again for the sector. Agribusiness (MOO) produced an upside break to confirm the uptrend. There are more questions than answers for this market and we will continue taking it one day at a time. Stay focused and disciplined in all trades or positions. Speculation remains the primary driver in the current market environment. The small-cap index (IWM) moved higher from the flag pattern after the bottom reversal in August to reestablish the uptrend. The key remains patience and as the tug-o-war for position continues.
Daily Scan Results:
THURSDAY’s Scans 9/21: Nothing exciting on the day. Semi’s tested and looks ready to bounce at support. Some modest selling throughout the market. Natural gas was a big loser on the day. Copper under pressure as well… the challenge remains clarity looking forward and with the markets moving back to previous highs or new highs could be time for a test… watching how it unfolds to end the week.
- Natural Gas (UNG/DGAZ) drops as it hits resistance and tests within the current range. Trading opportunity if tests and holds the $6.40 level.
- Industrials (XLI) continues the solid move higher with ARNC, AAL, GE, and HON leading and breaking from consolidation patterns. Opportunities in the sector as you scan the stocks for leadership.
- Semiconductors (SOXX/SOXS) downside test with support holding. Looking positive to resume the uptrend… watching as MPWR, TSM, ADI, ENTG and other show positive results on the day and the chart.
- Retail (XRT) testing the $40.30 level of support. $41.50 resistance. Looking for the upside to resume off the test. GRPN, HZO, SAH, NFLX, and CAL all look positive technically on the charts.
- Software (IGV) testing as well and looking for the upside to resume. EBIX, PAYC, SPLK, TTWO all showing positive activity on the chart… looking for the opportunity if the upside resumes.
The challenge is speculation short term, news, geopolitics, and inconclusive data. Trading the swings has become the norm for now… until the trends develop with data as a key indicator the volatility will continue.
WEDNESDAY’s Scans 9/20: Up and down day as investors struggle to interpret the FOMC meeting results. No rate hike, but the Fed does plan to deal with their balance sheet in October pushing interest rates up four basis points and the major indexes ended the day basically unchanged. Energy and financials led the upside joined by a positive break above resistance in basic materials. Utilities continue to struggle on the move higher in interest rates. Overall still looking for solid direction from investors.
- Biotech (IBB/LABU) nice upside move to clear the top side resistance on the flag pattern. Looking for a follow through to the move as the sector moves on a talk by the GOP to reform the affordable healthcare act. Watching with interest and managing our stops on current positions.
- Gold Miners (GDX/DUST) the short ETF is attempting to break higher and clear the resistance as the sellers add some strength to the downside move. Short gold (GLL) cleared the entry at $69 as the metal stumbles lower on the Fed stance.
- Semiconductors (SOXX/SOXS) move lower after breaking to a new high. Watching how this unfolds with some profit taking showing in the sector. Manage your stops accordingly on the positions.
- Crude Oil (USO/UCO) the price of crude is attempting to break above the current resistance on the $50 on crude. An entry of $17.35 would be a positive for adding to positions in UCO. IEO broke the downtrend line and showing positive movement currently. FCG cleared $21 resistance.
- Transportation (IYT) the move above $172.33 was positive as the sector continues to move higher.
WEAT, USO, DBA, KBE, KRE, TNA, DBB, and IAI all make breaks on the upside for the day.
TUESDAY’s Scans 9/19: Mixed bag of tricks for the sectors as the broad markets closed slightly higher on Tuesday. The challenge comes with the FOMC meeting as interest sensitive assets respond to the rumor of the Fed hiking rates. Thus, the rotation in several sectors like REIT’s and utilities. Stay focused, honor your stops, and keep your strategy in place.
- The leaders on the day were a mixed bag as natural gas (UNG) moved lower after an attempt to bounce, aluminum (JJU) jumped higher in the current trading range, gold miners (GDX) bounce back from selling on Monday, telecom (IYZ) finds buyers to push from the bear flag pattern, technology (TECL) pushes to a new high, short side of REITs (SRS) produces a double bottom pattern, Europe (EURL) hits new high in current uptrend, and solar (TAN) clears new highs in break from consolidation pattern.
- Financials (XLF/FAS) continued upside move in a reversal from selling two weeks ago. The belief in higher rates coming from the FOMC meeting today is leading to buyers putting money to work in the sector. KRE, KBE and KIE are all moving higher on the speculation.
- Treasury Bonds (TLT/TMV) higher rates on the ten-year bond is pushing the values lower on the bonds overall. This is producing a short signal for the bond with TLT breaking below the $126.50 support.
- Energy (XLE/ERX) upside continues to favor the sector as crude remains in a positive territory. Break above the $26.72 entry point hit and confirmed the move Tuesday.
- Aerospace & Defense (ITA) upside follows through on the gap higher Monday and adding to the move Tuesday. Positive sector overall as the issues in geopolitics point to higher US spending.
The key short-term is a defined strategy. Discipline to implement the strategy. Focus to not allow the speculation to distract you with volatility. Watching how this continues to unfold with the FOMC meeting today.
MONDAY’s Scans 9/18: The markets continue to move to new highs and sectors are breaking higher offering upside opportunities. The downside in some of the previous leaders are offering short opportunities as well. Take what the market offers one day at a time.
- Natural Gas (UNG/UGAZ) Break from the bottoming trading range is a positive for the commodity. $13.12 entry hit and the watching for test and run higher. FCG is breaking above the $20.50 level as the stock’s gains along with the commodity.
- Gold Miners (GDC/DUST) downside in the miners are following the stocks and the break above $22.80 offers entry for the short trade. Watching how this unfolds as the FOMC meeting unfolds the next two days and the dollar moves up slightly.
- Volatility Index (VXX/SVXY) the short side trade still working as the VIX moves lower on the optimism towards stocks short term. $84.55 level offered a second entry point for the upside trade.
- Semiconductors (SOXX/SOXL) nice follow through on the upside. The break above the $102.30 level offered entry signal and following through on the move heading to new highs. Adjust your stops to the $109 level.
- China (FXI/YINN) nice upside follow through on the bounce off support Friday. Hit new high and continues to lead the emerging markets higher.
Moves in IYT, TNA, FAS, ITA, TMV, KRE, ERX, IEZ, and MOO all showing moves of interest and trading opportunities.
FRIDAY’s Scans 9/15: Some selling in the market early that managed to bounce back and keep the current trend moving to the upside overall. Watching patiently as we start the week of trading with plenty of questions to be answered.
- Semiconductors (SOXX/SOXL) solid break higher and continuation of the uptrend currently in play. Cleared $102.20 entry and follow through.
- Brazil (EWZ/BRZU) upside continued after small test. This remains one of the current leaders for the sectors.
- Gold Miners (GDX/DUST) downside gaining some traction and the bottom reversal setup for a trade. Watching the $22.90 mark to clear and add DUST.
- China (FXI/YINN) upside attempting to break from the consolidation pattern. Look for a move above the $30 mark for adding to positions.
- Silver (SLV/ZSL) the downside could come into play as the topping pattern is in play. Watching for a move above the $29.70 level for entry on the short trade.
Watching these sectors as well following this weeks trading… IBB, IYZ, UCO, TECL, WEAT, DBA, and TNA.
- XLB – Materials moved lower off the July high and have managed to test support at the $53.50 level. The upside resumes and the uptrend remains positive for the sector near term. Entry $54.75, Stop $54.75 (adjusted). Breaking out to a new high. Cup & handle pattern complete and solid upside follow through.
- XLU – Utilities bounce off support at the $50.88 level and have followed through nicely the six weeks to move to new highs. Entry $52.25, Stop $54.25 (HIT STOP). Money is rotating to the sector as money heads towards safety. Topping currently and watching how this unfold. Breaks support and hit the stop. Watching how this unfolds as the belief is a higher move in interest rates. Thursday tested the $53.65 support as the FOMC meeting rocks confidence in the interest sensitive stocks.
- 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 short trade at $30.90. Adjust your stop to break even $30.90. Nice bounce off support to end the trading week. Hit resistance at the $30.95 mark and looking for a decision from the buyers.
- XLP – Consumer Staples moved lower on economic worries and higher interest rates. Watching for a move above $55.50 to get my interest near term. Another test of the lows and reversal in process. The upside on reversal still in play. downside move on Wednesday back to support at the $54.50 level. Broke and moved to the August low at $54. Head and shoulder pattern in play at this level.
- XLI – Industrials moved sideways the last two months and now moved back near the previous highs. The long-term uptrend remains in play and we will watch this unfolds near term. Follow through on the bounce off support and solid move higher. Nice upside breakout to a new high with follow through showing strength.
- XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. Some of the uncertainty has come out of the sector with crude moving back near the $50 mark. Entry $65.20 with a stop at $63.60. Watching as this unfolds short term. Upside moved back to $67 resistance and key level to clear. Decision time for buyers as crude oil moves above resistance at the $50 level.
- XLV – Healthcare has been a big rollercoaster ride with a promise to reform healthcare and then the failure to follow through. The test of support reversed and the sector has pushed back a new high. The entry at $79.50 playing out on the upside. Stop $81.50. Rolling top breaks the first level of support as the sector finds sellers. $81.25 support in play.
- XLK – Technology testing near the current highs as the uptrend remains in place. The semiconductors are back with a positive swing on the upside. The sideways activity tested the $56.75 support. Entry $48.50. Stop $56 (adjusted). More positive than negative in the sector currently with IGN and SOCL moving in positive direction. Semiconductors are leading the sector higher as the index hits at resistance. Still in need of breakout short term. Struggling the last two days to break above the $59 level.
- XLF – Financials pushed lower on worries about interest rates, the Fed, and N. Korea. The retest of support at the $24.64 level is a concern for the short-term uptrend. Broke support at $24.65, tested support at $23.80 and made move back above the $24.65 mark. No real momentum in the sector. Watching how it unfolds. Nice upside momentum returned on rates moving higher. Followed through on the upside all week as it hits the August highs.
- XLY – Discretionary Consumer lower to support at the $88.50 level with retail earnings pushing stocks lower. Entry $83.50. Stop $88.50 (adjusted). Watching how the Friday move lower plays out to start the week. Test of support again. Patience as this all unfolds near term. Testing lower
- RWR – REITs reacting to the current uncertainty around the Fed and the dollar. 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%. Bounce in process. Big triangle pattern still in play. Testing again after run towards the previous highs. $91.77 is the level to watch.
Positive move is back… investors like what they hear and see enough to put money back to work and let the upside play out accordingly. Patience in taking what the market offers and nothing more. This week offered some moves in the energy sector as well as the technology stocks. We will let this move unfold and add positions accordingly.
Investors continued to be indecisive because the data is not conclusive looking forward. We all know the market trades looking forward and evaluates based on past data. The challenge remains an indecisive outlook and nerves over the current situation. The positive results last week from the buyers gives hope versus the downside attempts from the last two weeks. Data is positive overall for earnings and the winners are being rewarded. Money showed some rotation to growth for a change. This remains a market in transition and with that comes opportunities. Those are outlined above in the scans and sector notes. 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 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