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Jims Notes

Investors exhale and buyers return… for now

By | Jims Notes, Research Post | No Comments

OUTLOOK: Week of May 22nd

The markets continued their positive ways as the broad indexes continued to push back towards the previous highs on Friday. Crude helped lead the upside with a solid gain and break above the $50 resistance level. China (FXI) was back to the previous high after testing the break above $38.75. Why the change of heart? The impeachment talks have quieted down with a special counsel appointed to investigate the situation… of course, that will only prolong the discussions and rumors. All said and done we end the week with the futures pointing in a positive direction. Take the week for what it was… news driven. Take some time this weekend to relax and research what opportunities lie ahead.

All eleven sectors ended the day in positive territory with telecom (IYZ), industrials (XLI) and energy (XLE) leading the day. There were enough positives to keep the sectors in the green as the storm seems to blow over in Washington. Financials (XLF) made a move off the support at $22.90 and showed some signs of life. Crude pushed energy higher as the stocks moved back above the $67.75 mark again. the upside kept the sellers at bay and calm was restored to the markets overall. For the week the defensive sectors RWR, XLU, and XLP led the moves. The growth sectors XLY, XLK and XLV led the downside moves. Watching to see how this unfolds in the coming week before we make any rash decisions on rotation or direction. The S&P 500 index closed up 16 points at 2381 and inching back towards the previous highs. For the week the index dropped nine points and still showing a positive trend overall. There are still plenty of question marks and uncertainty in the broad markets as the issues continue to unfold, but for now, the peace has returned. Gold (GLD) tested the next support of $115.86 and put together a bottom reversal moving through resistance at the 117.38 mark. The metal tested the gap higher from Wednesday and still remains in positive territory relative to the bottom reversal. The dollar (UUP) dumps below the $25.17 support and continues to move lower on questions about the future of the current administration. The rotation from the dollar is pushing the euro (ULE) higher and the break from the consolidation offering and upside trade in the currency. The emerging markets (EEM) bounced after testing the $39.80 support with the weaker dollar getting credit. Watching how this unfolds with the uptrend still in play but coming into question. The Volatility Index (VIX) closed at 10.6 on Wednesday but jumped to 15.5… and closed at 14.6 on Thursday… peace was restored on Friday dropping back to 12. Manage your risk and evaluate the reality of the news, rumors, and speculation. It is business as usual for now… Patience is key.

The scans for Friday take on a positive twist with the buyers returning to lift the indexes. The leadership, however, is shifting. Energy (XLE) got a boost from crude oil (USO) as both sectors break above key resistance levels. The jump in oil is in the hopes of supply falling and a weaker dollar is priced in. Brazil (EWZ) bounced off the gap lower as some see opportunity… I see a dead cat bounce for now. SVXY, the short trade for the Volatility Indes jumped higher on the calm in the markets… emerging markets (EEM) bounced as well off the test lower. Europe (IEV), semiconductors (SOXX), China (FXI), natural gas (UNG), gasoline (UGA), and base metals (DBB) all put in positive reversals following the renewed hope from Wall Street. Watching to see how the charts unfold following the selling on Wednesday… look for more consolidation patterns while investors decide. Buyers step in on bargain hunting and push the charts back to the previous highs for now. Watching the VIX index as it will give a good indication of the anxiety level among investors and Friday showed positive signs returning. Thus, take it one day at a time and take what the market gives.

The worries escalated on the article from the New York Times about the political risk in Washington as talk of impeachment rattled the markets. Throw in questionable economic data and earnings and you have the making of some selling… even if it was only for one day. We still Congress not making progress on promises from the election to deal with as well. Overall the markets are looking for the proverbial catalyst that will give direction to the markets that are sustainable and now just a move based on hope and rumors. It is important to understand that markets trade looking forward… research is based on history… until there is clarity looking forward expect uncertainty to remain. Avoid the news trades (impeachment) and focus on what is really happening in the underlying sectors and stocks. I am looking for some help based on sound economic news or data. This week’s trading tested support levels for the broad indexes. Looking for the bounce to continue next week and the upside to resume. Patience as the week unfolds.

KEY, INDICATORS/SECTORS TO WATCH:

Biotech (IBB) remains a sector of speculation… The speculation from Washington on what will happen with drug prices and the sector overall has the attention of traders. The $287-299 trading range tested the bottom end of the range and held. Entry at $287 with a stop at $286 (adjusted). Tested the bottom end of the range last week with the Trump news and watching how the new week unfolds.

REITs (IYR) have 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 $81 level of resistance. It has now moved back below the $78.22 support and is not looking positive the last five weeks. The big question mark is looking forward… thus, patience is required to hold this position. 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 rose in anticipation of the Fed hiking rates and fell following the Fed not acting at the FOMC meeting. The bond is testing the 2.2% low from April as fear and anxiety keep showing up in the news. I am willing to let this unfold further and let the trend evolve. Need clarity and direction before adding any positions.

Gold (GLD) Gold took on a new dimension of worry the last few weeks and the rotation from worry to growth stocks globally and in the US markets pushed the metal lower. Anxiety however over the Trump administration and weaker dollar have revived the interest in gold. The move back towards the $120.45 resistance is still in play… watching as it unfolds further. The move in the gold miners has been of interest for trading with the Entry $21.95, stop $22.15 (adjusted). Patience and stops in place as it plays out.

Crude Oil has become a story of what if’s more than what happened or is happening. OPEC remains a challenge for the overall investor. They have injected speculation and worry overall. The move to $46 support came on the heels of supply data not improving. The supply data showed a drop and the bounce ensued to resistance at $48 and now above $50. Watching the data this week to see if there is a follow through for the drop in supply. USO at $10 would be of interest for upside trade or UCO at $17. Entry $17.10, stop $17.40 (adjusted).

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 above the $67.75 level is in play again as the bounce in crude prices has helped the stocks bounce as well. For now, we watch and let it play out. 

Volatility Index (VIX) settling after we jumped to 15.5 on the Trump news, but managed to drop back to 12 on Friday. Watching patiently to see if anxiety picks up or if investors remain content with the status flow. 

The indexes dropped last week in response to the Trump article in New York Times. The challenge with news-driven moves is they take on a life of their own. The impact is uncertainty and that leads to some rotation and a search for new leadership. For now, technology led by semiconductors look healthy. The move in telecom (IYZ) bounced off the lows and is building a bottoming base. Energy (XLE) bounced on the boost from crude oil. The dollar (UDN) is losing ground still and pushing money into the emerging markets and other currency like the euro (ULE). 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. Stay focused and let this all unfold and then act based on your strategy and discipline.

Daily Scan Results:

FRIDAY’s Scans (5/19): The bounce continued to follow up on the selling Wednesday. All is well???? Maybe we held serve on the dip and looking how this unfolds next week. Nice move across the sectors to recover some of the losses… patience is key.

  • Brazil (EWZ/BRZU) the story continues to unfold after cutting the value by 16%. Watching as the dead cat bounce takes place on Friday and we will see how this plays out.
  • Volatility Index (VXX/SVXY) short side trade set up on the bottom reversal Thursday and followed through on Friday… watching how the investor anxiety unfolds. $140 entry as trade with a stop at $137.
  • Emerging Markets (EEM/EDC) bounced back from the selling. Watching how the dollar and other issues in Washington impact the sector.
  • Crude Oil (USO/UCO) made move above the $17.75 entry level on Friday. Take the trade for what it is and set a stop at $16.90. We will manage this position aggressively on the move.
  • Energy (XLE/ERX) double bottom setup for trade if the move follows through on the upside. That is up to the price of crude as much as anything currently. Watch and let it unfold.

More moves on Friday worth attention in the new trading week. UGAZ, UGA, SOXL, FCG, KWEB, YINN, DBC, DBB, EURL and ITB.

THURSDAY’s Scans (5/18): The bounce came from the buyers stepping in and the sellers being willing to step aside. The bounce across the sectors didn’t change anything, but it does put a line in the sand for the short side. Let it trade out and then look for the opportunities in the resulting moves.

  • Semiconductors (SOXX/SOXL) sold to support… bounced off support… watching how the leading sector unfolds from here.
  • Biotech (IBB/LABU) bounce off support in the consolidation pattern. Watching how it unfolds and what opportunities it will present.
  • Russia (RSX/RUSS) short side is back at the top of the bottoming range and showing signs of wanting to move higher as the pressure builds in the emerging markets (EEM). $34 entry level to watch if the short side trade unfolds.
  • Emerging Markets (EEM/EDZ) short fund makes a big move off the low as the sellers show signs of moving in. Watching how this unfolds near term.
  • Some ETFs to watch… UCO @ $17.75… GREK flag pattern… TNA bounce off support… YINN bounces off support… RWR bottom reversal… SCJ breaking to new high.

Still proceed with caution as the news settles out.

WEDNESDAY’s Scans (5/17): Market turns lower on worries about Trump and Washington. The scans show the leaders on the upside are leaders on the downside move. The chatter of the market being overbought came into play today on the rumors.

  • Semiconductors (SOXX/SOXS) sector erased all the gains from the last week. Watching how it deals with the selloff and $139.50 support.
  • Volatility Index (VXX/SVXY) upside moves in volatility on the heels of worry. Hit our entry point for VXX at $14.60. Let it unfold and manage your stops according to your risk. Break even for now would be prudent.
  • Small Caps (IWM/TZA) downside takes flight for the sector hitting the entry at $18 on the move above resistance for this ETF. Bad news for the rotation out of small cap stocks. Looking for the opportunity outside of the news.
  • Financials (XLF/FAZ) downside accelerated for the sector on worries. Strong dollar policy and worries over Washington have pushed the sector lower.
  • Treasury Bonds (TLT/TMF) upside accelerats as the flight to safety gains some traction on worries about things they can’t control….

The key for now is to watch how this unfolds. Don’t assume anything and don’t take on unnecessary risk.

TUESADAY’s Scans (5/16): Mixed day for the markets overall… the rotation to global stocks is still the theme along with commodities gaining on the weaker dollar. Plenty of challenges face the markets overall, but money flow is finding areas to invest versus going to cash.

  • Semiconductors (SOXX/SOXL) continued the vertical move on the break from the consolidation pattern. Adjust your stops and let it run. AMD, QRVO, CAVM, and ON led the move on Tuesday.
  • China (FXI/YINN) consolidated on Tuesday… KWEB moved to another new high.
  • Social Media (SOCL) new highs hit on Tuesday… TWTR, IAC and GOOG leading the charge for the sector… global holding helping as well.
  • Europe (IEV/EURL) hitting new highs again as well. Look at all the country ETFs as well for the upside moves. EWQ, EWI, EWP etc.
  • Silver (SLV) bottom reversal in play and worth trading. The miners (SLV/SLVP) are on the move as well. Both offering trading opportunities short term.

The dollar weakness is worthy of note. The rotation on money is responding to this weakness to take advantage of those sectors and currency that win on a weaker buck.

Moves of note on Tuesday… DGAZ, ULE, GREK, TECL, EWL, SRS, SVXY, and UGL.

MONDAY’s Scans (5/15): Positive day with a positive influence on the broad markets and starting to establish some leadership in technology. Other sectors have made positive moves and looking for the follow through on the upside.

  • Semiconductors (SOXX/SOXL) solid upside move adding to the break higher. Digging into the stocks is worth the time and effort as stocks like NVDA, QRVO and MRVL break higher.
  • Crude Oil (UCO/USO) upside continues in the commodity with the entry hit for the trade. Now looking to follow through on the break as well as the stocks (XLE) scanning the leadership in the stocks shows some positive moves as well. HAL bottom reversal, WMB attempting to break from consolidation, PXD bottom reversal, and CVX bottom reversal.
  • China (FXI/YINN) nice follow through on the upside and looking for the leadership to continue as the emerging markets break higher.
  • Networking (IGN) solid reverse head and shoulder break higher on adding to the leadership in technology.
  • Mexico (EWW) break from the trading range and renewing the uptrend. Again, emerging markets showing leadership.

Additional move on Monday to watch… UGA (bottom reversal), NUGT (bottom reversal), ITB (break from ascending triangle), TNA (cup pattern), and OIL (bottom reversal).

 

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 $51. Tested the first level of support and bounced to remain above the previous range. All is well as the sector tests the break higher. Testing support at the bottom end of the range.  
  • XLU – Utilities broke above the $50.88 resistance and remains in yet another trading range. The sideways movement comes from the uncertainty around interest rates, but we continue to collect our dividend (3.4%) and let it ride. Entry $48, stop $50 (adjusted). Practicing patience and collecting the dividend from the sector
  • 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. Downside returned this week on the Sprint earnings. The move back to the support at the $32 mark as quick and sharp… The bounce on Friday begs the question of bounce… again? Watching how it unfolds this week. 
  • XLP – consumer staples continues to trade sideways near the highs as the trend off the December bottom stalls. Entry at $51.50. Stop $54.30 (adjusted). Bottom reversal pattern made move as the second time (double bottom) was the charm… made a move higher. $55.45 level to clear to keep upside going. Adjusted our stop to protect the gains as uncertainty rises and moves sideways. 
  • XLI – Industrials – Gapped higher following the election results. Moved into a trading range and has recovered that upside momentum currently… facing resistance on the move at the $67 level and watching how if unfolds this 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. The bounce off support at the $67.75 mark failed as crude dips below the $47 mark again and takes the stocks lower again. Watching how it unfolds this week with the bounce in crude on Friday. Bottom reversal? Crude is helping for now on the upside. Move above $67.75 again to end the week.  
  • 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 has now worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $73.45 (adjusted). The downside move off the March highs tested $73.48 and has bounced again. Patience is key as this unfolds. IHI and IHF helping the upside move along with the reform bill passed in Congress.
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend remains in place as the sector continues to be the leadership overall. Entry $48.50. Stop $52 (adjusted). Nice upside move and follow through with SOXX and other leading the way higher. Managing the risk.   
  • XLF – Financials pushed lower on the speculation around Washington and the lack of progress on the campaign promises. Earnings were good… not great, but good enough. That failed to impact the stocks and thus, the downside was in play… with at trading range of $22.90 to $23.82. It attempted to break from the range on the week but failed to accomplish the goal. Now watching how this week unfolds.
  • XLY – Discretionary Consumer broke above resistance and has continued a positive trek higher. Retail (XRT) has managed to bounce off the lows and start higher on a break above resistance. Entry $83.50. Stop $85. Positive break to new highs and some leadership from the sector to boot. Flag pattern to end the week… watching for upside continuation from the pattern. Positive leadership from the consumer.
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as growth stocks moved higher last week. 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%. Bottoming again and looking for trade within the current range. 

The sector rotation has stalled on the growth sectors… the inability to gain clarity about the economic picture and what plans are coming from Washington, keeps everyone guessing. We continue to manage with the longer term view in mind, but the short term remains in control currently. Discipline trading around long term positions is the strategy currently for these sectors.

FINAL NOTES:

The market has transitioned near term in reaction to the Trump news. The leadership from technology and semiconductors was tested on the news last week but managed to bounce to end the week. The move in the global markets equally validates the movement of money to where it will be treated better. Europe is showing a vertical move on the charts as money rotates. The longer term view is still in an uptrend with volatility in the action last week. Sectors bounced off key support levels and held so far but there are plenty of opinions on how this will play out moving forward. Financials are struggling to hold any momentum currently as they test support at the $22.90 mark. Earnings are hot and cold with some winners (technology) and some losers (telecom) but, not really offering the clarity needed. The economic data, earnings, and fundamental data all show mixed results. The short-term trend off the November lows had a dip and then some sideways movement with some downside and a rally to end the week. How this unfolds to start the week will be a key component of the near-term trend. 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 the action in Congress last week is the first accomplishment… that could lead to some volatility as it is entertained by the Senate… puts it back in the news. 2) Financials were the leader from the November low and that is in jeopardy as well… watching how this sector reacts to earnings and the economic outlook. The bounce off the bottom of the range is a positive, but it has stalled at the top end of the range. This is one sector we need a renewed leadership from if the broad indexes are going to progress on the upside. 3) Energy remains a sector under pressure from supply and demand… too much supply and not enough participation in cutting or limiting supply… the speculation with supply last week pushed crude above $5o again and the stocks bounced back in response. Watching how the short term impacts the longer term view currently. 4) Telecom bounced off the lows and to key levels of resistance and failed on earnings from Sprint … the move lower is a negative overall as well as for the sector. Building a base and potential trading opportunity if it follows through. 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. 6) Semiconductors are bellwether for the growth stocks and they turned higher again and has renewed the leadership with technology heading higher short-term and the longer term trend positive as well. It pushed the NASDAQ to a new high. 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 is helping gold, emerging markets, and the bond. Watching 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.

Buyers step in on optimism

By | Jims Notes, Research Post | No Comments

OUTLOOK: April 25th

The markets move higher on optimism about the French elections and the hope of a tax cut bill coming from Congress. There are always catalyst for markets up or down… some are better than others, but in the end the only thing that really matters is the opportunity presented by the move. The question we face is will this be a sustainable move on the upside? Will this move have enough momentum to break from the current trading range? Is this just another attempt by the buyers to push the markets higher? Basically what we are looking for is confirmation on the upside as this all unfolds moving forward. All the sectors made a move in positive direction with some doing better than others. It is important to know the difference between a trading opportunity and a long term trend shift… I am going with a trading opportunity that could impact the longer term perspective for now.

All the sectors closed in positive territory this week with the hope of change on the horizon… Financials (XLF), basic materials (XLB) and technology (XLK) have been leading the bounce off support. The big move comes in the hope of tax reform moving through the Senate and the outcome of the French election… neither a definitive catalyst… but, both offer an opportunity for investors to feel optimism about change. The weakest of the sector were the defensive stocks as utilities, consumer staples and REITs lagged on the move higher… that is an indication of rotation towards the growth sectors. The S&P 500 index closed at 2388 up 40 points the first two days of the week. The move breaks the consolidation pattern and the downtrend from the February high… now comes the test of hitting a new high. Gold (GLD) moved through resistance at $120.45 level and stalled on stock optimism and is testing the break through the $120.45 mark. This move hit our short-term stop at $120.40. The dollar (UUP) has more challenges as the banter about a weaker dollar continues in Washington as the buck breaks support at $25.87 and is testing the next key level at $25.53. The emerging markets (EEM) stalled the last three weeks but has now pushed to new high on the last two days of trading. Watching how the current moves higher impact each sector and the overall market. The Volatility Index (VIX) closed last week at the 14.6 mark and last night fell to 10.7… optimism and hope spring eternal. Manage your risk and evaluate the rumors and news.

The scans for Tuesday favored the upside again as the buyers take control for now. All of the negative or short side setups have reversed and the break higher is now in play with the speculation of something getting done in Washington. Biotech (IBB) breaks to the upside from the bottoming consolidation pattern. China (FXI) breaks downtrend on the reversal. Silver (SLV) reverses trend on double bottom. Semiconductors (SOXX) reverse the downtrend and move higher. Small Caps (IWM) post new high. Emerging markets (EEM) push to a new high. The charts show plenty of reversals as it relates to the modest downtrend that was established off the February and March highs. The question now becomes sustainability? Too much too soon is a phrase heard yesterday. How high can this move on hope go? Short covering impacting the action? The key is to remain patient and take the trades that meet your strategy and risk tolerance. Plenty of hope and news trades the last two days. TBT shows the reversal in the treasury bond and breaks through the entry at $38.22 short term. The opportunities are present and the risk is elevated based on the motivation behind the move.

The key currently is the lack of confidence and conviction from investors. The reason is worry over the unknown events both geopolitical and politically in Washington. It may be an excuse overall, but investors are looking for confidence building data and analyst reports with positive forward guidance. It is important to remember the market trades looking forward… research is based on history. Sometimes the two get lost in the news. The drifting of the market is being driven by news day-to-day and not a belief. Until this changes, I would expect more of the same short term. The Washington two-step continues to unsettle investors. All of this adds up to a lack of direction. Until there is clarity from earnings, revenue, economic data and other fundamental drivers the market will continue to listen to the rumors and rhetoric as a day to day driver. For now, nothing is taking the lead and the end result is charts turning sideways along with day-to-day movements. They managed to bounce off support on the week, but they remain at a decision point on direction and conviction. Thus we proceed with caution and discipline as we manage the risk of our positions. Bottom reversal on news and rumors leaves the charts showing positive signs. The trades are technically driven, the market is emotionally driven creating the technical signs. If you are willing to take the risk of the moves trade with caution and discipline, otherwise stay on the sidelines and in the position you are comfortable holding. This is not a competition it is your money and you should manage it based on your objectives. 

KEY, INDICATORS/SECTORS TO WATCH:

Biotech (IBB) remains a sector of speculation… The speculation from Washington on what will happen with drug prices has anxiety in charge of the sector. The $287-299 trading range tested the bottom end of the range and held. Entry at $287 with a stop at $286 (adjusted). Watching how the week unfolds. Managing our stops as it relates to intraday activity. Positive reversal and break of the downtrend line. Letting it play out. 

REITs (IYR) have been lagging in response to interest rate worries related to the Fed promise to hike rates. The sector tested the $76 level of support and has bounced back through the $78.22 level of resistance. That puts us in a position of 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 $79 (adjusted). Watching how the week unfolds following the positive move back to the February highs and showing some topping on the chart. Reacting to the shift in sentiment… protect the downside risk. 

Treasury yields rose in anticipation of the Fed hiking rates and fell following the Fed acting at the FOMC meeting. The anguish over all the worries stated above has money rotating to safety… just in case. Yields are fell to the 2.2% mark as investors decide what they believe looking forward. I still believe the short side of the trade is where to focus longer term, but for now, the upside of the bond is clearly in play with TLT breaking above resistance at the $121.68 mark. Entry $121.80, Stop $121.80. Since the low in March TLT has moved up 6%. Yields rise along with stocks and the topping pattern begs for protection as we hit the stop on break of support. 

Gold (GLD) Gold took on a new dimension of worry with the stronger dollar and talk of rate cuts hitting the metal. That changed with a move lower in the dollar pushing the metal higher off the test of support at $114. Cup and handle pattern on GLD broke above the $120.45 mark of resistance giving a second entry signal. The miners (GDX) reversed as well with some resistance at the $23 mark which gave way on the upside for entry signal as well. Watching how this unfolds currently as investors push the metal back towards the February highs. Watching the direction based on interest rates, the dollar, and global markets currently. GDX entry at $23.50. Stop $22.55, GLD entry $120.50, stop $$119.50 (adjusted). Miners have turned lower on worry around gold prices. Topping pattern rolls over and back to support.

Crude Oil had pushed higher on hope around OPEC renewing the production cuts… that has become a renewed worry and the selling returned this week. The close below the $50 mark is a negative. The short side entry was hit at $50.70 break of support. (no trades on the move.) The speculation is driving and that is a tough trade technically and fundamentally for my risk profile. Watching how this unfolds and letting the emotions work out near term. If the OPEC agreement gets done… oil is likely to bounce on the news. Patience is the key for now. bottoming at support of $49 and the 200 DMA.

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 bounce off support at the $67.75 level hit resistance at teh 200 DMA and the decline in confidence over OPEC deal has resulted in the sellers returning and pushing the sector back to the key support level of $67.75. A break lower opens the short side trade again in the sector. Modest bounce off the lows. 

Volatility Index (VIX) bounced off the lows as worries about the overall market materialize. The VIX broke from the range clearing the 13.7 level. After hitting the 15.9 level it spent the week moving lower but remains elevated at the 14.6 mark on the close Friday. We traded the move higher and now we are watching how this unfolds. Anxiety is elevated and VXX remains the opportunity if investors lose their collective patience with stocks. dumps back to the lows after all the worries are answer… at least for now. 

Mixed outlook for this week remains… some sectors are testing key support levels like financials, energy, and healthcare. The dollar is struggling on comments and global pressure. Investors lack confidence as seen by the first round of earnings from the financials. 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 and it impacts our beliefs. Stay focused and let this all unfold and then act based on your strategy and discipline. A downtrend is difficult for investors to trade as it goes against their psychology of trading. If it doesn’t fit… use cash as an alternative to staying fully invested. Bottom reversals on plenty of charts to like or trade. Take it for what it is… emotions and news leading the turn. 

Daily Scan Results:

TUESDAY’s Scans (4/25): Positive moves higher in the sectors as the charts continue to reverse off the lows and head higher. Some new highs to add to the mix was well. The upside is back as the buyers step in… too much too soon? Watching how this unfolds.

  • Gold Miners (GDX/DUST) downside back as gold shifts lower on the move in stocks. Hit entry levels on Tuesday at $29.50… watching how it unfolds.
  • Europe (IEV/EURL) upside returns on hope of French election outcome. Gap higher on Monday follows through on Tuesday… high risk trade.
  • VIX index (VXX/SVXY) the short side of the trade sets up on the momentum reversal on the optimism towards stocks. Moved back to the previous high as index gaps lower.
  • Semiconductors (SOXX/SOXL) follows through on the bottom reversal from last week and posted a solid gain. Adjust your stops on the move and let the current trade momentum unfold.
  • Small Caps (IWM/TNA) Small caps lead the upside move with rotation to growth and the break to new high sets a tone to watch short term.

Markets continue the rally higher on hope and news. Trade with caution and stops to protect your principle in the event the news doesn’t pan out based on the hope being injected into the markets currently.

FRIDAY’s Scans (4/21): The sellers had to take a shot on the options expiration anxiety. This puts the same spin on the broader markets we have been addressing for the last three months… no direction, no conviction, and most importantly, no leadership.

  • Natural Gas (UNG/DGAZ) downside bias is taking over in the commodity. The move above the $21 mark is a trade on the downside… watching for entry on Monday as this unfolds.
  • Crude Oil (USO/SCO) the downside move in reaction to the OPEC rumors are likely overdone… but, we have to watch how this unfolds near term. Missed the short trade on the sharp decline. Short side trade in the energy (XLE) sector is unfolding as well and could offer a trading opportunity this week.
  • Biotech (IBB/LABD) downside back as support is tested at the $287 mark. Healthcare (XLV) is putting on a downside bias as well again. Watching how this unfolds and willing to take the short side if it unfolds.
  • Financials (XLF/FAZ) no conviction on the upside… earnings were positive… no movement upside in the sector. Letting it unfolds, but the bias is on the downside.
  • Consumer Discretionary (XLY/XRT) made positive moves to break above resistance on the week and tested on Friday. Watching how the upside unfolds. I am more interested in the stocks than the sector as a whole. Looking at the scans of the sectors offer some opportunities for the coming week. SBUX, HD, LEG, BBY, and CMG.
  • Don’t assume anything, confirm everything, and define your strategy before you trade. Let it all confirm and use stops to protect your downside risk.

THURSDAY’s Scans (4/20): Buyers return to save the day and the trends. Plenty of hope in the consolidation patterns… new highs posted… rumors drive the move… watching the options expiration impact as it relates to short covering on the move. The variables at work are focused on trading not investing… proceed with caution and understanding of the current environment.

  • Semiconductors (SOXX/SOXL) lead the day and the NASDAQ higher. The bottom reversal follows through and $72.75 entry hit for a trading opportunity. Leaders to watch in the sector are SWKS, LRCX, CY, MPWR, MXIM, and AMAT.
  • Small Caps (IWM/TNA) is in the same position of completing a bottom reversal clearing the $104 resistance and remains in the trading range. The upside opportunity is setting up if all the noise clears and the buyers follow through.
  • Financials (XLF/FAS) the tug-o-war continues in the sector as the buyers step back in to keep the trading range alive and well. $44.30 is level to watch on the upside if we follow through on the move. KRE, KBE, IAI all moved higher in the range.
  • Volatility Index (VXX/SVXY) short side in play as the buyers step back into the market. $130.35 is level to watch on the upside. This is trade only with high risk assigned to the trade opportunity.
  • China Internet (KWEB) breaks above the top of the trading range at $42.90. This is a positive from the sector and upside opportunity on the follow through to the move.
  • Retail (XRT) positive break from the double bottom pattern as the consumer comes to life. XLY move to the new high as well. Cleared the $42.68 level on the move.
  • Social Media (SOCL) break to new highs as well to help the technology sector. Cleared $25 offering upside opportunity short term.
    Other charts to watch from trading on Thursday… SCO, EEM, XLI, ZSL, IYC, IHF and QLD

WEDNESDAY’s Scans (4/19): Mixed day as emotions rise. Energy dumps lower, emerging markets continue to struggle, gold sells modestly and investors remain on edge about the outlook. No catalyst to define direction short term and no true belief about the longer term outlook for growth. Thus, the mixed response on the day that started higher and faded throughout the day.

  • Gold Miners (GDX/DUST) lead the day on the downside. The uncertainty in the outlook created some posturing as the price of the metal fell and the stocks responded by selling. Watching the downside trade opportunity on the move.
  • China (FXI/YANG) downside continues with the March low in play. The emerging markets (EEM) are moving lower with this move. Russia (RUSS) and other countries area responding on the downside as well… worth scanning and trading on the move lower.
  • Treasury Bonds (TLT/TBT) short side showed interest on Wednesday, but the rotation to safety will continue if the fear and anxiety rise above the 16.2 level in the VIX index. Don’t force your opinion on this trade let it unfold.
  • Crude Oil (US)/SCO) downside move puts the short side in play. The next few days will shed more light on the emotional reaction Wednesday to OPEC. Energy (ERY) short side at support and watching how it reacts to the OPEC and energy news.
    Some positive moves to watch in semiconductors (SOXL), medical devices (IHI), small caps (TNA), healthcare (CURE) and regional banks (KRE).

Decision time for the markets and it is important to remember that longer term upside moves die hard… investors want to beleive the upside will continue. Watch how the stupid money responds and chases the upside at the wrong time… patience is a must as this all unfolds.

TUESDAY’s Scans (4/18): Some selling as the weaker sectors keep the downside going. Some buying as some sectors attract the buyers. Both offer opportunity if you have a strategy to manage the risk. Proceeding with caution.

  • China (FXI/YANG) the downside accelerated offering the short side trade with a break above the $12.50 mark (YANG). Watching how today unfolds and a possible entry if it tests the break higher.
  • Treasury Bonds (TLT/TMF) the upside move shows the anxiety from investors as money rotates to safety. Watching how this unfolds going forward with the break above resistance at $121.70. Trade only as the Fed is alive and well on wanting to hike interest rates.
  • Dollar (UUP) the buck is being challenged again by those in Washington who believe the weaker dollar gives the US an upper hand on exporting goods. The short term help is far outweighed by the longer term impact… not a good sign… my view.
  • Emerging Markets (EEM/EDZ) the downside is gaining some near-term traction and watching how that unfolds near term. Move above $18 gets my interest.
  • Natural Gas (UNG/DGAZ) downside in the commodity has my attention. After a small gain the sellers are taking a shot. Watching the $21 mark on DGAZ as trade opportunity.
    Other charts to note on the day… RUSS, DUST, FAZ, SOXL, ZSL, IEF and XLP.

MONDAY’s Scans (4/17): Modest move from the buyers on low volume. Taking the bounce for what it is and looking forward to see if there is conviction behind it. Steady as we go with the bounce off support levels holding for now.

  • Brazil (EWZ/BRZU) leads the emerging market (EEM) bounce. Still in the trading range, but the move was positive and worth looking for follow through.
  • VIX index (VXX/SVXY) short side trade in place on the drop in volatility to start the trading week. Hit our stop on the VXX trade and now look to see if the anxiety level returns to the lethargy levels of 11.
  • Financials (XLF/FAS) bounced off support and puts the buyers in position to reverse the selling of late. Interest rates, earnings, and sentiment are the key components currently driving the outlook.
  • Bounces to watch… SOXL, TNA, EDC, TECL, URE, KRE, KBE, and EURL.
    Selling to watch… UNG, WEAT, USO, CORN, TMF, NUGT, and UGA.
    Trades from the Scans: (Still in place or added)
  • Gold Miners (GDX/NUGT) the move higher in gold hits the entry point for the miners. $9.93 entry and stop at the $9.50 mark remains the trade currently. SIL followed through on the entry at $37 with upside move Tuesday as well.

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 $51. Tested the first level of support and bounced to remain in the current range. All is well in the sideways sector. Breaks to new high
  • XLU – Utilities broke above the $50.88 resistance and remains in yet another trading range. The sideways movement comes from the uncertainty around interest rates, but we continue to collect our dividend and let it ride. Entry $48, stop $50 (adjusted). Practicing patience and collecting the dividend from the sector of 3.3%. struggles with the rotation as defensive sector. 
  • 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. Downtrend gave way to buying the last month. The positive reversal and move back to the $33.87 level hit resistance and is testing. Stops at $33.35 as the test plays out. Don’t assume anything currently as the markets overall test. Positive upside to clear resistance again. 
  • XLP – consumer staples downtrend off the July high found a reversal off the lows near $50 offering a reversal trade. Entry at $51.50. Stop $54.30 (adjusted). Bottom reversal pattern made move as the second time (double bottom) was the charm… made a move higher following the test at support and is trading sideways the last month. $55.45 level to clear to keep upside going. Adjusted our stop to protect the gains as uncertainty rises and moves sideways. defensive sector struggles. 
  • XLI – Industrials – Gapped higher following the election results. Moved into a trading range and the move below $65 was negative, but it has recovered that level currently… but facing resistance on the move. Watching how if unfolds this week. gaps to new highs. 
  • 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. The bounce off support at the $67.75 mark failed as crude dips below the $50 mark again and takes the stocks lower again testing the $67.75 support. Watching how it unfolds this week. modest upside as crude continues to struggle. 
  • 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 has now worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $73.45 (adjusted). The news is driving the direction and the downside is back as the nothing is clear. Patience is key. modest upside for the defensive sector, but manages to break from current trading range. 
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend remains in place as the sector continues to be the leadership overall. Entry $48.50. Stop $52 (adjusted). Watching the rolling top/sideways pattern in the sector as the broad markets look similar. Managing the risk. nice upside move and follow through. 
  • XLF – Financials are pushing lower on the speculation around Washington and progress on the campaign promises. Earnings started last week and they were good… not great, but good enough. That failed to impact the stocks and thus, the downside is in play… break the $22.90 level of support puts the short trade (FAZ) in place. Patience as we get more earnings to start the week. resuming the leadership role. 
  • XLY – Discretionary Consumer broke above resistance and has continued a positive trek higher. Retail (XRT) has managed to bounce off the lows and start higher on a break above resistance. Entry $83.50. Stop $85. Positive break to new highs. positive upside in the sector on the current move. 
  • RWR – REITs reacting to the Fed and interest rates with a move back to the previous support at $90 ish level. The downside was a complete reaction to the speculation and not the valuation. This move created an opportunity as the sector cleared the $91.77 resistance level… the move above offered some trading opportunity. Entry $92.50, stop $91.75. Follow through on upside move. Moves higher on rotation towards safety. Topping? watch as the sector approaches the February highs. struggles as a defensive sector. 

The Trump election was a positive upside for the major sectors… the challenge is action or follow-through on the hope of change. The inability for Congress to deliver on this hope of change has the broad markets questioning the near term. We have hit some stops, adjusted our stops on others and are now looking at the resulting opportunities from the current moves. The long-term view gets lost in the short term news. We have to be patient and let the longer term positions unfold while acting on the short term opportunities. Always have a strategy with a predefined plan for each position to keep your emotions in check. I am watching the shift in belief on the charts for any longer term implications. One day at a time at least for now… maybe we find some conviction and belief in direction soon.

FINAL NOTES:

The market is in transition as seen on the charts. The key looking forward is always leadership. Unfortunately, the leadership currently has a downside bias short term. The longer term view is still in an uptrend with sideways action at the highs. Sectors are hitting key support levels and if they break lower could trigger the sell-off or correction many have been predicting for the last year. Due to the confusion presented by the lack of a vote on healthcare reform, Syria, Russia, North Korea, emerging markets and just about any other reason… headlines are the storyline driving the trend currently sideways too down. Earnings are not offering any help despite some positive results. If the prevailing belief of gridlock in Washington continues to get nothing done the downside will result unless another storyline fills the void. The short-term trend off the November lows has broken with a sideways to down movement. 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 of concern moving forward? 1) Healthcare and the outcome of any reform… the belief has been for that to materialize and that is in jeopardy of not happening currently and the result is a test of key support levels… break and the downside could accelerate. 2) Financials were the leader from the November low and that is in jeopardy as well… watching how this sector reacts to earnings and the economic outlook. This is another key sector testing support levels that matter… break and it could influence the broader markets. 3) Energy remains a sector under pressure from supply and demand… too much supply and not enough participation in cutting or limiting supply… the speculation around the OPEC deal is pushing crude lower and in turn stocks. They are at key support levels and the result will have an impact on both as well as the broader markets. 4) Telecom bounced off the lows and has moved to higher… the resistance is a key short term for how this will play out. Looking for the opportunity here as well. 5) Emerging markets reaction on the downside has our attention as it relates to the future outlook. Watching the dollar activity as it relates to the sector short term. 6) Semiconductors are bellwether for the growth stocks and they turned lower, but the bounce last week is offering some hope to the sector… It did push the NASDAQ to a new high on the week. 7) Treasury bonds are rising as the yields move lower… this is an indication of the fear creeping into the investor psyche. If this trend continues it is a negative sign for the broad markets moving forward. Watching 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.

OUTLOOK: Week of February 27th

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OUTLOOK: Week of February 27th

Investors push indexes higher for the week but show some signs of caution at the current highs. On Friday the sellers attempted to push stocks lower early, but by the end of the day, they all posted positive numbers. At this point, the sellers are just not engaged in the process enough to take stocks lower, and thus, the trend remains on the upside as the indexes posted new highs for the week.

Eight sectors ended higher on Friday with utilities (XLU), healthcare (XLV) and consumer discretionary (XLY) leading the day. The leaders remain more on the defensive side for the week with utilities and REITs leading. The downside was led by telecom (IYZ) as the sector continues to struggle in a trading range and closing near support. Energy (XLE) equally has struggled on the uncertainty about crude oil prices. Plenty of positive overall, but still warnings signs in the charts of several sectors. The S&P 500 index closed at 2367 and near the new highs posted during the week. Gold (GLD) continued to bounce off the test of the $115.86 level support and consolidation. The metal cleared the $118.60 resistance and is progressing towards the $120.45 target. Watching how the metal responds to the emotions going forward… adjusting my stops as it inches higher. The dollar (UUP) hit resistance after bouncing off the January low but remains on the positive side currently. The emerging markets (EEM) closed the week on a negative note but remains in an uptrend. The Volatility Index (VIX) remains unphased by all the rumors and talk in the media. However, it did show some worries about inflation and remains at the 11.4 mark. Looking for a move above the 13 mark to hold as an indicator for anxiety rising. Willing to let the optimism unfold as the markets move higher and investors determine their collective beliefs… manage your risk accordingly.

More selling from nervous investors

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The continued slide in the price of crude oil was given the credit on Wednesday adding to the other worries surrounding investors. The latest poll showing Trump and Clinton tied added to the frustrations for the market or at least gave it something to blame relative to the selling. Thus, volatility rose near the 20 level on the VIX again and the broad indexes closed the day in the red. The break of support on Tuesday was confirmed with the addition move lower on Wednesday putting the major indexes in a confirmed downtrend short term.

Gold, in turn, continued higher hitting $1308 per ounce. It is now back at resistance as money flow rises on worries into the metal. Ten-year treasury bond yield drops to 1.8% with increased money flow as well. The flight to safety is gaining momentum.

All ten sectors closed lower on the day with telecom (IYZ) leading the downside adding to the losses after breaking key support on Tuesday. Interest rates have been driving money from the sector along with increased worry about the outlook. Utilities (XLU) added to the move lower along with energy (XLE) and financials (XLF). Five of the ten sectors have broken key support levels along with the S&P 500 index. Closing at 2097 the index is now in a position to retest the June lows. Watching how this unfolds today as the futures are showing a positive start to the day.

Patience remains the mantra for this environment as the data from earnings remains mixed and the uncertainty around the election is adding to the numerous worries and speculation. The shift in the charts on Monday is the current worry for me… breaking support on higher volume technically leaves a big question mark hanging over the outlook. Stay focused and disciplined allowing the market to tell the story going forward.

Markets Struggle with the Outlook Again

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MARKET OUTLOOK: Week of October 5th

The markets continue to struggle with the outlook for growth, earnings and the Fed. The bigger concerns of the day were interest rates and the dollar. The cause… Brexit concerns were back on the table as the sterling fell 1% along with the pound falling to a 31 year low. The valuation pushed the dollar higher on the day posting solid upside move. Where does this activity leave the markets overall? Simply put, in limbo again with the S&P 500 index testing the 2145 level of support again. This is the theme and until there is data to change the outlook investors will default to the news. We will continue to exercise patience and look for the opportunities as they present themselves.

A second day of modest selling for the broad markets continues with energy (XLE), basic materials (XLB), and utilities (XLU) leading the downside. The biggest negative came in utilities dropping below support and continuing the negative trend. Rising interest rates is playing havoc on the interest sensitive sectors and the stronger dollar move is pushing the price of gold below support again and testing the $120.45 level. If the dollar and interest rate continue the downside in precious metals will continue short term.

The threat of the hurricane pushing towards Florida is putting me on the road today and will likely impact the update process the balance of the week depending on how it unfolds. Currently it is heading directly towards my home town and we will see how it unfolds. I will post as I can with the outcome pending on power and time. Hopefully it will not head in the direction projected and blow off to the ocean… fingers crossed.