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Jims Notes

Turkey rally?

By | Jims Notes, Research Post | No Comments

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.

 

Sector Rotation: 

  • 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.)

FINAL NOTES:

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.

Small caps make move higher

By | Jims Notes, Research Post | No Comments

OUTLOOK:  Week of November 21st

The broad markets still cannot find clarity of direction, but the indexes did manage to move slightly higher at the end of the day. Small caps were the leader on the upside gaining for the third straight day and moving back above the $148.15 mark. The move back to the previous highs and bounce shows some confidence returning to the growth sector. Retail is driving higher and cleared the September highs. Was this in anticipation of a good Black Friday sales weekend? You would have to believe that is the case and watching how this unfolds into the holiday weekend will be of interest. Semiconductors moved back to the previous highs and remain in a solid uptrend off the July bottom. Overall some solid movement from the sector that tested last week. Patience and a defined strategy are key moving forward.

Six sectors moved higher with the major indexes posting modest gains on the day. Financials (XLF) and industrials (XLI) led the upside on Monday. The regional banks (KRE) were a boost to the sector on the upside move closing at resistance $56.43. The downside move was led by healthcare (XLV) and REITs (RWR) on worries respective to each sector. Technology (XLK) moved higher and remains in a topping pattern. 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 volatility index headed lower again with investors getting into a holiday mood. This remains a broad market in limbo with investors jockeying for position in anticipation/speculation of what will happen next.

The S&P 500 index closed up 3.2 points at 2582 and remains in a consolidation pattern. The uptrend remains in control of the index with the close at the ten-day moving average. The rolling top shows some of the uncertainty about direction and conviction from buyers. The biggest movers in the index were DLPH (gap higher from test lower), NTAP (confirming the gap higher from last week), MU (move higher in the uptrend), WYNN (solid move higher in the uptrend), and HPE (break higher in bottom reversal). The downside leadership came from INCY, CAH, RRC, MRO, and CHK. Mixed activity with energy leading the downside. The broad index remains near the current highs and leadership the last thirty days has come from technology, consumer discretionary, and utilities… getting more defensive of late with utilities, consumer staples, and REITs leading over the last ten days.

Gold (GLD) retested the $120.45 support after the move upside on Friday… 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 has now moved to a new high break from the trading range. The Volatility Index (VIX) closed at 10.6 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. 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. Remember this is a holiday trading week.

(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. 

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 10.6 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:

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.

TUESDAY’s Scans 11/14: Another day of a gap lower and drift higher. The sellers are taking some shots to see the resolve of the buyers, but for now, they are willing to stay engaged with the upside move. Utilities (XLU) remain the benefactor of the worries with money seeking safety near term. The VIX index is heating up with a move above 12 intraday and hitting our entry on the UVXY trade. Tight stops as this trade will only last a few days based on the current cycle of nerves and speculation. Russia (RUSS) reacting to the move in oil prices. Short side setup building in the ETF. China (FXI/YANG) moved lower after hitting new highs and watching how that unfolds. Basic materials (XLB/SMN) short side of interest on the break above the $14.70 level. Homebuilders (ITB/NAIL) moving higher. Euro (FXE/ULE) benefactor to the drop in the dollar. Emerging market (EEM/EDZ) showing some weakness. TAN hit new highs. Banks (KBE) bounced back above the $55.45 level. SPLV hit new highs. Interesting moves on the day, but we need confirmation and follow through to attract money.

  • Biotech (IBB/LABD) downside trade hit the entry at $5.45 and stop at $4.92. Patience with how this unfolds and the Washington two-step about healthcare reform.
  • Natural Gas (UNG/DGAZ) downside trade hit entry at $24.50 ($25.55) and stop $23.50. The energy sector has speculation in place.
  • Oil Services (IEZ) dropped 3.9% confirming the double top pattern. Struggling the decline in crude prices Tuesday. The jury is still out in this sector and watching how it responds to the current events.
  • Japan (EWJ) continues to show topping on the chart with a break of support at the $59 mark. Watching how this unfolds relative to a short side trade opportunity. EWV.
  • Brazil (EWZ) is confirming the next leg lower for the country ETF. A break of the $37.57 mark will be the next test lower. BZQ remains in play.

There are plenty of challenges facing stocks and the overall market. Watching how the VIX performs as well as the dollar. Economic data is still mixed. It is up to the sellers and their conviction on the downside that will matter the most. Patience remains the mantra for now.

 

Sector Rotation: 

  • 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.  
  • 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. 
  • 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.
  • 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. 
  • 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.
  • 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. 

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.)

FINAL NOTES:

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.

Markets end week lower

By | Jims Notes, Research Post | No Comments

OUTLOOK:  Week of November 20th

The broad markets still cannot find footing as the week ends on a negative note to close slightly lower. The blame goes to Washington and the lack of tax reform or any other reform progress. This continues to be a cloud over the market as investors look to the next catalyst and nothing is on the horizon except worries. As we look to next week we face the Thanksgiving holiday and a shortened trading week… it may be awhile before we see a catalyst for investors.

Four sectors moved higher with the major indexes posting losses on the day. Telecom (IYZ) and energy (XLE) led the upside on Friday. The sellers returned with higher volume than Thursday buying showing some negative frustration from trades. The downside move was led by utilities (XLU) on worries over interest rates and a flattening yield curve. Technology (XLK) struggled on the day as well forfeiting some of the gains from Thursday. Treasury bond (TLT) gained with yield moving back to 2.35%. The volatility evaporated again on Friday despite the selling effort… worries remain more on an intraday bases following the spike higher on Wednesday. This remains a broad market in limbo with investors jockeying for position in anticipation/speculation of what will happen next.

The S&P 500 index closed down 6.7 points at 2578 closing lower on the week. The uptrend remains in control of the index with a rounding top or topping pattern on the chart. The rolling top shows some of the uncertainty about direction and conviction from buyers. The biggest movers in the index were FL (gap higher confirming the bottom reversal), VIAB (bottom reversal in progress), ROST (break higher from trading range), GPS (gap higher from test pattern), and FOX (break higher in bottom reversal). The downside leadership came from CMI, PCAR, SCG, CTSH, and KLAC. Mixed activity with technology and retail leading the downside. The broad index remains near the current highs and leadership the last thirty days has come from technology, consumer discretionary, and utilities… getting more defensive of late with utilities, consumer staples, and REITs leading over the last ten days.

Gold (GLD) tested the $120.45 support and attempted to bounce higher Friday with a move to resistance at the $123.05 mark. Watching for a move higher from the trading range. The dollar (UUP) moved lower on the worries about tax cuts and yield curve breaking support at $24.50. This is negative for the buck. The emerging markets (EEM) tested the $45.40 level of support and moved back to the top of the current range. The Volatility Index (VIX) closed at 11.4 erasing the near-term worries. 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. 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. 

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. 

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. 

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:

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.

TUESDAY’s Scans 11/14: Another day of a gap lower and drift higher. The sellers are taking some shots to see the resolve of the buyers, but for now, they are willing to stay engaged with the upside move. Utilities (XLU) remain the benefactor of the worries with money seeking safety near term. The VIX index is heating up with a move above 12 intraday and hitting our entry on the UVXY trade. Tight stops as this trade will only last a few days based on the current cycle of nerves and speculation. Russia (RUSS) reacting to the move in oil prices. Short side setup building in the ETF. China (FXI/YANG) moved lower after hitting new highs and watching how that unfolds. Basic materials (XLB/SMN) short side of interest on the break above the $14.70 level. Homebuilders (ITB/NAIL) moving higher. Euro (FXE/ULE) benefactor to the drop in the dollar. Emerging market (EEM/EDZ) showing some weakness. TAN hit new highs. Banks (KBE) bounced back above the $55.45 level. SPLV hit new highs. Interesting moves on the day, but we need confirmation and follow through to attract money.

  • Biotech (IBB/LABD) downside trade hit the entry at $5.45 and stop at $4.92. Patience with how this unfolds and the Washington two-step about healthcare reform.
  • Natural Gas (UNG/DGAZ) downside trade hit entry at $24.50 ($25.55) and stop $23.50. The energy sector has speculation in place.
  • Oil Services (IEZ) dropped 3.9% confirming the double top pattern. Struggling the decline in crude prices Tuesday. The jury is still out in this sector and watching how it responds to the current events.
  • Japan (EWJ) continues to show topping on the chart with a break of support at the $59 mark. Watching how this unfolds relative to a short side trade opportunity. EWV.
  • Brazil (EWZ) is confirming the next leg lower for the country ETF. A break of the $37.57 mark will be the next test lower. BZQ remains in play.

There are plenty of challenges facing stocks and the overall market. Watching how the VIX performs as well as the dollar. Economic data is still mixed. It is up to the sellers and their conviction on the downside that will matter the most. Patience remains the mantra for now.

MONDAY’s Scans 11/13: The week starts where it left off… no conviction, no direction, and the sellers testing to see the resolve of the buyers. The day closes flat with little to show for the day of trading. Utilities (XLU) led the upside charge confirming the break above the $55.24 resistance. Consumer staples (XLP) moved to resistance at the $54.60 on the trend reversal. Natural gas (UNG) reversed directions again testing the $6.41 level yet again. Energy (XLE) is testing the move higher as crude stalls at the $56 level. Copper (JJC) nice bounce off support. Homebuilders (ITB/NAIL) continued back to the previous highs follow the test lower. China Internet (KWEB) head and shoulder pattern in play. Brazil (EWZ) continues to move in a downtrend.

  • Biotech (IBB/LABD) downside trade is setting up and a move above the $5.45 level would be the entry for the trade.
  • Utilities (XLU/UPW) upside trade reconfirms with a move above the $55.24 level. If you had not added to position yesterday was the opportunity. Watching as this unfolds with a stop at $54.70.
  • Banks (KBE) bounced back from two weeks of moving lower. Watching the $44.42 mark as key to the recovery and adding any positions in the sector.
  • Volatility Index (VXX/UVXY) moving higher gradually as the anxiety builds with the investor near term. VIX at 11.5 resistance and a move higher offers a short-term trading opportunity. Entry $35 stop $34. Target $37.95.
  • Hong Kong (EWH) gapped above the $25.40 resistance confirms the uptrend line is in play. Missed the entry in the gap and watching to see if it tests the move and gives the opportunity to add on a test.
  • AT&T (T) This is a story of how acquisitions can impact the stock price. Since attempting to buy TimeWarner the stock has declined more than 15%… the dividend now stands at nearly 6%. From my view, this is one long-term opportunity worth attention. The bottoming pattern in the stock shows support near-term and the rumor mill on Wall Street states the acquisition is done… matter of formalities… if that is true and the speculation is out of the stock… look for the opportunity.

Not a great day overall and we continue to take what the market gives and our focus on short-term opportunities, risk management on our long-term positions, and a focused disciplined strategy going forward.

Sector Rotation: 

  • 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.  
  • 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.
  • 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. 
  • 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.
  • 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. 
  • 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.
  • 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.  
  • 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. 
  • 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.

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.)

FINAL NOTES:

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.

Buyers step in again keeping trend positive

By | Jims Notes, Research Post | No Comments

OUTLOOK:  November 17th

All is well with the market as the buyers step back in… albeit on lower volume… they stepped in nonetheless. Good news is growth stocks like small caps and technology led the way. The broad indexes recovered most of the downside created this week and remain in topping pattern or range. Today ends the trading week and we will see how the mixed futures unfold.

Nine sectors moved higher with the major indexes posting gains on the day. Telecom (IYZ) and technology (XLK) led the upside on Thursday. Buyers stepped in on lower volume to reverse the last two days of selling and keep the uptrend in place. The downside move was led by energy (XLE) on lower crude oil prices and utilities (XLU) on worries over interest rates and a flattening yield curve. Treasury bond (TLT) fell with yield moving back to 2.36%. Plenty of solid moves upside across the board with a bounce in small caps and semiconductors showing some money moving back towards growth on the day. This remains a broad market in limbo with investors jockeying for position in anticipation/speculation of what will happen next.

The S&P 500 index closed up 21.2 points at 2585 erasing the dip this week. The uptrend remains in control of the index as it remains near the current highs in a topping pattern. The rolling top shows some of the uncertainty about direction and conviction from buyers. The biggest movers in the index were NTAP (gap higher confirming the cup and handle pattern breakout), WMT (gap higher to continue uptrend), SJM (confirmed bottom reversal with a gap higher), PYPL (gap higher in the uptrend), and CSCO (break higher from trading range). The downside leadership came from VIAB, BBY, TRV, NCLH, and MRO. Mixed activity with mixed activity leading the downside. The broad index remains near the current highs and leadership the last thirty days has come from technology, energy, and utilities… getting more defensive of late with utilities, consumer staples, and REITs leading over the last ten days.

Gold (GLD) is testing the $120.45 support and attempted to bounce higher, but retested support and remains in a narrow trading range. The dollar (UUP) moved lower on the worries about tax cuts and yield curve breaking support at $24.50. This is negative for the buck. The emerging markets (EEM) testing the $45.40 level of support and remains in a long-term uptrend with a double top. The Volatility Index (VIX) closed at 11.7 erasing the near term worries with some buyers. 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. 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 found support at the $311 level and remains challenged by the lack clarity about Washington more than anything at this point. Hit short trade entry LABD @ $5.40. stop $4.92. Watching how the trade unfolds near term. Bounced on Thursday, watching the $5.40 mark tested. 

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. Back to the previous highs and holding for now. 

Treasury yields (TNX) moved to 2.4% 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. This puts the short side trade back on the radar currently as we see if the upside move follows through in the yield. $19.25 level to watch for TMV entry. Back to 2.36% and counting as the tug-o-war continues. 

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 is back and testing the $120.45 support. Watching for the next opportunity to unfold. Short side setup with a move below the $120.45 level. There is plenty of challenges as a result of the uncertainty near term. 

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). Saudi Arabia political crackdown is playing havoc with crude prices currently with the rise above $56. Let it unfolds and stick with the position as long as it remains positive. Crude declined 3.5% on the worries about inflation and supply data. Watching the topping pattern in crude with our stops at $55. 

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). The move above $67 completed the ‘V’ bottom pattern has struggled to continue the upside move with a defined trading range. Closed near the high and watching patiently for the upside breakout from the flag pattern. Reacts to the drop in crude and breaks support at $69 and stop hit on short-term trades. The longer term remains at $66. Took a shot at $67 support as the speculation money heads to higher ground. 

Volatility Index (VIX) The negative open pushed the intraday volatility, but the buyers keep the index from accelerating higher, but it did manage to close at 11.4 for the week. Still watching how the anxiety levels start the trading week. VXX $35 entry, stop $34.  11.7 on the close with intraday activity declining with the buyers stepping in on Thursday. 

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 energy 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:

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.

TUESDAY’s Scans 11/14: Another day of a gap lower and drift higher. The sellers are taking some shots to see the resolve of the buyers, but for now, they are willing to stay engaged with the upside move. Utilities (XLU) remain the benefactor of the worries with money seeking safety near term. The VIX index is heating up with a move above 12 intraday and hitting our entry on the UVXY trade. Tight stops as this trade will only last a few days based on the current cycle of nerves and speculation. Russia (RUSS) reacting to the move in oil prices. Short side setup building in the ETF. China (FXI/YANG) moved lower after hitting new highs and watching how that unfolds. Basic materials (XLB/SMN) short side of interest on the break above the $14.70 level. Homebuilders (ITB/NAIL) moving higher. Euro (FXE/ULE) benefactor to the drop in the dollar. Emerging market (EEM/EDZ) showing some weakness. TAN hit new highs. Banks (KBE) bounced back above the $55.45 level. SPLV hit new highs. Interesting moves on the day, but we need confirmation and follow through to attract money.

  • Biotech (IBB/LABD) downside trade hit the entry at $5.45 and stop at $4.92. Patience with how this unfolds and the Washington two-step about healthcare reform.
  • Natural Gas (UNG/DGAZ) downside trade hit entry at $24.50 ($25.55) and stop $23.50. The energy sector has speculation in place.
  • Oil Services (IEZ) dropped 3.9% confirming the double top pattern. Struggling the decline in crude prices Tuesday. The jury is still out in this sector and watching how it responds to the current events.
  • Japan (EWJ) continues to show topping on the chart with a break of support at the $59 mark. Watching how this unfolds relative to a short side trade opportunity. EWV.
  • Brazil (EWZ) is confirming the next leg lower for the country ETF. A break of the $37.57 mark will be the next test lower. BZQ remains in play.

There are plenty of challenges facing stocks and the overall market. Watching how the VIX performs as well as the dollar. Economic data is still mixed. It is up to the sellers and their conviction on the downside that will matter the most. Patience remains the mantra for now.

MONDAY’s Scans 11/13: The week starts where it left off… no conviction, no direction, and the sellers testing to see the resolve of the buyers. The day closes flat with little to show for the day of trading. Utilities (XLU) led the upside charge confirming the break above the $55.24 resistance. Consumer staples (XLP) moved to resistance at the $54.60 on the trend reversal. Natural gas (UNG) reversed directions again testing the $6.41 level yet again. Energy (XLE) is testing the move higher as crude stalls at the $56 level. Copper (JJC) nice bounce off support. Homebuilders (ITB/NAIL) continued back to the previous highs follow the test lower. China Internet (KWEB) head and shoulder pattern in play. Brazil (EWZ) continues to move in a downtrend.

  • Biotech (IBB/LABD) downside trade is setting up and a move above the $5.45 level would be the entry for the trade.
  • Utilities (XLU/UPW) upside trade reconfirms with a move above the $55.24 level. If you had not added to position yesterday was the opportunity. Watching as this unfolds with a stop at $54.70.
  • Banks (KBE) bounced back from two weeks of moving lower. Watching the $44.42 mark as key to the recovery and adding any positions in the sector.
  • Volatility Index (VXX/UVXY) moving higher gradually as the anxiety builds with the investor near term. VIX at 11.5 resistance and a move higher offers a short-term trading opportunity. Entry $35 stop $34. Target $37.95.
  • Hong Kong (EWH) gapped above the $25.40 resistance confirms the uptrend line is in play. Missed the entry in the gap and watching to see if it tests the move and gives the opportunity to add on a test.
  • AT&T (T) This is a story of how acquisitions can impact the stock price. Since attempting to buy TimeWarner the stock has declined more than 15%… the dividend now stands at nearly 6%. From my view, this is one long-term opportunity worth attention. The bottoming pattern in the stock shows support near-term and the rumor mill on Wall Street states the acquisition is done… matter of formalities… if that is true and the speculation is out of the stock… look for the opportunity.

Not a great day overall and we continue to take what the market gives and our focus on short-term opportunities, risk management on our long-term positions, and a focused disciplined strategy going forward.

FRIDAY’s Scans 11/10: We end the week with a mixed day of trading and the VIX index leading the upside. VXX/UVXY are in a position to trade if the anxiety from investors continues. Treasury bonds fell as rates spiked to 2.4% on Friday bring the short-side trade (TMV) back into perspective at $19.25. Gold (GLD) tumbles and takes the gold miners with it as GDX falls and the short trade in DUST is back in view at $27.35. Semiconductors (SOXX) recovered some of the selling on Thursday as one of the leaders on the day. China (FXI/YINN) continued to trek higher in the uptrend. Energy (XLE) is struggling in the upside move as crude stalls near the current highs. Solar (TAN) remains near the highs. Retail (XRT) bounced off support and remains in trading range. Gasoline (UGA) remains at the current highs even with crude (USO) fading to end the week. Hong Kong (EWH) moved back to the previous highs as China moves to new highs. Financials (XLF/FAZ) struggle on the downside move and watching how it unfolds. Overall not a day of much conviction in either direction.

  • Volatility Index (VXX/UVXY) upside move continues with the entry now in sight at $35. Let this unfold on Monday after investors have time to consider their anxiety levels.
  • Natural Gas (UNG/UGAZ) hit the entry posted at $11.05 and stop at $10.60. Watching how this unfolds moving forward.
  • Pharmaceutical (XPH) solid upside move on the bottom reversal attempt. Cleared $41 as a positive sign and watching $41.50 level for entry.
  • Consumer Staples (XLP) bottom reversal follows through with a move above $54. The next challenge will be to break the downtrend line and reversal. $54.50 entry level it upside follows through.
  • High Yield Bonds (JNK/HYG) break support and find some buyers to end the week, but the downside is still firmly in place. Treasury bonds (TLT/TMV) are in the same boat with the spike to 2.4% on Friday. Watching the short side in both.

Mixed week as investors and traders look for direction. No conviction from the buyers and not enough participation from the sellers to take a defined direction near term. Long-term trends remain in place and the challenges remain the same.

 

Sector Rotation: 

  • 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. Moved back to the $58.44 level Monday and failed on Tuesday and Wednesday broke support to put the downside in play short term. SMN in play above $14.70. Buyers returned on Thursday and we watch how today unfolds relative to the $58.44 mark and downside is $57.67. 
  • 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). Back above resistance at the $55.25 level currently and looking for the follow through. Erased the move higher from earlier in the week and testing the break above $56. 
  • 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 and confirmed the downtrend acceleration.  Downside in play with bottom reversal attempt the last two days… watching how this unfolds. 
  • 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 $54 level on Friday… watching how this bottom reversal plays out to start the week. Continued move higher from the low last week hitting resistance at the $54.76 mark and clearing on the close Thursday?  
  • 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 of late is on our watch list with support and stop levels in play. Entry $69, stop $71 (adjusted). Breaks support and hit stop. Watching how the downside unfolds. Downside confirms and breaking support at $71.43. Watching Thursday attempt to reverse the selling… needs follow through. 
  • 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 above $70 holding near the current highs.  A reversal in place and the short term stops hit… testing the $67 level of support again as the reaction to crude prices takes a toll. 
  • 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. Bounced Thursday to keep the trading range in play. 
  • 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 on earnings and watching how it unfolds this week. Modest downside move with rolling top in play. Nice bounce on Thursday. 
  • XLF – Financials pushed lower on worries about interest rates, the Fed, and N. Korea. The retest of support at the $23.82 level was a concern for the short-term uptrend. The move back above the $24.65 mark offered the entry at $24.75, stop $26 (adjusted). Hit stops testing the next level of support and watching how the downside unfolds. Banks (KBE) bounce. 
  • XLY – Consumer Discretionary moved back near the previous highs and remains in a sideways trend. Entry $83.50. Stop $88.50 (adjusted). The clarity about the consumer is a challenge for investors, but the sector did manage to clear $90.70 resistance back to the previous highs $92.50 and holding. Patience remains the key. adding upside and new high in trend. 
  • 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. Still trading at the ranges high. 

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.)

FINAL NOTES:

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.

Sellers back but uptrend still remains

By | Jims Notes, Research Post | No Comments

OUTLOOK:  November 16th

The sellers were back making another attempt to push the markets lower, but the majority of the activity involves reacting to stories, speculation, and anxiety. Crude moved lower again on Wednesday and the energy stocks reacted on the downside again. Small caps are showing weakness as money rotates away from growth stocks and looks for safer ground in utilities and bonds. The newest wrinkle for investors to ponder is the flattening of the yield curve. Some talk has begun on an inverted yield curve as well. This is all fine and well, but the reality is it has to happen. This brings me back to the argument that the market trades looking forward. If the belief is this will happen… and enough people believe it will happen… the market will trade currently based on that belief until it either validates it as truth or validates it is not true. Either way, the newly added worry is causing havoc in the markets this week. We continue to invest with caution and remain focused on risk management for our holdings.

Two sectors moved higher with the major indexes posting losses on the day. Telecom (IYZ) and financials (XLF) led the upside on Wednesday. Money continues to be defensive with the current rotation. The downside move was led by energy (XLE) and consumer staples (XLP). Utilities (XLU) gave up some of the recent gains on worries over interest rates and a flattening yield curve. Treasury bond (TLT) bounced again as the yields moved lower in the face of the new worries. Financials (XLF) remained below the $26.42 support and tested the next level of support, but banks (KBE) bounced back above $44.42 showing some hope for the sector to remain a leader near term. They are benefitting from the belief the Fed will continue move interest rates higher in the face of a flattening yield curve. The sectors are showing signs of rotation with the defensive stocks gaining some ground and the growth stocks losing ground. This is not a broad market selling as much as it is investors jockeying for position in anticipation/speculation of what will happen next.

The S&P 500 index closed down 14.2 points at 2564. The uptrend remains in control of the index as it remains near the current highs in a topping pattern. The rolling top shows some of the uncertainty about direction and conviction from buyers. The biggest movers in the index were ALK (bottom reversal start), FL (gap higher to start a bottom reversal), DSCK (start of a bottom reversal?), AAL (gap higher from test lower), and ABC (break higher in the bottom pattern). The downside leadership came from TGT, AAP, GIS, HAL, and CHD. Mixed activity with the consumer staples leading the downside. The broad index remains near the current highs and leadership the last thirty days has come from technology, energy, and utilities… getting more defensive of late with utilities, consumer staples, and REITs leading over the last ten days.

Gold (GLD) is testing the $120.45 support and attempted to bounce higher, but retested support and remains in a narrow trading range. The dollar (UUP) moved lower on the worries about tax cuts and yield curve breaking support at $24.50. This is negative for the buck. The emerging markets (EEM) testing the $45.40 level of support and remains in a long-term uptrend with a double top. The Volatility Index (VIX) closed at 13.1 showing some concerns intraday with a jump above 14 intraday. The rumblings are coming from 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. 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 found support at the $311 level and remains challenged by the lack clarity about Washington more than anything at this point. Hit short trade entry LABD @ $5.40. stop $4.92. Watching how the trade unfolds near term. Small bounce on Wednesday, but remains below the previous support. 

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. Some selling on interest rate worries arising again. 

Treasury yields (TNX) moved to 2.4% 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. This puts the short side trade back on the radar currently as we see if the upside move follows through in the yield. $19.25 level to watch for TMV entry. Back to 2.3% and bonds rally on the move. The Fed story and concern about the yield curve led the headlines… watching the outcome. 

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 speculation on the rumors of the Fed hiking interest rates is back and testing the $120.45 support. Watching for the next opportunity to unfold. Short side setup with a move below the $120.45 level. There is plenty of challenges as a result of the uncertainty near term. 

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). Saudi Arabia political crackdown is playing havoc with crude prices currently with the rise above $56. Let it unfolds and stick with the position as long as it remains positive. Crude declined 3.5% on the worries about inflation and a lower dollar the last week. Watching the topping pattern in crude with our stops at $55. 

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). The move above $67 completed the ‘V’ bottom pattern has struggled to continue the upside move with a defined trading range. Closed near the high and watching patiently for the upside breakout from the flag pattern. Reacts to the drop in crude and breaks support at $69 and stop hit on short-term trades. The longer term remains at $66. Took a shot at $67 support on Wednesday as the speculation money heads to higher ground. 

Volatility Index (VIX) The negative open pushed the intraday volatility, but the buyers keep the index from accelerating higher, but it did manage to close at 11.4 for the week. Still watching how the anxiety levels start the trading week. VXX $35 entry watch.  13.1 on the close with intraday activity above 14… volatility rising on speculation. How much will this rise in light of the current news? Managing the risk. 

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 energy 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:

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.

TUESDAY’s Scans 11/14: Another day of a gap lower and drift higher. The sellers are taking some shots to see the resolve of the buyers, but for now, they are willing to stay engaged with the upside move. Utilities (XLU) remain the benefactor of the worries with money seeking safety near term. The VIX index is heating up with a move above 12 intraday and hitting our entry on the UVXY trade. Tight stops as this trade will only last a few days based on the current cycle of nerves and speculation. Russia (RUSS) reacting to the move in oil prices. Short side setup building in the ETF. China (FXI/YANG) moved lower after hitting new highs and watching how that unfolds. Basic materials (XLB/SMN) short side of interest on the break above the $14.70 level. Homebuilders (ITB/NAIL) moving higher. Euro (FXE/ULE) benefactor to the drop in the dollar. Emerging market (EEM/EDZ) showing some weakness. TAN hit new highs. Banks (KBE) bounced back above the $55.45 level. SPLV hit new highs. Interesting moves on the day, but we need confirmation and follow through to attract money.

  • Biotech (IBB/LABD) downside trade hit the entry at $5.45 and stop at $4.92. Patience with how this unfolds and the Washington two-step about healthcare reform.
  • Natural Gas (UNG/DGAZ) downside trade hit entry at $24.50 ($25.55) and stop $23.50. The energy sector has speculation in place.
  • Oil Services (IEZ) dropped 3.9% confirming the double top pattern. Struggling the decline in crude prices Tuesday. The jury is still out in this sector and watching how it responds to the current events.
  • Japan (EWJ) continues to show topping on the chart with a break of support at the $59 mark. Watching how this unfolds relative to a short side trade opportunity. EWV.
  • Brazil (EWZ) is confirming the next leg lower for the country ETF. A break of the $37.57 mark will be the next test lower. BZQ remains in play.

There are plenty of challenges facing stocks and the overall market. Watching how the VIX performs as well as the dollar. Economic data is still mixed. It is up to the sellers and their conviction on the downside that will matter the most. Patience remains the mantra for now.

MONDAY’s Scans 11/13: The week starts where it left off… no conviction, no direction, and the sellers testing to see the resolve of the buyers. The day closes flat with little to show for the day of trading. Utilities (XLU) led the upside charge confirming the break above the $55.24 resistance. Consumer staples (XLP) moved to resistance at the $54.60 on the trend reversal. Natural gas (UNG) reversed directions again testing the $6.41 level yet again. Energy (XLE) is testing the move higher as crude stalls at the $56 level. Copper (JJC) nice bounce off support. Homebuilders (ITB/NAIL) continued back to the previous highs follow the test lower. China Internet (KWEB) head and shoulder pattern in play. Brazil (EWZ) continues to move in a downtrend.

  • Biotech (IBB/LABD) downside trade is setting up and a move above the $5.45 level would be the entry for the trade.
  • Utilities (XLU/UPW) upside trade reconfirms with a move above the $55.24 level. If you had not added to position yesterday was the opportunity. Watching as this unfolds with a stop at $54.70.
  • Banks (KBE) bounced back from two weeks of moving lower. Watching the $44.42 mark as key to the recovery and adding any positions in the sector.
  • Volatility Index (VXX/UVXY) moving higher gradually as the anxiety builds with the investor near term. VIX at 11.5 resistance and a move higher offers a short-term trading opportunity. Entry $35 stop $34. Target $37.95.
  • Hong Kong (EWH) gapped above the $25.40 resistance confirms the uptrend line is in play. Missed the entry in the gap and watching to see if it tests the move and gives the opportunity to add on a test.
  • AT&T (T) This is a story of how acquisitions can impact the stock price. Since attempting to buy TimeWarner the stock has declined more than 15%… the dividend now stands at nearly 6%. From my view, this is one long-term opportunity worth attention. The bottoming pattern in the stock shows support near-term and the rumor mill on Wall Street states the acquisition is done… matter of formalities… if that is true and the speculation is out of the stock… look for the opportunity.

Not a great day overall and we continue to take what the market gives and our focus on short-term opportunities, risk management on our long-term positions, and a focused disciplined strategy going forward.

FRIDAY’s Scans 11/10: We end the week with a mixed day of trading and the VIX index leading the upside. VXX/UVXY are in a position to trade if the anxiety from investors continues. Treasury bonds fell as rates spiked to 2.4% on Friday bring the short-side trade (TMV) back into perspective at $19.25. Gold (GLD) tumbles and takes the gold miners with it as GDX falls and the short trade in DUST is back in view at $27.35. Semiconductors (SOXX) recovered some of the selling on Thursday as one of the leaders on the day. China (FXI/YINN) continued to trek higher in the uptrend. Energy (XLE) is struggling in the upside move as crude stalls near the current highs. Solar (TAN) remains near the highs. Retail (XRT) bounced off support and remains in trading range. Gasoline (UGA) remains at the current highs even with crude (USO) fading to end the week. Hong Kong (EWH) moved back to the previous highs as China moves to new highs. Financials (XLF/FAZ) struggle on the downside move and watching how it unfolds. Overall not a day of much conviction in either direction.

  • Volatility Index (VXX/UVXY) upside move continues with the entry now in sight at $35. Let this unfold on Monday after investors have time to consider their anxiety levels.
  • Natural Gas (UNG/UGAZ) hit the entry posted at $11.05 and stop at $10.60. Watching how this unfolds moving forward.
  • Pharmaceutical (XPH) solid upside move on the bottom reversal attempt. Cleared $41 as a positive sign and watching $41.50 level for entry.
  • Consumer Staples (XLP) bottom reversal follows through with a move above $54. The next challenge will be to break the downtrend line and reversal. $54.50 entry level it upside follows through.
  • High Yield Bonds (JNK/HYG) break support and find some buyers to end the week, but the downside is still firmly in place. Treasury bonds (TLT/TMV) are in the same boat with the spike to 2.4% on Friday. Watching the short side in both.

Mixed week as investors and traders look for direction. No conviction from the buyers and not enough participation from the sellers to take a defined direction near term. Long-term trends remain in place and the challenges remain the same.

THURSDAY’s Scans 11/9: All the talk is focused on the tax cut proposals by the House and Senate… they don’t make investors happy and thus speculation builds and the sellers took one big shot at the open… down more than 200 points on the Dow before it rallied to close down only 100 points. This is a market of nerves currently with money in rotation mode. Small caps (IWM) confirmed the break of the first level of support. There are cracks showing in the leaders as we watch how this unfolds near term. Speculation doesn’t allow for opportunities only heartache. Semiconductors (SOXX) lead the downside on the day for the NASDAQ. Energy (XLE/ERX) still looking positive in the uptrend move. Oil Services (IEZ) still attempting to complete the reversal and move higher… clear on the weekly chart with a double bottom reversal. Medical devices (IHI) making a move from the consolidation to new highs. Dollar (UDN) reversal to downside showing on the chart as a possibility… watching the euro in response. It is Friday and we will see how the downside plays out… futures are down in pre-market.

  • Natural gas (UNG/UGAZ) leads the upside for commodities. The move above $11.05 offers an upside trading opportunity on the reversal attempt. Plenty of work to do…
  • Volatility Index (VXX/UVXY) reversal on nervous investors shows potential trading opportunity if the speculation bug infects more traders. $35 entry… if this rises today.
  • Small Caps (IWM/TZA) tested the $13.82 entry level for short trade and watching for how it unfolds today. $14.05 max entry for trade.
  • Biotech (IBB/LABD) short side set up in play with a break below the $311 level. $5.43 entry if the downside makes the move.
  • Gold (GLD/UGL) upside showing some signs of a follow through with the dollar moving lower. $40 entry if the upside momentum continues.

This is a market in transition more than selling. The transition is what will work if _____ happens. Some believe commodities will win, some the defensive sectors… others are just riding out the chatter. Watching for the best opportunities as they present themselves based on the charts.

 

Sector Rotation: 

  • 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. Moved back to the $58.44 level Monday and failed on Tuesday and Wednesday broke support to put the downside in play short term. SMN in play above $14.70. 
  • 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). Back above resistance at the $55.25 level currently and looking for the follow through. Nice confirmation move higher on Monday followed by gap upside on Tuesday. Some testing on Wednesday… still remains in an uptrend and stop raised. 
  • 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 and confirmed the downtrend acceleration.  Downside resumes. 
  • 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 $54 level on Friday… watching how this bottom reversal plays out to start the week. 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 of late is on our watch list with support and stop levels in play. Entry $69, stop $71 (adjusted). Breaks support and hit stop. Watching how the downside unfolds. Downside confirms and continues lower after breaking support at $71.43. 
  • 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 above $70 holding near the current highs.  A reversal in place and the short term stops hit… testing the $67 level of support again as the reaction to crude prices takes a toll. 
  • 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. biotech (IBB) breaks lower adding short side trade. 
  • 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 on earnings and watching how it unfolds this week. Modest downside move with rolling top in play. 
  • XLF – Financials pushed lower on worries about interest rates, the Fed, and N. Korea. The retest of support at the $23.82 level was a concern for the short-term uptrend. The move back above the $24.65 mark offered the entry at $24.75, stop $26 (adjusted). Hit stops testing the next level of support and watching how the downside unfolds. Banks (KBE) bounce. 
  • XLY – Consumer Discretionary moved back near the previous highs and remains in a sideways trend. Entry $83.50. Stop $88.50 (adjusted). The clarity about the consumer is a challenge for investors, but the sector did manage to clear $90.70 resistance back to the previous highs $92.50 and holding. Patience remains the key. 
  • 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 back as interest rate worries rise. Some profit taking on the 4% rise. 

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.)

FINAL NOTES:

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.