OUTLOOK: Week of September 18th
We spent last week fighting the hurricane and getting power, internet and phone services back. Definitely not how I would like to spend time, but thankfully no big damage… just plenty of rain, sweat, and frustration living in the dark and without air conditioning. All said, we are fine and happy to be getting back to normal.
The markets continued their ways of looking for direction. The gap move on the upside last Monday held throughout the week with the major indexes closing at new highs.
Nine sectors closed the week on the upside with financials (XLF) and energy (XLE) leading the upside move. The upside in financials helped push the sector back into the positive territory from earlier in the month. Energy is still looking for faith in the upside in the price of crude oil which closed at the $50 per barrel level again. The downside was limited to REITs (RWR) and utilities (XLU). The moves for the week were a positive overall as the buyers returned to push the indexes to new highs. The S&P 500 index closed up 39 points at 2500 for the week posting a new high. The biggest movers in the index were RRC (reversal of selling on Thursday), CXO (bottom reversal), HP (bottom reversal in play), NVDA (break from a topping trading range), and CHK (bottom reversal). Solid move in the energy and technology stocks to lead the index higher. The downside leadership came from EFX, REGN, INCY, VMC, and MLM. A mixed bag of sectors leading the downside the week. Gold (GLD) moves lower as money again rotates towards growth on the week. Tighten your stops on positions as volatility and speculation continue. The dollar (UUP) dumped lower and can’t find its way under the current pressures. The emerging markets (EEM) are breaking out to a new high with a modest gain. The Volatility Index (VIX) closed at 10.1 as the worries subside and stocks rise on optimism. The key is to remain disciplined within your trading strategy and not let the anxiety of the situation change your overall strategy. Manage your risk and stay focused on the horizon, not the rear-view mirror.
The scans on Friday showed flat movement with some sectors shinning on the day. The semiconductors (SOXX) posted a solid gain to resume the upside momentum. Brazil (EWZ) continues to climb in the current uptrend. Gold miners (GDX) are moving lower and testing the first level of support. Watching how that unfolds and what opportunities come on the next move. The energy (XLE) stocks continue to believe in the rise in crude oil (USO). China (GXC) made positive move Friday to move back to the top of the current trading range. Telecom (IYZ) posted positive bounce to end the week and make an attempt at a bottom reversal. There are opportunities if you have the patience to dig and then manage the risk of the positions. Patience as the new week unfolds.
The key word remains to be PATIENCE. Not something many traders like. We started the week with some positive upside move and managed to hold the upside. There remains plenty of volatility in direction and each week holds some thing new to consider. We all want to believe we can see forward, but the reality is we can only see today. Thus, we must do what our strategy tells us to do today, and tomorrow will take care of itself. Hard lessons to learn as our analytical brain wants us to believe we have the solution and can predict the future. Keep your stops in place and your eyes focused on the horizon taking what the market gives.
KEY, INDICATORS/SECTORS TO WATCH:
Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare. There is no clear resolution to that issue and that has now led to money rotating to where is it has better opportunities and clarity. Nice upside move and nice follow through to add a position. Entry $318. Stop $325 (adjusted). Flag pattern in place from the vertical move higher.
REITs (IYR) had been lagging in response to interest rate worries related to the Fed promise to hike rates multiple times this year. The sector tested the $76 level of support and bounced back to resistance and tested, and bounced, and has now cleared the $81 resistance… We continue to focus on managing our risk and collecting our dividend as this all unfolds. This is a growth and dividend holding with a 4.2% dividend currently. Entry at $75.75. Stop $76.25 (adjusted). Nice bounce for the week closing above the $81 resistance. Looking for the follow through to start the week.
Treasury yields (TNX) moved back to 2.2% last week as money continues to find safety. Just when you thought it was safe to go back into the water… the Fed changes its collective minds. TLT rallied on worries and money rotating to safety. $124.10 entry, stop $122. Bounce in yield to end the week and looking to see if the bottom is in for the move lower. Bonds moving higher in return (TLT).
Gold (GLD) Gold remains in a long-term uptrend with a broad trading range in play the last five months. The volatility within the trend is speculation and news driving money. The selling was more of the speculation, just as the current buying is on speculation the dollar and the Fed will remain neutral. Bounced off support at the $114 level, cleared resistance at the $117.38 mark (entry) and hit the $123 target. Stop $124.20 (adjusted). Gold miners (GDX) cleared resistance as well at $24.27 and moved higher. Entry $23 hit, Stop $24 (adjusted). The test back to key support put the exit point now at the $24 level. The dollar is key for now.
Crude Oil has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue, but the weaker dollar is having some influence near term. The last two weeks the commodity has managed to fight it’s way back to the $50 level of resistance. Watching how this unfolds at the current levels.
Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The double bottom pattern clears $63.22 for entry and stop $$65 (adjusted). Watching how it unfolds to start the week after the test on Friday.
Volatility Index (VIX) This week was less volatile and more consolidation. Back to the lows closing at 10.1 for the week. Short side trade of the index remains in play.
The positive move for the week helps build some upside confidence again as investors continue to bounce on both sides of the market. The move to new highs for the S&P 500 (SPY) and the NASDAQ (QQQ) hitting against the previous highs gives hope to most for the uptrend follow through. Energy (XLE) showed some improvement until Friday with a move lower. Financials (XLF) showed some upside with a small test on Friday. Semiconductors (SOXX) cleared the next level of resistance and showing positive uptrend again for the sector. Agribusiness (MOO) produced a upside break to confirm the uptrend. There are more questions than answers for this market and we will continue take it one day at a time. Stay focused and disciplined in all trades or positions. Speculation remains the primary driver in the current market environment. The small-cap index (IWM) moved higher from the flag pattern after the bottom reversal in August to reestablish the uptrend. The key remains patience and as the tug-o-war for position continues.
Daily Scan Results:
FRIDAY’s Scans 9/15: Some selling in the market early that managed to bounce back and keep the current trend moving to the upside overall. Watching patiently as we start the week of trading with plenty of questions to be answered.
- Semiconductors (SOXX/SOXL) solid break higher and continuation of the uptrend currently in play. Cleared $102.20 entry and follow through.
- Brazil (EWZ/BRZU) upside continued after small test. This remains one of the current leaders for the sectors.
- Gold Miners (GDX/DUST) downside gaining some traction and the bottom reversal setup for a trade. Watching the $22.90 mark to clear and add DUST.
- China (FXI/YINN) upside attempting to break from the consolidation pattern. Look for move above the $30 mark for adding to positions.
- Silver (SLV/ZSL) the downside could come into play as the topping pattern is in play. Watching for a move above the $29.70 level for entry on short trade.
- olid follow through on the move above resistance and $23.50 entry. The target for the move is $26.72. Stops at $23.50 now and watching how it progresses in light of crude moving higher.
- Crude Oil (USO/UCO) upside continues as the worries over supply remain. This is all storm related and a trading opportunity. The entry above $16.15 hit and looking for how it unfolds near term with stops at the $15.75 level for now.
- Europe (IEV/EURL) remains positive uptrend and looking for break from the consolidation pattern.
- Healthcare (XLV/CURE) returns to the top of the trading range and resistance. Looking for a break above the $44.50 level as a signal to add to existing positions.
Watching these sectors as well following this weeks trading… IBB, IYZ, UCO, TECL, WEAT, DBA, and TNA.
- XLB – Materials moved lower off the July high and have managed to test support at the $53.50 level. The upside resumes and the uptrend remains positive for the sector near term. Entry $54.75, Stop $54.75 (adjusted).
- XLU – Utilities bounce off support at the $50.88 level and have followed through nicely the six weeks to move to new highs. Entry $52.25, Stop $54.25 (adjusted). Money is rotating to the sector as money heads towards safety. Topping currently and watching how this unfold.
- IYZ – Telecom has become more of a trading sector than the buy and hold historically. The volatility has increased and thus swing trading works better. Some buying? Some selling? Retested the lows as the downside took root and short trade at $30.90. Adjust your stop to break even $30.90. Nice bounce off support to end the trading week.
- XLP – Consumer Staples moved lower on economic worries and higher interest rates. Watching for a move above $55.50 to get my interest near term. Another test of the lows and reversal in process. The upside on reversal still in play.
- XLI – Industrials moved sideways the last two months and now moved back near the previous highs. The long term uptrend remains in play and we will watch this unfolds near term. Follow through on the bounce off support and solid move higher.
- XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. Some of the uncertainty has come out of the sector with crude moving back near the $50 mark. Entry $65.20 with stop at $63.60. Watching as this unfolds short term.
- XLV – Healthcare has been a big rollercoaster ride with a promise to reform healthcare and then the failure to follow through. The test of support reversed and the sector has pushed back a new high. The entry at $79.50 playing out on the upside. Stop $81.50.
- XLK – Technology testing near the current highs as the uptrend remains in place. The semiconductors are back with a positive swing on the upside. The sideways activity tested the $56.75 support. Entry $48.50. Stop $56 (adjusted). More positive than negative in the sector currently with IGN and SOCL moving in positive direction.
- XLF – Financials pushed lower on worries about interest rates, the Fed, and N. Korea. The retest of support at the $24.64 level is a concern for the short term uptrend. Broke support at $24.65, tested support at $23.80 and made move back above the $24.65 mark. No real momentum in the sector. Watching how it unfolds.
- XLY – Discretionary Consumer lower to support at the $88.50 level with retail earnings pushing stocks lower. Entry $83.50. Stop $88.50 (adjusted). Watching how the Friday move lower plays out to start the week. Test of support again. Patience as this all unfolds near term.
- RWR – REITs reacting to the current uncertainty around the Fed and the dollar. The longer term view clearly shows the trading range and the opportunity to collect the dividend while investors continue to make up their collective minds on direction. We added the position in December on the move off the lows and continue to babysit the dividend of 4%. Bounce in process. Big triangle pattern still in play.
Positive move is back… investors like what they hear and see enough to put money back to work and let the upside play out accordingly. Patience in taking what the market offers and nothing more. This week offered some moves in the energy sector as well as the technology stocks. We will let this move unfold and add positions accordingly.
Investors continued to be indecisive because the data is not conclusive looking forward. We all know the market trades looking forward and evaluates based on past data. The challenge remains an indecisive outlook and nerves over the current situation. The positive results last week from the buyers gives hope versus the downside attempts from the last two weeks. Data is positive overall for earnings and the winners are being rewarded. Money showed some rotation to growth for a change. This remains a market in transition and with that comes opportunities. Those are outlined above in the scans and sector notes. We will proceed with caution and patience taking what comes our way and fits our strategy for investing both short and long term.
ONE DAY at a time is the key for now. Take a longer term view for your overall portfolio and manage the risk of your short term trades accordingly. See you next week.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese