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Volatility rises on worries as stocks decline

By | Jims Notes, Outlook, Research Post | No Comments

OUTLOOK: Week of August 14th

In the face of uncertainty, all you need to do is give investors a reason to sell… North Korea did exactly that last week. ICBM nuclear capable missiles gave everyone reason for concern, but more importantly, it added to the uncertainty in the global outlook. The major indexes closed the week lower with the small caps leading the downside. The test of the 200 DMA is a negative technically and one thing to watch as we start the new week of trading. Emotions picked up as the VIX index spikes above 16 and settling at the 15.5 mark on Friday. The reaction to the news will settle and then the reality of the current situation will determine the direction and attitude for investors. We will take it one day at a time and look for the opportunities in the outcome.

Six sectors closed Friday on the upside as telecom (IYZ) and technology (XLK) led the upside move. The bounce from the selling on Friday was positive, but the moves showed caution as well. The VIX index remained elevated at 15.5 showing anxiety still in play. The downside was led by REITs (RWR) and energy (XLE) as money continues to look for safety. The bounce on Friday came on light volume and no breadth. This leaves the direction in limbo and with plenty of questions. Do the traders allow the market to continue downward or do they buy the test? The key is to be patient and see how it unfolds moving into the new week of trading. The S&P 500 index closed up 3.1 points on the Friday at 2441 and remained below the 50 DMA. The move also broke the consolidation pattern for a short term short trade signal. Friday left a doji candle adding to the interest for how Monday will unfold. The long term uptrend is still in play but now comes into question. The biggest movers in the index on Friday were TRIP (break from cup pattern at the bottom), VRTX (bounce in a test of the gap higher), LRCX (bounce off support test), ADSK (bounce off support test), and JBHT (moved above resistance). The downside leadership came from IYR, NVDA, MYL, AES, KIM, and KSS. Each showing a continued reaction to the news on Thursday. Gold (GLD) moved through the $120.45 resistance tested lower only to move higher again on news. Gold has taken on a safety role and benefitted from the fear factor. The dollar (UDN) continues to struggle with the dovish outlook from the Fed and their shift to liquidate their balance sheet. The emerging markets (EEM) gapped lower on the political unrest with N. Korea. Broke $43.50 support and hit exit signal for short term positions. The Volatility Index (VIX) closed at 15.5 holding the move higher on the worries present Thursday over N. Korea. The VXX position spiked higher as well on the news and now you adjust your stop and see how it unfolds. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans for Friday showed a bounce reaction in some sector while others continued the negative sentiment. The Volatility Index (VXX) again raising plenty of questions as it holds at the 15.5 level showing investor sentiment shift for the day. Telecom and technology bounced on the day, but have plenty of work to do to repair the damage. The consumer is lagging again with retail (XRT) testing lower. Biotech (IBB) bounced slightly after breaking support at the $309 level. Brazil (EWZ) is holding support after some selling early in the week. Energy (XLE) headed lower on the week and continues show little confidence in oil prices rising. Semiconductors (SOXX) are showing a negative pattern with a double top on the weekly charts. Gold miners (GDX) made a positive move along with gold (GLD) with money rotating to where it believes it will be treated the best in light of the speculation. Treasury bonds (TLT) pushed higher as money accelerated the rotation towards safety. Watching how this unfolds near term as it impacts the current trends with reversals, breaks of support levels and moving averages on higher volume… all impacting the technical read for the market. Patience in how you approach this market both short and long term. Let the news settle and the reality develop for the current trends. There are opportunities in all of this activity both long and short various sectors.

The news for the week came from North Korea. The reaction to the news is still in play. It is important to note that investors were already talking about the overbought situation in the markets overall. The news gives them a reason to act. How long and how much they react is a matter of belief near term. Therein lies the challenge for the coming week. Watch for the volume and breadth of moves up or down. Know where money is rotating to and from. The current moves towards gold, bonds, and cash are not a good indication for the near term moves in the market. This can change as we start the week and it is where we will focus our efforts and research.  Two charts that validate the rotation last week are IWM -4% the last two weeks and leading the move lower. The move to the 200 DMA is a negative and a break lower would be a bad indication overall. This movement is worth our attention as the new week unfolds. The undercurrent of worry remains along with some speculation on where the markets go near term. The VIX index moved off the lowest point reacting to the N. Korea news spiking above 16 and closing at 15.5. There is plenty to ponder both positive and negative going forward. Earnings have helped with individual stocks, but not the sectors. As seen in tracking the S&P 500 leadership the biggest moves have come from positive earnings. Volume was higher for the week as investor reacts to the news. Data is still not driving… news and speculation are. The key word remains to be PATIENCE. Not something many traders like. 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 is back with traders exiting the sector and looking for more interesting ground. The Senate failed to pass healthcare reform and can see the impact. No positions. The break of support at $309 mark offered a short entry. The sector was already under distress from the inability to pass a reform bill… this only gives reason to sell.LABD hit entry at the $7 level.

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… We continue to focus on managing our risk and collecting our dividend as this all unfolds. This is a growth and dividend holding with a 4.2% dividend currently. Entry at $75.75. Stop $76.25 (adjusted).

Treasury yields (TNX) moved back to the 2.4% level as the Fed talked of raising interest rates. The move to 2.2% came on the comments from Ms. Yellen and the Fed taking on a more dovish role towards rates. Just when you thought it was safe to go back into the water… the Fed changes its mind. TLT rallied again this week on worries over N. Korea adding to the list of worries. $124.10 entry, stop $122. Yields continue to deline helping the upside for bonds this week.

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 heading towards the $123 target. Stop $119 (adjusted). Break higher continues the uptrend on uncertainty in North Korea.

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 move above $48 this week brought plenty of speculation and the bottom reversal on the double bottom pattern is in full bloom. Entry hit at $47.50, stop $44.35. Taking what the commodity gives and not asking any questions… purely managed as a technical trade. Positive news on the global supply data helping the short term outlook. 

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The move lower and test of the $63.70 level kept the downside in question… but, the bounce on the rise in crude only adds to the confusion. More selling to moves back towards support at the $63.72 mark. No buyers showing interest.

Volatility Index (VIX) This week was more interesting for the index closing at 15.5 showing a spike in activity as investor worries over North Korea prompted a response. VXX position plays out well and adjusting stop to $12.75.

The sectors were rotating again last week as money moves towards cash and bonds. We have to take it one day at a time and see how it all unfolds. The S&P 500 index tested the 50 DMA and the Small Caps moved to the 200 DMA. The rotation in response to the N. Korea bantering is where to watch as money shifted to gold and short trades… News and speculation are tough trades. They do provide opportunities as the speculation either validates or invalidates reality. Our job is to let the resulting opportunities develop… have a strategy for trading or investing in them… and then managing the process based on our belief and disciplined approach. Sounds simple? It is except for the six inches between our ears that process what we hear as it impacts our beliefs. Have a strategy for every position and trade/invest according to the strategy… don’t let the news or others sway you from the task at hand.

Daily Scan Results:

FRIDAY’s Scans 8/12: Some buying but not enough to convince anyone Thursday was an overreaction. Watching how money rotates and to where it rotates. Thus far we don’t have enough clarity in the activity to determine the direction of choice. Patience as it unfolds.

  • VIX index (VXX/UVXY) positive moves in the index continues showing anxiety in place for investors. Adjust your stops and watch how it unfolds on Monday.
  • Semiconductors (SOXX/SOXS) the sector remains one big question mark with the sellers holding the upper hand currently. The weekly chart pattern is of interest with a double top showing.
  • Small Caps (IWM/TZA) short side interest in play as the index tests the 200 DMA. A break lower keeps the short trade in play… a bounce needs to show some follow through and conviction.
  • Financials (XLF/FAZ) the downside pressure is showing in the reaction to the news, weaker dollar and lower interest rates. Stops raised.
  • REITs (IYR/SRS) short side breaks above the $31.55 resistance and offers trading opportunity. Watching how this sector unfolds even with interest rates declining.

JJU, TAN, ULE, NUGT, SMN made moves of interest on the upside. Downside is building some momentum and watching how this unfolds next week.

THURSDAY’s Scans 8/11: Selling present again and holds this time as the worries over events move the anxiety level higher. Reality vs speculation is the challenge we now face as the selling started in earnest and now we see how it plays out near term.

  • Volatility Index (VXX/UVXY) rally in the anxiety as the news rattles investor confidence. The spike to 16 set the tone for the trade signaled on Tuesday. Raise your stop to $12.75 and let this unfold.
  • Biotech (IBB/LABD) short side signal hit on the move lower with the sector under pressure already. $6.92 entry and stop at $6.60 (adjust to $6.92 if positive tones return to broad markets). If negative sentiment continues this will move lower.
  • Natural Gas (UNG/UGAZ) upside continues with the commodity moving above $6.46 resistance. $6.92 is level to clear for now.
  • Small Cap (IWM/TZA) hit the $16.90 entry level for short trade and that would be the stop currently as this unfolds as a trade opportunity.
  • Financials (XLF/FAZ) selling in the sector jumps and now setting up downside trade if this follows through. $16.45 level is key to move above. Patience.

Everyone has been taking valuation of the markets and the political issues with N. Korea are only providing a reason to sell… not the reason. Let the air come out of this balloon before running down the street screaming sell everything. First is the reaction to the news, then comes the rationale to the selling, and then comes reality. It is reality where the opportunity lies. Patience is key to letting this unfold and the opportunities to arise.

WEDNESDAY’s Scans 8/10: Attempt to establish downside activity but the buyers stepped in to keep the indexes at par on the day.

  • Natural Gas (UNG) positive on the supply data. An attempt on the bottom reversal in place. Watching for follow through and entry at the $6.60 mark.
  • Gold Miners (GDX/NUGT) bounced with the price of gold following through on a break above the $120 level.
  • Small Caps (IWM/TZA) downside made move and looking for it to hold support near at $139 and broke on the close Wednesday. Short trade setup.
  • S&P 500 index (SPY) topping pattern in play. NASDAQ (QQQ) topping pattern in play. Dow (DIA) Testing the new highs. The parts make up the whole, but the whole determines the direction. Watching how all three unfold near term.
  • Watching how the leadership unfolds… rotation? hot money? trends? All offer opportunities and we have to be patient in letting them develop.

TUESDAY’s Scans 8/9: downside day, but not dominate relative to the selling.

  • Utilities (XLU/UPW) leading the upside move with a solid trend back towards the June highs.
  • Volatility Index (VXX/UVXY) anxiety begins! The jump in nerves showed in the index and stocks. Move above $11 worth our attention and trading opportunity at $11.70 entry.
  • Biotech (IBB/LABD) watching how the downside unfolds… or bounce off support? Plenty of attention still in the sector short term.
  • China (GXC/YINN) the upside gap is a continuation of the uptrend. Positive run for the country ETF and the individual stocks… see Monday notes.
  • Base Metals (DBB) vertical move upside as the metals move with copper, aluminum and other gaining on the day.

Some other moves to watch TZA, SLV, TMV, UGAZ, SCO, and SRS.

MONDAY’s Scans (8/8): a positive day for the indexes and the leadership, but no real shifts in the overall trend. Looking for some leadership in the data, but that continues to be lackluster as the economy drags forward. Despite all the whining and complaining the market continues to inch higher and we progress with it albeit with our stops in place.

  • Semiconductors (SOXX/SOXL) bounce from the recent test and remain challenged on the upside… individual opportunities look better, but the risk is also higher in the current environment. ON, LRCX, NVDA, TSM, and MCHP offer positive looks.
  • Brazil (EWZ/BRZU) showing positive upside again in the current uptrend.
  • Energy (XLE/ERY) downside weakness showing again as the oil services (OIH) stocks show more weakness.
  • China (GXC) holding the uptrend with KWEB, SINA, BABA, HTHT, BZUN and other pushing higher in the current uptrend.
  • Technology (XLK/TECL) upside in play with a move to the top of the consolidation pattern. Worth digging into the sector for the leaders versus the whole. AAPL, NVDA and MCHP are few on the move.

Still proceeding with caution as this current environment unfolds. LBJ, DBB, EDC, TAN and KOL all in positive uptrends as well.

 

Sector Rotation:

  • XLB – Materials moved higher pushing above the $50 level and moving toward 2015 high. Hit the entry at $48, Stop $54.50 (STOP HIT). The move lower is negative and short interest is growing.
  • XLU – Utilities bounce off support at the $50.88 level and have followed through nicely the last month. Entry $52.25, Stop $51. Moved to the previous highs and testing currently. 
  • 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. Watching for now how this unfolds as sector moved back above the $31.35 mark. Entry $31.60, Stop $30.90. Some buying? Some selling? Watching the $32.65 mark for the upside continuation.
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The Fed talks last week to stand still on rates put a positive reversal in play. Watching for a move above $55 to get my interest near term. Moving sideways for now and looking for a directional decision.
  • XLI – Industrials – remains in a positive uptrend since the break higher in November. Entry $67, Stop $66. The positive trend was questioned with the downside move. An uptrend in place as the money flow remains positive but watching how it starts the week. Moved below $67.93 support and watching.
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. There is still the issue of uncertainty towards the stocks. Held $63.70 support and bounced as the dollar weakness helps the price of crude. To many question marks for now to take any positions. The retest of support the last two weeks is showing the lack of interest from investors.
  • XLV – Healthcare hit the low and established a pivot reversal relative to rumors around the election… then the election… attempted upside move and trend reversal… but, failed to hold the move. The second attempt with double bottom worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $78.50 (HIT STOP). The selling advances and the uncertainty in play. The break of support is negative as we watch how this unfolds short term.
  • XLK – Technology moved lower, but the uptrend remains in place. The semiconductors are weaker putting pressure on the sector overall. The sideways activity is testing the $56.75 support currently and the level to watch. Entry $48.50. Stop $56 (adjusted). Let the decision unfolds with a stop in place this week. 
  • XLF – Financials pushed lower on worries about interest rates, the Fed, and now N. Korea. The retest of support at the $24.64 level is a concern for the short term uptrend. Entry $23.85, Stop $24.50 (adjusted). Patient for now. Let the direction unfolds and manage your money accordingly.
  • XLY – Discretionary Consumer broke above resistance with a positive trek higher and has now moved back to key support levels. Entry $83.50. Stop $88.50 (adjusted). Retail has been negative for the sector overall and we continue to manage our stops and let it unfold.
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as money made some rotation. 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%. Tested the bottom end of the range on worries as we manage the position and let it all unfold.

Markets react to the North Korea banter on missiles. The challenge is bigger than this news… investors are worried about the current valuations and projected growth looking forward. There is little to cheer about the short term. The weaker dollar favors the multinationals and commodities… lower interest rates favors bonds… and negative sentiment favors the short side trades. Watching how the week unfolds with the rise in volatility in play.

FINAL NOTES:

Investors are nervous plain and simple. Volume is favoring the sell side. Data is positive overall for earnings and the winners are being rewarded. Money is rotating to safety. 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 Proverb.

Jobs Report brings buyers

By | Jims Notes, Outlook, Research Post | No Comments

OUTLOOK: Week of August 7th

Is the love affair with growth stocks over? Small caps (IWM) moved to support to test the uptrend, Mid caps (MDY) tested lower as well, and growth stocks overall (VUG) are testing on the chart. The S&P 500 index (SPY) chart looks very similar while the Dow (DIA) is moving higher showing a rotation to value stocks. It is all a matter of perception as investors continue to struggle with the outlook for growth. The unemployment data Friday showed lower numbers again. Are more people finding jobs or are fewer people looking? It is a combination, but the reality is money moving to safer ground.

Eight sectors ended Friday on the upside with telecom (IYZ) and financials (XLF) leading the upside. Give the credit to the jobs report which put investors in a positive mood for the day. The downside was led by utilities (XLU) and consumer staples (XLP). The move higher in yields pushed both lower on the day, but they remain in a positive trend. The S&P 500 index closed 4.6 points at 2476 and still near the highs and a consolidation wedge is present on the chart. The biggest movers on Friday were NFX (bottom reversal setup), CF (Moved to the top of the trading range Thursday, broke higher on Friday), TRIP (top of the bottoming range… breakout setup), DVN (double bottom breakout setup), and MAC (bottoming trading range). The downside leadership came from VIAB, FLR, SRCL, MYL and DISCK. Each confirmed downside break in patterns and some short opportunities. Gold (GLD) moved through the $120.45 resistance but tested lower on the jobs report Friday. The dollar (UDN) moved higher finally following a decline on the dovish outlook from the Fed and their shift to liquidate their balance sheet. The emerging markets (EEM) gapped higher from the trading range to new high and holding a move sideways. The Volatility Index (VIX) closed at 10 with intraday activity but nothing to change the outlook from investors. Watching how it unfolds and what opportunities it presents if it continues higher. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans for Friday were the opposite of Thursday with positive moves across the board to show some life in the current uptrend. more on the negative side and offered some interesting setups in stocks. Telecom (IYZ) bounced back from testing earlier in the week and is at the $32.65 resistance. Financials (XLF) posted a positive move to continue the uptrend for the sector. Energy stocks bounced from selling with XOP posting a positive day. Crude (USO) was higher on the day and solar (TAN) continues to post positive moves in the current uptrend.  The small caps (IWM) bounced off support with a test of $139… a break makes the downside interesting as well as a reversal back to the previous highs… watching how it unfolds. Greece (GREK), Brazil (BRZU) and Latin America (LBJ) all positive for the country ETFs despite the test to end the week. Other moves of interest from our weekend scans… IBB, GDX, TLT, IYZ, KOL, IEO, XRT, ITB, and FCG. The challenge remains a lack of conviction about direction with some rotation in place and some pattern breaks. Taking what the market gives and watching for trends, reversals, support, and volume… they will lead you to what is moving and the best opportunities for trades currently.

The was jobs report put a positive end to an otherwise negative week. The shift on the charts is to a sideways movement of consolidation with value or safety driving the direction. What does all of that mean? Simply put nerves are rising about the seven-year uptrend for the markets. Data isn’t supporting the moves as the economy shows modest to no growth overall. The unemployment data on the surface looks great, but income and amounts of people leaving the job force raise plenty of questions. Two charts that validate the rotation last week are IWM -1.3% and DIA +1.2%. This movement is worth our attention as the new week unfolds. Crude oil remains the leader, but energy (XLE) has not followed the lead. The move in IEO and XOP on Friday got my attention, but they will need to follow through to gain any traction. The undercurrent of worry remains along with some speculation on where the markets go near term. The VIX index moved off the lowest point reacting to the chatter about Fed activity impacting stocks looking forward. The move lower on Friday reflects the lack of anxiety present in the markets currently. There is plenty to ponder both positive and negative going forward. Earnings are helping with individual stocks, but not the sectors. As seen in tracking the S&P 500 leadership the biggest moves have come from positive earnings. Volume was weak for the week as investor enthusiasm for risk fades. Data is still not driving… news and speculation are. The key word remains to be PATIENCE. Not something many traders like. 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 is back with traders exiting the sector and looking for more interesting ground. The Senate failed to pass healthcare reform and can see the impact. No positions as our stops were hit and we watch to see how the current test lower sets up… short trades are starting to look attractive.

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… The shift in outlook for the Fed holding rates steady for now has shifted money back to the REITs. We continue to focus on managing our risk and collecting our dividend as this all unfolds. This is a growth and dividend holding with a 4.2% dividend currently. Entry at $75.75. Stop $76.25 (adjusted).

Treasury yields (TNX) moved back to the 2.4% level as the Fed talked of raising interest rates. The move to 2.2% came on the comments from Ms. Yellen and the Fed taking on a more dovish role towards rates. Just when you thought it was safe to go back into the water… the Fed changes its mind. TLT rallied on the comments and watching for the opportunity to unfold on a follow through. $124.10 entry, stop $122. TLT moved back to the July highs and tested to end the week… positive for now.

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 heading towards the $120 target (hit last week). Stop $117. Negative move on the positive jobs reports Friday… watching this week.

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 move above $48 this week brought plenty of speculation and the bottom reversal on the double bottom pattern is in full bloom. Entry hit at $47.50, stop $44.35. Taking what the commodity gives and not asking any questions… purely managed as a technical trade.

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The move lower and test of the $63.70 level kept the downside in question… but, the bounce on the rise in crude only adds to the confusion. $66.25 level to watch for opportunity. Close above it and looking for follow through and entry at $67. Need some volume and conviction from investors.

Volatility Index (VIX) This week was more interesting for the index closing at 10 showing some activity, but not enough to rock stocks. The Fed comments following the FOMC meeting brings some anxiety and with it, we will watch what transpires short term.

The sectors were rotating again last week as money moves towards value stocks and bonds. We have to take it one day at a time and see how it all unfolds. The S&P 500 and Dow indexes are testing the moves to new highs and the NASDAQ is a cause for concern following its positive move higher. Our job is to let the opportunities develop… have a strategy for trading or investing in them… and then managing the process based on our belief and disciplined approach. Sounds simple? It is except for the six inches between our ears that process what we hear as it impacts our beliefs. Have a strategy for every position and trade/invest according to the strategy… don’t let the news or others sway you from the task at hand.

Daily Scan Results:

FRIDAY’s Scans (8/4): A positive day with the jobs report helping push stocks to the upside. We will take it in stride and see how the upside unfolds to start the new week. Taking it one day at a time as the future unfolds.

  • Biotech (IBB/LABU) bounced off support and watching for a follow through to the move and possible bottom reversal short term.
  • Gold Miners (GDX/DUST) negative response to the economic data and sold lower… watching how this unfolds relative to a short trade.
  • Homebuilders (ITB/NAIL0 showing positive signs again with a new high in the current uptrend. BLDR, IBP and BLD show positive breaks upside in the scan of the sector.
  • Crude Oil (USO/UCO) positive move testing with a wedge pattern at the top of the current uptrend. Watching how this unfolds in the coming week. FCG, IEO, XOP all showed possible bottom reversals?
  • Financials (XLF/FAS) upside break and continuation of the uptrend in play. Large banks (KBE) and insurance leading the sector higher (KIE).

Positive end to a lazy week for stocks… need the follow through on Monday if we are to see improvements above and across the sectors.

THURSDAY’s Scans (8/3): Not the best of days for the broad markets. The downside was modest, but the internals are a concern. Small and mid caps are showing weakness near term with a test of support. The most common pattern in the scans are topping patterns as we test the first levels of support.

  • Semiconductors (SOXX/SOXS) confirmed the move below the 50 DMA and setting up a downside opportunity.
  • Treasury Bonds (TLT/TMF) solid upside move as yields test support at 2.2%. Break higher positive for our position in the bond.
  • Biotech (IBB/LABD) downside looking positive as the bottom reversal in the short ETF shows a positive pattern.
  • Volatility Index (VXX/UVXY) upside possibility as the nervous talk rises.
  • Solar (TAN) upside still in play as buyers continue to like the sector. Leadership worth digging into.

Movement is still slow and questionable as it relates to the broad markets. Watching how this all unfolds near term. Patience is key.

WEDNESDAY’s Scans (8/2): Some positives and some negatives developing on the day… another mixed review for stocks overall. There was little activity among the sectors that changed anything. The words caution and patience remain my focus.

  • Brazil (EWZ/BRZU) the break above resistance at $33.51 hit the entry point and the follow through the last three days have been positive for the country ETF.
  • Small Caps (IWM/TZA) downside move is worthy of note. Technically it moved to the bottom of the current range, but the sentiment towards the growth sectors is shifting on the charts.
  • Semiconductors (SOXX/SOXS) showing signs of selling as moves below the 50 DMA and sentiment towards the sector mirrors the small caps relative to growth stocks. Watching how this unfolds for possible short trade.
  • REITs (IYR/SRS) short side showed some muscle, but still in the uptrend and within the trading range. Watching for investors response moving forward. Uptrend still the bias.
  • Technology (XLK/TECL) upside showed positive signs for the sector overall despite the move in semis. AAPL was the big mover in the sector accounting for the bulk of the positive move overall.

Caution, patience and discipline define our approach for the near term.

TUESDAY’s Scans (8/1): a positive day as money flow higher to start the month. Plenty of questions and looking for the leadership.

  • Financials (XLF/FAS) posted positive upside and attempting to break from the current pattern again. Insurance (KIE) and large banks leading the upside move. Sum of the parts makes up the whole. Look for the leaders.
  • China (GXC/YINN) upside still in play and stops need to be adjusted to $93.50. HTHT, CTRP, BZUN, BABA, and KWEB leading higher.
  • Apple (AAPL) leading the upside charge overnight on the news around iPhone 8. Watch for break above $154. XLK will benefit as well as the QQQ.
  • Biotech (IBB/LABD) break lower as $319.57 penetrated and looking at how the downside plays out near term.
  • Europe (IEV/EURL) leading upside witha break from the consolidation pattern. Watching for the follow through on the move.

Overall some positives on Tuesday and the need to follow through is key… that comes with a rational reason for investors to put more money at risk near term. Watching for the rational reason…

MONDAY’s Scans (7/31): end of the month and no changes to the lack of activity. Watching as money rotates to crude, Europe and other areas of interest. I don’t like what the current activity and watching for the opportunities in the juggling near term.

  • Crude and energy sector continues higher UCO, UGA, TAN, and others move higher. The energy stocks (XLE) are still lagging the move. Natural gas (UNG) falls more than 4% as the weakest link in the energy complex.
  • Brazil (EWZ/BRZU) breaks above the $33.50 level to show a positive move on the upside.
  • Semiconductors (SOXX/SOXS) setting up a downside trade with a break of support and the 50 DMA… patience as it unfolds.
  • Europe (IEV/EURL) upside looks attractive still in the country ETF. Euro is gaining on the weaker dollar and thus far the ECB has balanced the easy money program for a struggling economic picture.
  • China (FXI/YINN) positive upside continues for the country ETF and positive outlook on weaker dollar.

Overall not pretty, but not exactly ugly either. Watching how all the back and forth unfolds and if the upside trend continues. Stops in place and take what the market offers.

 

Sector Rotation:

  • XLB – Materials moved higher pushing above the $50 level and moving toward 2015 high. Hit the entry at $48, Stop $54.50 (STOP HIT). Moved to a new high clearing the $54 mark. Still testing support at $54 and watching how it unfolds.
  • XLU – Utilities bounce off support at the $50.88 level and have followed through nicely the last month. Entry $52.25, Stop $51. 
  • 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. Watching for now how this unfolds as sector moved back above the $31.35 mark. Entry $31.60, Stop $30.90. Some buying? Watching the $32.65 mark for the upside continuation.
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The Fed talks last week to stand still on rates put a positive reversal in play. Watching for a move above $55 to get my interest near term. Some help in the upside bounce off the low as earnings help the sector.
  • XLI – Industrials – remains in a positive uptrend since the break higher in November. Entry $67, Stop $66. The positive trend was questioned with the downside move. An uptrend in place as the money flow remains positive but watching how it starts the week.
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. There is still the issue of uncertainty towards the stocks. Held $63.70 support and bounced as the dollar weakness helps the price of crude. To many question marks for now to take any positions. Scanning the sector is the only way to trade currently up or down. NFX, DVN, MRO, HES, and APA post positive moves to end the week.
  • XLV – Healthcare hit the low and established a pivot reversal relative to rumors around the election… then the election… attempted upside move and trend reversal… but, failed to hold the move. The second attempt with double bottom worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $78.50 (adjusted). Patience is key as this unfolds. Stops in place with the run higher and test. Trading in a range for now. 
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend breaks short term and test of support at the $54.75 mark in play. Entry $48.50. Stop $56 (adjusted). Semiconductor weakness is the key to how this unfolds near term… they bounced and so did the sector. Give room for this trade to work upside. 
  • XLF – Financials pushed lower on earnings and Fed talk on interest rates. Earnings were good… not great, but worrisome in light of the Fed. That failed to impact the stocks and thus, the downside was in play. Entry $23.85, Stop $24.50 (adjusted). The break above that range was positive as the upside showed some strength, but still cautious as seen in the stalled move. Patient for now. Money rotation as investors look for value trades versus growth.
  • XLY – Discretionary Consumer broke above resistance with a positive trek higher. Entry $83.50. Stop $88.50 (adjusted). Had a positive break to new highs and some leadership from the sector to boot… testing that move at support as the topping pattern unfolds. Cleared $90 resistance and watching. 
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as money made some rotation. 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%. Tested the bottom end of the range and bounced on the Fed comments and now has room to breathe again… patience is key. Traded sideways for the week.

Rotation is back as the Fed talk on interest rates, a weaker dollar, weaker economic picture, and earnings are all pushing money around. I am cautious and optimistic on some sectors and avoiding other. Interesting rumblings about the FOMC meeting as money rotates in response to the action taken. The weaker dollar favors the multinationals and commodities… watching how this will unfold near term. The negative movement in technology, biotech, and semiconductors got the attention of traders… watching how the week unfolds with the rise in volatility in play.

FINAL NOTES:

 

Investors are nervous plain and simple. Volume is lagging. Data is positive overall for earnings and the winners are being rewarded. Money is rotating to value versus growth. 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 Proverb.

Investor turn cautious on Fed

By | Jims Notes, Outlook, Research Post | No Comments

OUTLOOK: Week of July 31st

Volatility to end the week as the investor put forth some delayed reaction to the FOMC meeting. The VIX reached 11.5 intraday after moving below 9 prior to the meeting earlier in the week. This is not a huge move, but in light of where we have been the last two weeks, it seems like an earthquake hit… We will watch to see how this unfolds in the coming week and deal with the speculation and outcome if it impacts our positions. Crude oil rose 8.6% for the week to set the tone on the upside. The Dow was up 1.1% for the week as the large cap stocks led the major indexes. The transports (IYT) were the weakest link losing 2.6% among the major indicators. The bottom line for the week was speculation revolved around the Fed and their stance on interest rates and the liquidation of their balance sheet. No answers yet, but it having an impact on the markets overall as money rotates in response to the FOMC meeting.

Two sectors ended Friday on the upside with healthcare (XLV) and industrials (XLI) leading the upside. The same indecision was present on Friday as Thursday with a lack of clarity where money was moving other than crude oil (USO). The dollar found some buyers on the day despite the recent selling and the believers are growing relative to an upside move. Treasury bonds (TLT) still ended the week lower despite the dovish comment from the Fed. Watching how they respond to the $122.75 support level based on the current activity. On the downside, telecom (IYZ) led along with consumer staples (XLP) and consumer discretionary (XLY). The outlook for stocks remains mixed based on what investors believe near term about the economic outlook and the Fed actions. The S&P 500 index closed down 3.3 points to close at 2472 holding near the new highs. The leadership for the index Friday came from ALGN (gap up and continuation of the uptrend), MHK (Gap and move back to previous highs), COL (gap up and break from consolidation), LYB (positive uptrend continues), and HIG (break out from up trending channel). Earnings are driving the gaps higher and the upside favors the news of the week. Gold (GLD) moved through the $120.45 resistance to end the week as Fed sets the tone for the metal along with a weak dollar. The dollar (UDN) moved lower on the dovish outlook from the Fed and their shift to liquidate their balance sheet. The emerging markets (EEM) gapped higher from the trading range to new high and holding a move sideways. The Volatility Index (VIX) closed at 10.2 with intraday activity in response to the uncertainty again. Watching how it unfolds and what opportunities it presents if it continues higher. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans for Friday were energy biased as the balance of the markets lacked direction overall. Crude oil (USO) continues to lead the upside moves and it is impacting the sector overall. Biotech (IBB) bounced to recapture some of the selling on Thursday but still is subject to news as the Senate failed to pass healthcare reform. China internet (KWEB) continued the move higher. Brazil (EWZ) moved back to the top of current range and resistance at $37.35. Treasury bonds (TLT) bounced off support and looking at a possible double bottom pattern. Solar (TAN) continued uptrend with a solid move higher. Gasoline (UGA) following crude higher. Europe (IEV) continues the positive uptrend. Healthcare (XLV) made a positive upside move on Friday but remains under pressure from the Senate vote. It is important to follow the money and not your emotions. Some rotation in place and some pattern breaks and setups currently based on the rotation. Taking what the market gives and watching for trends, reversals, support, and volume… they will lead you to what is moving and the best opportunities for trades currently.

The was FOMC week and the outcome is still working through investor activity relative to belief and rotation of money. Crude oil remains the leader with the commodity up more than 8% on the week… energy (XLE) however, has not followed the leadership gaining only 2% for the week. Investors, like me, don’t believe in the move. I am willing to trade crude, but not the stocks. The undercurrent of worry has returned along with some speculation on where the markets move near term. The VIX index has moved off the lowest point reacting to the chatter about Fed activity impacting stocks looking forward. There is plenty to ponder both positive and negative going forward. Earnings are helping with individual stocks, but not the sectors. As seen in tracking the S&P 500 leadership the biggest moves have come from positive earnings. Volume was higher for the week, but most of it in reaction to the FOMC notes. Data is still not driving… news and speculation are. The key word remains to be PATIENCE. Not something many traders like. We all want to believe we can see forward, but the reality is we can only see today. Thus, we 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 is the focus of traders. The Senate failed to pass healthcare reform and now we watch for the impact. Entry at $319.57, Stop $316 (adjusted). The positive bounce on Friday kept the sector above the entry price as we move to a new week of trading.

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… The shift in outlook for the Fed holding rates steady for now has shifted money back to the REITs. We continue to focus on managing our risk and collecting our dividend as this all unfolds. This is a growth and dividend holding with a 4.2% dividend currently. Entry at $75.75. Stop $76.25 (adjusted).

Treasury yields moved back to the 2.4% level as the Fed talked of raising interest rates. The move to 2.23% came on the comments from Ms. Yellen and the Fed taking on a more dovish role towards rates. Just when you thought it was safe to go back into the water… the Fed changes its mind. TLT rallied on the comments and watching for the opportunity to unfold on a follow through. $124.10 entry, stop $122.

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 heading towards the $120 target hit Friday. All indicators point towards a continued move higher near term. Stop $117.

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 move above $48 this week brought plenty of speculation and the bottom reversal on the double bottom pattern is in full bloom. Entry hit at $47.50, stop $44.35. Taking what the commodity gives and not asking any questions… purely managed as a technical trade.

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The move lower and test of the $63.70 level kept the downside in question… but, the bounce on the rise in crude only adds to the confusion. $66.25 level to watch for opportunity. Close above it and looking for follow through and entry at $67. Need some volume and conviction from investors.

Volatility Index (VIX) This week was more interesting for the index closing at 10.2 after testing new lows earlier in the week. The Fed comments following the FOMC meeting brings some anxiety and with it, we will watch what transpires short term. Close above 12 will be of interest.

The sectors were rotating again last week as the comments from Yellen and Fed put money in motion. The dollar is having an impact on movement as well with the buck continuing to decline as there is little to no support from the Treasury. As seen above there is plenty of movement to discuss and some worth taking positions…

From the scans… UCO (nice follow through above $15.08 entry), KWEB (nice upside in play), KRE (positive move then negative response to the Fed), YINN (holding near the highs), SOXL (made move higher and reversed on Thursday), SOCL (negative move on Thursday worth note) and QLD (leading upside move with big volatility on Thursday).

JJC (verticle move higher), TMF (positive response to the Fed in question), ERX (looking for positive follow through $26.72 level to clear.), XME (positive uptrend in question), FCG (double bottom break out), and TNA (stalled and testing the upside move).

Gold Miners (GDX), silver (SLV, SIL), and Europe (IEV) all adding positive moves.

Watching how all of it unfolds and where the opportunities lie. The S&P 500 and Dow indexes are testing the moves to new highs and the NASDAQ is a cause for concern following its positive move higher. Our job is to let the opportunities develop… have a strategy for trading or investing in them… and then managing the process based on our belief and disciplined approach. Sounds simple? It is except for the six inches between our ears that process what we hear as it impacts our beliefs. Have a strategy for every position and trade/invest according to the strategy… don’t let the news or others sway you from the task at hand.

Daily Scan Results:

FRIDAY’s Scans (7/28): lack luster day of trading as investors juggle for position in reaction to the FOMC meeting. All things are in question expect oil prices and a weaker dollar. The impact to commodities and stocks are raising speculation… proceed with caution as it unfolds.

  • Crude Oil (USO/UCO) uptrend continues and adjusting stops on any trades in and around the commodity. Gasoline (UGA) moved higher as well.
  • Copper (JJC) positive gap higher holding at the current levels and watching how it unfolds near term. FCX is trade to watch in response to the move.
  • Treasury Bonds (TLT/TMV) upside? Watching how it unfolds with the Fed turning positive or dovish on yields. Bond dump from their balance sheet is in question relative to the impact on bond prices and yields.
  • China Internet (KWEB) positive uptrend continues.
  • Gold (GLD/UGL) upside remains the direction of choice with another move higher clearing the next level of resistance.

More moves of interest looking forward… TAN, RUSS, GDX, ULE, CURE, KIE, ITA, UND, GXC…

THURSDAY’s Scans (7/27): Mixed response and follow through to the Fed meeting. Interest rates rose, the dollar rose, crude rose and biotech fell along with technology. We have to take it for what it is… speculation and watch how it all unfolds in the coming days.

  • Biotech (IBB/LABD) downside move raises question short term on direction. The break of the $319.57 support is on my list today.
  • Semiconductors (SOXX/SOXS) downside move was of interest as the leadership for both technology and the NASDAQ are key. Watching how this unfolds.
  • Crude Oil (USO/UCO) remains positive as the believers take control near term. Energy (XLE/ERX) moved higher as well, but still not convincing in the move.
  • Question marks in IWM, RSX, EEM, and TLT. Watching these sector moves as indicators near term.
  • Gasoline (UGA), natural gas (UNG, FCG), retail (XRT), oil services (OIH), oil exploration (IEO), telecom (IYZ) and consumer discretionary all made positive upside moves to watch near term.

Watching how investors respond overall to the Fed and the data. Earnings adding an interesting mix with some positive numbers helping. One day at a time with the news being digested.

WEDNESDAY’s Scans (7/26): Fed puts in motion their plan to divest their balance sheet causing rates to decline, dollar to decline, gold to rise and commodities to rise. Now let the speculation begin as to what all of this means for stocks. Short term the response is positive, but we have to remain cautious and diligent in our process of managing our money.

  • Gold Miners (GDX/NUGT) upside set into motion on the Fed action or inaction towards interest rates. Watching how it follows through.
  • Siver (SLV/SIL) upside in play with the reversal complete and positive momentum on the Fed.
  • Semiconductors (SOXX/SOXL) reversal complete? Looking for the upside follow through on the move near term.
  • Financials (XLF/FAZ) downside in play? speculation says yes and we will watch to see how the sector responds to the move by the Fed.
  • Chinese Internet (KWEB) continuation of the upside move in play with solid gains on Wednesday… China (GXC/YINN) doing well also.

Patience is the key for now as we head towards the new future created by the Fed… at least for now.

TUESDAY’s Scans (7/25): Positive day as earnings were the driver for some upside and the commodities for the other. Throw in some negative from healthcare and the Senate vote and you have the drivers for the day. The question is sustainability in the face of all the negative sentiment from the investment community and media. Watching and managing what the market gives.

  • Crude Oil (UCO/USO) upside follows through and entry hit for the commodity.
  • Energy (XLE/ERX) upside moves in response to oil finally… looking for the next opportunity if the upside follows through. $26.30 on the close is of interest.
  • Copper (JJC) gapped higher and FCX followed as a leading indicator.
  • Small Caps (IWM/TNA) holding the move above $57.46 and finally added to the upside move on Tuesday.
  • Financials (FAS/XLF) nice move from the consolidation and looking for follow through. FOMC meeting results will have an influence on the sector.
  • Retail (XRT) double bottom pattern in play with a move above the $41 level trade opportunity.

Still plenty of questions as the market unfolds… answers are still few and far between as speculation remains the driver… watch the Fed today.

MONDAY’s Scans (7/24): More mixed reviews from the market, but the upside bias is still in place and the bigger question remains around the catalyst that will or will not move the markets up or down. Patience with all the news on tap the next few days.

  • Natural Gas (UNG/DGAZ) More downside for the commodity and the trade entry was hit at the $26.24.
  • Crude Oil (USO/UCO) the $15.01 level is where the move needs to go if the upside is going to make it near term. Proceed with caution.
  • Russia (RSX/RUSS) downside in the country ETF is building again after moving up nicely over the last month. Watching how this unfolds.
  • Social Media (SOCL) nice move back to the current highs and the uptrend is fully in play. Move above $30.50 a positive for the current trend.
  • NASDAQ 100 (QQQ/QLD) breaking to new highs and the old regime is leading the way as large caps renew their strength and influence over the index.

Practicing patience and looking for the next best opportunity the market presents.

Sector Rotation:

  • XLB – Materials moved higher pushing above the $50 level and moving toward 2015 high. Hit the entry at $48, Stop $54.50. Moved to a new high clearing the $54 mark, tested move on Friday.
  • XLU – Utilities bounce off support at the $50.88 level and have followed through nicely the last two weeks. This week the sideways movement is the result of the Fed and FOMC meeting. Let the anxiety work out near term. Entry $52.25, Stop $51. 
  • 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. Watching for now how this unfolds as sector moved back above the $31.35 mark. Entry $31.60, Stop $30.90. Some buying? watching how the bottoming process plays out with some positive earnings data.
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The Fed talks last week to stand still on rates put a positive reversal in play. Watching for a move above $55 to get my interest near term. Some help in the upside bounce off the low as earnings help the sector.
  • XLI – Industrials – remains in a positive uptrend since the break higher in November. Entry $67, Stop $66. The positive trend was questioned on Friday with the downside move. An uptrend in place as the money flow remains positive but watching how it starts the week.
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. There is still the issue of uncertainty towards the stocks. Held $63.70 support and bounced as the dollar weakness helps the price of crude. To many question marks for now to take any positions. Scanning the sector is the only way to trade currently up or down. A small bounce in response to the commodity move. Clears $66.60 there is some interest in an upside trade.
  • XLV – Healthcare hit the low and established a pivot reversal relative to rumors around the election… then the election… attempted upside move and trend reversal… but, failed to hold the move. The second attempt with double bottom worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $78.50 (adjusted). Patience is key as this unfolds. Stops in place with the run higher and test. Watching how this unfolds. 
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend breaks short term and test of support at the $54.75 mark in play. Entry $48.50. Stop $54 (adjusted). Semiconductor weakness is the key to how this unfolds near term… they bounced and so did the sector. Give room for this trade to work upside. 
  • XLF – Financials pushed lower on earnings and Fed talk on interest rates. Earnings were good… not great, but worrisome in light of the Fed. That failed to impact the stocks and thus, the downside was in play. Entry $23.85, Stop $24.50 (adjusted). The break above that range was positive as the upside showed some strength, but still cautious as seen in the stalled move. Patient for now. The higher interest rate gig is off the table from the Fed. A negative response to the Fed announcement. 
  • XLY – Discretionary Consumer broke above resistance with a positive trek higher. Entry $83.50. Stop $88.50 (adjusted). Had a positive break to new highs and some leadership from the sector to boot… testing that move at support as the topping pattern unfolds. Cleared $90 resistance and watching. 
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as money made some rotation. 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%. Tested the bottom end of the range and bounced on the Fed comments and now has room to breathe again… patience is key. A positive response to the Fed.

Rotation is back as the Fed talk on interest rates, a weaker dollar, weaker economic picture, and earnings are all pushing money around. I am cautious and optimistic on some sectors and avoiding other. Interesting rumblings about the FOMC meeting as money rotates in response to the action taken. The weaker dollar favors the multinationals and commodities… watching how this will unfold near term. The negative movement in technology, biotech, and semiconductors got the attention of traders… watching how the the week unfolds with the rise in volatility in play.

FINAL NOTES:

The market transitioned with the movement of money or rotation still very much in play. The Fed talk on interest rates helped REITs, utilities, telecom, and other interest sensitive sectors bounce off the current lows. Financials struggle on earnings and Fed interest rates talks. Crude moved lower on speculation about supply… again. There is always money in motion and opportunities in the move both short and long term. We have to let it all unfold. The rationale for the moves currently means investors are willing to follow the news and rationale for moving money. The question lies in their conviction or is it just hot money chasing returns. Healthcare is a benefactor of late on speculation around changes coming from Washington… We have to remain patient and make strategic decisions based on planned trades. The longer term charts are still in an uptrend with some rotation in the activity last week. Sectors remain mixed on the week with some higher and some testing the uptrends. There are plenty of opinions on how this will play out moving forward but I am willing to put my stops in place and let the market decide how and when the music stops and everyone scrambles for safety. Earnings are mixed and adding some interest in on a stock by stock basis versus the whole. The broad markets remain news driven and looking for the longer term catalyst and belief. The short-term trend off the November lows had a dip and then some sideways movement to a new high. Keep your stops in place and let the opportunities present themselves up or down. Practice patience as this all unfolds day-to-day.

The longer term trend off the February 2016 low is fully intact on the upside. Don’t forget the longer term view can offer greater clarity than the short term news. Sectors to watch moving forward: 1) Healthcare and the outcome of any reform… the belief has been for that to materialize and any action in Congress will be key… the volatility as it is entertained by the Senate… puts it back in the news. Watching biotech (IBB) and all the components of this sector as it broke near term support and bounced back on news. 2) Financials were the leader from the November low and then failed as interest rates remained low. The move higher on Fed talk relative to higher rates is now in jeopardy as the Fed now believes rates will remain low long term. The downside risk is rising on those comments and we will have to manage the money accordingly.  3) Energy remains a sector under pressure from supply and demand… too much supply and not enough participation in cutting or limiting supply. Watching how the short term impacts the longer term view currently. Energy stocks posted some gains this week on the heels of the rise in crude relative to the weaker dollar. 4) Telecom and consumer staples bounced as the interest rate talk from the Fed offered an olive branch to them on the upside. 5) Emerging markets found renewed hope with the weaker dollar positive money flow to the global market. For now, it has taken a leadership role in the short term trend off the December low positive. China is leading the upside charge. 6) Semiconductors are a bellwether for the growth stocks and they turned lower leading tech down as well as the NASDAQ. The test of support in SOXX, XLK and QQQ held, bounced, and are in place to resume the upside leadership. 7) The dollar is becoming a bigger story line than I would like. The drop is on the heels of Washington wanting a weaker currency for better export opportunities. It has never worked in history to devalue currency for growth. The move has helped gold, emerging markets, and the bond. Bigger declines last week in the buck are negative and there is no help from the Fed on the horizon… watch how this all unfolds and managing our stops on all positions daily.

ONE DAY at a time is the key for now. Take a longer term view for your overall portfolio and manage the risk of your short term trades accordingly. See you next week.

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Mixed week for stocks with upside bias still in play

By | Jims Notes, Outlook, Research Post | No Comments

OUTLOOK: Week of July 24th

The week ends with another mixed day as investors continue to look for a catalyst to sustain the move to new highs. Interest sensitive sectors continue to take the leadership role on comments from the central banks relative to interest rates. The news driven market theme continues with plenty of speculation and conversation on what happens next. The reality is no one knows… it is a matter of collective belief by investors that will determine the trends both short term and long term. For now, the bias still remains with the buyers.

Five sectors ended Friday on the upside with telecom (IYZ) and utilities (XLU) leading the upside and energy (XLE) and industrials the losers on the downside. The interest sensitive sectors continue to add as they recover from the selling from the hike in interest rates from the Fed. The financials (XLF) continue to lag near term with the Fed statements on being in a holding pattern puts out the fires about higher rates. The rotation to telecom and utilities for the week was evident in the chart and the 2%+ gains posted. The S&P 500 index closed unchanged at 2472 and holding near the new highs. The leadership for the index last week came from VRTX (gap up and breakout), NFLX (double bottom gap higher), SNI (bottoming pattern gap higher), CTAS (descending triangle breakout), and COF (reversal gap higher). Earnings influenced the leaders last week in a positive way among the leaders. Watching for the opportunities from this as we move forward. Gold (GLD) bottoming progress with a gap above the $115.86 level and to the $117.38 resistance cleared on Friday as the buyers step back into the metal. The dollar (UUP) remains lower on the dovish outlook from the Fed and now the ECB on interest rates and accelerates downside to end the week. The emerging markets (EEM) gapped higher from the trading range to new high and holding. The Volatility Index (VIX) closed at 9.36 as Fed and ECB make everyone happy about the outlook for the economy and interest rates. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans for Friday showed some reaction to energy prices with natural gas (UNG) and crude (USO) moving lower on the day. The move impacted energy (XLE) stocks on the downside and energy sensitive countries like Russia (RSX).  Biotech (IBB) broke higher from the flag pattern and continuation of the upside trend. Gold miners (GDX) continue the move off the bottom and in a position to break the downtrend off the February high. Treasury bond (TLT) continue to rally on the Fed outlook for interest rates near term. Utilities (XLU) and telecom (IYZ) are equal benefactors of the move along with REITs (IYR). Healthcare (XLV) attempting to complete the cup pattern in the current uptrend. The euro (ULE) is climbing nicely as the dollar falls (UDN). The volatility index (VXX) continues to show little to no anxiety with money in a mild rotation near term. It is important to follow the money and not your emotions. Some rotation in place and some pattern breaks and setups currently based on the rotation. Taking what the market gives and watching for trends, reversals, support, and volume… they will lead you to what is moving and the best opportunities for trades currently.

The comments from Yellen created a shift in sentiment and mindset of how this all unfolds short term. The ECB made similar comments from the central bank and added to the push for lower rates and rotation to sectors benefitting from such a move. The undercurrent of worry has been replaced with greed to rotate where money benefits from the current beliefs. The VIX index has moved to the lowest points again as the market follows the pied piper Fed. There is plenty to ponder both positive and negative going forward. Earnings started and like the markets have seen mixed response. As stated above the biggest moves have come from positive earnings. The financials positives have been offset with the Fed view on interest rates. Volume is moving lower, commodities are a benefactor of the weaker dollar, emerging markets are benefitting from the dollar, and the euro is spiking higher. The data is weaker, earnings are a question mark, but stocks moved to new highs on the week. The key word remains to be PATIENCE. Not something many traders like. We all want to believe we can see forward, but the reality is we can only see today. Thus, we 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. Despite all the talk, the buyers have been willing to hold the line and put money to work when the opportunity is right. Keep your stops in place and eyes focused on the horizon taking what the market gives. The market remains a challenge overall with the yo yo effect in full bloom.

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 overall has the attention of traders.The flag pattern held the $309 support level and bounced back to the previous highs and moving through resistance to end the week. Entry at $319.57, Stop $309. Positive week for the sector overall.

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… The shift in outlook for the Fed on holding rates steady now has shifted money back to the sector. We continue to focus on managing our risk and collecting our dividend as this all unfolds. This is a growth and dividend holding with a 4.2% dividend currently. Entry at $75.75. Stop $76.25 (adjusted).

Treasury yields moved back to the 2.4% level as the Fed talked of raising interest rates. The move to 2.23% this week came on the comments from Ms. Yellen and the Fed taking on a more dovish role towards rates. Just when you thought it was safe to go back into the water… the Fed changes its mind. TLT rallied on the comments and watching for the opportunity to unfold on a follow through. $124.10 entry, stop $122.

Gold (GLD) Gold remains in a long-term uptrend. 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 heading towards the $120 target currently. All indicators point towards a continued move higher near term. Stop $117.

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 move to $42 brought plenty of speculation, but the bottom reversal moved back to $46.50 and a double bottom pattern. Watching as the commodity continues to be at a point of indecision and volatility on the news as seen on Friday’s selling. There is no clarity short term and watching how it unfolds without a position currently.

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The move lower and test of the $63.70 level kept the downside in question… but, the bounce on the rise in crude only adds to the confusion. $66.25 level to watch for opportunity.

Volatility Index (VIX) This week was more interesting for the index closing at 9.38 and near the lows as no one seems to show interest in worrying about the current trend of the markets. There is not enough movement outside of spikes to warrant any changes in the near-term outlook. Watching patiently to see if anxiety picks up or if investors remain content with the status flow. SVXY in Play. 

The sectors were rotating again this week as the comments from Yellen and ECB puts money in motion. The bounce in telecom (IYZ), utilities and REITs (IYR) thanks to interest rate talks from Fed. Financials (XLF) were weaker on earnings and the talk on interest rates. Emerging markets (EEM), euro (FXE), gold (GLD), agriculture (DBA), metals (DBB), and silver (SLV) all moved higher on the weaker dollar (UDN). This is a point of inflection for the markets and one to validate on the charts and not just on the news. Watching how all of it unfolds and where the opportunities lie. The S&P 500 and Dow indexes moved to new highs with lower volume in place. Our job is to let the opportunities develop… have a strategy for trading or investing in them… and then managing the process based on our belief and disciplined approach. Sounds simple? It is except for the six inches between our ears that process what we hear as it impacts our beliefs. Have a strategy for every position and trade/invest according to the strategy… don’t let the news or others sway you from the task at hand.

Daily Scan Results:

FRIDAY’s Scans (7/21): Another mixed day of rotations and watching how the news pushes money to where it will be treated the best the fastest. The long term charts still show upside trends and the Fed influence is keeping the trend positive.

  • Natural Gas (UNG/DGAZ) downside returns for the commodity. Short side setup again presents an opportunity for a follow through move.
  • Crude Oil (USO/SCO) negative move returns as the price of crude declines on Friday. Watching how that unfolds. Energy (ERY) short trade also in place if the price of crude follows through on the downside move.
  • Biotech (IBB/LABU) upside break from the consolidation pattern is positive for the sector and continuation of the uptrend.
  • Gold Miners (GDX/NUGT) upside in play near term, but the downtrend line is what to watch off teh February high. Break higher would validate the reversal and positive uptrend opportunity.
  • Treasury Bonds (TLT/TMF) upside is back with the Yellen comments on interest rates. Entry hit at $21 for upside trade.

Some other charts to watch this week… ULE, SLV, SLVP, CURE, TAN, XLU, RUSS, QLD.

THURSDAY’s Scans (7/20): Another boring day as indexes remain content for now.

  • Biotech (IBB/LABU) upside bias that needs to break above the $72 level to keep upside in play.
  • Healthcare (XLV/CURE) hit $44.65 previous high and looking to follow through as the sector remain positive.
  • Utilities (XLU/UPW) upside in play on the Fed interest rates stance. Taking the trade for what it is… news in motion.
  • Europe (IEV/EURL) rally on the ECB comments… similar to US Treasury comments… same results… positive for the stocks.
  • Euro (ULE) upside on weaker dollar accelerating.

Overall this is a trading market with moves driven by news and speculation… that is fine as long as you have a strategy to trade the news. Upside bias remains in place as the central banks intervene to keep the rally going.

MONDAY’s Scans (7/17): Boring day without much to discuss. The scans were boring and the outlook remains the same of wait and see… the earnings and economic data have not been enough to drive and now we watch to see how it all unfolds.

  • Natural Gas (UNG/UGAZ) small bounce and still in bottoming pattern.
  • Gold Miners (GDX/NUGT) small bounce in response to the price of gold moving higher.
  • Silver (SLV) positive coattail riding for the metal.
  • Copper (JJC) nice follow through on the upside move.
  • Miners (XME) solid move to the upside following the break through resistance at the $30.50 level.

Practicing patience for now and watching how tomorrow unfolds.

FRIDAY’s Scans (7/14): A positive day with the rotation based on the Fed comments and investors beliefs. Take what the market gives… nothing more, and avoid the speculation that is present.

  • Biotech (IBB/LABU) positive week… worth scanning the leaders for the opportunities. FOLD, HRTX, SGMO, FLXN, and PRTA are some that showed up.
  • China (GXC/YINN) the upside gaps are coming from a weaker dollar and money looking for the best home short term. Cleared the $23.18 mark and has not looked back yet.
  • NASDAQ 100 (QQQ/TQQQ) downtrend channel looking for upside move if the rally continues in the broad markets… $108 level to break. NVDA, WDC, CTRP, EBAY, and PYPL showing positive leadership currently.
  • Financials (XLF/FAZ) earnings not great, interest rate talk from the Fed and a sector that lacks buyers is now on the ropes heading into next week. $16.95 entry for a short trade is now of interest… watch, patience, and execution strategy are key.
  • Semiconductors (SOXX/SOXL) positive ‘V’ bottom and looking for a follow through on the move above $96. Entry if the trade follows through.
  • Energy (XLE/ERX) another bottom reversal attempt… if oil climbs on the weaker dollar the upside trade holds some opportunity. $26.25 level to watch for a trade. APA, CHK, DVN, HAL, and RIG all showing positive moves.

Markets are in transition again as the Fed repositions the outlook for interest rates and the economic picture. Watching how it unfolds to start the week and focused on the opportunities with a cautious approach and strategy.

Sector Rotation:

  • XLB – Materials moved higher pushing above the $50 level and moving toward 2015 high. Hit the entry at $48.50 with a stop at $52.75 (adjusted and taken on Wednesday). It has now moved to a new high clearing the $54 mark, tested and hit a new high on Friday.
  • XLU – Utilities broke above the $52 to clear the sideways trading range finally. Took exit at $52.75 as the selling is still in question despite the bounce on Friday off support at the $50.88 level. Still looking for the opportunity in the move. The interest rate talk from the Fed could help it we move above the $52.25 level I have interest. Fed comments are positive for bonds… rally on. Entry $52.25, Stop $51. 
  • 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. Watching for now how this unfolds as sector moved back above the $31.35 mark. Entry $31.60, Stop $30.90.
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The Fed talks last week to stand still on rates put a positive reversal in play. Watching for a move above $55 to get my interest near term.
  • XLI – Industrials – remains in a positive uptrend since the break higher in November. Entry $67, Stop $66. The positive trend was questioned on Friday with the downside move. An uptrend in place as the money flow remains positive, but watching how it starts the week.
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. There is still the issue of uncertainty towards the stocks. Held $63.70 support and bounced as the dollar weakness helps the price of crude. To many question marks for now to take any positions. Scanning the sector is the only way to trade currently up or down.
  • XLV – Healthcare hit the low and established a pivot reversal relative to rumors around the election… then the election… attempted upside move and trend reversal… but, failed to hold the move. The second attempt with double bottom worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $78.50 (adjusted). Patience is key as this unfolds. Stops in place with the run higher and test. The bounce off support is a positive, but not convincing… Senate vote looms as well. Upside riding on speculation of reform still in place. 
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend breaks short term and test of support at the $54.75 mark in play. Entry $48.50. Stop $54 (adjusted). Semiconductor weakness is the key to how this unfolds near term… they bounced and so did the sector. Give room for this trade to work upside. 
  • XLF – Financials pushed lower on earnings and Fed talk on interest rates. Earnings were good… not great, but worrisome in light of the Fed. That failed to impact the stocks and thus, the downside was in play. Entry $23.85, Stop $24.50 (adjusted). The break above that range was positive as the upside showed some strength, but still cautious as seen in the stalled move. Patient for now. The higher interest rate gig is off the table from the Fed.
  • XLY – Discretionary Consumer broke above resistance with a positive trek higher. Entry $83.50. Stop $88.50 (adjusted). Had a positive break to new highs and some leadership from the sector to boot… testing that move at support as the topping pattern unfolds. Cleared $90 resistance and watching. 
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as money made some rotation. 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%. Tested the bottom end of the range and bounced on the Fed comments and now has room to breathe again… patience is key.

Rotation is back as the Fed talk on interest rates, a weaker dollar, weaker economic picture, and earnings are all pushing money around. I am cautious and optimistic on some sectors and avoiding other. As stated above we will take what the market offers and trade with tighter stops as money looks for the best opportunity. Disciplined strategies are the key to keeping your money versus rolling the dice and hoping for the best.

FINAL NOTES:

The market transitioned with the movement of money or rotation still very much in play. The Fed talk on interest rates helped REITs, utilities, telecom, and other interest sensitive sectors bounce off the current lows. Financials struggle on earnings and Fed interest rates talks. Crude moved lower on speculation about supply… again. There is always money in motion and opportunities in the move both short and long term. We have to let it all unfold. The rationale for the moves currently means investors are willing to follow the news and rationale for moving money. The question lies in their conviction or is it just hot money chasing returns. Healthcare is a benefactor of late on speculation around changes coming from Washington… We have to remain patient and make strategic decisions based on planned trades. The longer term charts are still in an uptrend with some rotation in the activity last week. Sectors remain mixed on the week with some higher and some testing the uptrends. There are plenty of opinions on how this will play out moving forward but I am willing to put my stops in place and let the market decide how and when the music stops and everyone scrambles for safety. Earnings are mixed and adding some interest in on a stock by stock basis versus the whole. The broad markets remain news driven and looking for the longer term catalyst and belief. The short-term trend off the November lows had a dip and then some sideways movement to a new high. Keep your stops in place and let the opportunities present themselves up or down. Practice patience as this all unfolds day-to-day.

The longer term trend off the February 2016 low is fully intact on the upside. Don’t forget the longer term view can offer greater clarity than the short term news. Sectors to watch moving forward: 1) Healthcare and the outcome of any reform… the belief has been for that to materialize and any action in Congress will be key… the volatility as it is entertained by the Senate… puts it back in the news. Watching biotech (IBB) and all the components of this sector as it broke near term support and bounced back on news. 2) Financials were the leader from the November low and then failed as interest rates remained low. The move higher on Fed talk relative to higher rates is now in jeopardy as the Fed now believes rates will remain low long term. The downside risk is rising on those comments and we will have to manage the money accordingly.  3) Energy remains a sector under pressure from supply and demand… too much supply and not enough participation in cutting or limiting supply. Watching how the short term impacts the longer term view currently. Energy stocks posted some gains this week on the heels of the rise in crude relative to the weaker dollar. 4) Telecom and consumer staples bounced as the interest rate talk from the Fed offered an olive branch to them on the upside. 5) Emerging markets found renewed hope with the weaker dollar positive money flow to the global market. For now, it has taken a leadership role in the short term trend off the December low positive. China is leading the upside charge. 6) Semiconductors are a bellwether for the growth stocks and they turned lower leading tech down as well as the NASDAQ. The test of support in SOXX, XLK and QQQ held, bounced, and are in place to resume the upside leadership. 7) The dollar is becoming a bigger story line than I would like. The drop is on the heels of Washington wanting a weaker currency for better export opportunities. It has never worked in history to devalue currency for growth. The move has helped gold, emerging markets, and the bond. Bigger declines last week in the buck are negative and there is no help from the Fed on the horizon… watch how this all unfolds and managing our stops on all positions daily.

ONE DAY at a time is the key for now. Take a longer term view for your overall portfolio and manage the risk of your short term trades accordingly. See you next week.

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

New highs and plenty of questions

By | Jims Notes, Outlook, Research Post | No Comments

OUTLOOK: Week of July 17th

The markets are embracing a bad-is-good mindset as economic data is weaker allowing the Fed to hold to the ‘new normal’ mindset of low-interest rates for a long time. The belief sent the S&P 500 and Dow to new highs, mid and small caps jumped higher along with the NASDAQ. The belief that bad news is good news creates more questions and raises the caution flag higher from my view. That said, we still follow the trend, but we tighten our stops according to the risk. I am still on the take what the market gives strategy as the volume moves lower and the insanity continues.

Ten sectors ended Friday on the upside with financials (XLF) the one loser on the day. That is expected with the theme of lower interest rates and weaker earning from JPM, C, GS, and WFC. Watching how this unfolds next week. The upside was led by telecom (IYZ), REITs (RWR) and consumer staples (XLP)… all the laggards and interest sensitive sectors bounced on the news of the day. The S&P 500 index posting an 11.4 point rise to close at 2459 and a new high again. The leadership for the index came from NTAP (trend reversal clearing %40.42 and gapping to new high), NRG (continuation of the breakout gap), STX (bottom reversal pattern), AMD (uptrend test), and ZBH (uptrend test and new high). Gold (GLD) bottoming process gapped above the $115.86 level and back near the $117.38 resistance on the Fed influence and investor reactions. The dollar (UUP) gapped lower on the dovish outlook from the Fed on interest rates. The weakness remains as gold, commodities, emerging markets, and the euro benefit. The emerging markets (EEM) follow through on gap higher from the trading range and new high. The Volatility Index (VIX) closed at 9.5 as Ms. Yellen makes everyone happy about the outlook for the economy and Fed activity relative to interest rates. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans for Friday offered more interesting moves. Gold miners (GDX) bounced along with the bounce in gold… rising on the weaker dollar. Crude oil (USO) rose again as supply data and Fed offer opportunity to traders. China (GXC) moved higher showing positive gains and gap to new highs leading the emerging markets. KWEB remains one of the leaders for the country. Silver (SLV) showing signs of bottoming riding on the coattails of gold. Wind energy (FAN) followed through on the bottom reversal pattern. Solar energy (TAN) moved to new high from consolidation pattern. Gasoline (UGA) followed crude higher on the weaker dollar. REITs (IYR) bounced back on the Fed reversal higher rates… watching how that unfolds in the coming week. Brazil (EWZ) made a solid move to break from the saucer bottom. Biotech (IBB) bounced on the Senate news of a vote by the end of the week on healthcare reform. ( the little boy who cried wolf comes to mind.) The emerging markets (EEM) made a solid gap to new highs. Metals and Mining (XME) added solid reversal move from channeling bottom. With new bad is good mindset from investors and a rotation due to the weaker dollar… follow the money. There are plenty of pattern breaks and setups currently based on the rotation and mind shift. Take what the market gives and watch for trends, reversals, support, and volume… they will lead you to what is moving and the best opportunities for trades currently.

The comments from Yellen created a shift in sentiment and mindset of how this all unfolds short term. The dovish comments on interest rates and slower economic picture sent the dollar lower, interest rates lower, and, reversed the financials, REITs, Telecom, and consumer staples.  The undercurrent of worry has been replaced with greed to rotate where money benefits from the current beliefs. The VIX index has moved to the lowest points again as the market follows the pied piper Fed. There is plenty to ponder both positive and negative going forward. Earnings started with the banks disappointing investors. Volume is moving lower, commodities are a benefactor of the weaker dollar, emerging markets are benefitting from the dollar, and the euro is spiking higher. The data is weaker, earnings are a question mark, and investors are already nervous. The key word remains to be PATIENCE. Not something many traders like. We all want to believe we can see forward, but the reality is we can only see today. Thus, we 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. Despite all the talk, the buyers have been willing to hold the line and put money to work when the opportunity is right. Use scans to find the best opportunities both short and long term. It is important to understand that markets trade looking forward… research is based on history… until there is clarity looking forward expect uncertainty to remain. Avoid the news trades and focus on what is really happening in the underlying sectors, stocks, and data. Keep your stops in place and eyes focused on the horizon taking what the market gives. Market remains a challenge overall with the yo yo effect in full bloom. The sellers were alive and well along with the buyers last week. Patience remains the key.

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 overall has the attention of traders.The flag pattern held the $309 support level and is attempting to bounce back to the previous highs. The Senate vote is on the horizon and will impact the direction… let the chips fall and trade the sector accordingly. No positions in place currently, but watching how this unfolds on the upside at the $319 mark.

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… The ups and downs continue based on an unclear outlook for the sector. 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). The downside was prompted by the Fed’s view of hiking interest rates. The reversal this week was on the Fed’s stance becoming more dovish. We hold our positions and watch as everyone makes up their collective minds.

Treasury yields moved back to the 2.4% level as the Fed talked of raising interest rates. The move to 2.3% this week came on the comments from Ms. Yellen and the Fed taking on a more dovish role towards rates. Just when you thought it was safe to go back into the water… the Fed changes its mind. TLT rallied on the comments and watching for the opportunity to unfold on a follow through. $124.10 level to watch.

Gold (GLD) Gold remains in a long-term uptrend. The volatility within the trend is speculation and news driving money. The selling was more of the speculation as it relates to inflation anxiety easing and dollar bouncing off the lows. The move below the $115.86 support was negative, but the comments from the Fed created a move lower in the dollar again and the rally in gold was a result. $117.38 level to watch on the bounce and reversal.

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 pushing the price higher for now. The move to $42 brought plenty of speculation on what is happening near term as the longer term views remain supply related. The bottom reversal moved to $46.50 resistance and a double bottom pattern. Watching as the commodity continues to be at a point of indecision and volatility on news. Clears resistance and I am interested in a position in the commodity and the stocks.

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The move lower and test of the $63.70 level last week kept the downside trade in place… but, the bounce on the rise in crude is of interest. $66.25 level to watch for opportunity.

Volatility Index (VIX) This week was more interesting for the index closing at 9.5 after a spike higher failed to gain any strength or momentum. There is not enough movement outside of spikes to warrant any changes in the near-term outlook. Watching patiently to see if anxiety picks up or if investors remain content with the status flow. SVXY in Play. 

The sectors were rotating this week as the comments from Yellen puts money in motion. The bounce in energy (XLE) thanks to oil rising. The bounce in telecom (IYZ) and consumer staples (XLP) thanks to interest rate talks from Fed. Financials (XLF) were weaker on earnings and the talk on interest rates. Emerging markets (EEM), euro (FXE), gold (GLD), agriculture (DBA), metals (DBB), and silver (SLV) all moved higher on the weaker dollar (UDN). This is a point of inflection for the markets and one to validate on the charts and not just on the news. Watching how all of it unfolds and where the opportunities lie. The S&P 500 and Dow indexes moved to new highs with lower volume in place. Our job is to let the opportunities develop… have a strategy for trading or investing in them… and then managing the process based on our belief and disciplined approach. Sounds simple? It is except for the six inches between our ears that process what we hear as it impacts our beliefs. Have a strategy for every position and trade/invest according to the strategy… don’t let the news or others sway you from the task at hand.

Daily Scan Results:

FRIDAY’s Scans (7/14): A positive day with the rotation based on the Fed comments and investors beliefs. Take what the market gives… nothing more, and avoid the speculation that is present.

  • Biotech (IBB/LABU) positive week… worth scanning the leaders for the opportunities. FOLD, HRTX, SGMO, FLXN, and PRTA are some that showed up.
  • China (GXC/YINN) the upside gaps are coming from a weaker dollar and money looking for the best home short term. Cleared the $23.18 mark and has not looked back yet.
  • NASDAQ 100 (QQQ/TQQQ) downtrend channel looking for upside move if the rally continues in the broad markets… $108 level to break. NVDA, WDC, CTRP, EBAY, and PYPL showing positive leadership currently.
  • Financials (XLF/FAZ) earnings not great, interest rate talk from the Fed and a sector that lacks buyers is now on the ropes heading into next week. $16.95 entry for a short trade is now of interest… watch, patience, and execution strategy are key.
  • Semiconductors (SOXX/SOXL) positive ‘V’ bottom and looking for a follow through on the move above $96. Entry if the trade follows through.
  • Energy (XLE/ERX) another bottom reversal attempt… if oil climbs on the weaker dollar the upside trade holds some opportunity. $26.25 level to watch for a trade. APA, CHK, DVN, HAL, and RIG all showing positive moves.

Markets are in transition again as the Fed repositions the outlook for interest rates and the economic picture. Watching how it unfolds to start the week and focused on the opportunities with a cautious approach and startegy.

THURSDAY’s Scans (7/13): Mellow day for stocks on low volume day. Taking it for what it is and adding the positions that validate and confirm movement up or down.

  • Crude Oil (USO/UCO) making an upside move on supply data. The conviction in the trade is still questionable, but a move above the $15 level would be of interest.
  • Retail (XRT) nice bounce last two days off support. This sets up a possible double bottom trade. $40.30 the first level to clear of interest. CWH, JCP, DDS, GPS and TGT moves of interest in the sector.
  • Biotech (IBB/LABU) Flag pattern broke to upside and looking for follow through.
  • Oil Services (IEZ) bottom reversal p[attera and double bottom… if energy makes move this could lead the way higher. Watching.
  • Financials (XLF/FAS) upside in play with consolidation near the highs. Look for earnings to make or break the upside trend. I like the sector and willing to add on a move through resistance at the $51 mark.

Plenty of juggling still in place as investors look for the best opportunities. The charts are inching back towards the previous highs on optimism over the Fed stepping out of the picture near term and earnings adding a boost to stocks.

WEDNESDAY’s Scans (7/12): Not a bad day for the broad market… but the challenge remains for the leadership overall. Brazil, biotech, China and emerging markets continue the current upside moves. This remains a traders market near term.

  • Brazil (EWZ/BRZU) jumps to the upside on follow through for the country ETF. The bottom saucer breakout is a positive for the ETF.
  • Biotech (IBB/LABU) upside is a positive for the sector leaders.
  • Emerging Markets (EEM/EDC) positive break higher as the dollar continues lower.
  • China (FXI/YINN) positive break on the upside from the trading range. Entry level at the $23.25 mark positive.
  • Semiconductors (SOXX/SOXL) added to the upside bounce off the recent lows.

Overall positive day for the broad markets and watching how this unfolds near term.

TUESDAY’s Scans (7/11): Commodities, technology, and energy lead the upside move. Watching how the money is rotating to where it believes it will be treated best the fastest. Plenty of worries still in place as this all unfolds. Traders are in control as investors watch for the opportunities.

  • Natural Gas (UNG/UGAZ) follow through to the bounce Monday as the upside leads with FCG bouncing as well. $14.60 level of interest.
  • China (FXI/YINN) upside jump as money rotates back to the country ETF. KWEB also made a solid move on the upside.
  • Greece (GREK) another country ETF moved higher to add to the break above the $9.80 resistance.
  • Biotech (IBB/LABU) upside move as the Senate announced it would vote on a new reform bill this week. News driving this trade for now.
  • Miners (XME) breaking from a bottoming range at the $30.50 level. The fourth attempt may be the charm for the upside to gain momentum. Copper (JJC) is one of the drivers in the move currently.

Movement in the uncertainty is a challenge for investors. The trading opportunities are there if you have a defined strategy to approach the trades. KOL, UGA, NUGT, SOCL, IEZ and JJC all show some positive setups for trading.

MONDAY’s Scans (7/10): Some positives in the flag day overall. The commodities, technology, and homebuilders leading the upside moves. Patience as this all unfolds and the near-term direction is defined.

  • Technology (XLK/TECL) cleared $73.15 on the bottom reversal for the sector.
  • Semiconductors (SOXX/SOXL) Need to clear the $90 level to give upside trade opportunity.
  • Agriculture (DBA) ‘V’ bottom in play with need to clear the $20.20 level. CORN, SOYB, WEAT all moving higher.
  • Mexico (EWW) Cleared $54.47 resistance and offered upside trend continuation breakout move.
  • REITs (IYR/SRS) short side entry hit last week at $31.50. Nice follow through on Monday to add to the validity of the move.

A mixed bag of tricks for the markets and watching how this one unfolds near term. Patience with the entry signals and management of the positions.

 

Sector Rotation:

  • XLB – Materials moved higher pushing above the $50 level and moving toward 2015 high. Hit the entry at $48.50 with a stop at $52.75 (adjusted and taken on Wednesday). It has now moved to a new high clearing the $54 mark, tested and hit a new high on Friday.
  • XLU – Utilities broke above the $52 to clear the sideways trading range finally. Took exit at $52.75 as the selling is still in question despite the bounce on Friday off support at the $50.88 level. Still looking for the opportunity in the move. The interest rate talk from the Fed could help it we move above the $52.25 level I have interest. 
  • 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. Watching for now how this unfolds as sector failed to move back above the $31.35 mark. Needs upside momentum before I have any interest in trade.
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The Fed talks last week to stand still on rates put a positive reversal in place on Friday. Watching for a move above $55 to get my interest near term.
  • XLI – Industrials – remains in a positive uptrend since the break higher in November. Entry $67, Stop $66. The positive trend remains one of the steady sectors for the broader index. A nice uptrend in place as the money flow remains positive.
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. There is still the issue of uncertainty towards the stocks. Held $63.70 support and bounced as the dollar weakness helps the price of crude. The positive move could offer entry with a move above the $66 level.
  • XLV – Healthcare hit the low and established a pivot reversal relative to rumors around the election… then the election… attempted upside move and trend reversal… but, failed to hold the move. The second attempt with double bottom worked itself into a break above the $71.78 resistance level. Entry at $70 as cleared resistance. Stop at $78.50 (adjusted). Patience is key as this unfolds. Stops in place with the run higher and test. The bounce off support is a positive, but not convincing… Senate vote looms as well. 
  • XLK – Technology made the move back near the highs as the semiconductors bounce off support. Uptrend breaks short term and test of support at the $54.75 mark in play. Entry $48.50. Stop $54 (adjusted). Semiconductor weakness is the key to how this unfolds near term… they bounced this week and so did the sector. Give room for this trade to work upside. 
  • XLF – Financials pushed lower on earnings and Fed talk on interest rates. Earnings were good… not great, but worrisome in light of the Fed. That failed to impact the stocks and thus, the downside was in play. Entry $23.85, Stop $24.50 (adjusted). The break above that range was positive as the upside showed some strength last week, but still cautious as seen on Friday. Patient for now.
  • XLY – Discretionary Consumer broke above resistance with a positive trek higher. Entry $83.50. Stop $88.50 (adjusted). Had a positive break to new highs and some leadership from the sector to boot… testing that move at support as the topping pattern unfolds.
  • RWR – REITs reacting to the current uncertainty around the Fed and positive attitude towards risk as money made some rotation. 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%. Tested the bottom end of the range and bounced on the Fed comments and now has room to breath again… patience is key.

Rotation is back as the Fed talk on interest rates, a weaker dollar, weaker economic picture, and earnings are all pushing money around. I am cautious and optimistic on some sectors and avoiding other. As stated above we will take what the market offers and trade with tighter stops as money looks for the best opportunity. Disciplined strategies are the key to keeping your money versus rolling the dice and hoping for the best.

FINAL NOTES:

The market transitioned with the movement of money or rotation still very much in play. The Fed talk on interest rates helped REITs and other interest sensitive sectors bounce off the current lows. Financials struggle on earnings and Fed interest rates talks. Crude moved higher on a weaker dollar along with other commodities and emerging markets. There is always money in motion and opportunities in the move both short and long term. We have to let it all unfold. The rationale for the moves currently means investors are willing to follow the news and rationale for moving money. The question lies in their conviction or is it just hot money chasing returns. Healthcare is a benefactor of late on speculation around changes coming from a bill in the Senate… We have to remain patient and make strategic decisions based on planned trades. The longer term charts are still in an uptrend with some rotation in the activity last week. Sectors remain mixed on the week with some higher and some testing the uptrends. There are plenty of opinions on how this will play out moving forward but I am willing to put my stops in place and let the market decide how and when the music stops and everyone scrambles for safety. Earnings are on tap with the end of the quarter complete and we will get to see how stocks performed in Q2 earnings. he short-term trend off the November lows had a dip and then some sideways movement to a new high. Keep your stops in place and let the opportunities present themselves up or down. Practice patience as this all unfolds day-to-day.

The longer term trend off the February 2016 low is fully intact on the upside. Don’t forget the longer term view can offer greater clarity than the short term news. Sectors to watch moving forward: 1) Healthcare and the outcome of any reform… the belief has been for that to materialize and any action in Congress will be key… the volatility as it is entertained by the Senate… puts it back in the news. Watching biotech (IBB) and all the components of this sector as it broke near term support and bounced back on news. 2) Financials were the leader from the November low and then failed as interest rates remained low. The move higher on Fed talk relative to higher rates is now in jeopardy as the Fed now believes rates will remain low long term. The downside risk is rising on those comments and we will have to manage the money accordingly.  3) Energy remains a sector under pressure from supply and demand… too much supply and not enough participation in cutting or limiting supply. Watching how the short term impacts the longer term view currently. Energy stocks posted some gains this week on the heels of the rise in crude relative to the weaker dollar. 4) Telecom and consumer staples bounced as the interest rate talk from the Fed offered an olive branch to them on the upside. 5) Emerging markets found renewed hope with the weaker dollar positive money flow to the global market. For now, it has taken a leadership role in the short term trend off the December low positive. China is leading the upside charge. 6) Semiconductors are a bellwether for the growth stocks and they turned lower leading tech down as well as the NASDAQ. The test of support in SOXX, XLK and QQQ held, bounced, and are in place to resume the upside leadership. 7) The dollar is becoming a bigger story line than I would like. The drop is on the heels of Washington wanting a weaker currency for better export opportunities. It has never worked in history to devalue currency for growth. The move has helped gold, emerging markets, and the bond. Bigger declines last week in the buck are negative and there is no help from the Fed on the horizon… watch how this all unfolds and managing our stops on all positions daily.

ONE DAY at a time is the key for now. Take a longer term view for your overall portfolio and manage the risk of your short term trades accordingly. See you next week.

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.