MARKET OUTLOOK FOR May 10th, 2019
Investors continue to sell stocks ahead of US-China trade talks. The early decline reversed when Mr. Trump stated reaching a deal with the Chinese was possible. The S&P was down more than 1.7% early and found buyers to close down only 8.7 points on the day. The early move tested key support levels for the index as we watch how the negotiations go today. Markets are nervous about the potential outcome relative to trade. I expect more of the same today as we manage our risk and make the necessary adjustments.
The S&P 500 index closed down 8.7 points to 2870 with the October highs of 2930 in the rearview mirror. The continued worries about higher tariffs weigh on investors and the sellers remain in control for now. The 50 DMA remains in play as markets see intraday volatility on rumors and news. One of the eleven sectors closed higher on the day. REITs were the leading sector. Basic materials and technology led the downside as bother tested key support levels. The long-term trendline comes into question as they are tested on the downside move. We will watch how the current activity unfolds and if the buyers can maintain control. SPXL entry $33.50, stop $48.85 (adjusted).
The NASDAQ index closed down 32.7 points to close at 7910 moving below the 30 DMA and testing the 50 DMA. The technology was the downside leading sector and put pressure on the index. QQQ is our indicator as it moved back below the October highs. $185.05 was the level to hold, but that broke on Thursday. Managing our risk, taking our profits when prudent, and adding positions where the opportunities are presented remains our goal. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark to start the current trend. TQQQ entry $34.17. Stop $62.54 (STOP HIT). The long-term trendline has come into question again. Stop hit on our position and watching how it unfolds.
Small Cap index (IWM) the sector has been in a consolidation pattern and cleared resistance last week only to forfeit the gains this week. This brings the move higher into question and the downside risk returns. Entry $158.25. Stop $$154.90. The chart shows a clear reverse head and shoulder pattern with the breakout that has failed now. Honor the stop on the entry taken last week and manage the risk of the current environment.
Transports (IYT) hit some resistance at the $200.53 level and the index reversed on some solid selling. $190 is now the support to watch. 200 DMA is nearby as well. Managing the risk of our new position as we are near the stops. Entry $195.60. Stop $190. Sometimes the best-laid plans don’t work when emotions take over the direction in the sector.
The dollar (UUP) The reaction to the FOMC pushed the buck higher last week as the decision not to cut rates favors the dollar. The jobs report confirmed the Fed action at the FOMC and the dollar moved lower. The big question mark for the buck remains a possible resolution to the trade tariffs with China. Monday was negative to the resolution with the trade as China stalls and the US threatens sanctions and tariffs. The ETF closed at $26.16 and remains in a positive pattern holding support… Watching as this continues to unfold.
The Volatility Index (VIX) closed at 19.1 Thursday settling from an early spike higher. Solid bump higher as the China trade agreement comes into question. The tug-o-war between buyers and sellers being won by the sellers over the last few days. UVXY entry at $33. Stop $40. (this is a highly volatile ETF base on the tracking index.) Watching the pre-market activity and willing to take some profit ($42) if there are signs of buyers coming into play. Sold 1/3 of position Wednesday @ $42. Sold 1/3 Thursday @ $45.
Economic Data: April starts a new round of data for the month of March… looking for some improvement over February.
THURSDAY, MAY 9th: Weekly jobless claims rose slightly. The trade deficit in line with projections. PPI (producer price index) shows a modest decline to keep inflation worries at bay. Wholesale inventories declined nicely in March and show some hope for growth. The Fed was out talking about the economy is good, interest rates are stable, and inflation under control.
WEDNESDAY, MAY 8th: Consumer credit remains at the $15 billion mark… you would think in this economy it would be going down, not up. That is a bad sign should we have any type of recession.
TUESDAY, MAY 7th: Job openings rose to 7.5 million… not enough people willing to work. The benefits paid by government not to work outweighs the benefits of working. The handouts need to be reduced and the hand up increased.
MONDAY, MAY 6th: Nothing new on the day as investors focus on the tariff talks and Mr. Trumps response.
FRIDAY, May 3rd: April jobs report was better than expected adding 263,000 new jobs, the unemployment rate fell to 3.6%, and average earnings rose 0.2%. Beating expectation is a good thing. ISM services index fell to 55.5 and missed expectations and confirming what we got from the ISM manufacturing data… slower growth.
THURSDAY, May 2nd: Weekly jobless claims were higher than expected at 230,000. The jobs report on Friday will put this in perspective along with the ADP report from Wednesday. Productivity rose and unit labor cost fell both showing positives for jobs. Factory orders rose 1.9% as a positive as well.
It is all about the progress following interest rates were hiked by the Fed… we continue for the fourth straight month to see slowing in the data. Eventually, this will show up in stock prices through earnings. Those have started and we are seeing mixed data from companies. Interpreting the data versus the emotions… following the trends.
(The notes above are posted daily based on the activity of the previous days trading. The BOLD/ITALIC comments are current day changes worth noting.)
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
Biotech (IBB) The selling stalled and found support near the $105 mark. The $107 level was cleared on Friday and looking for follow through to start the week. The break lower was the small-cap stocks struggling. The bounce is a positive sign as we look for opportunities in the move. We don’t hold any positions in the sector currently. Looking for some clarity in the sector. Solid follow-through above $107 offering entry opportunity. Failed to follow through on Tuesday and negates the move. Held support on Wednesday and Thursday.
Semiconductors (SOXX) Tested below the $210 level and bounced Friday with the broad market. Watching how this unfolds with some profit taking showing on the chart along with a flag pattern. The vertical move higher is consolidating. Earnings and growth have been driving… Stops in place and watching how this unfolds going forward. Entry $187.50. Stop $207.50 (HIT EXIT) (adjusted). Continued the move lower and hit the exit point. Watching how it responds to test of the 200 DMA on Thursday.
Software (IGV) Broke $167.88 and bounced back above the same level to create the December lows and start the new trend. $167 level added a trading position. Entry $167.90. Stop $214.80 (Stop Hit). This week we tested the move higher and watching how it unfolds. Held the trend, but hit the stop. Watching how this unfolds. 50 DMA is of interest at this level held on Thursday.
REITs (IYR) Recovered from the uncertainty from the Fed and the economic outlook. The interest sensitive sector reacts when the Fed is in the headlines and speculation rises. Holding for now and letting the FOMC news settle. Broke $75.21 and bounced… trading opportunity on reversal above $75.21. Entry $75.25. Stop $85 (adjusted). Sold lower with the broad markets. Held on Wednesday and Thursday.
Treasury Yield 10 Year Bond (TNX) closed the week at 2.53% with some volatility in rates from the FOMC meeting. The bounce from the low in March has stalled with the uncertainty surrounding what the Fed will do going forward. Watching how this unfolds near term. TLT is a hold if you own bonds. Yields moved to 2.45% Thursday. Flight to safety related to the China tariff threats. TLT hit entry at $124. TMF $20.26. Watching how this unfolds.
Crude oil (USO) Found some support at $61.60 on Friday. The trek higher hit a roadblock with Trump’s comments concerning OPEC increase production. The sanctions in Venezuela and Iran, the tension in Lybia, and global data are weighing on supply, despite the data released by the US energy sector… the saga goes on. In the end, the data will prevail relative to pricing. For now, the speculation is driving prices lower. Banked our profit in the position and looking for the next opportunity. Held near support at $61.60.
Emerging Markets (EEM) Watching as the bounce from the bottoming pattern moves above the $43.80 resistance comes into play again. Rumors of trade resolutions and talks with China helped the index but needs some reality to follow through. Watching for the clarity to unfold. Cleared $40.88 and broke higher from a double bottom pattern. Entry $41. Stop $42 (stop hit). Remains a sector of news which creates volatility short term. Big drop on the tariff news and back below $43.80. Added to the downside on Thursday tested $41.23 support.
Gold (GLD) building a base of support and looking for a catalyst to return to the uptrend. The dollar has been strong and outlook for global growth weak adding to the pressure on the metal. The downtrend is in play. The Goldminers (GDX) offered a short side trade on the move lower. Entry $22.60. Stop $20.40 (adjusted) DUST.
MidCap (IJH) The uptrend from the December low tested with a move below the $190.44 support. They have now managed to move higher and cleared the February highs completing the reversal. Friday made an attempt to break higher and through resistance at $$197.60. Entry $190.45. Stop $193.10 (Stop Hit). Tested lower and at support and our stop?
China (FXI/YINN) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Bounced off support at $43.50 level. Cleared the $45.20 resistance only to test lower again. Talk of tariff agreement back on the table… but, we have heard this too long. The break from the eight-month bottoming pattern testing the trend. Entry $39.80. Stop $43.50. As you would expect the country ETF fell 2.6% on the news Monday. Added another 2.7% on Tuesday as the short side trade YANG is in play. Thursday off another 1.7%. Holding at $41.50 support.
(The notes above are posted every weekend and updated daily Bold Italics)
DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT
THURSDAY’s Scans for May 9th: More challenges from the China-US trade talks. Trump attempted to help with comments of a letter received and hopes of an agreement this week. That helped ease the selling but there need to be results for the markets to hold up at this point. Plenty of downside tests and break of support levels, but the bounce helped keep some in play. Watching, managing our risk and looking for the opportunities that will result from the speculation.
- Stops are hit on positions and we have sold, but we also will watch how they bounce should we get a resolution to the trade agreement. Leaders will lead and the laggards may not bounce.
- Treasury Bonds (TLT) are the benefactor of fear and have risen on the news. Watching how they unfold.
- China (FXI) down 9% since the trade news started. If this gets settled watch the upside opportunity here. The short side trade in YANG is still in play… looking to take some profit today and hold minimal position into the weekend.
- Emerging Markets (EEM) also on the downside on the trade talks. Looking here for upside trade on resolution. No short side trades here currently.
- Technology (XLK) downside move has my attention… semiconductors are weaker on earnings, growth projections, and speculation… watching how this unfolds.
WEDNESDAY’s Scans for May 8th: The threat remains relative to tariffs and the market is weighing its options. The selling in the last half hour shows the uncertainty and the continued worries about growth with Intel announcing lowered estimates at their shareholder’s meeting. The market is acting like it wants to test lower. I am not convinced we will see a big sell-off, but a test to the 50 or 200 DMA would be a possibility. As with any speculation or projections looking forward… we have to let the market validate the moves and then act accordingly. The futures are pointing lower this morning and watching how Thursday unfolds.
- Tariffs – sell on the rumor and buy on the news? Some believe this may actually be sell on the news… depending on what is said. Don’t trade on speculation trade on reality.
- Intel (INTC) gapped lower on earnings… added to the downside with comments at their shareholder meeting. At the 200 DMA and not looking good… shorts are in.
- Volatility Index (VIX/UVXY) intraday movement was mixed. Locked in gain on one-third of position at $42 and looking at how today unfolds with futures trading lower.
- China (FXI/YANG) managing the downside trade with resistance at $50 level. Willing to take some profit here as well at $50 on one-third of the position.
- Natural Gas (UNG/UGAZ) double bottom pattern as the commodity attempts to move higher. Watching for the upside opportunity if it breaks higher.
TUESDAY’s Scans for May 7th: The threat of more tariffs is playing havoc with the markets as investors decide to what action to take. The sellers took control on Tuesday adding one to two percent downside to the charts. This brings back the importance of money management based on the goals and objectives of each position. It also raises the issue of understanding the market environment and how emotions can control the near term activity. Thus, we honor our stops, we manage our risk and look for the opportunity that results.
- Downside risk exist purely on the comments from the President that Friday is the deadline to sign a new trade agreement with China. If we don’t the downside will be a reality adjustment to values as the market has priced in the agreement… thus, if we don’t have one it will take away the premium awarded. If however, we do sign an agreement the premium erased the last two days will likely be added back… thus, the emotions of uncertainty and their impact on the markets… we will honor our stops and act according to the outcome.
- Trendlines… They are all in play relative to the downside. We are at some key support marks short term. Watching how this unfolds.
- Treasury Bonds (TLT/TMF) trading opportunities presented on the fear and flight to safety. This is a trade only for now. If the threat of a correction grows this will become a longer term opportunity.
- Volatility Index (UVXY) The emotions are on the rise. Thus, another trading opportunity created. This a trade only as well and we will look to take profit on this at the first sign of emotions settling.
- China (FXI/YANG) downside trade risk is evidenced in the charts and the headlines. Short side trade opportunity presented… taken and managed accordingly with tight stops. If there is a settlement the stocks will rally. Yesterday China’s export data showed a drop in April… adding to the downside move.
- US markets are reacting and the trading opportunities are adjusting as money rotates to safety. Watching how the balance of the week unfolds.
MONDAY’s Scans for May 6th: The comments from the White House on tariffs going into effect on Friday sent stocks lower early, but they did manage to rally back to erase most of the losses. Specific sectors impacted by the threat moved lower as basic materials and industrials led the downside moves. This is a new development for the markets and investors will make adjustments as we move towards the Friday deadline. The markets are currently priced for the tariff deal to be struct… if not, the reality of the change will send specific sectors lower if not the whole market. Watching how this unfolds in the coming days with our stops firmly in place.
- Healthcare (XLV) added to the upside despite the selling overall.
- Energy (XLE) held support along with crude oil (USO).
- Telecom (IYZ) testing support at the $29.50 mark.
- Volatility Index (VIX) moved to 15.4 as the uncertainty creates anxiety for traders and investors. UVXY approaches entry point… watching.
- Emerging Markets (EEM/EDZ) approaches entry point for short side trade… emotions are high watching for clarity.
FRIDAY’s Scans for May 3rd: positive jobs report sends stocks higher and in some indexes clears resistance and others push back to resistance… the key now is nothing more than a good old follow through to the upside move. Clarity on direction would be a good thing and maybe Friday was a start to investors understanding the FOMC decision and the economic picture. Doing what we do best… taking it one day at a time and managing the risk of what we know not what we think.
- Healthcare (XLV) the one sector that made a move that meant something other than recovering what was lost the first four days of the week. Reversal trade working out nicely on upside move.
- Biotech (IBB/LABU) double bottom pattern in place… looking for opportunity.
- Small Caps (IWM/TNA) break from the trading range/consolidation pattern. Looking for confirm and entry point above the $69.40 mark.
- Solar (TAN) break from the trading range/consolidation pattern. Looking for confirm and entry point above the $25.70 mark.
- Social Media (SOCL) break upside to confirm the uptrend and resume the move higher. Adjusting stops.
Friday’s move higher was a positive… it still needs to follow through, but you still have to take what the market gives and adjust your stops, manage your risk, and be disciplined to the strategy implemented.
Sector Rotation of S&P 500 Index:
- XLB – New lows and found support… got the move above the $50.35 mark. Entry $50.50. Stop $56.75 (Hit Stop). Upside hit resistance at the $58.13 level. Moved back to support at $56 and bounced. Sold below the $56 support. $54.15 next level to hold.
- XLU – The utility sector found support at $51.11… moved above $52.72 for entry. Cleared $57.10 resistance and showing some near term topping. Watching and managing the risk. Entry $53. Stop $56.75. Topping pattern showing on the chart and the $57.12 level of support in play. Broke below the trading range closing at $57.01 looking for confirmation of the move or bounce back…
- IYZ – Telecom has a rolling top pattern and hit our stops to lock in our gains. The uptrend is still in place and watching how this test unfolds. Breaks below the key level of support at $29.50.
- XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and continued upside trend. Managing our risk. Entry $51.90. Stop $54.25 (adjusted). Tested lower.
- XLI – Industrials moved to near-term low and bounced. $65 level cleared for trade opportunity. Entry $65. Stop $76.50 (adjusted). Broke above the $76.80 resistance and now in a trading range. Moving lower. Held the 50 DMA.
- XLE – Energy stocks have struggled the last two weeks on the uncertainty about supply and production. Crude moved lower and the downside in stocks accelerated offering a short side entry on the break of support. ERY – Entry $39.60. Stop $41. Held support barely.
- XLV – Healthcare fell below the 200 DMA and accelerated. The cause of the doom-and-gloom for the sector is a proposed “Medicare for All” healthcare from Washington. Obviously rumor-driven… Found support bounced, offered reversal trade at $86.80 entry. Stop $88.50. Solid move on Friday to confirm the reversal. Nice follow through on upside move. Sold the upside move on Tuesday.
- XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $75.93 (adjusted). Trading at new highs. SOXX, IGN, HACK, SOCL, and IGV all part of the puzzle for the upside to continue. Adjusting our stop. Sellers present on Tuesday… watching. More selling on Thursday.
- XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $25.76. Stop $25.76. Cleared $26.33 level of resistance and followed through. Positive earnings push the sector above resistance and renewing the uptrend. Sold lower on Tuesday and watching. Holding at support.
- XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $117.50 (adjusted). Cleared resistance at $113.50 level. Taking on a solid leadership role and in a positive uptrend. Rolling top moved lower.
- RWR – REITs broke lower… bounced from lows clearing $93.21 resistance… positive upside move. Entry $88. Stop $95.50. Watching and managing the risk. Bounced from the test of support and back to the previous highs. Sellers present on Tuesday. Holding at support.
(The notes above are posted Weekly based on the activity of the previous weeks trading. The BOLD/ITALIC comments are current day changes worth noting.)
FINAL NOTES: What did we learn from the trading week?
Markets tested and held key support levels after breaking above the October highs. Friday they recovered most of the losses from earlier in the week to keep the uptrend in play. The S&P 500 and NASDAQ closed the week up 0.2% as the jobs report gave new life to the indexes. Transports tested lower but bounced on Friday showing some of the anxiety about the economic picture. Looking at the charts you can see the key levels of support holding, the key resistance levels remain in play as well. April economic data isn’t showing much improvement over March as it remains mostly mixed. The FOMC meeting created some anxiety about the Fed not cutting interest rates. The jobs report justified the move and stocks rallied to end the week. The talk in Washington of social medical programs has raised concern. Throw in some chatter on debt relief on student loans and the political picture is heating up. Some sectors are moving higher, some are moving lower, some remain sideways. Plenty of question marks and only time will tell the outcome. There are some issues facing investors as the trade agreement has not materialized with China. We will look at positions to take profits, adjust stops, and manage the risk of the current environment. The goal is to avoid speculation and follow our disciplined strategy for each position. Taking it one day at a time.
Seven of the eleven sectors managed to close the week in positive territory as money continues to move with some rotation. Healthcare and financials led the upside for the week adding to their respective trends. Gold found support, the dollar is at a near term high, and the stronger than expected jobs report helped the buy side. Seven sectors remain in a positive uptrend with three moving sideways in consolidation patterns. One (XLE) has broken into a new downtrend short term. Healthcare reversed its downtrend the last two weeks. Interest rates ended at 2.53% as they moved lower on the week helping the bond bounce back this week. Crude declined on the OPEC news and Mr. Trump. We continue to take this one day at a time. There are plenty of influencers in the markets currently and headlines are the drivers.
Disciplined entry and exit points allow you to manage your risk in up or downtrends. Investing and trading is a matter of a defined strategy implemented with discipline. It is not magic. It is not being a prophet. It is about following your strategy one day at a time.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese proverb
The goal of these notes is to allow you, the investor, to learn how to see the market development as the progression through the sector develop based on news, speculation, and data. Data drives long-term results and develops trends… speculation and news are short-term drivers and offer higher risk trading opportunities. Through the use of both technical and fundamental data, we can have greater confidence in our trading strategies with a disciplined approach to investing and managing the risk of our money.