Crisis averted and stocks rally

Market Outlook for January 10th

The Iran crisis was averted, China confirmed it will signs ‘phase one’ trade deal, and Fed steps into the repo market again… all adds up to the buyers putting money to work as the large caps continue to lead the markets. The sector put in another new high along with the NASDAQ and the S&P 500 indexes. The Fed put $83 billion into the repo market on Thursday helping the free money find its way into world economies. Volume is average and volatility intraday has risen to leave us something to watch moving forward. Jobless claims fell for the 4th week and are back near the post-recession lows. The jobs report for December is due out Friday morning and some expect job creation to tapper off with a tight labor market. Eyes forward and manage your risk.

The S&P 500 index closed up 21.6 points to 3274. The index holds the uptrend and closed at new highs. Ten of the eleven sectors closed higher on the day with technology and energy leading the day. The downside was led by telecom as money continued looking for opportunities. The index is now trading 9.8% above the 200 SMA. I would say technically the index is extended. The long-term trend is up and the short term volatility raises concerns for me. Watching and managing the current risk.

The NASDAQ index closed up 74.1 points at 9203. Moved to a new high with a gap open and closed with a doji candle. The index is being led by the NASDAQ 100 stocks. There was more buying in technology helping on the day. Adjusting our stops on positions and letting this unfold. Large caps remain in a positive trend overall. Watching the doji gap on Thursday and it unfolds Friday and beyond. The long-term trend remains positive with news driving currently.

Small-Cap Index (IWM) The sector led the move back to the April highs and is in a topping pattern on the charts. The last week resulted in some selling as money looks for opportunity. Watching the dip to the 20 DMA on Friday. Definitely lagging the large caps.

Transports (IYT) The sector moved to $200.55 and hit resistance. Then moved below the $192.42 support level only to manage a bounce-back, but there is still plenty of doubt. Still lagging and testing the $192.42 level of support. Bounced again at support. Added to the move on Wednesday and Thursday.

The Dollar (UUP) The buck has been moving down as it struggles against foreign currency changes on the “proposed” phase one trade agreement. Speculation is driving the activity, but the buck did manage to find support. Struggled to start the week. Three up days to help the buck bounce.

The Volatility Index (VIX) Bounced higher as anxiety levels rise on geopolitics, military actions, and poor economic data. Close at 14 on Friday and watching how this unfolds in the coming week. Delined Monday with the buyers stepping in… watching. Tuesday attempted to complete the bottom reversal. Wednesday big intraday moves to close lower. Thursday moved lower to 12.5. No fear showing on the chart. The put/call ratio fell to .66 well below 1 showing zero fear in the markets.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector moved to new highs, stalled into a trading range and not looking healthy on the chart. Watching and managing the risk of the sector. Still lagging.

Biotech (IBB) The sector bounced off support at $96 in October and peaked at $123.50 in December… We hit our stop on our LABU position exiting with a solid gain. LABU $32.55. Stop $58.68 (stop hit). Watching how the test unfolds and the next opportunity… up or down. Found support and bounced? Three up days off the low. Watching for an opportunity on the reversal. $119.87 entry. $119 stop.

Semiconductors (SOXX) Broke higher from topping pattern on the chart following a great run off the October lows. The leadership resumed but checked itself on Friday. Watching for the opportunity. Fell to support and watching. Nice bounce on Tuesday to help the cause. Holding at the highs and looking for upside follow through.

Software (IGV) The sector tested the lows of the trading range and bounced at support in October. The steady grind higher has not been easy. The test of support held and the upside resumed with some small tests along the way. Watching how this unfolds. Tested support and bounced back to a new high. Added to the highs of the last four days.

REITs (IYR) The upside trend comes into question as money flow declines and rotates to other sectors. The outlook for interest rates rising rattled short term investors creating some selling in the sector. Tested the 200 DMA support and bounced… Fear rose on Friday pushing money back into the sector… watching with interest. Interest rates ticked higher and the sector responded lower but holding in the range.

Treasury Yield 10 Year Bond (TNX) The yield closed at 1.78% and lower for the week. Money is rotating again as investor anxiety rises on Iran and economic data. Watching the rotation trade near term. Small tick upside on Tuesday followed by a solid move higher on Wednesday.

Crude oil (USO) Crude broke above the $58.25 levels on optimism of a trade deal with China. It spiked higher on Friday with the US airstrike on Iran. UCO entry $16. Stop $20.85 (hit stop Wednesday). Watching and adjusting our stops… UGA positive move as well on the upside. Leveled off following the Iran issues. Some selling after the run higher on speculation. Wednesday spiked on early news, fell later on a resolution… closed down 4.9%. Held above the $59 support.

Gold (GLD) The upside in gold was driven by speculation of the rate cuts and global weakness overall. Geopolitics is driving currently the break from the consolidation pattern at $139.50. UGL entry $46.90. Stop $51.05 (Stop Adjusted). Letting it run for now. Continued higher on the worries and geopolitics. Raised stops. Sold lower on Wednesday in response to Iran’s statement of war with the US.

Emerging Markets (EEM) Bounced from the bottoming range established in August cleared resistance at $42.25 and cleared the September highs. The positive trend higher came from the hope of a US/China trade deal. We cleared the $44.10 level and moving higher. EDC entry $76.40. Stop $88.22. More selling on worries of geopolitics. Held the move on Tuesday and modest bounce on Wednesday and Thursday.

China (FXI/YANG) hope springs eternal… deal or no deal? The question remains, but there are tweets a deal is done and moving on to ‘phase two’. The upside is in play and the risk remains highs. Moving higher. Holding steady awaiting the decision on “phase one” trade agreement. Stated Thursday they are ready to sign agreement and stocks rallied.

(The notes above are posted every weekend and updated daily Bold Italics)

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

THURSDAY’s Scan for January 9th: Stocks moved higher on average volume and large-cap leadership. The small caps are still lagging. The overall tone of the market is positive, but the technical data is looking overextended. We have taken some profits from positions and continue to manage the risk that is in the markets. Opportunities have been positive in the dollar as it bounced off the current lows. Financials showing positive moves in GS, AXP, and V. Crude moved lower as speculation comes out of the sector on Iraq resolution and China offering to sign the agreement. One day at a time.

  • Technology (XLK) strong leadership from the sector remains with IGV, HACK, SOCL, FDN, and WEBL leading the upside move. NASDAQ 100 (QQQ) adding to the strength as well.
  • China (FXI/YINN) attempting to break higher on the comments of being ready to sign the ‘phase one’ agreement.
  • Financials (XLF) solid upside activity with IAI leading the charge.
  • Consumer (IYC) leading and breaking to new highs.
  • Jobs Report – Due Friday and will have the market’s attention for the open and beyond based on the outcome.

WEDNESDAY’s Scans for January 8th: News was the mover all day. Early news about war with Iran ruffled the futures market. Iran’s statement of no war rallied the markets. The Ukranian plane crash sent stocks lower again. Then false news of rockets and mortars shot at the US embassy in Iraq… sent stocks lower and they rallied when verified they were shot by militias and not Iran. It was a day of challenges relative to news and varified facts. Another reason we use stops-on-the-close to avoid intraday volatility. Taking what is there and managing the risk.

  • Software (IGV) continued the upside run showing solid leadership for technology. SAIL, CLDR, FIVN, CRWD, WDAY, and others looking good.
  • Internet (FDN) continued upside move as well helping technology. WEBL leveraged ETF to play the sector. KWEB also moving higher as China stocks bounce.
  • Commodities (DBA/DBC) have been tracking higher as the dollar weakened and the geopolitics expanded… the news on Wednesday pushed the commodities lower… watching how that unfolds as we hit stops on some areas.
  • Cybersecurity (IHAK) an area drawing plenty of attention of late. The sector hit a new high on Wednesday with a cup and handle pattern breakout to the upside.
  • ADP jobs report showed better than expected numbers boosting the expectation for the December jobs report on Friday.

TUESDAY’s Scans for January 7th: Boring day for scanning the markets as money was jockeying for position. REITs moved lower, semiconductors moved higher, and many traded in place. Sticking with what we know and looking to discover how this unfolds near term. Economic data improved with durable goods and capital expenditures adding some positive notes.
After-hours Iran launched some missiles at US military bases… that should make Wednesday interesting. Watching and measuring the opportunities near term.

  • Semiconductors (SOXX) reverse selling to hold near the current highs.
  • ISM services rose to 55% showing some optimism for economic data. The trade deficit continues to shrink thanks to the tariffs. Watching how the economic data unfolds this month for December and 2019 overall.
  • Energy (XLE) sector continues to made strides on the upside. FCG broke above resistance. OIH, IEO also making nice moves on the upside. Watching crude UCO (overbought technically), gasoline UGA (sold lower on Tuesday), and energy XLE (sold lower)…
  • Silver (SLV) gold not the only metal making moves on the upside… solid trend in play for silver.
  • Social Media (SOCL) making a vertical climb and managing our stops.

MONDAY’s Scans for January 6th: Worries settle as buyers step in to prop up the markets. Taking this all in stride as we sort through the news to find the truth. Plenty of talk about a correction and the markets falling more than ten percent near term. If that is the underlying thought all it will need is a reason. Friday the Iran strikes gave some reasons. But, it will take more news to drive stocks lower. Patience as it unfolds and stops in place. Remember the Fed is stepping out of the repo market this week and money supply will be left to itself. That could be of interest as the week progresses.

  • NASDAQ 100 (QQQ/TQQQ) solid leadership on the day.
  • Software (IGV) solid bounce higher to close at new highs.
  • Semiconductors (SOXX) more selling raises questions about the sector. Watching how it unfolds.
  • Gold (GLD) moving vertical… adjusted our stop.
  • Oil Services (IEZ) breaking higher in a positive trend.

FRIDAY’s Scans for January 3rd: Following the bouncing ball… US airstrike rattles investors, poor ISM manufacturing data, and geopolitics add to the anxiety as money rotates to safety as bonds, utilities, and REITs benefit. We now have the weekend to settle nerves or the result could be more selling. Investors are already nervous based on the current level of stocks. Some believe they are overpriced… whatever, the reality is what we look at and management of the resulting risk.

  • Basic Materials (XLB) breaks support at the $60 mark. Watching how this unfolds near term and the resulting opportunities.
  • Crude Oil (UCO/USO) broke to near term highs. Adjusted our stops on oil and UGA gasoline.
  • Defense & Aerospace (ITA) got a boost in the last two days on money rotating. Airstrike helped on Friday.
  • Gold (GLD/UGL) solid moves higher following the break from the consolidation pattern. The weak dollar and risking political risk helping the upside move.
  • Treasury Bonds (TMF/TLT) making a bottom reversal move the last few days. Watching how interest rates react to the current news and economic data.

(The Scans are done daily and left on the page for one week to allow you to see the progression of the opportunities or warnings.)

Sector Rotation of S&P 500 Index:

  • XLB – Basic Materials bounced at support $55.95 level and moved new highs. Then fell on the airstrike worries Friday… watching how it responds this week. More selling leading the downside.
  • XLU – Utilities moved lower in response to interest rates. Broke support at $63.17. Bounced at support… and resumed the upside. Watching how this unfolds near term the current anxiety and geopolitics.
  • IYZ – Telecom picked up volatility with the markets and testing the $29.50 level of support and bounced.
  • XLP – Consumer Staples remains in the uptrend and in a near term trading range at the current highs. Rolling top in play. More selling on a break lower.
  • XLI – Industrials moved back and cleared the $79 resistance. Moved above the July highs and hit new highs. Tested lower and bounced on hopes of another trade deal. Watching the response to Friday’s decline.
  • XLE – Energy remains in at a point of indecision. It did hold $58.19 support and bounced back above the $50.52 mark and stalled at the October highs. Watching for positive momentum. Parts are better than the whole with IEZ and IEO moving higher. XLE moving lower on Wednesday as oil slides.
  • XLV – Healthcare held support at the $86.75 level. Bounced and cleared resistance at the September highs. Rolling top worries as the part struggle. Biotech leading the move lower. Bounced at support.
  • XLK – Technology broke to new highs along with semiconductors. Both tested the moves and resumed their respective leadership roles. Watching the parts with SOXX, IGV, IGN, and others moving lower. Nice bounce to new highs.
  • XLF – Financials got a boost from solid earnings pushing the sector higher. Cleared $28.24 resistance. Broke to new highs, tested, and moving sideways of late. Rolling top on the chart. Bounced on Wednesday. IAI leading the upside.
  • XLY – Consumer Discretionary broke higher on positive sales data for the holidays. Topping again? Watching how this unfolds. Broke to new highs.
  • IYR – REITs moved lower on higher interest rate concerns. The test of support at the $90.50 held and bounced… only to retest the lows again and bounce… watching. Plenty of anxiety surrounding the sector. Some selling resumes in the sector. Held support Wednesday.

There are currently four sectors in a sideways or consolidation trend. Seven sectors are in confirmed uptrends. No sectors in a confirmed downtrend. The result is SPY in a confirmed upside trend short term. We have to remain patient and let this all unfold. Remember the parts make up the whole.

(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:

Thursday: a positive day for stocks as news leans to the positive side. China willing to sign the trade agreement was tops on the list. They still haven’t signed but they are willing. Interest rates stay below 2%. Dollar bouncing. Stocks hitting new highs. All is well on Wall Street for now… we will watch the jobs report for December and see what is new and exciting relative to the labor markets. Take it all for what it is and manage the risk.

Wednesday: news drives the day as stocks close higher. Politics and uncertainty of actions taken in the Middle East create intraday volatility. We have to focus on the facts and not the rumors. There was some activity on the day that warrants our attention looking forward… crude fell as the speculation of political and war activities with Iran subsided taking the speculation premium out of crude on the day. Technology and large caps resume their leadership roles. Overall watching the leadership and avoiding the news drivers unless they can be verified to be true. One day at a time.

NOTE OF INTEREST: According to Forbes over the past ten years the 10 richest people in the world increased their net worth by more than half a trillion dollars. That is the power of equities in a portfolio.

Tuesday: a boring day for stocks, but an interesting day for news as the talking heads find plenty of headlines to discuss. Iran sends missiles to US military bases… watching how that impacts Wednesday’s opening trades. Economic data shows some improvements and helps matters. Semiconductors bounce back from selling. Overall day of jockeying money to find what is working best. We stay the course and look for the resulting opportunities.

Monday: Shrug off the Iran news and focus shifts to Fed and money supply. Watching as the upside resumed, but there is plenty of news on the table and plenty of talk about a correction. For now, it is talk and it is stirring up anxiety among investors, but the activity has not bee aggressive in either direction. Taking one day at a time as we manage the risk that is and the risk that can be.

Holiday week with low volume trading to start the week, but then everyone went back to work on Thursday and Friday. The positive results of Thursday were erased by the worries on Friday. The US airstrike on Iran, poor ISM manufacturing numbers, and geopolitics didn’t help the cause. Interest rage moved lower as money rotated to bonds, REITs, and utilities. The sell-side was looking for a reason to bank profits and the strike on Iran was enough to give them a reason. The trade deal is still being rumored as progressing but there is nothing signed yet. The S&P 500 and NASDAQ indices pushed to new highs Thursday and retreated on Friday. Third-quarter earnings were better than expected offering a positive catalyst for the last three months and that will put pressure on the fourth-quarter results that start shortly. Retail is showing positive as the consumer continues to drive the economy as seen in the holiday sales data. The backstop of the Fed for liquidity has been key in the move higher and they continue to be engaged in the liquidity game. The dollar bounced off lows this week as some anxiety steps into the markets with the VIX rising above 14 level. The money flow was lower on the week with the holiday. The key is to watch the trend, know which side the Fed is on, and ultimately the data will establish the longer-term trend. We remain focused on what is working and what is failing. Therein lies the opportunities. Manage your risk accordingly and let this unfold… one day at a time.

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.