Deep Breath and Breathe

OUTLOOK: February 14th

It was an up and down day for investors as the markets closed in positive territory. At the of the everyone took a deep breath and exhaled making it through the news and speculation that is the US/China trade agreement discussions. Nothing changed at the end of the day, but the media sure had a good time talking about it. 

The S&P 500 index closed up 8.3 points to 2753 and after renewing the uptrend from the bounce at the December lows. The fourth leg advanced to resistance at 2755 and watching how it unfolds near term. Ten of the eleven sectors closed in positive territory on the day. Energy and REITs were the leading sectors to close on the upside. The downside was led by utilities with modest losses on the day. The long-term trendlines have improved, but still, have work to be done to offer an entry signal. We will watch how the current activity unfolds and the impact on the trends longer term. SPXL entry $33.50, stop $39.50 (adjusted). 

The NASDAQ index closed up 5.7 points to close at 7420. The upside follow-through has kept investors in a buying mood of late. The close above 7297 levels starts the next leg higher. The index has been the leader for the current move. Technology has led the upside move and semiconductors added to the leader with more than a two percent gain on Tuesday. QQQ is our indicator near term. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark and holding. TQQQ entry $34.17. Stop $45.10 (adjusted). Got the move above the $167.53 resistance and we hit our target at the $170.93 mark but failed to follow through on the upside. There is resistance at this level along with the 200 DMA. Managing our stops and letting it unfold for now.

Small Cap index (IWM) found some buyers as the next leg of the move higher accelerates in the current trend. The sector shifted to a leadership role as it tested and held the $144.65 level of support. A solid move above resistance point of $149.04 along with testing puts the sector in good shape to continue this leg higher. Added a position on a move above the $133.78 mark. Entry $133.90. Stop $147.50 (adjusted). $152.28 cleared Tuesday and $154.90 is our next objective. 

Transports (IYT) bounced off support and looks positive with the move above resistance at $186.70. Clearing the $164.73 level offered upside trade opportunity. Entry $165. Stop $177.50 (adjusted). The solid move higher on Monday got a follow through vote on Tuesday offering the upside continuation and leadership. Our stops are in place with $192.42 our next target. 

The dollar (UUP) fell on the news as the Fed turns neutral on interest rates as would be expected. However, it has bounced the last two weeks to regain the upside momentum and form a double bottom pattern on the chart. The move higher has my attention as it becomes the benefactor of a weaker global outlook becoming a safe haven for currency. Reversed on Wednesday to recover from some selling on Tuesday. The dollar closed at $25.87 and remains in a positive uptrend… but, questions loom with the news. Watching… 

The Volatility Index (VIX) closed at 15.6 on Wednesday with anxiety subsiding on positive news headlines. Watching how this all unfolds moving forward. Patience. 

(The notes above are posted daily based on the activity of the previous days trading. The red comments are current day changes worth noting.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) The sector broke below support and finally bounced. $95.04 was the level to clear and did so with momentum. Entry $96. Stop $106.50 (adjusted). A solid test of the move at $107 resistance and hit the 200 DMA as resistance… small trading range at support and looking for a catalyst. Stop in place. Modest bounce to start the week. Remains in the trading range.

Semiconductors (SOXX) Broke support at the $153 level… Solid bounce… some follow through. $153.13 cleared and added a trading position on the move… entry $78. stop $103 (adjusted). $105.24 sold half of the position. SOXL – Raised our stop – managing the risk. A target of $182.37 cleared with two solid days of upside moves. Hit the target, tested back to the $175.89 support and the 200 DMA. Letting this unfold.  Modest bounce to start the week. Added 2.1% gain on Tuesday to renew the uptrend and facing the $182.38 mark of resistance. $182.38 resistance in play and level to clear. 

Software (IGV) Broke $167.88 and bounced back above the same level. The sector was oversold producing a solid bounce… and follow through. $167 level added a trading position. Entry $167.90. Stop $194.45 (adjusted). Raised stop – managing the risk. Cleared $189.29 tested and moved back above that level to end the week. Solid uptrend. Attempted to move higher, but failed to hold the gains Monday. Tuesday the upside held and facing the September highs as possible resistance. Couldn’t hold early gains on Wednesday, but remains near the highs currently. 

REITs (IYR) Tanked on uncertainty from the Fed and the economic outlook. Broke $75.21 and bounced… trading opportunity on reversal above $75.21. Entry $75.25. Stop $82.01 (adjusted). Struggled on the week as the break above $83.48 resistance consolidates some. Modest bounce to start the week. Tuesday rates moved higher on the news and the sector adjusted lower but held the $83.48 level. Bounced back on Wednesday. 

Treasury Yield 10 Year Bond (TNX) closed the week at 2.63% as yields remain below support and tested lower all week. TLT keeping the uptrend alive off the November lows and clears $121.68 resistance. Watching the balance between growth and Fed concerns. Modest bounce to start the week. 2.7% and plenty of work to do if the yields are to move back towards the 3% level as predicted. 

Crude oil (USO) worries about the IMF data on the global economy. Rising supply remains a concern and the move above $52.51 resistance is testing again. OPEC production cuts are still rumored and the US isn’t sitting by as Trump makes threats of sanctions. US production slowed on the week. Sanctions on Venezuela have been playing into the volatility. The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $16.17 (adjusted). Managing our risk and letting this play out. $52.51 resistance cleared and testing. OPEC is back in the news stating they are going to cut production again… oil prices moved up 1.3%… we have heard this song before, but we will watch how it unfolds going forward. Added to the upside on Wednesday on China speculations. 

Emerging Markets (EEM) Watching what happens as the bounce from the bottoming pattern follows through on the upside and stocks run higher. Rumors of trade resolutions and talks with China helped the index. Watching for the clarity to unfold. Cleared $40.88 and working on a double bottom pattern. Entry $41. Stop $40.50 (adjusted). Reacts to the news of China talks postponed. Held the lows from Thursday on the close Friday still concerns loom. Nice bounce on the news around China trade and tariffs. 

Gold (GLD) moved above the $122.46 resistance digested it and moved higher. The dollar and geopolitics have been the catalyst for the metal… both up and down. The move higher in the dollar this week brought some testing for the metal. Managing the risk. Entry $116.50. Stop $123.30 (adjusted). The gold miners (GDX) equally respond to gold moving with some volatility. Watching how this unfolds near term with the metals and the miners moving together again… Entry $19.70. Stop $21.50 (adjusted). Reacting to the dollars move near term. 

(The notes above are posted every weekend and updated daily in red)

WEDNESDAY’s Scans, February 13th: It was a day of speculating what ifs and why for… No real change at the end of the day with sectors giving up early gains to close up slightly. Energy was the bright spot as stocks react to higher oil prices. REITs, consumer discretionary, and industrials all added solid upside moves. The downside came from utilities reacting to higher interest rates. Russian stocks fell accelerating the reversal in the chart. China has been moving higher in hopes of some changes in the tariff deal with the US. Nothing like the smell of speculation in the air… managing our risk and keeping our eyes forward.

  • China (FXI/YINN) the upside remains short term, but there is some resistance at the current levels… the news is driving along with speculation of a deal.
  • Gasoline (UGA) prices jumped more than 2% on the move in crude and speculation of demand meeting supply on the OPEC announced cuts.
  • Energy (XLE/IEO/IEZ) moving higher on the speculation around crude prices.
  • Hong Kong (EWH) leading the charge higher as it clears the move above resistance of the July highs.
  • Treasury Bonds (TLT) moving lower as rates rise… speculation to a global economy at peace… watching as money rotates.

No big changes on the day and watching how this all unfolds near term. The speculation about China is the primary headline, but the implications beyond that are even bigger as this all unfolds.

TUESDAY’s Scans, February 12th: Solid gains as news drives the upside move on the day. The China news, Senate news, and budget agreement all helped… but, none of them are signed deals. It was enough to bring buyers back to the table, but you have to be cautious about the gains should each deal not get signed. There positive moves in each of the key leaders with semiconductors leading technology higher, financials benefitted, the dollar moved lower, and materials moved higher. The OPEC cage-rattling about production helped oil move higher. Overall good day for stocks and the outlook for the economy both domestic and global. Taking what the market gives and managing our risk accordingly.

  • Semiconductors (SOXX/SOXL) cleared resistance added to the upside trend. Technology (XLK/TECL) moved higher as well.
  • Software (IGV) broke through resistance and added to the uptrend. HACK, IGN, each added to their respective uptrends as well.
  • Material (XLB) and industrials (XLI) both added solid upside moves as the tariff relief would be a big plus for the sectors.
  • Homebuilders (XHB/NAIL) break higher to continue the upside from the bottoming range. Lower interest rates helping the outlook for the sector.
  • Small Caps (IWM/TNA) solid break higher and resumes leadership along with the Midcaps (MDY/MVV).

Plenty to like on Tuesday… will there be a follow through on the news? I am still cautious… willing to take the upside move, but wary of the deals getting done. Sustainability of the uptrend remains a big question mark for me… thus, managing my stops and letting this play out.

MONDAY’s Scans, February 11th: Modest moves across the sectors as money looks for a home. The upside stalled and the news is picking up with concerns about Brexit and a China trade deal… the proposed government budget is looming as a positive for Tuesday’s open. Watching as the week unfolds with plenty to discuss and watch short term.

  • Telecom (IYZ) breaks from the trading range on the upside and looking for the follow through confirmation… showing some leadership the last few days. Scanning the sector for individual leadership.
  • Small Caps (IWM/TNA) positive move above resistance… looking for the follow through on the upside.
  • China Internet (KWEB) attempting to break higher and clear the bottoming range.
  • Semiconductors (SOXX/SOXL) back to key resistance at the $115.10 mark… need to break higher.
  • Networking (IGN) adding to the upside move through the 200-day moving average and confirming the trend.

Not a great day for stocks, but there were some solid moves offering hope. Watching and letting this unfold on the week.

FRIDAY’s Scans, February 8th: A day of juggling between worries about trade and solid earnings reports. In the end, the markets close flat for the day and flat for the week. Solid day of digesting and consolidating the last let higher for the broad markets. Some rotation in play and some looming issues facing stocks keeps things in check for now. As we stated yesterday… keeping our stops tight and watching how the psyche unfolds with the markets having posted solid gains since the December lows and people are willing to book some profits. We have our stops in place and we will let the market decide where we book our gains versus our emotions.

  • All of the major indexes closed flat on the day and the week… let them decide.
  • Utilities (XLU) solid move above resistance at $55.24 to resume the upside trend. Note that interest rates move to 2.6% helping the sector.
  • Financials (XLF) closed at the support of the current bounce and continue to struggle. Broker-Dealers (IAI) is the weak link as banks (KBE) and insurance (KIE) remains solid.
  • Energy (XLE/ERY) remains weak as crude oil prices struggle. The downside has overlapped into natural gas (GASX) and production stocks (DRIP). Short side signals on both on Thursday and solid follow through on Friday.
  • Networking (IGN) solid upside move Friday to clear the 200 DMA. The uptrend continues to help the technology sector overall.

Week of struggles mentally for investors as they grapple with the gains from the December lows and what looms on the horizon… it now that decisions are made with too much time to think and too many headlines to worry about. Stick to what you know… set your stops… let it unfold… trade without emotions.

Stocks with solid moves for the week… MAT, CLF, SNAP, SKX, SNGA, EXPE, GOLD, and EGAN.

THURSDAY’s Scans, February 7th: A day of worries from comments that Trump and Xi will not meet prior to the March 1st deadline to settle trade disagreements. The key to understanding some news and the rationale behind the impact on stocks is knowing where we are on the charts… stocks are up 15% or more from the lows… in six weeks. That is a year worth of returns in normal situations… thus, profit taking is part of the reason for money moving. It is a natural part of the process. We have tight stops on positions and if they are hit we will lock in gains of 10-20% on positions… why? Because it is prudent money management in volatile times. The long-term charts are still moving sideways and looking for clarity… that means there is short to intermediate term volatility causing that… and that is where we are now… the message… manage your money, not the markets. The market doesn’t give one crap what you think should be happening. It is a collective voting system for investors who vote by selling or buying shares. We have a bias towards selling after a solid move higher and the current fundamental environment. Be proactive in managing your money… know where the exits are before the fire starts… stops are key.

  • All the major indexes tested lower at their respective resistance points. QQQ, DIA, SPY & IWM. All held for now… WATCH the low from Thursday as key to how Friday unfolds. If we close below the closing low from Thursday I expect mover downside next week. Thus, manage your stops and let the market decide not your emotions.
  • Energy (XLE) the downside move prompted by crude oil (USO) prices declining on trade news… but there is also the worries about supply and a strong dollar the last week. All impacting the current direction as the sector tests the recent move higher.
  • Semiconductors (SOXX) gave back the gains from Wednesday and testing the current trend higher.
  • REITs (IYR) upside still benefitting from lower interest rates and rotation to safety.
  • Treasury Bonds (TLT) benefactor of Thursday’s rotation and pushed rates below 2.7% again. Break above $121.80 positive for the bond.

DRIP, GASX, LABD, ERY reversals on the charts show opportunities on the short side trade.

VIX (VXX) reversal is on our watch list.

Watching how this unfolds on Friday.

Update to follow the developments. These scans are looking for trends, reversals, breakouts, and other notes of interest.) 

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 $52.25. Upside continues with a test lower on the week. Solid gains on the tariff news from the White House. 
  • XLU – The utility sector found support at $51.11… moved above $52.72. The PG&E bankruptcy news sent the sector lower… but, buyers returned and we are back above the $55.24 level again and managing our risk. Entry $53, Stop $52. Watching how interest rates play out with the sector. Doji candle left on the day… look for direction from the day. 
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $26.90 (adjusted). Narrow trading range with 200 DMA the resistance to clear. Breaking from the trading range. Solid follow through on Tuesday to clear the 200 DMA and positive upside break. 
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and looking for upside trade opportunity. $51.86 level cleared and a flag pattern in play near the highs… watching. Stop $50.50. Nice upside follow through on Tuesday. 
  • XLI – Industrials moved to near-term low and bounced. $65 level to cleared for trade opportunity Entry $65. Stop $67.80 (adjusted). Upside leader with a nest near the current highs. 200 DMA in play. Benefactor to the news on tariffs. Letting it run. 
  • XLE – Energy stocks bounced with the market. OPEC talks to cut production is helping the upside move clearing $58.20 and now $63 resistance. Entry $58.30. Stop $61.30. (adjusted). Stalled with crude moving lower and then the stocks have followed. The short side of the sector showing up in DRIP, DGAZ, and GASX. Benefitted from the OPEC news as stocks bounce back some. 
  • XLV –  Healthcare fell to near-term lows and bounced. $85.74 level cleared for upside trades. Entry $85.25. Stop $88 (adjusted). Cleared $89 resistance and stalled with stair pattern in play for now… patience. Holding the trend higher.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $65.50 (adjusted). Cleared $63.69 resistance and followed through upside. Semiconductors lead the upside for the sector… earnings setting the tone. All the parts starting to move the sector higher… IGV, HACK, SKYY, SOXX, IGN… Benefactor of the new on Tuesday headed higher. 
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.10. Solid earnings boosted the sector and adjusted our stop. Testing lower this week and watching the closing doji candle on Friday. Good upside on Tuesday. Needs to clear the $26.33 mark.
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $104 (adjusted). Cleared resistance at $105 and positive short term. $107.05 being tested as small trading range evolves with the uncertainty in the trading week. Positive Tuesday move… Wednesday cleared resistance at the $109.21 mark. 
  • RWR – REITs broke lower despite lower interest rates… bounced from lows clearing $93.21 resistance… positive upside move. A solid move higher through resistance on Tuesday. Facing the December highs as resistance. Thursday a benefactor from the rotation to safety… watching and managing the risk. still leading the upside move. Test on Tuesday with rate moving higher. Bounced back again on Wednesday. 

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

FINAL NOTES:

Markets continue the bounce from the December lows with FOMC news helping the upside cause. Earnings and solid fundamental data helping keep the upside in play as well. This was a week of testing as worries over a trade deal with China looms.  The government shutdown is good for one more week and no real news. There has been plenty of rumors on the deal, but Trump stated he would not meet with Xi. That will play a role in the coming week of trading. Earnings show 71% of the S&P 500 stocks reporting have been or met estimates. That has been the driver for the last two weeks of trading and the third leg of the current trend. 

Only five of the eleven sectors managed to close the week in positive territory as money rotates modestly. Utilities and technology led the upside for the week. Energy and basic materials led the downside as both struggling on looming speculation about production. Interest rates touch 2.63% on the ten-year bond as money continues to rotate into stocks. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers. As seen in the FOMC meeting the Fed remains the biggest influencer with a shift again on interest rates which have pushed the long end of the yield curve back below 3%. Tariff wars coming to an end would be a huge influence in the outcome looking forward. How this all unfolds is a matter of time and confidence and if a meeting takes place with Trump and Xi ever takes place.

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. 

There are plenty of issues and plenty of speculation short-term. What we need is confidence in the outlook going forward… until that happens, expect more volatility and possible downside. Let it unfold… take the trades or opportunities offered… manage your risk and remember cash is a sector and there are times when it makes the most sense versus forcing something that really isn’t there… patience is a strategy as well. 

“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.