Doubts on trade deal stall advance

Market Outlook for November 12th

The unchanged tag has been hanging on the market for the last three days as rumors and comments about the trade deal keep investors in limbo. The President was quoted as saying, “he has not agreed to the rollbacks in tariffs.” despite that news the VIX index closed at it’s lowest levels since July. No spike in volatility would say that investors took the comments in stride. Energy stocks led the downside on the comment, but technology and healthcare both posted solid gains on the day. The major indices posted solid gains for the week despite the stall at the current highs. Watching how all of this continues to unfold next week.

The S&P 500 index closed up 7.9 points to 3093. Holding at new highs on the day. Money flow has leveled off and even declined for the week along with some rotation in play. Six of the eleven sectors closed higher on the day with technology and healthcare leading the upside. The downside was led by utilities and energy trade talk and interest rates rattle the sectors. Earnings have been better than expected and thus positive for the index. The long-term trend turns higher and steady with an upside bias.

The NASDAQ index closed up 40.7 points at 8475. A test of the move to new highs. Technology pushing to new high as well with semiconductors and networkings sector pulling up the broader index along on the day. Adjusting our stops on positions and letting this unfold. Large caps have resumed their leadership as seen in QQQ closing at a new high. Watching how this unfolds near term.

Small-Cap Index (IWM) The sector led the move back to the July highs and then led the downside move to the August lows. This week it managed to work its way above the July highs and the $158 resistance. Question is, can it break to new highs?

Transports (IYT) The sector moved to the July highs and back to the August lows only to return to the July highs again. The index posted a solid move above the $192.42 level and found some resistance at the $200.55 mark. Watching how the new week unfolds.

The dollar (UUP) The dollar reacted to the FOMC cut in rates moving modestly lower last week. This week the buck bounced as the hope of trade agreement was in play and interest rates bounced back giving some assistance to a stronger dollar. Watching how this unfolds near term.

The Volatility Index (VIX) closed at the week at 12.07 and is at the July lows as investor anxiety washes away. Watching how this plays out in the coming weeks. Solid gains in SVXY for the week and adjusted the stop.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector moved to the July highs and back to the August lows. The bounce moved back above $193.35 resistance and holding a move above the $198.50 level has been positive for the sector.

Biotech (IBB) Tested support at $96 bounced and moved back above the $101 and $105 resistance level. The downtrend is attempting to reverse as it now deals with the $110 level. Solid upside follows through as the sector shows positive signs. Entry $101.45. Stop $108 (adjusted). LABU $32.55. Stop $38.

Semiconductors (SOXX) The sector bounced, cleared $210.92 resistance and the July highs. The sector looks solid on the charts and showing leadership. The parts are where we have added positions versus the whole. NVDA, MU, QRVO, CCMP, SWKS, AMD, and LRCX. New highs and solid gains on the week.

Software (IGV) The sector tested the lows of the current range again and bounced at support. Not overly convincing activity… the cloud stocks are dragging the sector down… worth scanning and looking for leaders. NTNX, CVLT, CTXS, CDK, and PANW are few. Moved back to the top of the range for the week.

REITs (IYR) The upside trend remains on the long-term chart but the short term move lower broke key support levels and triggered a short side opportunity. Interest rates rising of late have rattled short term investors creating the selling in the sector. SRS @ $19. Stop $19.

Treasury Yield 10 Year Bond (TNX) The yield closed at 1.93% up 21 basis points for the week. Money is rotating again this time to stocks… The short side playing out on bonds with TMV. Watching how this unfolds.

Crude oil (USO) Held support at $52.50 and $58.25 is top of the current range. Watching as the data points show plenty of oil and lower demand. China/US trade rumors send oil higher to end the week, but still very volatile on the outlook. UCO entry $16. Stop $16.60 (adjusted).

Gold (GLD) The upside in gold was been driven by speculation of the rate cuts and global weakness overall. The tug-o-war of tariffs, interest rates, and speculation has been keeping gold in play. The move below $140 this week may change that perspective as the strong dollar and higher interest rates weigh on the metal. The consolidation pattern on the chart breaks lower. GLL @ $55.43.

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 from the hope of a US/China trade deal remains the driver. Trump comments on Friday tested the move.

China (FXI/YANG) weaker economic data hurting the stocks currently as the move higher stalls at the September highs. Watching and listening for now.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

FRIDAY’s Scans for November 8th: Trump comments on trade agreement stall the advance, but didn’t cause much damage overall. The news and rumor mills will churn this all weekend. There is plenty of reasons to like the market as well as many not to like it. Earnings have been the biggest surprise as Q3 has done well and Disney added to the line of companies boosting earnings in the quarter. Volatility has moved back to the July lows as we take what the market offers and keep adjusting our stops short term to manage the risk.

  • Healthcare (XLV/CURE) trading at the near term highs and looking positive with the parts performing well.
  • Technology (XLK/TECL) upside remains as the sector closes at new highs. Adjusting stops and letting it run. Parts are moving up as well. IGN posted a solid break higher from consolidation. HACK on a roll of late as well to lead the upside.
  • Treasury Bonds (TLT/TMV) downside play moves higher as the yields climb on bonds. Adjusted stop.
  • Gold (GLD/GLL) downside gaining some momentum last few days.
  • NASDAQ 100 (QQQ/TQQQ) solid upside leadership remains as the large caps maintain leadership.

THURSDAY’s Scans for November 7th: The news from China of a rollback of the tariffs as part of the agreement being worked on sparked an early rally. When the US confirmed the news stocks stumped and closed only slightly higher on the day. Watching the topping type activity or set up for a test of the move higher the last five weeks. Key is to be patient, manage your stops, and let this all play out near term. Long term trends remain on the upside for now.

g the topping type activity or set up for a test of the move higher the last five weeks. Key is to be patient, manage your stops, and let this all play out near term. Long term trends remain on the upside for now.

  • Retail (XRT) still showing positive trend upside. I like the parts more than the whole scanning for leadership with COST, WMT, KSS, CAL, BBY.
  • Semiconductors (SOXX) leadership is sitting at the current highs. AVGO, MRVL, NXPI, INTC, SWKS.
  • Financials (XLF) solid leadership remains at highs. AXP, V, JPM, BAC.
  • Energy (XLE) back on the upside as crude recovers on the news of tariff rollbacks.
  • NASDAQ 100 (QQQ) solid leadership from the large-cap stocks. TSLA, WYNN, NTAP, MU, GOOG.

WEDNESDAY’s Scans for November 6th: Some challenges on picking a location for the signing of a tariff deal with China and the US sent stocks off their highs as worries rose the deal may be in jeopardy. That is a sign that stocks are higher than they should be based on news. Without validation of the news, markets will forfeit the gains they created. That is what traders and investors are watching and hanging on every rumor surrounding the event taking place or not. Stocks started higher closed even to lower on the day… nothing changed except some sentiment about the treaty on tariffs getting signed… we will watch how Thursday unfolds on this front.

  • Financials (XLF) added to the new highs as the insurance stocks (IAK) find support and bounce. Solid leadership from the sector in the current move higher.
  • Homebuilders (NAIL) bounced off support and holding the uptrend. We hit stops on our position and watching how this bounce unfolds.
  • Healthcare Providers (IHF) continues to move towards the July highs. The parts have been the better part of the opportunity… adjusted stops and watching how this unfolds.
  • Hong Kong (EWH) continues to climb higher from the lows at $22.25. Adjusted our stops.
  • Cyber Security (HACK) adding to the move above resistance at $38.75 and adjusting the stop.

TUESDAY’s Scans for November 5th: Some positive upside early that faded by the end of the day, but the financials and energy lead their respective sectors higher. Some rotation with the dollar rising and interest rates jumping off their lows. Volatility remains low. Trade still being pontificated by the talking heads and all is well on Wall Street for another day. Adjusting stops, managing risk, and enjoying the ride.

  • Treasury Bonds (TLT/TMV) we have been on the short side of bonds and maybe the downside is ready to run.
  • Financials (XLF) upside run has been positive… watching and managing the gains.
  • Energy (XLE/ERX) break to the upside is positive along with crude (UCO) moving higher. UGA, IEZ, IEO looking upside as well.
  • Natural Gas (UNG/UGAZ) playing out on the upside. Adjusted the stops and letting it run for now.
  • REITs (IYR/SRS) watching the downside move on Tuesday as rates rose. If this follows through the short side trade is attractive.

MONDAY’s Scans for November 4th: The indices moved higher on the day overall but the leadership was of interest. SOXX gapped higher setting the tone on the day. The S&P 500 moved higher but closed on a doji candle raising some questions in my mind. Watching how this follows through. The underlying data points remain on a steady decline. Taking it one day at a time and taking what the market offers while protecting against the downside risk. Rumor of the trade deal is the driver if that doesn’t materialize in a timely manner… watch the downside risk.

  • Semiconductors (SOXX/SOXL) solid gap higher adding to the upside from Friday. Adjusted our stop to account for the move.
  • Dow Jones Industrial (DIA) moved to new highs joining the other major indexes.
  • NASDAQ 100 (QQQ) added to the new highs and adjusted our stop on TQQQ.
  • Small Caps (IWM/TNA) Gapped above the July highs. Still a laggard overall, but made solid gains worth our risk in the sector.
  • Energy (XLE/ERX) gapped higher to lead on the day. Watching how this unfolds near term. Solid gain as it bounced back from the test last week.

(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 back above the $58.13 resistance. Gapped to new highs for the week.
  • XLU – Utilities moved lower as the move in interest rates impacts the sector. Broke support at $63.17. Exited our positions and watching how it unfolds.
  • IYZ – Telecom held support at $27.62 bounced and cleared the $29.50 resistance with a positive week of trading. Watching and adjusted our stops.
  • XLP – Consumer Staples remains in the uptrend and in a near term trading range at the current highs. Patience.
  • XLI – Industrials moved back and cleared the $76.80 resistance. Moved above the July highs and hit new highs this week. Letting it run.
  • XLE – Energy remains in at a point of indecision. It did clear $58.19 resistance and showing a double bottom pattern in play.
  • XLV – Healthcare held support at the $86.75 level. Bounced and cleared resistance at the September highs. Taking on a leadership role as the sector moves to new highs.
  • XLK – Technology broke to new highs to end the week as earnings drive semiconductors higher. Parts and whole providing solid leadership with HACK and IGN breaking higher.
  • XLF – Financials have gotten a boost from solid earnings pushing the sector higher. Cleared $28.24 resistance. Broke to new highs for the week as interest rates bounce higher.
  • XLY – Consumer Discretionary tested lower but remains within the current trading range. Needs some good news on the consumer side.
  • IYR – REITs moved to new highs and reversed of late on higher interest rates. The uptrend remains long-term, but short term the charts are reversing and hit our stops.

There are currently five sectors are in sideways or consolidation trends. Five sectors are in confirmed uptrends. One sector 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:

Markets held the move higher and continued the melt higher for the week. The bounce off the lows has now pushed above the September highs with the S&P 500 index hitting new highs and extends the upside move to six weeks. There is enough hope to continue the move on the upside. The trade talks remain the catalyst with rumors of an agreement in place. However, the President stated that was not true on Friday. Watching how that unfolds next week. Earnings added to the hope again this week with positive data overall… throw in the backstop of the Fed for liquidity as they remain engaged in the process helping banks. Brexit remains in the background as meetings continue with the EU and parliament to find a resolution. The dollar found some support this week as interest rates climb 21 basis points on optimism. Investor conviction is getting stronger as indexes and sector hit new highs. This, of course, raises questions about a test before we move higher. The VIX index fell back to the July lows as investor sentiment shifts. The upside move this week offered some trade opportunities and we have adjusted our stops to manage the risk. The treasury bonds show rotation out as rates move back towards the 2% level. The market remains controlled by new as each day holds movement related to the speculation of what might happen. Trade with China and the US remains at the top of the list. 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.