Early to rise later to fade

Market Outlook for November 8th

News that the tariffs would be rolled back as part of the ‘phase one’ agreement sent stocks higher to start the day. By the end fo the day most of the gains had evaporated and we closed slightly higher. Interest sensitive stocks struggled with XLP, XLY, XLU, and IYR all closing lower on the day. Energy bounced back on the news as it is seen as a positive for consumption for the tariffs to disappear. Are we in the position for a buy on the rumor and sell on the news activity? We will watch and see, but I am adjusting my stops to account for the current risk. The last trading day of the week could offer some insights into what is ahead.

The S&P 500 index closed up 8.4 points to 3085. Holding at the new highs on the day. Money flow has leveled off this week and watching the rotation in play. Eight of the eleven sectors closed higher on the day with energy and telecom leading the upside. The downside was led by utilities and REITs as crude jumps on the trade agreement news. 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 23.9 points at 8434. A test of the move to new highs. Technology testing the new high as well with semiconductors and networkings sector pulling 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 back to the July highs. Question is, can it break to new highs? Question answered, yes. Cleared the $158 resistance and tested the move.

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 struggled all week but posted a solid move back to the $192.42 level of resistance. Watching how the new week unfolds. Added solid gains and at the April highs.

The dollar (UUP) The dollar reacted to the FOMC cut in rates moving modestly lower on the week. Watching how this unfolds near term. Gold and oil will respond to the move as well. Nice bounce at support. Gapped higher on Tuesday and Thursday.

The Volatility Index (VIX) closed at the week at 12.3 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. Bounced to 12.7 on Thursday and watching.

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 the $193.35 resistance and watching the $198.50 level to clear. Added to upside hitting new highs and testing.

Biotech (IBB) Tested support at $96 bounced and moved back above the $101 and $105 resistance level. The downtrend is attempting to reverse the gains near term. Solid upside follows through as the sector shows positive signs. Entry $101.45. Stop $108 (adjusted). LABU $32.55. Stop $38. Hit resistance at the $110.60 mark. Watching.

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. Solid gain on a gap higher. Modest test on Wednesday.

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. Failed to break out of range as hit some resistance.

REITs (IYR) The upside trend remains on the long-term chart. Patience with our long term positions and short term watching how interest rate market unfolds as the sector tested to end the week. Reacting to higher interest rates moving lower. Hit near term stop and watching. More downside to key support at $91.33.

Treasury Yield 10 Year Bond (TNX) The yield closed at 1.72% and mixed for the week. Money is rotating again this time to stocks… Watching how this unfolds. Rates rose to 1.86% on Tuesday. 1.81% on Wednesday as worries rise about the trade deal. 1.92% on Thursday… Bonds moved lower on the activity.

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). Solid gains in crude and energy stocks rising as well. Wednesday they tested as worries rose about the trade deal. Rose on Thursday with news of the trade deal.

Gold (GLD) The upside in gold has been driven by speculation of the rate cuts and global weakness overall. The tug-o-war of tariffs, interest rates, and speculation are keeping gold in play. Watching how the bounce at support unfolds near term. Consolidation pattern on the chart. Big test lower and watching as dollar rises. Thursday moved to September lows and watching the downside?

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. Gapped higher again and cleared the June highs.

China (FXI/YANG) weaker economic data hurting the stocks currently as the move higher stalls at the September highs. Watching and listening for now. Gapped higher again to clear the $42.50 resistance.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

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.

  • 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.

FRIDAY’s Scans for November 1st: Markets moved higher on the trade agreement rumors getting closer. Buy the rumor… Economic data was mixed with jobs report better than expected. The manufacturing data remains below the 50% level showing contraction. Services are still holding up the economy, but plenty to watch next week as we get more information to show the state of the economy. The indexes post new highs led by technology, healthcare, and industrial stocks. Plenty to ponder as we look towards the new month of trading.

  • Technology (XLK/TECL) breaks to new highs as SOXX leads and others IGN, IGV, SOCL, HACK, follow.
  • Financials (XLF/FAS) leading upside move to new highs.
  • Healthcare (XLV/CURE) pushed to new highs as IBB, IHF, IHE, and others rally.
  • Natural Gas (UNG/UGAZ) attempting to break higher.
  • Brazil (BRZU/EWZ) adding to the upside move. EEM showing positive upside as well with emerging markets trading higher trade talks.

(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. Watching how it unfolds. Gapped to new highs.
  • XLU – Utilities moved higher and now forming a consolidation pattern near the highs. Support is at the $62.50 mark. Collecting the dividend and letting it play out. Topping pattern in play. Suffered on higher rates. Broke key support offering short side trade.
  • IYZ – Telecom held support at $27.62 bounced and cleared the $29.50 resistance only to forfeit again. Watching. Reacts to interest rate move, but holding at support and bounced Thursday.
  • XLP – Consumer Staples remains in the uptrend and in a near term trading range at the current highs. Patience. Moved lower showing negative signs on chart.
  • XLI – Industrials moved back to and cleared the $76.80 resistance. Moved above the July highs. Let it run. Gapped higher hitting new highs.
  • XLE – Energy broke lower on weaker oil prices and bounce on stronger oil prices… indecision. Cleared $58.19 resistance and showing a double bottom pattern in play. Solid gap breakout following a test last week. Tested the move and holding.
  • XLV – Healthcare held support at the $86.75 level. Bounced and cleared resistance at the September highs. Taking on a leadership role. Tested the move higher with follow through on Tuesday… watching.
  • XLK – Technology broke to new highs to end the week as earnings drive semiconductors higher. Parts and whole providing solid leadership. Testing near the current highs.
  • XLF – Financials have gotten a boost from solid earnings pushing the sector higher. Cleared $28.24 resistance. Broke to new highs for the week. Solid gap higher and a solid follow-through balance of the week.
  • XLY – Consumer Discretionary tested lower but remains within the current trading range. Needs some good news on the consumer side. In consolidation pattern.
  • IYR – REITs moved to new highs and testing the move. The uptrend remains, but interest rates made a bump higher causing some profit-taking. Broke support offered a short signal on Tuesday. Followed through on Thursday with more downside.

There are currently six sectors are in sideways or consolidation trends. Three sectors are in confirmed uptrends. Two sectors are in a confirmed downtrend. The result is SPY in a confirmed sideways/consolidation trend with an upside bias. 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: Markets rally early, give up most of the gains late, and offer a reason for some to worry. Watching how this unfolds with the indices at new highs, modest testing of the current levels, and due for a bigger test of the current five-week upside. Tariff news of a deal is in the headlines… signatures still need to be applied and the details exposed. Be careful what you wish for… you may get it. One day at a time.

Wednesday: Worries about tariff deal rise as meeting location becomes an issue. The real challenge is how this deal gets done. The new states it will happen in stages, but there are equally as many challenges with that happening. Taking it for what it is… news. We will follow the trends and take what the offers short term. Longer-term the upside remains in play and the underlying fundamentals continue to show weakness. Manage your risk, know where the exits are before the fire starts. Patience is the key emotion we need to engage in currently.

Tuesday: Divided efforts on the upside led to a neutral day. Watching money flow and leadership as we go forward. Some rotation with energy and dollar rising. There are some short side setups along with upside as money moves to find a new home. The trends in the broad sectors remain positive along with the indices. I would look for a test near term of the move higher the last five weeks. Maybe the Santa rally will arrive this year. Manage your money and take the opportunities presented.

Monday: Solid upside move as trade talk rumors continue to lead the headlines. This time there was a number assigned to the report… $112 billion in tariffs. That is nearly half of the tariffs currently levied by the US. There are a lot of moving parts in the tariffs and this is just the tip of the iceberg… The follow-through to the talking has been the challenge. Taking it for what it is… more talking. When it is signed we will believe what we hear. Speculation and lack of details are driving stocks. We will see what happens when the reality is achieved.

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. There is enough hope to continue the move on the upside. The trade talks remain the catalyst with rumors of an agreement signed this month… earnings added to the hope again this week with positive data overall… throw in the backstop of the Fed for liquidity as they cut rates again at the FOMC meeting. Brexit remains in the background as meetings continue with the EU and parliament to find a resolution. The dollar continues to struggle as rates cuts work against the buck. Investor conviction is getting stronger as indexes and sector hit new highs. 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 long-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.