Earnings and Fed spark rally for stocks

OUTLOOK: January 31st

The earnings train helped start the day on a positive note with Apple and Boeing providing positive data. Then the FOMC meeting in the afternoon produced the right music to keep the move going. Rates remain the same, but the comments were key as he addressed the impact of trade, global economic weakness, and mild inflation currently. The NASDAQ, DOW, and S&P 500 indexes all posted solid gains on the and moved back above the previous highs for January. All is well… right? I wouldn’t go so far as to say that… I would say it was a day of the right news aligning to bring buyers back to the table. Earnings are still not great as seen in the revenue data or the top line numbers. The meet the bottom line cuts have to be made and the easiest ones to make are labor. Thus, less hiring in the last four months. That in turn impacts consumer spending, which shows up in the economic data. All said, not bad… just not as good as it was in the third quarter of last year. Watching how all of this unfolds moving forward. 

The S&P 500 index closed up 41.1 points to 2681 and again testing the bounce from the December lows. The third leg has held but has been wobbly at resistance. Watching how this unfolds.  Ten of the eleven sectors closed in positive territory on Wednesday. Technology and consumer discretionary were the leading sectors to close on the upside. The downside was led by telecom as some money rotates. The long-term trendlines are improving, 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 $36.87 (adjusted). 

The NASDAQ index closed up 154.7 points to close at 7183. Wednesday’s rise erased the decline from Monday and put investors in a good mood for now. The close was back above the 7103 mark and a positive for now. The index has been the leader for the current move and we need a follow-through day to keep the leadership going. Technology led the upside on earnings report from Apple. 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 $41.97 (adjusted). Got up the move above the $162.48 resistance and watching how this unfolds with the back and forth of the last week. Manage our risk with $167.53 our next target. 

Small Cap index (IWM) reversed and found some buyers as the third 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. Wednesday the move back to last weeks highs 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 $144.40 (adjusted)

Transports (IYT) bounced off support and looks positive with the move above resistance at $172.33. Clearing the $164.73 level offered upside trade opportunity. Entry $165. Stop $172.30 (adjusted). The gap higher was a positive, and the follow through on Wednesday added to the upside trend. Watching stop in place. 

The dollar (UUP) fell on the news Wednesday as the Fed stands down on interest rates.  The move higher last week was helped by the economic data and hopes of a trade resolution with China. Failed to hold the move back above the $25.53 support and closed Wednesday at $25.34 and renewing the move lower. New volatility in the dollar resulting from lower rates and what is perceived as a weaker stance for the dollar. Gold is the benefactor along with other currency… FXE/ULE hit entry at $109.75. FXY/YCL equally renewed the upside pattern at $87.50. 

The Volatility Index (VIX) closed at 17.6 on Wednesday with anxiety falling again as Fed puts concerns to rest over interest rates… for now. Watching how this unfolds with anxiety levels move up and down. 

(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). Solid move through $107 resistance and hit the 200 DMA as resistance… small trading range at support and looking for a catalyst. Stop in place. Testing the $107 support with a modest bounce on Wednesday… 

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 $95.24/$105.24 sell half if reverses (adjusted). SOXL – Raised our stop – managing the risk. A target of $167.34 cleared with two solid days of upside moves. Earnings are the catalyst and let this run play out. Tested support at $167.34 and recovered on Monday… Sold half at $105.24 (above) Monday, and hit the stop at $100 on the close. Wednesday the sector returned to the upside and looking for follow through. 

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 $183.20 (adjusted). Raised stop – managing the risk. A nice move higher to end the week. Tested lower on Monday and Tuesday breaking below the 200 DMA again. Reversed on Wednesday to renew the upside move. 

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 $79.54 (adjusted). Big move for the week as the Fed shows signs of no further rate hikes near term… benefits the sector short term.  Added to the vertical move higher on all week… adjust stop to $80.75.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.75% as yields remain below support and tested lower early in the week. The bounce off the bottom is in play… the bond responds by moving lower…  Fell to 2.69% as the FOMC meeting concludes with rates unchanged and the bond rallied again. Looking at the upside for the bond if the optimism remains. 

Crude oil (USO) worries about the IMF data on the global economy. Rising supply remains a concern and the move above $52.51 resistance stalls. OPEC production cuts move to the back burner as a catalyst due to doubts about the promise The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $$15.10 (adjusted). Managing our risk and letting this play out. $52.51 resistance cleared and testing. Lost 3.1% on global growth slowing and worries Monday. Gained  2.5% on the Venezuela sanctions on Tuesday… FOMC news and supply data spark a gain of 1.7% on Wednesday… Needs to break resistance if the upside is to continue. 

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 and working on a double bottom pattern. $40.88 level to clear. Thursday closed at $40.93… with a follow through on Friday. Entry $41. Stop $40.50 (adjusted). Big test for the sector on worries about global growth. Bounced back nicely on Tuesday and Wednesday gains caome on the FOMC news. 

Gold (GLD) moved above the $120.45 resistance digested it and moved higher. The dollar and geopolitics have been the catalyst for the metal… both up and down. The move in the dollar lower helped the metal move higher on Friday. Managing the risk. Entry $116.50. Stop $122.40 (adjusted). The gold miners (GDX) equally respond to gold moving Friday with a solid 3.3% gain. Watching how this unfolds near term with the metals and the miners moving together again… Entry $19.70. Stop $21.25 (adjusted). Solid follow through to Friday’s move higher and added to the upside on Tuesday. Wednesday gets hand up from the FOMC news and the weaker dollar… Letting it run for now. 

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

WEDNESDAY’s Scans, January 30th: FOMC puts the halt to interest rate hikes for now. The return was a rally in stocks, a weaker dollar, global markets rallied, and gold posted solid gains. All is well… It was on Wednesday… how it unfolds is still a matter of news and reality. The talks with China start today and will be the next hurdle for the markets. Watching and taking it one day at a time. There is still plenty on the table and the earnings data is not that great looking forward. Not for me to decide… we will take what the market offers and keep moving forward.

  • Gold (GLD/UGL) solid upside continuation of the trend higher. Gold miners (GDX/NUGT) gain as well. SLV and SIL both moving higher along with the base metals (XME). Adjusted stops and let this run.
  • REITs (RWR/URE) upside continues as well with stops adjusted on the run higher.
  • Technology (XLK/TECL) upside breaks higher adding to trend. SOXX led the upside move on the day.
  • Brazil (EWZ/BRZU) solid break higher and the upside resumes. The Fed news helped the break higher and managing our stops.
  • China (FXI/YINN) upside breakout as the FOMC helped the cause and the start of meetings on tariffs. We will see how that unfolds and managing the stop on the positions.

QQQ, SPY, DIA all break above resistance and looking for the follow through to the move again…

FXE and FXY breaking back to the upside on the weaker dollar.

EURL making positive break to the upside along with EEM on the weaker dollar and hope of better economics globally.

TUESDAY’s Scans, January 29th: FOMC meeting, earnings, and China trade talks starting all weighed in on the markets and kept it in check with some winning sectors and some losing ones. The broad indexes remain in limbo looking for direction. Technology led the upside and is leading the downside currently in the test. Watching, scanning and looking where money is flowing near term. Taking what the market offers and keeping our eye on the prize, not the news.

  • Gold (GLD/UGL) more upside for both the metal and the miners (GDX/NUGT). The uncertainty globally and a weaker dollar adding to the upside moves. Adjust stops and let it run. SIL and SLV are following the metal higher as well. Base metals (XME) made a solid move as well on the upside.
  • REITs (RWR/URE) upside added again and heading vertically as rates continue to hold near 2.7% helping the sector.
  • Treasury Bonds (TLT/TMF) posted solid gains on rates declining on the day. Watching how this responds to the FOMC announcements today. Stops remain at $18.40 on the position.
  • Brazil (BRZU/EWZ) still consolidating from the trend higher from the December lows. $37.52 is level to clear near term. Stop remains at $33.
  • Water (CGW) solid uptrend remains in play and moved higher on Tuesday.

Apple announced earnings after hours and was up 4% on comments from Tim Cook… watching what impact that will have on the technology sector today.

MONDAY’s Scans, January 28th: The worries remain for investors over trade, Fed, and earnings outlook. The selling early held into the close and the second failed attempt to break above resistance is a concern on the charts, we adjusted stops and watching how this unfolds moving forward. Not speculating anything at this point just protecting the short term gains on positions and looking where the next opportunities lie.

  • REITs (RWR/URE) continues the positive upside move and adjusted the stop.
  • Gold (GLD/UGL) solid follow through for the upside move and looking at adding to position if the move holds above the $122.46 mark. SLV moving higher again as well.
  • Gold Miners (GDX/NUGT) successful move above the $21.24 resistance. Watching for follow through an opportunity to add to the position. SIL making a similar move.
  • Solar (TAN) continues the vertical upside move… nice run, adjust the stop.
  • Regional Banks (KRE) keeping the uptrend alive and adjusted the stop.

Watching the move on Monday for follow through… patience and stops in place.

FRIDAY’s Scans, January 25th: News leads stocks higher as the government heads back to work for three weeks. It will be an interesting time of headlines. President threatens executive order to build the wall and will fund the $7.2 billion necessary. China talks are on again… maybe. Earnings were the key driver for semiconductors and financials. The balance of the market reversed higher on hopes of more money flow from government spending… what true capitalist economy we have. All said we return to last Friday’s levels after testing earlier in the week. Watching how the new week unfolds and what catalyst develop looking forward.

  • Semiconductors (SOXX/SOXL) solid follow through to the move Thursday. INTC and WDC both missed on earnings, but the sector still advanced 2.1% on the day. Adjusted our stop and letting it run.
  • Technology (XLK/TECL) break higher to continue the uptrend from the December lows.
  • REITs (RWR) solid break through resistance at the $91.20 mark and sending the trend higher.
  • Emerging Markets (EEM/EDC) breaks from the bottoming pattern with above-average volume and some conviction to the move… finally a sign worth trading the sector.
  • Gold (GLD) solid move higher to confirm the uptrend after some sideways movement. The catalyst was a weaker dollar short term. Gold miners (GDX) are moving higher as well on the move in the metal.

The confirmation of the upside remaining and the third leg following through are a positive near term. Taking what the market offers and letting this unfold.

THURSDAY’s Scans, January 24th: Another interesting day for stocks… semiconductors leap higher on earnings, S&P barely hits even, China moves higher despite all the rhetoric about a trade agreement not happening, White House is unwilling to give on the shutdown, economic data is being revised lower again, and the earnings reports are mixed. This leads to specific movement in stocks and sectors versus a broad movement in the indexes. The risk remains elevated and the current activity is consolidating the move from the December lows… all said, take what the market gives and manage your risk.

  • Semiconductors (SOXX/SOXL) solid upside move on earnings. The INTC news after-hours will weigh on the sector today, but if the upside holds this is a sector watch on the upside leadership… we adjusted our stops and managing the risk. Trading the leaders as well. Scan the stocks in the sector and follow the leaders.
  • Utilities (XLU) follow through on the upside move and adjusting our stop.
  • Homebuilders (ITB/NAIL) solid bounce on the day, but remains in a bottoming trading range. Looking at the parts more than the whole in this sector. FND, IBP, LEN, DHI, and MHO.
  • Solar (TAN) solid break higher from the consolidation following the ‘V’ bottom pattern. Looking to complete the reversal and continue higher. The leader in the sector…  FSLR.
  • China (FXI/YINN) completing the bottom reversal and looking positive despite the news around trade not being settled anytime soon. $20.75 level to clear near term.
  • Stocks on my watch list near term… SQ, NVDA, NBEV, WMB, VIPS, MGM, and

Now is when you have to do your homework… finding the movers in the sectors as the broader market settles into a trading range. There are always opportunities sometimes you just have to dig more to find them. Taking what we see and ignoring the media headlines.

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 gap higher on Friday. Test of the upside move. Solid upside move on Tuesday and Wednesday. 
  • 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 $52.72 level again and managing our risk. Entry $53, Stop $52. Watching the selling on Friday. Back to testing support at the $52.72 mark again. Solid bounce on FOMC news. 
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $26.90 (adjusted). Nice follow through to close the week with a gap to the 200 DMA.  Testing support at the $27.63 level. Broke lower on earnings and bounced back to even on the day. 
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and looking for upside trade opportunity. $51.86 next level to clear as the sector struggles at this level. Bounced back with the broad markets on Wednesday.
  • XLI – Industrials to near-term low and bounced. $65 level to cleared for trade opportunity Entry $65. Stop $67.80 (adjusted). Upside leader with a solid move to end the week.  Led the upside on Tuesday and Wednesday with a solid gain. 
  • 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). Need an additional catalyst to keep upside moving near term. Consolidating as the day-to-day news confuses investors about direction. Sanctions on Venezuela added to the upside after selling on Monday on supply increases in US production. Wednesday rallied on lower US production. 
  • 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 flag pattern. Adjusted stops. Earnings not helping the cause. Ugly test lower with biotech leading the downside Monday. Small bounce back on Tuesday at the 200 DMA. Nice upside follow through on Wednesday with the Fed. 
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $63.45 (adjusted). Cleared $63.69 resistance and followed through upside. Semiconductors lead the upside for the sector… earnings setting the tone. More selling on earnings and testing the $63.69 support. Solid gains on Wednesday to resume leadership in the current trend. 
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.10. Solid earnings on week boosted the sector and adjusting our stop. Modest test of the upside move. Soft in response to the FOMC meeting. 
  • 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 next level to clear. Holding support at the $105 level. Solid upside on Wednesday. 
  • RWR – REITs broke lower despite lower interest rates… bounced from lows clearing $88 level and $91.20 on the close Friday… positive upside move. Fed talk keeping rates in check and the buyers engaged. Solid move higher to $93.21 target… looking to take some gains and letting it play out. Added more upside on Tuesday and Wednesday as we adjust the stops again as money rotates to where it is treated the best. 

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

FINAL NOTES:

A glut of data out this week with earnings, FOMC meeting, trade talks with China start on Wednesday, and Europe economic data softens again… Watching how this impacts the current direction and if it adds to the stress on the upside moves. 

Fed helps the rally as it stays neutral and adjust comments on the economic picture and outlook. Watching how it follow through today along with the beginning of the trade talks with China. 

Markets continue the bounce from the December lows with test early in the week and managed to close back at last weeks highs. The third leg of the move higher remains in play and we have adjusted our stops accordingly. The government shutdown gets a three week back to work vote, but remain in play as a key concern for the economy. The hope of a trade agreement with China remains a beckon of light on the distant shore. Emerging markets, however, are trading like it is a done deal as EEM breaks from the trading range. Semiconductors (SOXX) are leading the upside move for the NASDAQ. Financials and Tech lead the S&P 500 index and the NYSE shows the solid broad-based move current in motion. 

Nine of the eleven sectors managed to close the week in positive territory as money rotates modestly. Technology, industrials, and financials led the upside for the week. Interest-sensitive sectors fared well despite the move higher in interest rates last week with REITs clearing resistance in the trend higher. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers. 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% to 2.75%. 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. Disciplined entry and exit points allow for 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.