Election results bring buyers back

OUTLOOK: November 8th

The markets celebrate an election result they could live with. Not sure what that means, but the expected results were counted and more confusion to come from Washington. The midterm elections brought some changes in Congress, but we will still have to deal with the dysfunctional beast that it is. The market is happy as there will be no major changes with a split government. In two years we will do it all again. The good news is the breakout follow through on the reversal. On Tuesday the S&P 500 cleared 2750 as entry signal and confirmed the move with a gap higher on Wednesday. The NASDAQ equally made a positive move on Wednesday to clear the 7505 level of resistance. Volume was above average and the breadth was all eleven sectors of the S&P 500 moving higher on the day… all is well… for now. 

The S&P 500 index closed up 58.4 points at 2813 as the index moves to the second leg lower and now faces some resistance at the 2815 level. A move above the 2726 mark offered a short-term entry on the long side and Tuesday confirmed the move. Eleven of the eleven sectors closed higher with healthcare and technology leading the day. The weakest mover on the day was consumer staples. Worries about the election were over following the predicted results and everyone is happy. The reality is we face more challenges looking forward an not the least of which is the economic outlook with the Fed in tow. The chart additionally broke the long-term trendlines off the January/February 2016 low triggering exits on long-term positions. The current moves are working on correcting that issue near term. Break higher is a positive… need to follow through near term on the move. 

The NASDAQ index closed up 194.7 points to close at 7570. The index continued the positive move above the 7297 previous support and cleared resistance at the 7505 mark. The bounce off the low of 6922 remains in place for now. Technology and semiconductors showed a solid upside move for the broad index. QQQ is our indicator near term as we watch to see how the leaders respond… currently, the bounce is in place following a test of the $162.48 support. We cleared $170.93 resistance and the 200 DMA. The index closed Wednesday at $175.58 on solid gap higher. Some positive moves came from WDAY, AMZN, ILMN, ADBE, and ISRG. This is a good sign as the leaders emerge from the mess that was a correction. Watching to see how the week unfolds…

Small Cap index made a solid move higher to clear resistance as the $154.90 level and reverse the trend lower… and added to the upside reversal and opportunity. I am taking the move for what it is… a bounce currently on modest volume. We need to clear the $158.01 as the next hurdle. Willing to see how this one plays out going forward.

Transports (IYT) moved back above the key level of $182.43… the acceleration higher on Wednesday cleared the $192.42 level as well. The positive move came from the entire sector with airlines, logistics, and trucking moving higher. The bounce is in play for now and watching how this one unfolds relative leadership for the Dow index.

The dollar (UUP) bounced off the support at $25.53 with some downside in the buck Wednesday. Watching as the buck shifts gears on the day. The overall move higher is positive from my perspective, but there are many who think a weak dollar helps US companies. Simply not true… history validates a strong dollar favors the US despite the short-term setbacks.

Gold (GLD) gapped higher to recover from the selling to break from the consolidation at the current highs again. Watching to see if this can follow through on the upside this time. Watching how it responds to the move as it has drifted lower the bounced back. The dollar and geopolitics have been the catalyst for the metal… both up and down. The gold miners (GDX) equally respond to gold moving higher but stuck in some consolidation currently. Watching how this unfolds near term with the metals and the miners moving together again…

Crude oil (USO) remains in a speculation trend of uncertainty. The moves over the last six to seven months have been driven by speculation. The current downside from the October 3rd high is about the speculation of higher demand being driven by Iran sanctions not panning out on the supply data. The retest of support at the $66 level failed to hold… the break lower keeps the downside in play and watching how it responds. The commodity closed at $61.57 on Wednesday breaking below support at $64.22. Short side still in place.

Emerging Markets (EEM) bounced… followed through after the test lower again. That accelerated retesting the September lows and spiked below that level with a bounce at $37.88. A nice reversal in play and cleared the $41 level of resistance… Too many questions in this sector with China providing the biggest question marks on trading tariffs. Emotions are high along with selling volume.

The Volatility Index (VIX) closed at 16.36 on Wednesday with anxiety levels dropping some from recent concerns. The calming on the last few days of trading shows the buy side influence on the psyche of investors. Watching how the new week unfolds.

Investors made an attempt midweek to push stocks off the current lows and were successful until the Apple news on Friday turned things a little sour. The charts remain in a bounce mode with some rollercoaster activity to keep things interesting. I am not convinced that some of the selling wasn’t money moving to the side in advance of the elections on Tuesday. Watching how this all unfolds with the second leg of the move lower still in play. It is decision time on the charts with the bounce back to key resistance levels. If the move is to reverse now is the time for the buyers to step up and be counted. We will see how this unfolds in the coming week. There are no changes on the tariff front with China. The Small-Caps did offer some upside hope on the week. Technology was leading the way until Apple rocked the boat. The S&P 500 tried to clear the 2740 resistance and we will watch how that unfolds in the coming week. Ten of the eleven sectors closed the week in positive territory showing some hope. Basic materials, telecom, and financials led the upside move some money looked for positive movement. We remain in the midst of an official correction on the NASDAQ down more than 10% from the high. The question remains about a recovery, bounce, buyers, something to reverse the downside momentum…  There is plenty of dynamics working in the markets overall and we will take it one day at a time. All we can do is manage our risk according to the charts and not speculate on what if… the greatest challenge for us all is not letting our emotions get involved in a process that requires a disciplined strategy and action.

The positive reversal on Wednesday added to the upside moves and showed some conviction following the elections. The challenge remains the economic outlook and the Fed. We will take what the market gives, but manager our risk on the horizon. 

(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 lower… bounced and managed to clear the $107 level of resistance and hold it Friday… Watching how the week unfolds and looking at the upside opportunity if it presents itself. Cleared $107… followed through… accelerated higher Wednesday… Entry $107. Stop $106. 

Semiconductors (SOXX) bounced off the $155 support… cleared the $167.34 level of resistance. Looking at how this unfolds in the coming week and what opportunities are presented. CRUS, MLNX, SLAB, MPWR, and ADI showed positive charts and moves for the week. Made the move above $167.34 on Monday… Followed through and watching how it unfolds near term. Entry $167.35. Stop $164. 

Software (IGV) The sector broke support at the $178.87 and bounced back this week. Watching the $185 resistance and 200 DMA and opportunity if it unfolds. Nice break above the $185 mark and looking for confirmation. 

REITs (IYR) indecision showing on the chart following the decline to support at $75.20… The 200 DMA in play again as the sector attempted a move higher midweek. Interest rates moved higher causing some angst. Watching how this unfolds without chasing the rabbit. Nice move higher clearing $79.76. 

Treasury Yield 10 Year Bond (TNX) closed the week at 3.21% reversing the downside move. The positive bounce midweek in stocks pushed rates higher again. Watching how this unfolds in the coming week. The short side of bonds back in play TMV. holding steady at the 3.2% level. 

Energy stocks (XLE) The stocks confirmed the move lower to start the week, bounced, and sold again on Friday. $68.82 is the level to clear if we are going to make any progress on the upside near term. Cleared the $68.82 level and watching how it unfolds near term.

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

Daily Scan Results:

TUESDAY’s & WEDNESDAY’s Scans 11/7: Follow through upside with the election results. Now comes the proof… follow through from the move. Everyone was happy, but now they have to continue the momentum or else the worries will return and a retest of the bounce. Letting this unfold one day at a time as news drives the direction and momentum currently. Positive leadership on Wednesday…

  • Technology (XLK/TECS) Cleared the $70 level of resistance and the 200 DMA. Entry opportunity on the move and watching how it unfolds.
  • Semiconductors (SOXX) added a positive move as well. $115.10 is level to clear for any long side opportunity. This is a key sector for the upside to validate.
  • Consumer Discretionary (XLY) solid move above the $107.50 level for an entry opportunity. The follow-through moves above the $109.21 level equally helpful. AMZN, NFLX, and WYNN all attempting to provide some leadership on bottom reversal patterns.
  • NASDAQ 100 index (QQQ/TQQQ) nice move above resistance at $55.55. Large-cap leadership is what put the uptrend in place… it needs to be a part of the recovery as well. Looking for follow-through move today.
  • Financials (XLF/FAS) positive day for the sector as it adds to the upside leadership. We added some at the $26.33 level and $27 level offered another entry with the upside follow through. Leadership from the sector is a positive… my view.

Taking the releif bounce from the election… but, we have to follow through upside. The challenges facing the markets have not changed and the removal of this one obstacles is positive, but there is plenty on the horizon to face. Taking it one day at a time with caution and stops in place.

MONDAY’s Scans 11/5: Indexes were split the NASDAQ finding its way lower on Monday. Technology and semiconductors remain weaker than the rest. REITs and financials led the upside move on the day, but not much in terms of changes on the charts or leadership overall. Interest rates held steady allowing for money to rotate to utilities and other defensive sectors. Overall… watching and waiting for the opportunities to unfold.

  • Financials (XLF) move above resistance at $26.33 and follow through on upside move. Mixed leadership in the sector as individual stocks showing promise… worth scanning the leaders.
  • Consumer Staples (XLP) continue the upside move and adds to break above resistance at the $54.92 mark. PEP, MKC, HRL, and COST show positive moves on the charts.
  • Natural Gas (UNG) jumps upside and breaks from consolidation on reports. Solar (TAN) made move with the commodity…
  • Homebuilders (ITB) making a positive attempt at a bottom reversal… watching how it unfolds.
  • Emerging Markets (EEM) attempting to reverse the downtrend as well… watching.

It was a day of rest and juggling prior to election day! Whatever that means… we continue to watch, be patient, and let the leadership rise. Mostly just being patient and that is hard work.

FRIDAY’s Scans 11/2: The positive move reverses as the sellers step in on the Apple news. The size of Apple’s market cap impacted all the sectors and indexes in which it resides. That said, it did impact the market psyche as well. Investors don’t like uncertainty and it did introduce some hint of speculation. The reality could be investors wanting to get out of the election speculation that will be in full bloom his week. The news is back in the driver’s seat for now and we will let this unfold and take what the market gives going forward.

  • Telecom (IYZ) positive move above resistance at the $28.60 level… watching what this presents.
  • Consumer Discretionary (XLY) positive bounce and follow through clearing the $107 resistance and follow through. Watching the opportunities this week. SBUX, ULTA, M, HRB, and ROST looking good on the charts.
  • Financials (XLF) held the $26.30 level and watching how it plays out in the coming week. MET, CBOE, GS, and others below making positive moves.
  • Emerging Markets (EEM) positive bounce last four days and looking at the 40.88 mark as an opportunity on the upside. Good volume on the move as well.
  • Brazil (BRZU) upside continued following some consolidation The positive trend is in play and the follow through gives us an opportunity to add to our existing positions.

Some hope faded on Friday… but, the bounce is still in play. Monday will be key to how this unfolds near term. Patience is the key along with managing our risk accordingly.

WEDNESDAY’s & THURSDAY’s Scans: Another positive day for stocks as they moved higher again but failed to hold the intraday high and did so on lower volume… no conviction in the move. Traders are in control of the near term activity with the longer term money still on the sidelines. My view is more consolidation at this level as the next leg is determined. Patience as we let this unfold and look for the best opportunities.

  • Technology (XLK) made a solid move higher from the lows. FLT, AMD, ADP, PYPL, XLNX showing some positive moves on the chart to lead. Worth scanning the sector overall.
  • Telecom (IYZ) added to the move on Tuesday… leaders rising. S, TMUS, GRMN added to list from Tuesday.
  • Financials (XLF) added a positive move to the bottoming pattern. ICE, PNC, RF, JPM, BBT, NDAQ showing positive charts on move.
  • Semiconductors (SOXX) positive follow-through from Tuesday… MPWR, ON added to list from Tuesday.
  • NASDAQ 100 index (QQQ) positive move to add to Tuesday gains. TMUS, ISRG, ADP, PYPL, XLNX show positive charts for the last few days. Worth scanning the sector overall.

Positive day for the broad markets and several sectors. The challenge remains direction… it will take more than this to turn the trend from the downside. Watching how today unfolds and looking for some consolidation to set the tone for the next move… up or down.

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:

The bounce finally materialized and then some speculation on Apple’s news Friday gave cause for a pause. Plenty to watch, some things to own, some things to sell… there is always opportunity in the volatility until the trend presents itself again. Taking what the market gives.

  • XLB – ‘V’ bottom in play and $54.20 level to clear… watching how this plays out near term. Cleared $54.15 offer entry… follow through on Wednesday positive. 
  • XLU – The utility sector is in a trading range and watching interest rates as Friday pushed the sector back to support at the $52.72 level. Nice bounce on Monday, Tuesday, and followed through on Wednesday. Remains in trading range. 
  • IYZ – Telecom fell to support at the $27.63 mark and bounced back to resistance at the $28.62 mark again. Parts are better than the whole currently and watching for the opportunities. Cleared the $28.62 with follow through. 
  • XLP – Consumer Staples held support at the $51.86 mark and moved back to the previous highs. Need to clear the $54.92 mark upside to continue. The defensive money is rotating. Added to the upside move all week… adjust stop to $54.50. 
  • XLI – Industrials broke lower and below the $71.43 support. The bounce back to this level needs some help near-term and watching how the bounce unfolds. Cleared the $71.43 mark. Added to the upside move on Wednesday. 
  • XLE – Energy stocks fell with the market and confirm the downside trade as breaks support and accelerated lower. The bounce was positive, but not convincing as crude continued lower for the week. Watching. Cleared the $68.82 mark. Watching how crude impacts the sector. 
  • XLV –  Healthcare broke the uptrend from the May lows and breaking the 50 DMA as the trendline. Held $86.74 support and the 200 DMA. Bounce in play. Solid gap higher as the leadership returned. 
  • XLK – Technology breaks lower opening short side trade. 200 DMA came back into play, but Apple stalled the upside move. Watching. A solid move higher clearing the 200 DMA. Watching how SOXX impacts the upside move.
  • XLF – Financials move back above the $26.33 and presented some hope. The parts are better than the whole as we scan for the opportunities. (see above) Nice upside addition to last weeks move. Showing some leadership for a change. 
  • XLY – Consumer is under pressure from interest rates and Fed talk. Held support at $102.50 and bounced clearing $107 and looking for the opportunity in the move. Parts are of more interest with scans showing the key leadership in the sector. Holding move higher. Added to the move higher and showing some leadership on the bounce. 
  • RWR – REITs have been under pressure from interest rates. Bounced at $88 support… tried to clear $91.20, but reversed on the interest rate climb on Friday… Watching. Bounce back above the $91.20 mark. Added to the move on Wednesday and looking positive for now. 

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

FINAL NOTES:

Markets attempted to bounce off the current lows but failed to follow through on Friday. There is plenty of anxiety from investors and the news from Apple on how they will report earnings going forward did not settle well and prompted too much speculation. Ten of the eleven sectors managed to close the week in positive territory offering some hope looking forward. We continue to take this one day at a time. There is plenty of influencers in the markets currently. We have discussed the tariffs, interest rates, geopolitics, earnings, the economic picture, and many other issues over the last few months and they continue to stimulate speculation. The Fed is currently the biggest influencer on investors psyche and they aren’t helping with the continued comments on inflation and higher rates to stall growth. Next week we will get to speculate on the election results… what will they influence and how they will impact the economic picture. How this all unfolds is a matter of time. There is no reason to panic just follow your strategy… it, your strategy, is the calm in the storm… stops take you out of positions and protect principle when things go south. Short side trades work well when markets turn lower. Disciplined entry and exit points allow for you to manage your risk. Investing and trading is a matter of discipline. It is not magic. It is not being a prophet. It is about following your defined strategy one day at a time. 

There is plenty to do short-term. 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.