Energy takes off

The broad indexes enjoyed another positive day of gains as investors like what they are seeing in Washington and the vaccines supersede the worries about the spread of the virus. The mood shift this week continues to build positive momentum into the Thanksgiving holiday weekend. The energy sector is up more than 12% this week as money flow jumps on optimism about the global recovery. Financials lead higher as well with banks leading the upside move. Technology posted a better day but remains a laggard among the sectors. The Dow closed above 30,000 for the first time in history and the S&P 500 index closed at a new high as well. Small caps continued their run higher to lead the markets this week. We continue to be patient and take what the markets offer. The next update will be the weekend update as we have a shortened week of trading for the holiday. Have a safe and happy Thanksgiving… enjoy time with friends, family, and most of all be thankful for what we all have.

Short news notes of interest…

  • Consumer confidence data fell in November to 96.1 from the 100.9 in October. The positive sentiment slipped despite the elections and vaccine news. Maybe people aren’t happy with all the outcomes?
  • Crude rose 4.2% to $44.89 a barrel and a confirmed break to the upside. This is positive for our positions, but a challenge for the consumer as prices at the pump will move higher.
  • Case-Schiller Home Price Index jumped 6.6% in September following the 5.3% increase in August. The sector continues to see growth, but money flow is showing concerns amid the accelerated growth in pricing. Watching how this unfolds.
  • The S&P 500 Index closed at a new high and is now up 12.5% for the calendar year. The NASDAQ is up 34.2% for the year. Amazing when you consider the 30+ percent decline in March/April.
  • All of the headlines turned to Biden’s transition plans and staff appointments on Tuesday. Going to be an interesting time as the storyline unfolds and the markets respond to the moves.

The S&P 500 index closed up 57.8 points to 3635. It was up 1.62% on the day. The index held 3550 support and closed at new highs on Tuesday. Earnings, political transition, Yellen, and energy lead the day. The energy sector led the day again with a 5% gain as crude moved higher on the vaccine news. Eleven of the eleven sectors closed in positive territory as investors continue to push the index higher. The REITs were the laggard on the day. The VIX index closed at 21.6 as anxiety ticked lower on the day. Watching the momentum changes and how it proceeds.

The NASDAQ index closed up 156.1 points at 12,036. The index was up 1.31% on the day as the index held above the 10 DMA. Semiconductors have been the leader for the index near term. Tech overall continues to show signs of fatigue but improved on Tuesday. The NASDAQ 100 index (QQQ) was up 1.41% for the day. The index remains in a well-defined trading range. Semiconductors (SOXX) closed up 0.54% for the day and closed at new highs. Technology (XLK) moved up 1.39% and holding above the $118 support. Watching how this unfolds as the market shifts gears again.

Small-Cap Index (IWM) The sector moved up 2.1% and held the gains for the week as it takes on a leadership role and continues the uptrend. Volatility in the sector remains a challenge as we added a position on the bounce from the $151 support. Continued leadership adding 1.8% on both Monday and Tuesday.

Transports (IYT) The sector tested support again at the $193.50 level. The continuation of the move from the support is in play along with the uptrend. Moved up 4% to start the week.

The Dollar (UUP) The dollar turned lower this week talk of stimulus sends the buck lower. Watching how it unfolds at support. Gave back the bounce on Tuesday.

The Volatility Index (VIX) Volatility is dropping against the backdrop of the vaccine announcement. A move below 21.6 would be of interest from my perspective and end the surge started in March. Closed at 23.7 on Friday. Closed at 21.6 on downtick related to buying.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector posted a solid 4.4% gain last week and moved sideways this week. Watching the current trend and managing the stops. Started the week on a positive note up 3.1%.

Retail (XRT) The retail bounced back from the test of support and is now at new highs. Posted solid gains on the week and held them into the close on Friday. Adjusted stops and letting it run. Positive on vaccine news gaining 3.7% Monday and 1.8% on Tuesday.

Biotech (IBB) The sector remained in a trading range. XBI has broken to new highs as the large-cap biotech leads the way. Taking the opportunities that are offered in the large-cap stocks. Positive bounce on vaccine news but remain in a trading range.

Semiconductors (SOXX) The sector remains in an uptrend and broke higher on the week. The $303 level of support held and the bounce offered an opportunity to add positions. Managing the risk and letting this unfold. Leading the tech sector positive start the week.

Software (IGV) The sector sold after an attempt to break higher. It settled into the defined trading range and watching to see how it unfolds near term. Remains in a trading range.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.82% down from 0.89% last week. Rates flirted with the 1% level as inflation slows again and stimulus talk started up again. Watching how it unfolds. Rates higher on optimism. Closed at 0.88%.

Crude oil (USO) Crude moved to $42.17 from $40.12 for the week or up 5.1%. Plenty of speculation to drive prices and watching how this unfolds. Looking for a break above resistance currently. Moved higher on Monday and breaks from the trading range. Confirmed the move on Tuesday gaining 4%.

Gold (GLD) The commodity remains in the trading range and on the bottom side of the range. Looking for a catalyst and a weaker dollar may provide the needed move. Breaks lower and reestablished the downtrend. Down 2% on Monday and 1.5% on Tuesday.

Emerging Markets (EEM) The sector turned lower, bounced, and broke to near term highs. Entry $44.50. Stop $46 (adjusted). China (FXI) was the leader on a break higher as well. and we adjusted our stop on those positions as well. Added to the uptrend.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

TUESDAY’s Scan for November 24th: Transition begins in Washington, earnings are upbeat, energy prices rising on global optimism related to the vaccine, and all is well with stocks hitting new highs. The push higher is clear on the charts, breakouts in energy, financials, and other recovery sectors offer upside trades near term. Watching, practicing patience, and letting this all play out near term. Following the leaders and managing the risks of the current environment.

  • Energy (XLE/ERX) adding to the upside break higher. This is a sector we have been watching as a key opportunity for the recovery stocks. OIH, IEZ, XEO all moving higher. UGA breaks higher from the trading range as well.
  • Gold, Gold Miners, Silver all move lower… short side trades playing out well near term.
  • Volatility Index (VXX/VSXY) moving lower as volatility fades on positive vaccine news. The short side trade has played out well on the move.
  • Emerging Markets (EEM) breaking higher on optimism as well.
  • Regional Banks (KRE/DPST) solid move higher as they lead the financial sector higher.

MONDAY’s Scans for November 23rd: More rotation to small caps and what are being deemed recovery stocks. The cyclical rotation is in place as many are now looking longer term to the recovery of mobility globally. The herd immunity will take time to unfold, but the outlook is positive for the next 12-18 months. How we get there is what remains unclear and the markets are attempting to balance the outlook to near-term realities. Yellen being named Treasury Secretary gave hope of a stimulus package in January since she is familiar with the players. All were happy on Monday with the exception of Trump as he agreed to transition power to the new administration.

  • Energy (XLE) jumped 7% on the day as optimism surrounds the recovery of crude consumption. $38.50 next hurdle to jump. OIH jumped 9% on the news as well.
  • Financials (XLF) solid upside to add to the trend higher. Adjusting stops and letting this unfold. Banks are leading the upside move.
  • Goldminers (GDX/DUST) short side playing out well and raised our stop.
  • Retail (XRT) solid upside moves as the trend higher continue on the vaccine news.
  • Small Caps (IWM/TNA) upside leadership for the sector a positive as rotation continues to benefit the sector.

FRIDAY’s Scans for November 20th: Markets finished the week on the downside as investor worries rise about a stimulus, the virus, and the economy. There will always be something to worry about relative to stocks and with that in mind we keep our eye on the trend and our stops measured. Rumbling from analysts at markets being overvalued again. This is of interest as we head into a historically positive period for stocks. Taking it one day at a time with an eye on the risk factor. Below are the leaders and some interesting moves of late worthy of trades if they unfold.

  • Leaders on Friday: XBI, TLT, TAN, FXI, KWEB… worth watching into the new week of trading.
  • Leaders for the week: KOLD, DUST, PBW, IEZ, UCO… these have played out well for trading opportunities the last week. Stops in place.
  • Treasury Bonds (TLT) Yields fell on the week and the price of bonds rose in response. $38.60 level to clear on TMF.
  • Solar (TAN) Moved above the resistance on Friday and watching for a follow through to start the week. Clean energy (PBW) made move higher this week.
  • Energy (XLE) another flag pattern on the chart relative to the move from the lows in Ocotober. Letting this unfold as the parts are of interest as well.

THURSDAY’s Scans for November 19th: Markets respond to the rumors of a possible stimulus from Congress prior to year-end sparks some buying. Watching the ‘rumor’ as it unfolds as it has not been a topic to make it very far of late. The markets are still digesting the upside move on Monday without any real follow through the last three days. This put us in a cautious mood for now. Manage the risk and let the opportunities unfold.

  • Energy (XLE) continues an attempt to move higher as crude remains stuck at resistance. XOP, IEZ, OIH
  • Semiconductors (SOXX) remain in a solid uptrend and adjusted our stop on the day.
  • Clean Energy (PBW) solid run higher going vertical and adjusted our stop on the positions.
  • Retail (XRT) continues higher despite the slowdown in sales data for October. Managing the position.
  • China Consumer (CHIQ) consolidation near the highs. Adjusted our stop but watching how this moves near term.

WEDNESDAY’s Scans for November 18th: More testing for the broad markets and the uncertainty between the virus and the vaccine. It is a race to see which one will have the greater influence on markets. FANG stocks remain in a trading range (FNGU). Commodities continue upside move with DBA moving higher. Natural Gas (KOLD) continues to struggle. Our scans continue to find opportunities in global country ETFs and other sectors of note. Taking what is offered and managing the risk.

  • Long Term Corporate Bonds (IGLB) breaking higher from a four-month trading range.
  • Crude Oil (USO/UCO) top of the trading range? Ready for a move higher or retest of the move?
  • Natural Gas (KOLD) downside remains in play and watching for a break from the current trading range. Solid follow-through upside on the short trade Thursday!
  • Semiconductors (SOXX) at the top of the trendline and holding up despite some selling.
  • Alerian MLP (AMLP) uptrend in play as the ETF confirms the move above resistance at $23. Next challenge the 200 DMA.

(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 break to a new high as clears the highs of the trading range. Gap and fade for the sector and watching the outcome. Breaks to new highs.
  • XLU – Utilities struggled all week falling 4.8% and hitting our stop. Watching support and looking for any opportunities.
  • IYZ – Telecom moved to resistance at the $29.67 level and tested. Watching how this unfolds with our stop at $29. Breaks to new highs.
  • XLP – Consumer Staples double bottom and break higher. Offered upside trade opportunities and watching as the sector test the breakout.
  • XLI – Industrials gapped higher on breakout and continuation of the uptrend. Watching. Breaks to new highs.
  • XLE – Energy gapped higher on speculation of growth relative to the vaccine. Move to 200 DMA and found resistance. Jumped higher on move in crude and recovery hopes on the horizon. Stop $36.
  • XLV – Healthcare broke higher from the trading range offering an entry point for the sector. Tested the move and watching how it unfolds.
  • XLK – Technology is in a trading range and looking for upside momentum. Semiconductors broke higher and leading the sector. Remains in a trading range and moving higher.
  • XLF – Financials gapped higher and getting support news from interest rates, dollar, and economic outlook. Watching the near term outcome. Solid move upside as recovery hopes on vaccines fuel stocks. Regional banks (KRE) leading the upside.
  • XLY – Consumer Discretionary bounced back to the previous highs as the consumer continues to show strength. Holding in the trading range for now. Breaks to new highs.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Tested support at $76.22 and bounced to the top of the with a break above $84.45… testing currently.

The trends are shifting again based on investor activity. We saw sectors bounce off key support levels and followed through to resume some uptrends and stall others. Proceed with caution. Using the six-month charts as an indicator for the short term view… Six sectors are in confirmed uptrends as two breaks higher. Five are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for SPY is in a move to a sideways trend short term with an upside bias currently. The leadership is rotating as money flow shifts directions.

(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:

Tuesday: Markets are happy with the transition in Washington starting, earnings remain solid, the economic picture is good, and hope springs eternal as money flows into stocks. The rotation into the recovery stocks continues. Banks, energy, and basic materials set the leadership for the broad index. The vaccines are providing optimism as more details are released. The front-line healthcare workers could start receiving it as soon as two weeks in some reports. The optimism is outweighing the concerns about the spread of the virus. Reports are out as well that show herd immunity could be reached as soon as March/April timelines. All the good news is overflowing into stocks… valuations will be a topic for another day.

Monday: Hope springs eternal as the new administration gets approval from Trump to start the transition. Yellen appointment offers hope for a new stimulus package. Vaccines offering renewed hope of an end to the virus and a return to ‘normal’. Shutdowns still in action as states attempt to exert control over movement. The reality is becoming clearer and the time horizon is starting to become clearer over the next 12-18 months. There are so many variables in play and some many moving parts, but hope springs eternal.

Weekend Wrap & Outlook… The markets gapped higher to start the week but found a way to give up the gains with the S&P 500 closing in negative territory. The virus is taking center stage with the rise in cases and fear rising of more shutdowns. Thus far the shifts have been towards trying to control gatherings more than shutting down businesses. We will want to see how that unfolds moving forward. The economic data remains on the positive side as we continue to see improvement in the numbers. The talk on Friday centered on stimulus and the Treasury returning the $455 billion of unused aid for the Federal Reserve. That started the negative talk, but the move was not really negative as much as prudent to put the money where it can help most… small businesses. There is plenty to like, but there is also plenty of uncertainty surrounding the outlook for the markets as well. The virus spike in cases is an issue that is raising concerns. This fear factor is one thing that can disrupt the short term if it becomes believable enough. The long-term trends remain and the near-term bounce is positive as some sectors resume uptrends and indexes are pushing back to the previous highs and some setting new highs. How all of this plays out will be of keen interest to investors and traders alike. There were discussions again about the stimulus package, but it resulted in the same issue… not enough money according to Pelosi. Technology stocks led the volatility as the sector closed lower on the week. Semiconductors bounced and closed at new highs for the week. The retail sector bounced back despite the disappointing sales data for October. The VIX index moved to 23.7 after a week of ups and downs for the index. The dollar moved back to support and down as stimulus talk was in the headlines. The S&P 500 was down 0.7% for the week and six of the eleven sectors posting losses for the week as early gains from Monday fell off. The market is looking for leadership currently and small caps rose to the top again this week. Energy showed positive signs as crude continues to move higher. It is at the top of the range currently and looking for a catalyst to break higher. Watching the current movement in the broad markets as money continues to rotate and cash levels remain elevated. The goal remains to manage money not the markets or the pundits in the media. Let the future unfold and manage the risk that is. Track the data. Know where the markets stand relative to the facts. Money rotates to where it will be treated the best. Watch the trend, know which side the Fed is on daily, 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.

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.