Fed ruled the week

MARKET OUTLOOK FOR July 12th, 2019

Stocks were on the rise again to end the week. The expectations of the Fed cutting rates remains the motivation for money flow into stocks. With that in mind, the dollar continued to decline and gold inched higher. Despite the storm in the Gulf of Mexico oil remained steady as the worries of global surplus remain a drag. Facebook climbed to a new near term high after finding out the FTC would fine the company $5 billion for privacy controversies. The markets continue to show rotation as money has moved to a narrower group of sectors. The small caps stocks are losing money flow while large caps are gaining. This is an indication of money going where it will be treated the best and the Fed is driving the direction. Good week for stocks overall with the major indexes all closing higher.

The S&P 500 index closed up 13.8 points to 3013 closing above 3000 for the first time and hitting a new high again. The focus for week has been on the Fed and interest rates. Mr. Powell confirmed in his testimony to Congress that he will do whatever it takes to keep the economy going. i.e. cut rates. The earnings game will start soon and it will capture the attention of traders. China trade is still on the back of the stove simmering along with the issues in Iran. Eight of the eleven sectors closed higher on the day as industrials and consumer discretionary led the upside. The downside was led by healthcare. We adjusted our stops and taking what the market offers. The long-term trendline has been looking better, but we will watch closely as the events continue to develop.

The NASDAQ index closed up 48.1 points at 8244 and remained above the June highs. Technology stocks continued to bounce back again on Friday with semiconductors finding support in the uptrend from the May lows and moving above the $204 resistance (SOXX). QQQ is our indicator as it clears the $186.81 resistance and hitting highs. Investors are putting money to work on the hopes that trade will improve with China and rates will be cut by the Fed. Adjust your stops and know your exits on both short and long term holdings.

Small-Cap Index (IWM) the sector broke below the $146.71 support and turned higher on news. The upside move has stalled in a trading range near the $154.90 mark. Emotionally charged activity in the sector currently. The sector remains a laggard as money rotates to other sectors.

Transports (IYT) The sector moved back above the $186.70 mark Thursday and posted a solid gain on Friday to close the week. Trucking stocks showed solid gains leading the sector on Friday. The stairstep pattern in play puts the reversal off low a chance on the upside. The weakness in the sector comes from slower economic data. Watching for an entry signal confirmation.

The dollar (UUP) The big question mark for the buck this week has been interest rate cuts projected by the Fed… watching how this unfolds along with the tariffs, economy, earnings, etc. The buck moved lower for the week and the ETF closed at $26.19. Watching as this continues to unfold.

The Volatility Index (VIX) closed at 12.39 back near the lows of May. Uncertainty looking forward is still an issue despite the truce in trade with China. Interest rate worries remain in the mix as well. Watching how this unfolds near term. SVXY trade working well on the ease in anxiety for stocks.

Economic Data: Some positives in the data for the month of March… showing sound improvement over February.

FRIDAY, July 12th: The PPI data was higher than expected but in line with last month. Inflation overall for the last month was ahead of expectations and I am sure that will get the Fed’s attention.

THURSDAY, July 11th: The Fed Chair confirmed hit views of the economy on his second day of testimony to Congress. Weekly jobless claims were lower at 209,000 better than estimates. CPI was 0.1% even with last month and the core CPI numbers were hotter at 0.3% well above the 0.1% from last month. Watching how the markets respond to the data.

WEDNESDAY, July 10th: Wholesale inventories rose 0.4% and much better than the 0.8% last month. Powell testimony to Congress focused on the economy and was forthright about the weakness.

TUESDAY, July 9th: Small business index fell to 103.3 down from the 105 reading last month. The Fed puppets were out talking about the state of the economy and attempting to pacify both sides of the street.

MONDAY, July 8th: Slow day with only consumer credit out and it was flat at $17 billion.

It is all about the progress and the data of late has been more mixed than previously. There are still some sectors showing signs of growth, but overall it is still slowing. The data for May has not been impressive and is giving hope to the markets the Fed will cut rates as a stimulus. Interpret the data versus following our emotions. Let the trend be your friend… and for now, it is sideways.

(The notes above are posted daily based on the activity of the previous days trading. The BOLD/ITALIC comments are current day changes worth noting.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector found some support at the $182 mark bounced. It has been a low volume move, but up nonetheless. $195.35 resistance was eclipsed and watching the April highs. We hold no positions in the sector currently as the last two weeks have been sluggish for small and midcap stocks.

Biotech (IBB) The selling found support near the $101 mark. The break lower was the small-cap stocks struggling. The sector bounced higher to clear $109 and then to close back below the $107 level to end the week. Negative sentiment towards technology part of the sector.

Semiconductors (SOXX) The downside pressure found some buyers and reversed the trend short term from May lows. The reversal started with the Fed talk on rate cuts and the hope of the tariff talks pushed the sector higher. $192.43 entry. $195 stop. The sector has offered some individual opportunities on the move as you scan the parts. Take what it offers and manage the risk.

Software (IGV) The reversal remains in play after a spike lower broke the uptrend at the April high. Hit new highs on the week as the parts are moving even better than the whole. A solid week of gains for the sector.

REITs (IYR) The upside move took a turn lower after hitting new highs at $91. The shift in the economic picture and the housing data sent money to other areas. The support at the $86.30 level held and bounced… Hit the June highs and reversed to end the week. Watching and letting the dust settle.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.1% as money moves out of bonds on the Fed comments to Congress and public. TLT entry at $124. TMF entry $20.26. Stop $24.25 (Stop Hit). Watching how this unfolds to start the new week.

Crude oil (USO) Supply data worries remain along with Iran tension as a point of issue for the price of crude. Supply data this week showed more build-up globally. There is tug-o-war with data and events. UCO entry $17.15. Stop $20. Storm in the Gulf not helping the matter of clarity either.

Gold (GLD) Volatility picked up as the news creates some uncertainty in the metal. As a result, the flag pattern is developing near the highs. Interest rate cuts, tariffs, and failing economies globally favor the upside. On the opposite side, they don’t favor gold rising. Some of both in the news creating the consolidation pattern.

Emerging Markets (EEM) The downside found support and held with a bounce off the lows. China helped as expectation are high on the trade talks. Letting the weekend happen and then we will evaluate the opportunities. No positions.

China (FXI/YINN) the country ETF is a good benchmark for what is taking place with the current news and tariffs. The bottom was established in May. The reversal was established in June. Now we are looking for the confirmation of the uptrend to be established. Gapped higher on trade talks and proceeded to give it all back. Watching.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

FRIDAY’s scans for July 12th: Fed driven week with stocks starting lower on Monday and closing higher on Friday. Not much has really changed as the Fed remains in the driver seat and the focus is on stimulus. The big question is will the market be disappointed in what actions the Fed takes at the next FOMC meeting? My focus is one day at a time… it is about the data points and they continue to be added keeping stocks in a positive trend. The next key set of data will be from earnings starting next week. A good week with some solid opportunities offered.

  • SPY, QQQ, DIA all at new highs as the market continues to find buyers.
  • Last 10 days of trading has pushed the index up 3.1%. Consumer (XLY), financials (XLF), technology (XLK), and telecom (IYZ) led the charge higher.
  • Gold (GLD/NUGT) has been a benefactor to the dollar dropping on the belief the Fed will cut rates. Thus, the dollar (UUP) has been the loser.
  • Scans continue to show sector rotation with IHF, IAI, EWZ, ITB, SOXX, etc. all gaining money flow pushing prices higher. On the other side UNG, IWM, XLU, XLB, XLI, XLV, etc. are losing money flow and the sectors are struggling to hold support.
  • Don’t forget to scan the leading sectors for individual stocks leading them higher. Example SOXX – IPHI, MU, AMD, MPWR, etc. are leading and offered solid upside opportunities.

THURSDAY’s Scans for July 11th: Mr. Powell was speaking again parroting the same testimony to the Senate Banking Committee. Interest rates moved higher make bonds move lower. Healthcare providers jumped on the withdrawal of the President’s price control proposal on drugs. Dow joins other indexes hitting new highs. All is well or is it the quiet before the storm? Watching and managing the risk.

  • Healthcare Providers (IHF) gapped higher breaking from the recent trading range. Adjust your stops accordingly.
  • Treasury Bonds (TLT/TMV) moved lower as the yield moved above the 2.6% mark on the 30-year bond. Stops hit on bond positions.
  • REITs (IYR/SRS) react to the move higher in yields. Watching the downside opportunity.
  • Broker-Dealers (IAI) solid move higher completing the double bottom pattern and confirming the previous trend higher.
  • VIX Index (SVXY) the volatility has subsided and moved back to the May lows. Worth watching as things seem too quiet.

WEDNESDAY’s Scans for July 10th: Mr. Powell speaks to Congress on how the economy is failing and offered to do whatever he needed to keep the growth alive. i.e. cut rates. Markets respond with an upside move. My question is how much more upside is there following the nine-plus percent rise in stocks from the June lows. That is what we will watch moving forward and manage the risk accordingly in the current environment.

  • S&P 500 Index (SPY/SPXL) new highs.
  • NASDAQ Index (QQQ/TQQQ) new highs.
  • Technology Sector (XLK/TECL) new highs.
  • Healthcare (XLV/CURE) at the new highs.
  • Gold (GLD/UGL) Goldminers (GDX/NUGT) at the new highs.
  • Manage your gains, adjust your stops, take what the market offers, understand the current environment.

TUESDAY’s Scans for July 9th: No solutions just speculation. Following the leaders and letting this unfold. Positive moves in Large caps, financials, and retail. Watching how earnings data impacts the trends. Banks will be the first to report and they are expected to do well. Taking what is there and remaining patient for now.

  • Semiconductors (SOXX) found some support and bounced. Looking for leadership from the sector.
  • Large Caps (QQQ) doing well and providing some leadership… AMZN, GOOG, FB, and NFLX.
  • Technology (XLK) helped move the needle to the upside with AMD, WDC, FTNT, and MU leading upside.
  • Social Media (SOCL) posted a positive move… OLED, ENPH, TWTR and FB leading upside.
  • Gold (GLD) moved higher again… the speculators are betting the Fed will cut rates.

MONDAY’s Scans for July 8th: More worries pile on relative to the Fed cutting rates or not… the jobs report adding plenty of fuel to the fire and speculation surrounding the news. It is a good time to sit back and manage current positions, trade the swings in the news, and remain patient.

  • Crude Oil (USO) volatility has picked up in both directions… supply data is favoring the downside, and Iran tensions is favoring the upside… watching who wins.
  • Brazil (EWZ/BRZU) is following through on the upside.
  • REITs (IYR) seeing some defensive money rotate back into the sector following some selling last week.
  • Utilities (XLU) defensive money is moving in again after small move lower.
  • Bonds (TLT/BND) moved higher as money looks for safety and speculation on the future of interest rates.

Sector Rotation of S&P 500 Index:

  • XLB – Broke support at the $54.15 mark and bounced at $52.49 support. Reversed and break above the April highs. Entry $55.25. Stop $55.95. Watching for follow-through. Watching the volatility created last week.
  • XLU – The utility sector broke higher at $59 clearing the top of the trading range. Starting a topping pattern.
  • IYZ – Telecom cleared $29.50 resistance and looking for near term direction. Moved back below the $29.50 level and watching. Breaking from trading range on the upside. Resumed the uptrend.
  • XLP – Consumer Staples moved lower, bounced and hit new highs. Rotation of money to safer havens helping… watching the upside move.
  • XLI – Industrials moved below support $74.17 and reversed back into the previous trading range. Broke above resistance at $75.72. Back above the $76.80 mark.
  • XLE – Energy stocks have struggled on the uncertainty about supply and production. Crude moved higher on speculations taking stocks higher as well. Bounced with the rise in crude oil.
  • XLV – Healthcare fell below the 200 DMA and accelerated. The cause of the doom-and-gloom for the sector is a proposed “Medicare for All” healthcare from Washington. Obviously rumor-driven… Found support bounced, offered reversal trade at $86.80 entry. Stop $91.75. Hit some resistance at the $93.32 level.
  • XLK – Technology sold and found support and moved above the entry point at $75. Stop $75. Low-risk trade and letting it unfold. Semiconductors and Software continue to push the upside. Hits new high.
  • XLF – Financials bounced from the May lows and forming a stair-stepping pattern on the upside. Moved above the $28.10 resistance to close the week. Watching how it unfolds. IAI leading sector… bank earnings start this week.
  • XLY – Consumer stocks fell to the 200 DMA and bounced off the May low. Solid upside trend getting help from retail as consumer shows some life. Watching how the new high plays out.
  • IYR – REITs pushed to new highs, tested, moved back to new highs, and testing again… interest rate worries are the issue in play currently.

(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.)

WHAT DID WE LEARN:

FRIDAY: Don’t fight the Fed. They are a backstop to the markets currently. The data is supporting the argument for the Fed to cut rates at the next FOMC meeting and stocks are trading higher in advance of the meeting. Otherwise, enjoy the ride.

THURSDAY: The Fed continued to have the eyes and ears of Wall Street. No big changes as everything is well… for now. That in and of itself makes me cautious. Taking the quiet and enjoying a nice cup of coffee prior to the market opening.

WEDNESDAY: The power of words from the Fed. The old adage on Wall Street is don’t fight the Fed. As we have seen over the last few weeks… true words of wisdom to live by. We will watch how these words impact the longer-term view of the markets… as many of us were taught in sports, talk is cheap action wins games.

TUESDAY: That a market steeped in speculation can’t make up its collective mind. There is plenty to ponder, but all that matters is what the market does. Keeping our focus and listening to what Mr. Powell espouses to Congress today.

MONDAY: Worries about the data preempting the Fed on hiking interest rates is all the buzz. Not worthy of much discussion as speculation is in control. Thus volatility is alive and well intraday. Stay focused on what you know not what is in the headlines.

We continue to focus on what the market offers and taking what it gives. Looking for the opportunities worthy of the risk. Taking our time to understand the current environment of emotions versus logic. Patience wins the race in periods like this.

FINAL NOTES:

Markets remain focused on the speculation the Fed will cut rates. The economic reports remain mixed and the future belongs to the Fed for now. The June data on the economy shows some good, some not so good. The challenge is speculation versus allowing time for it to all unfold, but nonetheless, the economy did show signs of hope. The other major issue is China/US trade talks at a stalled point again and no clarity on future actions only more talks scheduled. The US/Iran tensions are stalled. The indexes closed higher for the week keeping the bounce from the current lows in play. We exited where the risk rose and we added positions where the risk was appropriate for our risk tolerance. Watching how traders respond in the coming week and if they are willing to put on risk or run for safety. Some rotation is in play as money moves to where it believes it will be treated the best. We will continue looking at positions to take profits, adjust stops, and manage the risk of the current environment. The goal is to avoid speculation and follow our disciplined strategy for each position. Taking it one day at a time.

Eight of the eleven sectors managed to close the week in positive territory as money continues to look for the best opportunities. Energy and consumer discretionary led the upside for the week with the Fed driving money flow. Gold holding near highs, the dollar found support, and the economic data was overall mixed with some positive signs in the jobs report. Nine sectors are moving in uptrends from the May lows and two are moving sideways. Crude followed through on a bottom reversal helped by the Iran tensions and a Gulf storm. Watching how that unfolds. We continue to take this one day at a time. There are plenty of influencers in the markets currently and headlines are the drivers.

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.