Financials and energy lead upside

The major indexes traded mixed with solid leadership from the financial and energy sectors. There was plenty of news to keep investor attention scattered with the weather being one of the biggest hampering transportation and manufacturing. On the positive side new virus cases have been on the decline. The distribution of the vaccine however is being delayed in the widespread distribution until May. Economic data was mixed with the Empire State Manufacturing for February beating expectations at 12.1 versus 9 expected and only 3.5 in January. It showed that just a small opening of business in that region had a big impact on the numbers. Maybe, just maybe, we start to push forward with reopening and getting the economic picture back to normal. Plenty to ponder as the shortened trading week progresses.

Short news notes of interest…

  • $60 crude oil is here… closing at $60.09 up 1% on the day. The run higher is increasing the price of gasoline at the pump and an additional tax on the consumer… more drilling on the way? Biden says no we will focus on green energy… either way, the cost of living is on the rise and gasoline is a big budget item for many.
  • Covid vaccine rollout has been slow with the broad distribution not starting until May according to Fauci on Tuesday. Related to that headline CVS reported better than expected earnings on the volume rises for the vaccine… go government! Additionally, J&J CEO stated that people may need annual vaccine shots for several years. Good news for drug companies… not so good for us.
  • The yield on ten-year treasury bonds jumped to 1.29%… welcome to the world of inflation concerns from investors. Believe it or not, stimulus in small doses helps the economic picture… stimulus in large doses creates demand increases for too few goods… end result is prices rise, i.e. inflation. We all learned this in economics 101… maybe we should teach it to Congress. But, they are too involved in voting themselves arise as part of the stimulus… of course, they did.
  • The White House stated it was focused on passing the Covid relief bill. The additional stimulus checks are expected to benefit retail. There is new unemployment money on the way from the Federal side, vaccine funding, and more… plenty more. The bill is expected to pass by the end of the month.
  • Speaking of the electric car craze… have you noticed with the winter storms that Texas has been crippled electrically with rolling blackouts and no power in many cities… why? Power demand. Roughly 25% of the energy produced comes from wind energy… freezing temperatures have formed ice on the blades halting the production currently… thus, blackouts. 15 others state are projecting rolling blackouts as well with the storm passing through and demand rising for electric heat. All I am saying is the demand for electric cars on the power grids is just another issue we need to address… investment opportunities arise.

Sector Rotation and the S&P 500 Index:

The S&P 500 index closed down 2.2 points to 3932. It was down 0.06% on the day. The index closed near the highs as investors continue to find reasons to put money to work. Money flow was higher with energy and financials leading the money flow. Three of the eleven sectors closed on the upside as a news-driven day divided sentiment. The VIX index closed at 21.4 jumping 7.4% on the day. Watching how this unfolds moving forward.

Tuesday: Financial and energy led the upside on the day as money flow continues to be positive for both. Utilities and healthcare led the downside as interest rates rise and biotech stocks struggled on the day. No big changes in the outlook as the news shows the renewed efforts for stimulus and the push to restart the economy. The Empire manufacturing data showed all you really need to do is open up the economy and let people work and produce goods, shop, eat, and live their daily lives to invigorate the economy… not give away $1.9 trillion in free money.

  • XLB – Basic Materials bounced off the lows with money flow bottoming on the reversal. $70.80 support held and now we look for the upside to resume.
  • XLU – Utilities hold support on the test lower and find some buyers. Watching interest rates and the dollar currently as they hurt the sector when they are struggling. Down on rising interest rates.
  • IYZ – Telecom bounced at the support of $30.95 and moved back to the previous highs. Watching how it unfolds.
  • XLP – Consumer Staples moving lower to establish near term downtrend and bounced at support. Watching.
  • XLI – Industrials moving lower and held support to bounce back to the previous highs, but remains in a trading range.
  • XLE – Energy tested $39.12 support and bounced offering entry. With crude pushing back near $60 this week watching how it progresses. Entry $41. Stop $42.45 (adjusted). Gapped higher on the rise in crude prices.
  • XLV – Healthcare tested the uptrend and held above support at $113. Flag pattern on the chart broke to the upside offering entry. Entry $116.75. Stop $114.50. Struggled with biotech outlook.
  • XLK – Technology remains in an uptrend but tested the upside and resumed with some challenges near term. IGV and SOXX leading upside moves.
  • XLF – Financials bounced at the support of $28.95 and bounce back to the previous highs creating a ‘V’ bottom on the chart. The upside in play near term. Entry $29.75. Stop $30.53. Gapped higher on the move in interest rates and dollar holding steady.
  • XLY – Consumer Discretionary holds uptrend line and bounced at the 50 DMA. Resumed uptrend and tested the move to new highs. Watching.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Held support at the $82 level and moved back to new highs… Watching.Entry $84.45. Stop $87.50.

Using the six-month charts as an indicator for the short term view… Eight sectors are in confirmed uptrends with renewed upside. Three are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for S&P 500 index is an uptrend short term with a positive bias currently.

(The notes above are posted at the end of each week based on the activity of the previous week’s trading. The BOLD/ITALIC comments are the current day changes worthy of note.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

The NASDAQ index closed down 47.9 points to 14,047. The index was down 0.34% on the day with mixed activity overall for the index. The NASDAQ 100 index (QQQ) was down 0.27% for the day as money flow into the sector was higher despite some selling. The large caps have been lagging of late and remain a concern as rotation affects the sector. Semiconductors (SOXX) closed up 0.5% adding to the positive break on the upside. Technology (XLK) moved down 0.32% after testing the $128.57 level of support and hit a new high. Watching how this unfolds as investors look for opportunities.

Semiconductors (SOXX) The sector remains in an uptrend breaking higher from the consolidation flag. The sector added 4.8% the last two days and showing some hope of leading again. Entry $415. Stop $420. Added to the upside and watching for a test of the move.

Software (IGV) The sector came back to life after six weeks of consolidation and volatility. Broke to new highs and showing solid money flow into the stocks. Entry $361.77. Stop $376 (adjusted).

Biotech (IBB) The sector broke higher after testing support and maintained the uptrend. Managing the risk and letting this playout. Entry $164.70. Stop $164.70 (adjusted). Down 2% on Tuesday… watching.

Small-Cap Index (IWM) The sector consolidates near the new highs. Entry at $213.76. Stop $216.19 (adjusted). The uptrend remains in play as we watch how it unfolds moving forward.

MidCap (IJH) The sector turned higher along with small caps. Solid move and holding near the highs.

Retail (XRT) The retail sector volatility dropped and some normal returned following the GME frenzy. This week XRT has traded more in line with the previous volume. $81 is the level we are watching to clear on the upside.

Emerging Markets (EEM) The sector recovered from and moved to new highs. China (FXI) is the leader in the sector.

Transports (IYT) The sector has struggled but found some buyers of late with a head and shoulders pattern on the charts. Watching for a decision on the direction near term.

The Dollar (UUP) The dollar tested lower this week as stimulus and inflation become a real thing for investors. The new team at the Treasury are weak dollar proponents and it is not helping the cause. Devaluing currency has never been good for economic growth. Holding support for now.

The Volatility Index (VIX) Volatility closed 19.9 down from last week’s 20.8 level as buyers returned to the market and anxiety levels subsided. We are back at previous support and watching. Jumped on the day as some selling rose in sectors and money was moving towards energy again.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.2% up from 1.17% last week. Rates are holding above the 1% level and rising again… negative for bonds. TBT hit entry at $17.84. Stop $18.258 (adjusted). The move to 1.3% on Tuesday amplifies the message on inflation concerns.

Crude oil (USO) Crude moved to $59.47 from $56.89 for the week or up 4.3% for the week. Plenty of speculation to influence prices as OPEC cuts to supply showing an impact. As we stated nearly seven months ago… the greatest opportunity was in crude. Taking what is offered and managing the risk. USO Entry $29. Stop $38.75 (adjusted). UCO trade position entry $25.78. Stop $49.40 (adjusted). Jumped on the rise in crude again and now officially above the $60 level. Now it gets interesting.

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. Watching as we hold above $166.50 support levels. Still challenged near term. Under pressure again as the short-selling ramps up near term.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

TUESDAY’s Scans for February 16th: Interesting start to the week. Moves of interest were in the volatility index, interest rates, crude oil, and the dollar. This shows concerns about inflation. It also signals some rotation in money by investors. Watching how it unfolds and we continue to take what is offered in positions we have while managing the risk.

  • Crude Oil (USO) clears the $60 mark per barrel. Raised our stops and watching how it unfolds. Energy (XLE) gapped higher on the day as well.
  • Natural Gas (UNG) jumped 4% as the winter storm moves through the country. Taking the upside move and adjusting the stops.
  • Financials (XLF) ‘V’ bottom recovery and gapped to new highs. Taking the offering as interest rates helping the upside move.
  • Europe (IEV/EURL) Solid upside move and gap higher to start the week. Adjusting our stops and letting this run as vaccine news helping the outlook for Europe.
  • Commodities (DBA, DBC, DBP) all moving higher on the inflation concerns. Watching and managing the risk.

MONDAY’s Scans for February 15th: Markets are closed for Presidents Day.

FRIDAY’s Scans for February 12th: End the week on a positive note with investors still focused on the upside. Energy was clearly the leader on the day as the sector continues to benefit from the rise in crude. Financials and technology add to the upside as well. Watching, managing risk, and focusing on the goal, not the news.

  • Energy (XLE/ERX) in position to break higher near term. Adjusted stops.
  • Technology (XLK) pushed to new highs. SOXX positive week. IGV positive week. SOCL showing positive leadership.
  • Cannabis (POTX) Hit stops… sold hard last two days. Looking for the next opportunity as the dust settles.
  • Clean Energy (PBD/ICLN) consolidating sideways after big run… watching how it unfolds near term.
  • Treasury Bonds (TLT/TBT) moving lower as rates tick higher. This trend is likely to continue near term.

THURSDAY’s Scans for February 11th: Another day of little change as the semiconductors pushed higher to lead and energy was lower… but the balance seemed to trade in place. The pot stocks were off more than 20% on the day as traders took their gains. Worth watching how that unfolds. Taking one day at a time with patience.

  • Semiconductors (SOXX/SOXL) breaks to new highs confirming the bottom reversal. Adjusting the stop and letting this unfold. WDC, NVDA moved up as well and adjusted the stop.
  • China (FXI/YINN) jumped higher and adjusted the stop.
  • Emerging Markets (EEM/EDC) moved higher and adjusted the stop.
  • Homebuilders (ITB/NAIL) moved higher and breaking on the upside… adjusted the stop.
  • Internet (WEBL) jumped higher again and raised the stop. KWEB was up again as well and adjusted the stops.

WEDNESDAY’s Scans for February 10th: Mixed day for stocks with little to no shift in leadership or direction. The upside remains with buyers stepping in again on modest selling early. We will hold and manage the risk that is looking for more opportunities up or down.

  • Energy (XLE/ERX ) remains the leader for the broad indexes.
  • Cannabis (POTX) jumped 20.1% on the day to follow the 17.2% gain on Tuesday… raised the stop and watching.
  • Natural Gas (UNG) struggling but keeping the upside move in play. Being patient and letting it unfold.
  • Social Media (SOCL) jumped 3% on the day and extending the upside move… raised stop.
  • China Internet (KWEB) jumped 2.2% to add the extended upside move. Raised the stop.

(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.)

FINAL NOTES:

Tuesday: Start to the trade shortened week was mixed. There were clear winners defined by the current activity and news. The challenge for investors remains the impact of the stimulus on an already extended market. The additional challenge is to not overthink what is happening. Follow the money and don’t fight the Fed. The money is going where it believes it will be treated the best the fastest. The Fed wants inflation… thus, it is getting it. The challenge is will it swing too far too fast? Time will tell, but for now we will follow the money to make enough to offset the cost of the inflation being generated.

Weekend Wrap & Outlook… The market’s sentiment remains positive as stocks move higher for the week, but manage to take a rest as well. Friday there was the hope of stimulus and reopening of the economy. The market psychology is bullish and some think that is bad… From my view we take what the market gives and when the horse dies… dismount. Money flow slowed this week and stocks drifted sideways three of the five trading days, but found buyers on the other two. The long-term trends remain on the upside following the test of momentum. For the week all eleven sectors closed in positive territory for the second week showing the impact of sentiment on stocks. The VIX index closed at 19.9 and back to the December lows. The dollar headed lower thanks to the new Treasury head. Crude moved higher hitting the $59.60 level the highest since February 2020. UGA moved higher with prices at the pump elevated… hopefully you own the ETF to afford the increase. Watching the current movement in the broad markets as money continues to rotate and money flow shifts. 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.

“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 your trading strategies with a disciplined approach to investing and managing the risk of our money.