Market outlook for September 27th
The markets continue to test the first level of support after a third attempt to break to new highs. Growth stocks led the bounce and they are leading the test. Large caps look sluggish. Ten- year bond yields have moved down to 1.68% with the 2 and 10-year ready to invert again. Fed still holding the markets up and the there remains a lack of direction in the current market environment. Patience is the word of the month and we will continue to take the short term opportunities and remain cautious overall.
The S&P 500 index closed down 7.2 points to 2977 as the index sells back from the recent highs. The market was lower following a start on the upside. Five of the eleven sectors closed higher on the day led by REITs and consumer staples. The defensive sectors are seeing money flow. The downside was led by healthcare and energy. Plenty of questions remain relative to how this unfolds with the up and down movement and raises questions about the move higher. The long-term trend makes improvements with the return to the previous highs.
The NASDAQ index closed down 46.7 points at 8030. The bounce on Wednesday could not hold the momentum on Thursday. Questions remain relative to growth stocks especially in technology. QQQ showing some lethargy following a bounce back on Wednesday. Technology is still the key sector to watch as this unfolds. A continued move lower at this level would be a negative for the broad markets. $187 on QQQ level I am watching for now.
Small-Cap Index (IWM) The sector has been leading the upside effort as money rotated and moved above the $152.28 resistance. The test lower broke support on Tuesday and the sector moved lower to the next level at $152.28. Hit the entry point at $152.28. Stop $155 (Stop Hit). Exited our position and watching how it unfolds.
Transports (IYT) The sector sold back to the lows and bounced off support. The $182.43 resistance was cleared and $186.70 level cleared giving an entry point. Entry $186.70. Stop $190.86 (stop hit). Shippers such as FedEx have not helped the sector with weaker earnings and forecast. Attempted to clear the July highs and met some resistance and selling lower hitting our stop. Watching the $186.70 level of support.
The dollar (UUP) The dollar moved higher on the oil field attack and lower on the Fed action in the repo market and higher on the FOMC meeting results. Watching how it responds going forward as it hits near term highs. Closed at $27.05.
The Volatility Index (VIX) closed at 16.07 as worries remain in play. The index had some big intraday volatility the last four days… After hitting the lowest levels in seven weeks… the activity is picking up. Watching how this unfolds near term.
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
MidCap (IJH) The sector tested the $182.55 support, bounced, and cleared resistance at the $190.44 mark. Now moved to the July highs and testing the move. Watching how this unfolds. Fell to the 50 DMA… not looking good. Holding near the $193.35 support.
Biotech (IBB) Tested support at $101 bounced and remains in the current trading range. Downtrend remains in play and watching how this resolves. Breaks the $101 level of support and setting ups a short side trade opportunity.
Semiconductors (SOXX) The sector bounced, cleared $210.92 resistance and moved back to the July highs and rested on Friday. Watching how the upside unfolds. This is a key sector to the current move higher. Moved lower and testing the $210.92 level of support.
Software (IGV) The sector tested the $213.40 support, bounced, cleared the $219.08 resistance and tested the move on Friday… Watching how this unfolds there is weakness showing up on the chart. Held in the trading range. Back to the bottom of the trading range and small bounce… watching.
REITs (IYR) The upside trend remains on the long-term chart. Patience with our long term positions and short term watching how interest rate market unfolds. Bounced back from the selling and holding near the current highs. Pushed lower with broad markets bounced back in the range.
Treasury Yield 10 Year Bond (TNX) were moving higher on the rate cuts by the Fed… then the global economic worries pushed rates lower as money rotates back towards bonds. The yield closed at 1.75% Friday down from 1.95% last week. Watching how this one unfolds near term. Monday fell to 1.7% as rates continue to tumble on bond buying. More rotation on Tuesday with yields falling to 1.63%. Negative sign for stocks.
Crude oil (USO) Tried to bounce but remains in the current range. Watching support at $52.50 and resistance at $58.25. The spike higher failed after a few days and the current worry about global slowing is the biggest factor. Back below $58.25 support? Tested $55.60 on the downside move. Watching the downside
Gold (GLD) The upside in gold has been driven on speculation of the rate cuts and global weakness overall. The tug-o-war of tariffs, rate cuts, and speculation are keeping gold in play and in a current trading range. Ticked higher to start the week. Added to the upside on Tuesday. Wednesday and Thursday headed lower again… remains in trading range for now.
Emerging Markets (EEM) Broke lower in the trading range as tariff threats add to the worries about an economic slowdown. China helped by announcing trade talks would resume in October… China
China (FXI/YANG) the country ETF is a good benchmark for what is taking place with the current news and tariffs. The move lower over the last week is a result of the chatter from China and the US about tariffs. Watching how this unfolds currently. Steady move lower. Short side setup currently at $40.10. Added short side with Entry YANG $55.90. Stop $52.73.
(The notes above are posted every weekend and updated daily Bold Italics)
DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT
THURSDAY’s Scans for September 26th: Tried to follow through upside but failed to continue the move. Another test. Holds support. Need some momentum in the growth stocks, but money is rotating to safety and the defensive sectors. Patience remains the key for now.
- REITs (IYR), consumer staples (XLP), utilities (XLU), materials (XLB) and treasury bonds (TLT) are leading… not exactly a vote of confidence on what should have been a follow through day.
- Biotech (IBB/LABD) downside trade broke through resistance at the $23.40 level for entry signal. Manage the risk of the trade.
- Natural Gas (UNG/DGAZ) Bottom reversal in the short side ETF. Entry at the $105 mark. $122 resistance and adjusted stop to $112.
- Energy (XLE/ERY) short side trade setting up as crude prices continue to stumble. $46.25 entry level to hold.
- PATIENCE – let this unfolds and manage your risk.
WEDNESDAY’s Scans for September 25th: nice bounce at support. Looking for follow through and any upside opportunities… Cautious as money flow is still showing rotation to safety.
- NASDAQ 100 (QQQ) need to see upside follow through at $190.
- Semiconductors (SOXX) need to see follow through on the upside move. $214.25 level to clear.
- Technology (XLK) 80.75 level to clear if bounce is to follow through on the upside move.
- Small Caps (IWM) $79.25 level to clear if bounce on test is to reverse.
- Retail (XRT) $42.30 level to clear for support test. Need this sector to continue upside leadership if we are to head higher overall.
TUESDAY’s Scans for September 24th: Some selling on the day was enough to have me looking at the downside trade. Small caps and growth stocks overall had a tough day with money rotating out and into bonds. Not the end of the world, but enough to put me on the cautious side of the equation.
- Small Caps (IWM/TZA) Bold move lower negates the positive upside influence. The break of $155 hit our stops and now looking at the short side setup.
- Biotech (IBB) this has been a weak link for the broad markets and the retest of the $101 support is in play. Watching the short side opportunity if it unfolds.
- Treasury Bonds (TLT/TMF) money is rotating into bonds again as the market sees some testing and selling. Watching as indicator, plus we added a position on the bottom reversal.
- Utilities (XLU) accelerated upside showing more rotation to safety.
- NASDAQ breaks support at 8030. Negative selling in semiconductors (SOXX) leading the downside move. Watching both for short side trades if this unfolds.
MONDAY’s Scans for September 23rd: No big moves overall. There are some parts rotating as bonds move higher. Being patient and letting it all unfold as investors look for the next opportunity.
- Gold Miners (GDX/NUGT) solid bump higher following through on the reversal Friday.
- Biotech (IBB) watching for break higher from consolidation.
- Semiconductors (SOXX) still in goo shape to move higher.
- Solar (TAN) holding near the new highs.
- Agriculture (DBA) will commodities benefit from the inflation data?
FRIDAY’s Scans for September 20th: The day started well but the news of China cancelling their trip to the farmlands sent stocks lower on the day as analyst and investors started to pontificate on the impact of tariffs on earnings… Yes, that is and issue… but, it has always been an issue. It is the reality of the issue that was impacting markets on Friday. See FedEx earnings from earlier in the week… it was buried headline until it was a reason to give for some selling on Friday.
- Semiconductors (SOXX) Key sector to watching moving forward as an indicator of investor risk and acceptance.
- Small Caps (IWM) growth sector that is equally a barometer for markets looking forward.
- Treasury Bonds (TLT) another barometer for investors appetite for risk. Some rotation to bonds to end the week.
- Europe (IEV) Money has been rotating to Europe as a benefactor of trade with China.
- Volatility Index (VIX) Intraday volatility has risen… watching to see if the benchmark accelerates.
(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 broke support at the $55.95 level and reversed and moved back to the July highs… watching. Broke $58.13 support on Tuesday.
- XLU – Utilities broke from the trading range and is now testing as interest rates move higher. Support is at the $62.50 mark. Collecting the dividend and letting it play out. Broke to new highs showing rotation to safety.
- IYZ – Telecom held support at $27.62. Hit entry at $28.70 and testing the move higher. Stop $29.40. Moved lower breaking support at $29.35. Testing the 200 DMA.
- XLP – Consumer Staples held support and the uptrend line. Watching how this unfolds near term. Testing the current highs.
- XLI – Industrials moved back to support in the trading range and bounced clearing $76.80 resistance. Testing the July highs. Testing support with several down days.
- XLE – Energy broke support at $60.50 Tuesday. Watching how the downside unfolds. Heading lower following the drop in crude oil.
- XLV – Healthcare held support… small bounce higher and now more testing to the downside. Watching how it unfolds. Gave up the gains and retesting the $89 level of support.
- XLK – Technology tested lower bounced and tried to move to new highs. Failed on Tuesday with selling in the semiconductors. Watching the short side setup. Small bounce last two days and watching.
- XLF – Financials have been under pressure with lower interest rates and global weakness. Hit entry $27.60. Stop $27.75. Some weakness on Tuesday.
- XLY – Consumer Discretionary moving higher on earnings… gapped higher and then tested the move to the July highs. Tuesday sold and watching how we progress.
- IYR – REITs held the $88 support and cleared the 90.80 resistance. Tested the $92.67 support on Tuesday. Back to the previous highs on Thursday.
There are currently four sectors in confirmed short term uptrend. Four sectors in consolidation or sideways trends. Two in a confirmed downtrend. The result is SPY in a confirmed sideways trend. The positive gap higher last week could offer some upside trading opportunities going forward. We have to remain patient and let this all unfold. Remember the parts make up the whole.
(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.)
THURSDAY: Failed to hold the early upside move and closed lower on the day. All I can say is patience! It is not an environment where you want to guess what is next, but let it unfold. Fed remains engaged. Defensive stocks are leading. Geopolitics are all over the headlines. Data remains sluggish as inventories rose 0.4%. This is not a good sign for goods to remain in warehouses versus being sold. Home sales were higher as expected with lower rates. China and US return to the news with some comments on trade and US “stirring the pot” in Hong Kong. Key work remains PATIENCE.
WEDNESDAY: Nice bounce for the markets following the selling Tuesday. All is good but we need to follow through if the upside is to resume. Growth stocks showed some life and the leadership from the sectors were renewed. It is still a sluggish environment with some back and forth in trading. Too many underlying question marks for me as we continue to take it one day at a time.
TUESDAY: From boring to selling in growth stocks. Semiconductors led the downside. Biotech looking weak and money rotating to safety with bonds and utilites the leaders on the day. There was not big news on the day to disrupt the sluggish markets, but the sellers found reason to spice things up. China bought some soybeans showing a positive for trade. Consumer confidence readings fell to 125.1 in line with expectations but much lower than 134.2 prevoius. Home price index showed a increase of 3.2% year-over-year. Watching how the balance of the week unfolds.
MONDAY: Boring day! One where you set your stops and head to the golf course. It was the first day of autumn and gave a good excuse to head outside versus listening to the talking heads pontificate about the latest nothing.
Markets found enough buyers to break from the five-week trading range and make a run at the July highs. Now it is testing the move. Some pressure on Friday from the cancelled Chinese visit to the farmland. The close Friday left plenty of questions we addressed above. Last week I raised the question about the conviction behind the move. There is a modest test of the break higher, but I still have my doubts about the move. Will the test come at the July highs? Yes, and currently in motions. Thus, managing our risk. Small caps took on a leadership role and are holding for now. The treasury bonds took a hit as money rotated out of bond and yields climbed to 1.95%, but this week money found its way back with yields at 1.75%. The risk remains high for upside opportunities as the underlying data remains weak. The market remains controlled by headlines as each day holds movement related to the speculation of what might happen. Trade with China and the US remains at the top of the list with China once again creates false expectations. Throw in Brexit and other global issues and you get the picture. The economic data showed mixed news as earnings show impact to tariffs with specific sectors. There are still too many questions unanswered and that invites speculation and volatility. Speaking of volatility the index bounced from a six week low as the speculation grew. We remain focused on what is working and what is failing. Therein lies the opportunities. Manage your risk accordingly and let this unfold… one day at a time.
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.