Happy New Year!

OUTLOOK: December 31st and beyond

We closed the week with a volatile day… started higher and closed lower. Some profit taking into the weekend? Possibly as we only have one Trading day left in 2018 and I am sure we will see some jockeying of positions as everyone attempts to predict what will take place in 2019. There is too much talk about the new year, market bottoms, opportunities, and speculation. Not my favorite time of year as everyone becomes a prophet. Even a blind squirrel can find an acorn. We added some upside trades on the move this week… stops are in place in the event the current bounce fails. We continue to look at the weaker sectors and what opportunities those present… stronger sectors are showing up in semiconductors and software. Retail posted solid numbers to offer a boost in the consumer sector. Taking it for what it is currently a bounce in the current downtrend… there will have to be some solid buying days to turn the trendline. Remember the trend is your friend… have a HAPPY and SAFE New Year!

The S&P 500 index closed down 3.1 points at 2485 and holding on to the bounce from the downside. Six of the eleven sectors closed in positive territory for the week. Consumer discretionary and basic materials led the upside with the healthcare sector posting a positive move as well. The third leg lower in the current trend is still underway and we have to manage the outcome near term. The long-term trendlines are broken as we moved below the October lows and set up another downside leg to the current trend. We will watch how the current activity unfolds and the impact on the trends longer term. 2525 level to clear to get my interest near term. 

The NASDAQ index closed up 5.1 points to close at 6584. The index moved below the 6793 support and finally bounced. The sellers have had their way on the downside moves with above-average volume. The bounce last week is good for the markets and brings some life to the index. QQQ is our indicator near term. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark and holding. TQQQ entry $34.17. Stop $32.15. This is a trade only as we let the bounce unfold. 

Small Cap index moved lower to testing the August 2017 lows. The sector remains a laggard and not looking good on the charts. The bounce helped the near term and is worth watching. Looking for a move above the $133.78 mark. 

Transports (IYT) moved down to near-term lows and found support at the $155 mark. The sector established a new low for the year… watching how it unfolds and how the bounce proceeds. $164.73 level to clear near-term. 

The dollar (UUP) Fell on worries about trade issues not getting resolved. Closed Friday at $25.50 testing support at the $25.53 level again. The fear of the global weakness, inverted yield curve, and the tariffs are weighing in and the dollar is coming into question. 

The Volatility Index (VIX) closed at 27.5 on Friday with anxiety high early in the day and falling as the buyers show up. Watching how this unfolds with anxiety levels up on the charts. 

(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 below $101 and finally bouned. $95.04 is the key level to clear near term.

Semiconductors (SOXX) Broke support at the $153 level… Solid bounce… some follow through. $153.13 level to hold. Added trading position on the move… entry $78. stop $75.30. SOXL

Software (IGV) Broke $167.88 and bounced back above the same level. Still not in horrible shape and the sector is oversold. Solid bounce… some follow through. $167 level to hold. Added a trading position. Entry $167.90. Stop $165. 

REITs (IYR) Tanked on uncertainty from the Fed and the economic outlook. Broke $75.21 and bounced… looking for a trading opportunity near term.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.73% as yields once again move below support and the long bond rallies. TLT entry $115.25. Stop $119.50 (Adjusted). 

Crude oil (USO) remains in a well-defined downtrend breaking the bottoming pattern with a move lower. We have a new bottoming pattern building and watching how that unfolds. The current downside from the October 3rd high is about the speculation of higher demand not panning out in the supply data. The commodity closed at $44.39 on Friday. $43.06 is the key support level for crude near term. Sold short side position… but, watching how this unfolds. 

Emerging Markets (EEM) Watching what happens as we are back in the bottoming pattern. Rumors of trade resolutions and talks with China helped the index but the economic data last week reversed the course. There are too many questions and rumors currently and letting it unfold. Moved towards the bottom of the current range and bounced… $37.88 level to hold. 

Gold (GLD) moved above the $115.86 resistance digested it and moved higher. The dollar and geopolitics have been the catalyst for the metal… both up and down. The move in the dollar lower helped the metal move higher last week. The inverted yield curve is drawing some interest to the metal short term on the upside. Closed above the $120.45 resistance. Entry $116.50. Stop $118.95 (adjusted). The gold miners (GDX) equally respond to gold moving. Watching how this unfolds near term with the metals and the miners moving together again… Entry $19.70. Stop $20.25 (adjusted). Reverse head-and-shoulder pattern in play… need to clear $20.50 again to hold the upside trend.

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

FRIDAY’s Scans 12/28: More volatility on the day with intraday moving higher, testing lower and bounced only to close lower on the day. This is what makes me cautious about the current bounce. No conviction in the trade and too much speculation driving the process. There are trading opportunities on the charts, but the risk levels are high. Taking this slowly into the new year. I expect Monday to be more of the same with the end of the year posturing. Watching, waiting, and letting each trade develop based on a predefined strategy not emotions. No real changes in the scans for the weekend and I continue to watch the same as defined in this weekends update.

THURSDAY’s Scans 12/27: Volatility is the keyword to define the trading. While we were looking for some follow through we got some speculation to go with a higher close. Some trades offered and taken above. Some still trying and we will watch today. History tells us this is a bear market, it is showing bear market activity, and our goal is to not get sucked into a bear trap. Proceeding with caution and letting it all unfold. Cash remains a sector and we posted some solid gains on the downside… thus, letting things unfold is fine with me for now.

  • Semiconductors (SOXX/SOXL) added upside trade.
  • NASDAQ 100 (QQQ/TQQQ) added upside trade.
  • Software (IGV) added upside trade.
  • Watching the bonds as the yields dropped again… patience
  • Financials (XLF/FAS) solid move upside and watching.

plenty of fun for all… taking it slow and one day at a time.

WEDNESDAY’s Scans 12/26: Solid bounce higher… as stated above need to follow through on many of the accelerated moves intraday. There is so much work to be done if the reversal is to hold and move higher. Hit stops on our short side positions and laddered of many based on the intraday momentum from the buyers. Letting this unfold. Areas to watch…

  • Semiconductors (SOXX) needs to hold above $153.13 mark. we will evaluate as it unfolds.
  • Software (IGV) needs to hold above the $167.88 mark. Evaluate and trade accordingly.
  • Technology (XLK) needs to follow through on the upside or at least show parts worthy of trading.
  • Treasury Bonds (TLT/TBT) short side trade if the yields move above the 2.8% mark with momentum.
  • NASDAQ 100 (QQQ) needs to move above the $152.51 mark. Watching how it unfolds.

Patience and diligence. You have to be willing to trade at the level of risk you can tolerate. Letting it all unfold one day at a time.

FRIDAY’s Scans 12/21: The damage is done. Adding issues with trade and China to the mix didn’t help. The Senate could not come to an agreement on a budget and threatening to close the government down added to the mix… all of it adds up to uncertainty. How low can we go? I have one rule… THE MARKET can remain irrational longer than I can remain solvent bucking the trend. Thus, we maintain our positions, manage our risk, and let the direction unfold along with any sanity returning to the markets.

  • Adjusted stops on all positions as we expect some kind of bounce in response to the selling… how much we will see.
  • Watching SOXX and IGV if we bounce for upside opportunities as the charts look the best.
  • Volatility Index peaked at 30.1 on Friday. Any positive news would help lower the anxiety and give room for a bounce. Adjusted stop on VXX trade.
  • Yields are falsely low on the anxiety and money running to safety. Watch the downside of the bond on any bounce in stocks. TBT would set up a trade as well.
  • Cash is a sector and one where money should reside currently.

Patience as this all unfolds.

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:

  • XLB – New lows and found support… and looking for a move above the $50.35 mark. 
  • XLU – The utility sector found support at $51.11… moved above $52.72 and looking at the entry point for upside trade. 
  • IYZ – Telecom found new lows and bounced…  $26.25 level to clear for possible upside trade.  
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and looking for upside trade opportunity. 
  • XLI – Industrials to near-term low and bounced. $65 level to clear on the upside move. 
  • XLE – Energy stocks fell with the market and crude prices. Small bounce and let this unfold. 
  • XLV –  Healthcare fell to near-term lows and bounced. $85.74 level to clear for any upside trades. 
  • XLK – Technology moved to near-term lows and bounced. $63.70 level to clear for an opportunity. 
  • XLF – Financials moved to recent lows and bounced. $23.76 initial level to clear for trade. 
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level to clear for an opportunity. 
  • RWR – REITs broke lower despite lower interest rates… bounced from lows and $88 level to clear. 

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

FINAL NOTES:

Markets get a bounce after breaking the October lows as the broad-based selling accelerated on the Fed, China, and Budget impasse. Throw in some economic worries and you get the picture. Lack of clarity is the death of any bull market. As seen above investor think they want to buy the bottom, but really aren’t sure. Some give credit to the pension plans and 401k’s rotating money for year-end for the rally. We will just wait and see… but, we did take some new trades near term. Six of the eleven sectors managed to close the week in positive territory as money rotates modestly. Interest-sensitive sectors fared the worst despite the drop in interest rates again last week. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers. We have discussed the tariffs, interest rates, geopolitics, the Fed, earnings, the economic picture, and many other issues over the last few months and they continue to stimulate speculation. The Fed remains the biggest influencer with a shift again on interest rates which have pushed the long end of the yield curve back below 3% to 2.73%. How this all unfolds is a matter of time and confidence. There is no reason to panic just follow your strategy… Disciplined entry and exit points allow for you to manage your risk in up or downtrends. 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 of issues and plenty of speculation short-term. What we need is confidence in the outlook going forward… until that happens, expect more volatility and possible downside. 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.