Indexes close at record highs

The major indicies closed at record highs to end the week. With talks of the economy reopening hope was in the air. There was a positive buzz around the news in New York and Portland of opening indoor dining on a limited basis. The cyclical sectors were the benefactors along with energy as crude pushed near the $60 level. The ten-year treasury pushed to the 1.2% yield as inflation and stimulus were discussed in the same sentence. It was a slower week of gains, but gains nonetheless. We now have a long weekend to focus on risk management and what lies ahead.

Short news notes of interest…

  • Pizza wars have been on the rise as consumption rises in the pandemic shutdown. The number one order consumed to go food. Dominos, Papa John’s, and Pizza Hut are sparking new menu items to keep the trend going. Maybe the stocks will respond in kind.
  • $60 crude oil is here… gasoline at the pump has risen with the cuts from OPEC and the US… 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.
  • The debate begins on stimulus versus inflation. More economists are fearful of the $2 trillion stimulus package and the impact of chasing too few goods with too many dollars. Definitely a slippery slope for the US and global economies.
  • The White House stated it was looking at travel restrictions for Florida amid a rise in ‘new’ variant in the virus. That didn’t settle with the governor as the division on how to deal with the virus remains a heated topic. Governor DeSantis had plenty to say to the White House. The case counts peaked in January near 20,000 cases per day and have since declined to an average of 7,700 cases per day… confusing for me as the numbers are falling.
  • New York and Portland resumed indoor dining at limited capacity on Friday… and the media went crazy! It was called ‘reckless’, dangerous, premature, and sad… Cases have been falling in the US and the focus is on reopening the economy, but the CDC sees it in a completely different light.

Sector Rotation and the S&P 500 Index:

The S&P 500 index closed up 18.4 points to 3934. It was up 0.47% on the day. The index closed at new highs as investors continue to find reasons to put money to work. Money flow was higher and hope springs eternal. Ten of the eleven sectors closed on the upside as investor sentiment remains positive. The VIX index closed at 19.9 matching the December lows. Watching how this unfolds moving forward.

Friday: Energy stocks led the upside as positive comments about reopening the economy spread to investors. Crude rose more than 2% helping the sector climb back to the previous highs. Basic materials and financials posted solid moves higher as well. The sole sector on the downside was utilities as interest rates ticked higher.

  • 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.
  • 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).
  • 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
  • XLK – Technology remains in an uptrend but tested the upside and resumed with some challenges near term. IGV and SOXX leading upside move.
  • XLF – Financials bounced at the support of $28.95 and bounce back to the previous highs creating a ‘V’ bottom on the chart. Upside in play near term. Entry $29.75. Stop $30.53.
  • 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 up 69.7 points to 14,095. The index was up 0.5% on the day with mixed activity overall for the week but higher overall. The NASDAQ 100 index (QQQ) was up 0.56% for the day as money flow into the sector was higher. The large caps have been lagging of late and remain a concern as rotation affects the sector. Semiconductors (SOXX) closed up 1.24% adding to the positive break on the upside. Technology (XLK) moved up 0.51% 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.

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).

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.

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.

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).

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 (adjusted).

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.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

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.

TUESDAY’s Scans for February 9th: Some are pointing to the rise in sentiment as too positive of late and are calling for a correction… That is simply an opinion and one that may very well prove to be right… however, we cannot assume anything in this market. Our focus has to be the facts we can have beliefs, but the market must validate those beliefs on the charts. We continue to take what is offered in the moves and maintain our stops. Tuesday was a consolidation day as money flow was slower and less directive. Patience as this unfolds.

  • Dollar (UUP/UDN) the dollar has been moving lower on the stimulus package pushing forward. Remember a lower dollar influences crude, gold, and other commodities… watching how that unfolds.
  • Small Caps (IWM) makes it seven days on the upside and pushes new highs… raised the stop.
  • Cannabis (POTX) up 17.2% on the day… stop raised.
  • China (FXI/YINN) moving off the test low and cleared $27.50 (YINN) offering a second entry point. Watching and managing the risk of the reversal trade.
  • Regional Banks (KRE/DPST) breaking higher after the test. This is a sector we have favored since December. It has come with some volatility and management issues but looking for the upside to continue.

MONDAY’s Scans for February 8th: Markets continued higher as the leadership from energy and financials remains in place. Technology has been helping, but semiconductors have been a strain. Software has picked up the slack with solid gains. Investors continue to focus on valuations while speculators continue to push stocks higher. The goal remains to take what the market offers and manage the risk accordingly. Plenty to like, plenty to understand, and plenty of risk for all.

  • Crude Oil (USO/UCO) upside continues with a gain of 2% on the day. EIA reported November saw a rise of 692,000 barrels per day, averaging 11.124 mmbd. That is the highest since March. Watching how production unfolds in light of expected demand rising.
  • Energy (XLE) moved to new highs as the money chases the stocks following the rise in oil prices. Other benefactors are XOP, OIH, IEO and others.
  • Gold (GLD) bounced off the lows and back to the previous support levels offering an opportunity in the metal. The key is to let this unfold and be patient as the bounce plays out.
  • Biotech (IBB/LABU) Big jump higher to start the week as social media takes on the sector and short selling. We own the sector and much like XRT we will manage the risk based on the charts and not the news.
  • Homebuilders (ITB/NAIL) breaking to new highs on speculation of more being more. Again, we take what is offered and don’t get into the argument of valuation… statistics don’t lie, only statisticians. After all four out of five dentists choose Crest.

(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:

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.