Indexes close lower

The indexes closed lower on the day as investors worry about the intensified lockdowns and restrictions. The retail sales data wasn’t good either not helping matters on Friday. The retail sector closed down 2.4% after a solid run higher in the last two weeks. Banks kicked off the earnings reports with solid numbers from JPM and PNC. The energy sector was lower as crude oil fell 2.3% and stocks were down 3.8%. There was plenty of economic data released and most of it was disappointing at best. The data is starting to show the slowdown from the closing and other issues facing the US economic picture. We have discussed a catalyst that will shift the trends happening sooner than later… this may be part of the catalyst and it is important to watch it unfolds relative to the sentiment and activity of investors. Spend some time evaluating your risk levels and adjust accordingly.

Short news notes of interest…

  • Retail Sales declined 0.7% in December following the 1.4% loss in November… the data shows the decline in spending from the expiring benefits, weakening confidence in the short term outlook, and restrictions in travel and activities due to the virus. Watching how this unfolds in the first quarter.
  • Producer Price Index (PPI) rose 0.3% in December following the 0.5% rise in November. The data excluding food and energy was up 0.1% and the year-over-year reading at 0.8%. The inflation picture is rising with food and energy… the balance remains in check. But, people do eat and use energy thus it is impacting their pockets.
  • Industrial production increased by 1.6% in December following the 0.5% increase in November. The capacity utilization rate rose to 74.5% from 73.4% in November. There is strength in the manufacturing output despite the 1.6% decline in automotive production.
  • University of Michigan Consumer Sentiment preliminary number for January was 79.2, down from the 80.7 final reading for December. That was mild if you consider the media news on coronavirus, Trump, and Washington…
  • February 12th starts tax season… you can start filling your taxes with the IRS. It is two weeks later than last year.

The S&P 500 index closed down 27.2 points to 3768. It was down 0.72% on the day. The index is holding well above the 3550 support as the markets segment further the positive and negative sectors. The REITs and utility sectors led the upside on the day as some money rotated to safer havens. Four of the eleven sectors closed in positive territory as stocks showed some selling pressure to end the week. The downside came from energy and financials as the sellers show up Friday. Money flow was negative on the day as investors continue to be active in response to the news. The VIX index closed at 24.3 moving up slightly as concerns arise from data. Watching the investor sentiment and how it proceeds.

The NASDAQ index closed down 114.1 points to 12,998. The index was down 0.87% on the day as some sellers showed up. The NASDAQ 100 index (QQQ) was down 0.79% for the day as money flow into the sector remained negative. The large caps joined the downside on the day as money rotated. Semiconductors (SOXX) closed down 2.03% for the first time in seven days. Technology (XLK) moved down 1.03% as the consolidation pattern continues near the current highs. Watching how this unfolds as the market shifts gears again.

Small-Cap Index (IWM) The sector moved up 1.4% for the week as it remains in a leadership role and pushing higher. The uptrend remains in play as we manage our position. Entry $155. Adjusted stop to $205.50.

Transports (IYT) The sector tested support and bounced back to break above the $226 resistance and test that level again to close close the week. Stop $222. Watching support.

The Dollar (UUP) The dollar found some support at the $24 level… how long will this hold up? Watching the politics surrounding the buck.

The Volatility Index (VIX) Volatility settled early this week and closed higher at 24.3 as the economic data and politics inject some anxiety. Watching how this unfolds along with the news.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector remains in a solid uptrend near term hitting new highs with some testing on Friday. Watching the current trend and managing the stops. Stop $236 (adjusted). Hit new highs and tested modestly.

Retail (XRT) The retail sector showing a spike higher for the week until the retail sales data was released on Friday. This has been a key leader for the markets and watching how this unfolds near term based on the slowing in sales the last two months. Stop $68.15 (adjusted).

Biotech (IBB) The sector tested support at $152.50 held and bounced back to new highs to end the week. Stop $155.50.Watching how this unfold moving forward.

Semiconductors (SOXX) The sector remains in an uptrend and broke higher from the consolidation phase. The $367.50 level of support is a long way off… Managing the risk and letting this unfold. The uptrend remains in play. Stop $398 (adjusted).

Software (IGV) The sector tested lower this week and held above support at the $340 level. Watching how it plays out near term.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.09% down from 1.1% last week. Rates are holding above the 1% level currently and watching as some volatility in the bond picks up. As we have stated short trades on the bond remain in place. TMV stop $58.88.

Crude oil (USO) Crude moved to $52.38 from $52.25 for the week or up 0.3%. Plenty of speculation to influence prices and watching how this unfolds. As we stated nearly seven months ago… the greatest opportunity was in crude. Taking what is offered and managing the risk. Stop $34. UCO trade position entry $25.78. Stop $39.25 (adjusted).

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. Watching as we test $171 support levels.

Emerging Markets (EEM) The sector moved back to new highs. Entry $44.50. Stop $53.25 (adjusted). China (FXI) was the leader on a break higher as well. and we adjusted our stop on those positions. The break higher is positive for positions, but managing the new risk.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

FRIDAY’s Scans for January 15th: more downside for stocks as the reality of the data creeps into the thinking process. There was plenty of data reported on Friday and most of it was not great. The slowdown in growth is becoming a reality as stimulus wanes and renewed lockdowns and restrictions grow relative to the virus. Earnings season has started with the banks reporting JPM and PNC posted solid data while C and WFC missed on revenue numbers. Financials were down 1.6% on the day, not helping matters. Watching the rotation and inflation data as it shows money favoring inflation biased sectors like commodities. Manage the risk that is and watch where the money is rotating.

  • REITs (IYR) money flow rose on Friday as some money was looking for safer havens.
  • Utilities (XLU) benefactor to safety rotation and as strong dollar keeping interest rates in check for the last few days. A sector to watch if the fight to safety builds steam. In a consolidation pattern near the current lows.
  • Natural Gas (UNG) double bottom pattern. Watching how this unfolds as the commodity approaches resistance.
  • Retail (XRT/XLY) sales for December showed a second month of declines. The challenge is how segmented the data is with big box and online holding most of the sales… the small business and specialty getting hit. Adjusted our stops and watching how this unfolds.
  • Banks (KRE/KBE) the banks moved lower on earnings… watching as they are expected to be the strength of the sector moving forward in the current economic climate.

THURSDAY’s Scans for January 14th: Some downside on the day as the money remains in motion. leadership coming from chips (SOXX), industrials (XLI), retail (XRT), cloud (SKYY), travel and leisure (PEJ), small caps (IWM), and cannabis (POTX). Taking what is offered as the upside remains in play, but the indicators show they are extended… irrational? Maybe, but fighting the trend is never a good idea. Watching which catalyst is the key now that stimulus is on the table.

  • Emerging Markets (EEM) vertical move on break higher. Adjusted stops.
  • Retail (XRT) vertical move higher… adjusted stops.
  • Energy (XLE) 17% rise in eight trading days… adjusted stops again.
  • Semiconductors (SOXX) up 9.8% in seven days… adjusted stops again.
  • Global Cannabis (POTX) up 55% in nine days… adjusted stops again.

WEDNESDAY’s Scans for January 13th: More mixed activity with technology leading the upside on the day. The utilities and REITs bounced with the drop in interest rates. The dollar looking better, but worries will rise if Biden follows through on $2 trillion in additional stimulus. Plenty on the horizon and plenty to unfold… keep following the money trail it will lead to growth and trends. Today posting some interesting returns on the five day scans for momentum…

  • Semiconductors (SOXX/SOXL) solid break higher and gained 5.6% on the continuation of the uptrend.
  • Cannabis (POTX) the global ETF for cannabis gapped higher and hit new highs on the recent drive higher in the commodity. Gained 17.6% the last five trading days.
  • South Korea (EWY) solid drive higher in the existing trend. Testing the last few days at the new highs. Interesting how it has accelerated.
  • 3D Printing (PRNT) gapped higher and consolidating. Big move due to speculation on what can be made with the machines and popularity with hampered manufacturing capabilities.
  • Oil & Gas Exploration and Production (XOP) solid move higher in the uptrend is being sparked by rising crude and energy prices.

TUESDAY’s Scans for January 12th: Mixed activity with sectors seeing buying and selling as money is in rotation mode again. The energy sector was the primary benefactor as the price of crude continues to rise. Consumer sectors with retail leading also posted positive upside on the day. The technology sector remains a challenging area as money heads to the exits near term. Financials pushed higher again led by banks and optimism about fourth-quarter earnings. Managing the risk and taking what is offered.

  • Energy (XLE) up 3.5% on the day and adjusted stops. $57 per barrel as the expectation is for supply to remain tight looking forward.
  • Crude Oil (USO) up 2%. Gasoline (UGA) up 2.3%. Adjusted stops.
  • Brazil (EWZ/BRZU) trying to break higher from consolidation.
  • Natural Gas (FCG) cup and handle pattern break higher confirming the uptrend in the sector. These stocks are benefitting from the push in crude price.
  • Agriculture Commodities (DBA) moving higher. CORN break higher. SOYB breaks higher… getting interesting.

MONDAY’s Scans for January 11th: Some selling to start the day. Buyers did step in to stem the downside risk. Leaves plenty of question marks regarding the upside to the markets near term. Managing the risk that is and watching how the news continues to impact day traders. The longer-term horizon is still a matter of the new administration’s actions and economic recovery. Too many questions for me to entertain speculating, thus, one day at a time is my focus for now.

  • Crude Oil (USO) responds to the renewed lockdowns and rising case counts for the virus. Watching near term.
  • New shifts in lockdowns are causing anguish in the outlook for stocks. This is something to understand looking forward and managing your stops.
  • Silver (SLV) Big drop with gold on Friday and attempts to hold support. Watching how this unfolds moving forward.
  • Cannabis (CNBS/YOLO) sector is getting plenty of attention of late and running higher. Watching for the opportunities that make sense.
  • Regional Banks (KRE/DPST) showing positive upside follow through to the recent gaps higher.

(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:

Friday: The index gave up some gains testing the 3760 mark as support near term and closed below the 10 DMA. Energy and REITs were the leading sectors for the week. Technology and consumer staples were the leaders on the downside. Rotation in play with money flow shifting. Utilities are worthy of attention as money looks for safer havens currently. Take what is given and focus on what is happening versus the news.

  • XLB – Basic Materials break to a new high and clear the highs of the trading range and tested on Friday. Letting it unfold near term.
  • XLU – Utilities hold support on the test lower and find some buyers. Watching interest rates and the dollar currently.
  • IYZ – Telecom moved above $30.95 resistance and held. The support at $29.67 held and we bounced back to break higher. Stop at $30.50.
  • XLP – Consumer Staples moving lower to sideways as test support.
  • XLI – Industrials gapped higher on breakout and continuation of the uptrend ($82). Watching sideways movement near term.
  • XLE – Energy gapped higher on speculation of growth relative to the vaccine. Moved above $42 resistance. Moved higher and tested on Friday… Raised stop to $40.50.
  • XLV – Healthcare found buyers and broke above resistance to push to new highs and stall in consolidation pattern. Watching how that plays out. Adjusted stop to $113.
  • XLK – Technology remains in an uptrend with a consolidation pattern the last three weeks. It is struggling on news and analyst downgrades keeping it in check.
  • XLF – Financials continued higher and broke to new highs as banks jump on the move in interest rates. The first level of support is $28.24. Adjusted stops. Watching earnings data as Friday didn’t help the cause.
  • XLY – Consumer Discretionary bounced to new highs as the consumer continues to show strength. Retail sales data on Friday was disappointing… watching how investors respond to the data in the coming week.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Struggling to hold support at the $82 level. Did manage to bounce on some rotation in money flow.

The trends remain positive but there is a shift in sentiment in the air. We saw sectors respond to worries and some shifts in money flow to end the week. Proceeding with caution. Using the six-month charts as an indicator for the short term view… Eight sectors are in confirmed uptrends with some near term testing. Three are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for SPY is in a move to a sideways trend short term with an upside bias currently. The leadership is rotating as money flow shifts directions.

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

FINAL NOTES:

Weekend Wrap & Outlook… The markets remain positive overall but some cracks in the data are keeping trends in check. Some of the early optimism to start the year is waning and economic data shows slowing for the second month. This brings concern near term for the uptrend, but it is too early and speculative to call for a downside move in stocks. The key is to let the risk unfold along with the data. The leadership remains in small caps and energy stocks. Inflation is becoming a word used more of late as commodities move higher. CPI and PPI showed increases over the last two months. Then there are the never-ending worries with the shutdowns and mandates relative to the virus. This is a global issue not just in the US. We continue to watch how it is impacting the global economies. The last two months’ data is showing pressure from the closings and expenses related to the virus. The stimulus package just passed had plenty of fat for everyone… now there is another $1.9 trillion being proposed by Mr. Biden. Even more fat for the states and municipalities. That could be the undoing of the markets in time. The long-term trends remain higher in the hope of more stimulus. Technology stocks continue to struggle. The retail sector is moving higher despite worries about the shutdowns growing along with less spending. The VIX index closed at 24.3 showing elevated anxiety in the markets near term. The dollar found some support finally holding near the current lows. Crude moved above the $52 level the highest since February 2020. UGA is running higher as gasoline prices jump. We continue to own the ETF so we can afford the hike at the pump:). Watching the current movement in the broad markets as money continues to rotate and traders look for some safety of late. 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.

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.