Indicies close lower on mixed day of trading

The S&P 500 index declined for the first time in four days… of course, we have to ask the question… Why? Why ask why? Because we need a reason we can’t just accept it went down… 11.2 points or 0.36% on the day. The most logical reason is valuations relative to the data… this has and will be an issue until the data catches up to the current price levels. Covid-19 cases continue to rise worrying some about further shutdowns or voluntarily staying home. From my view, the goal is to manage the risk as it exists and keep moving forward… money will find a home even if it is cash. Taking it one day at a time with getting caught up in the emotions.

In The News:

Short news notes of interest… 1) Housing starts increased 4.3% in May but was below expectations of a 6% rise. Single-family homes increased a solid 11.9%. 2) Weekly MBA Mortgage Applications Index rose 8% following a 9.3% rise last week… solid numbers for the housing sector. ITB is hitting against resistance at the previous highs… looking for a break higher. 3) Crude moved down 0.9% to $37.93 as some anxiety builds about Bejing. 4) The Fed Chair Mr. Powell suggested to Congress they should do more now for stimulus not later. 5) Fed continues to buy bonds to keep liquidity flowing in the credit markets.

Norwegian Cruise Line (NCLH) extends voyage suspension… they extended the suspension of cruises until September 30th. The CDC is completing its review of the plans for Norwegian, Carnival, and Royal Caribbean to resume their schedule of cruises. The hope was August 1st, but the extra sixty days sent the stocks lower on Wednesday.

Airline stocks struggle as Southwest Air (LUV) offers update… the airline stated they continue to experience significant negative impacts to slower passenger demand and bookings for Q2. The recovery is going to take longer than some initially believed as stock prices rose too quickly… Is there more downside on the horizon? Delta and American Airlines reduced their cash burn to approximately $40 million from $100 million in April and May… but the burn is still negative… i.e. not profits. Watching the sector for opportunities.

Roth IRA conversions… most people fail to understand the value of a Roth IRA or use one in their portfolio. The key advantage for individuals is the tax-free withdrawal from the account in retirement… Yes, tax-free… that means the income from the account doesn’t count against your social security income being taxable. It also means more spendable income without a tax bite. With the correction earlier in the year capital loss harvesting allowed you to offset withdrawals from your traditional IRA that could be converted to a Roth IRA. There are opportunities if you will take the time to do some homework.

ETFs to watch… Watching sectors of the market gives you an insight into what is happening overall versus watching specific stocks. Looking at the scans we see Regional Banks (KRE), Homebuilders (ITB), Healthcare (XLV), Small Caps (IWM), and technology (XLK) leading the current upside move. On the downside treasury bonds (TLT), natural gas (UNG), oil services (IEZ), and Europe (IEV) moving lower. Follow the money it always knows.

The S&P 500 index closed down 11.2 points to 3113. It was off 0.3% on the day as the index struggles to move higher. The worries about the coronavirus surge and stock valuations kept a lid on the markets Wednesday. All eleven sectors closed in negative territory on the day with the energy sector leading the downside losing 3.4%. The VIX index moved to 33.4 holding above key support and showing anxiety still in markets. The rise in investors’ anxiety is on our watch list. Plenty to ponder as we look forward.

The NASDAQ index closed up 14.6 points at 9910. The index closed up 0.1% for the day. The index gave up the new all-time new highs in grand fashion last week but has bounced back the last four days. The leadership from the technology stocks helped the move higher. The NASDAQ 100 index (QQQ) was up 0.3% and watching the reversal top on the chart. The $233.41 level is the stop as we now watch how this unfolds. Semiconductors (SOXX) closed up 0.7% holding support at the $255 level and bouncing. Technology (XLK) was down 0.02% holding key support on the bounce. Watching how this plays moving forward.

Small-Cap Index (IWM) The sector had posted solid gains and had taken on a leadership role only to fall 9.6% for the week. Watching support at the $132.55 level. The uptrend remains in play despite the selling… watching how the new week unfolds. TNA or TZA? Solid 2% gain on Monday… held support at the $132.55 mark. Added 2.4% on Tuesday to recover some of the losses from last week. Wednesday fell 1.8% as the uncertainty remains in the sector.

Transports (IYT) The sector jumped 16.6% on optimism and rotation. The sector fell 9.6% the last four days… Fast money moving and watching how this unfolds relative to the trend. Held support and bounced on Tuesday… watching.

The Dollar (UUP) The dollar broke lower from the consolidation pattern and was in a downtrend short term. Some challenges in the markets pushed the money back towards the dollar on fear. Watching the bounce and the outlook near term. Down on Fed action.

The Volatility Index (VIX) Anxiety spiked to 40.7 after testing the 24 level earlier in the week. Investors were willing to take some profit as they weighted the impact of another wave of coronavirus. Watching how the new week unfolds. Held 32.34 support closed at 33.4 and watching how the mixed anxiety unfolds for investors.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector has posted solid gains and has taken on a leadership role in the last three weeks. That change some as the selling on Thursday tested the move higher. Watching how we start the week. Gained 1.1% on Monday. Added 2.1% on Tuesday as the sector tries to recover. Fell 1.4% on uncertainty in the sector.

Biotech (IBB) The sector has been in a consolidation pattern that broke lower on Thursday but held the 200 DMA as support. Watching for some answers overall as the momentum has stalled. Gained 1.9% on Monday. Added 1.4% on Tuesday moving higher in the range. Small advance on Wednesday as it remain in the trading range.

Semiconductors (SOXX) The sector tested the $255 support and held. The uptrend is still in place and the anxiety level a little higher… The money flow is flat. Taking what is offered and raising our stop to $255. Key sector if the indexes are to move higher… up 1.1% on Monday. Added 1.9% on Tuesday and moving back near the previous highs. Holding near the highs.

Software (IGV) The sector established a bottom at $185 and bounced. Stop at $257.50 (adjusted). Entry $205.10. Some testing with the markets moving lower, but the trend remains positive. Positive move on Monday. Moved back to the previous highs on Tuesday with 1.7% gain.

REITs (IYR) The sector collapsed as talk of defaults in the commercial debt market spooked investors. The Federal Reserve has stepped in to stem the downside. The run to the 200 DMA was positive, but the reversal to support at $78.83 has us watching the recent trend. Stops in place. Holding support and positive close Monday. Added 1.9% on Tuesday with a positive move. Wednesday moved down 1.4% on inside day.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.69% down from 0.90% last week. TLT broke higher hitting our stop on the short side trade… we did lock in a reasonable gain, but now we refocus on the current activity. Bonds are still in a downtrend from the April highs. Yields moved higher to 0.73% and watching.

Crude oil (USO) Crude moved to a high of $39.55 with some selling for the week it closed at $36.26. The data is showing a reduction in production and consumption is rising again… right? Not exactly the US showed a build in supply again as the data is lagging the cuts. That along with coronavirus talks send crude lower on the week. I like the long-term holding with entry at $13.81 and a two-year target of $45. Trading opportunities as well in the commodity. Added a position in UGA as well at $17.40. Stop $17.40 (adjusted). Up 2% on Monday… positive day. Added 3.3% on Tuesday with positive economic data helping the upside.

Gold (GLD) The metal tested lower to $158.94 support and broke lower for a day… we were looking for a bounce and trade opportunity in the trading range and it unfolded early in the week. Bounced at support… added at $158.90. Stop at $158.90. Struggling on the Fed intervention.

Emerging Markets (EEM) Broke from the trading range and above the April highs. Positive money flow as the optimism rises for the global economies as everything attempts to reopen. Tested on the week, but watching how it unfolds. Struggling but holding support.

China (FXI/YANG) Moving higher on the recovery phase starting for the global economies. Despite all the banter with the US/China trade, the country ETF is making moves higher with some testing on the week. Erased the break higher and holding in the previous range.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

WEDNESDAY’s Scans for June 17th: It was a lackluster day for stocks as they spent most of the day pondering events, data, and hope for stronger economics. The positive news on Tuesday left investors with little to do on Wednesday but think about all they know… and more of what they don’t know. Letting this run it’s course and following the money. There will always be opportunities on the horizon.

  • Energy (XLE) continues to struggle to move higher but keeping the uptrend alive for now. USO and UGA holding well.
  • Financials (XLF) still not showing signs of an upside run… credit markets remain a big worry for the sector.
  • China Internet (KWEB) positive trend higher despite the struggles in the China ETF FXI.
  • Technology (XLK) remains a leader as the parts continue to move higher. SOCL closed at new highs. HACK, WEBL, IGV all look good.
  • Online Retail (IBUY) showing solid move to previous highs.

TUESDAY’s Scan for June 16th: Positive economic helps lift stocks from the selling last week. The initial jump from the lows in April and May is giving hope to investors. The challenge as put by Mr. Powell in his testimony to the Senate Banking Committee yesterday, it is a long road to recovery. The initial data is positive, but there is a lot that will have to be overcome during the next six months or longer. Taking the good for now and managing the risk that is based on our strategy.

  • Retail (XRT) solid bounce off the support levels and looking positive for the near term.
  • Small Caps (IWM) recovered about half of the losses from last week… watching how the risk-on trade unfolds.
  • Banks (KRE/KBE) held support and bounced on the talk from Mr. Powell to the Senate… but not enough confidence to surge. Watching how the sector unfolds.
  • Transports (IYT) key sector to watch on the upside… goods and services impact the sector… if the economy is recovering the sector will need to show solid signs of improvement.
  • Healthcare (XLV) bounced on the news relative to UK positives on drugs impacting the severely ill patients. Watching the drug sector (IHE) as well.

MONDAY’s Scans for June 15th: Negative start to the day reversed as the Fed offered more liquidity. Plenty of stimulus to keep the markets happy and for now, you don’t want to bet against a market backed by the Fed. China, Florida, and Texas see spikes in Covid-19 cases… that stimulated fear about further shutdowns around the world. The news is keeping the markets interesting and we will remain diligent in managing our risk.

  • Financials (XLF) get a boost from the Fed comments… moved higher on the day and holding above the $23.50 support levels.
  • REITs (IYR) bounce back… thanks to the Fed.
  • Energy (XLE) flat on the day, but crude oil (USO) and gasoline (UGA) headed higher.
  • Homebuilders (ITB/NAIL) solid bounce at support. Positive data in the sector as housing remains positive.
  • Natural Gas (UNG/DGAZ) downside accelerates… adjusted stop on the downside trade.

FRIDAY’s Scans for June 12th: there was some fighting about direction on Friday as some buyers showed early and then some sellers also showed up selling into the rallies. This shows profit-taking and a tug-o-war about direction near term. This is something to watching as we move forward to see if the buy on the dip money is stronger than the sell into strength money? Overall trends are still positive and sentiment bent on the week but it still shows overall positive. One day at a time.

  • Treasury Bonds (TLT) watching the money flow… does fear creep back into the markets near term to push stocks lower? Yields fell 21 basis points this week showing rotation to safety.
  • Cyclicals (XLF, XLI, XLE) does money continue to rotate away from these stocks?
  • NASDAQ 100 (QQQ) vs NASDAQ composite… do the large caps resume leadership role? They have been the key to the rally off the March lows. Watching the money and rotation.
  • Natura Gas (UNG/DGAZ) the sellers continue to control the direction and the break higher in the short ETF doesn’t bode well for the direction changing near term. Adjusted stop on the position.
  • Trendlines are intact… watching how this plays out near term. The uptrend accelerated moving 10-30% above the trend… that generally spells trouble technically. Most of that corrected on Thursday… the trends held on Friday and now we look how this unfolds. Patience is the key for now.

THURSDAY’s Scans for June 11th: The bell rang and investors ran to the exit. Stocks fell for a solid test of the run higher. How does this unfold? No telling at this point… does fear return? Does the buy on the dip money show up? Whatever happens from here is going to get interesting and there will be an opportunity somewhere. Taking it all under advisement and evaluating the options.

  • Treasury Bonds (TLT/TMF) rally on as money rotates to safety… again.
  • Crude Oil (USO/USL) as discussed divergence in price versus supply/consumption data… data wins. Commodity falls 8%.
  • Financials (XLF) erased all the gains… back to the previous trading range. Zero-interest rates extended for long periods are not good for banks.
  • Gold (GLD) Still in the range. some selling on Thursday… but, I like the upside opportunity looking longer term.
  • VIX Index (VXX) spiked 33% on the for solid gain…

(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 solid break above the $45.87 resistance offering upside trade opportunity. Cleared $54.15 resistance and moved higher. Hit the stop, locked in gain, held support at $54.15… watching. Positive reversal and watching.
  • XLU – Utilities reversed the downtrend and heading higher. Tested back to the 200 DMA and watching how the sideways trend unfolds.
  • IYZ – Telecom moved to the April highs and follows through to $29.50 resistance. Back to $27.63 support.
  • XLP – Consumer Staples offered short term trading opportunities as it trades in a range. Support at $57.20 level. Stop $56. $60.45 level to clear to continue the upside. Back to the 200 DMA. Positive reversal and watching.
  • XLI – Industrials broke higher from the consolidation pattern. Tested support at the $67.50 mark. Helped by infrastructure bill proposed.
  • XLE – Energy moved above the $31.20 entry-level as the bottom was established. The uptrend remains in play with a gap higher was given back on the week and test the $38.80 support. Playing catch up to crude prices. Natural gas spiked lower and adjusted stop on DGAZ trade.
  • XLV – Healthcare moved above $88.50 level and offered upside opportunity. Letting it play out and adjusted our stops. Stuck in the trading range as money flow declines and attempted to break lower. Positive upside on UK positives on drug use for Covid-19.
  • XLK – Technology cleared $82.37 resistance and offered upside trade. Remains the leadership for the broader index currently and broke higher from the topping pattern and adjusting the stop. Getting needed leadership from the sector… watching.
  • XLF – Financials broke higher showing some solid upside momentum the last two weeks. That ended on Thursday selling back to support at the $23.50 level… watching. Bounced with the Fed news. Banks higher on Fed talks to Senate… Watching.
  • XLY – Consumer Discretionary broke from the trading range and established a solid uptrend. Approaching the February highs and stalled. Watching the outcome. Retail sales data is helping the sector.
  • IYR – REITs broke lower below $71.30 support and bounced… Solid upside the last two weeks as the laggard gains momentum. Moved back o support at the $78.83 mark. Nice bounce… watching.

The trends are resumed on the upside breaking from consolidation patterns only to reverse this week. Watching how this unfolds moving forward as there was a rotation chasing returns currently. We took entries based on our defined strategies and managing the risk accordingly. Using the six-month charts as an indicator for the short term view… Eight sectors are in confirmed uptrends. Three are consolidation patterns, and none are in downtrends. The result for SPY is in an uptrend short term with a selling bias to end the week. The leadership is seeing some rotation as questions get answers on the charts.

(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.)

FINAL NOTES:

Wednesday: Mixed day for stocks as they jockey for position. No big changes as the economic data show a positive rebound and the Fed remains engaged in liquidity measures. Washington continues to be one big political football, and the real challenges remain stock prices… too much too soon? Watching and managing the risk that exists.

Tuesday: Positive data points on the day with retail and other economic data showing a solid bounce off the April and May lows. The initial bounce is always the most positive… there is plenty of challenges ahead for the economy as projections of job recovery remain slow. The bounce back from the selling last week is a plus… but, I remain cautious currently. Stops are adjusted and taking what the market offers.

Monday: Positive intraday reversal as the indexes started lower, but the Fed comments offered hope and buyers stepped in to turn the indexes back to the upside. The NY Empire Manufacturing report was much better along with credit card spending… the consumer is alive and coming out of their house or at least spending from their house. There are some positives overall… the challenge comes from the fact they are all government back with unemployment and Fed stimulus… If it stops it will be like a game of musical chairs as everyone scrambles to find a seat.

Weekend Wrap & Outlook… The coronavirus to the headlines with the second wave theory being expressed by the CDC. That caused an adjustment in momentum on Thursday. China-US trade tensions and Hong Kong are still in headlines, but the outlook for the economy became a concern if the virus returns in the fall. The NASDAQ’s push to a new high failed after one day and tested to support. How will this all unfold going forward? There are so many questions left unanswered for the simple reason it will take time to know… thus, investors are focused on putting money to work on the fear of missing out (FOMO) versus the risk that is present in the markets currently. The move higher only validates my first rule of investing… never fight the Fed. They have been fully engaged in the recovery process from the beginning putting liquidity into the financial system, buying debt, and providing stimulus. The Covid-19 battles remain 100% political issues more than the virus itself. The drama being played out in Washington is nothing short of amazing. There is no lack of question marks for the markets moving forward as money rotated again this week. We are not through the worst of it as the reopening process is slowly progressing and the rise in the number of reported cases is weighing on the markets. The VIX index jumped to 40.7 on the selling Thursday… this is something to watch going forward. We continue to see short term opportunities and put some money to work over the last few weeks as money rotates. Our job remains to manage the risk accordingly. The rotation is showing up on the charts the last two weeks with fast money looking for opportunities. All the sector posted a loss for the week with technology holding its own and energy and financials leading the downside move. Gold bounce offering a trade opportunity as it remains in a trading range. Crude oil posted some selling as the US data showed some build in supply. The focus is starting to turn to the future outlook for growth and how long it will take to see a recovery. Many analysts are now saying the fourth quarter… I say that is a bit optimistic. 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. Remember fear and speculation create opportunities. Watch the trend, know which side the Fed is on (they keep telling you almost 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. 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.