Intraday swing impacts investor psyche again

OUTLOOK: October 30th

The week begins with one of the most interesting days yet… the Dow was up more than 300 points only to close down more than 300 points on an intraday swing that left many scratching their proverbial heads. There was essentially a four percent swing intraday in the value of the markets from top to bottom. The Dow closed down 0.8% when it was finished, but the ride put some fear back into investors. A report from Bloomberg reported the White House is considering more tariffs in China by December if the scheduled talks don’t go well. The White House responded with we will see how the talks go and not get ahead of ourselves. News, speculation, and data are driving investors psyche currently and the investor is not exactly in a positive mode currently. Watching to see how today unfolds with plenty of headlines and data ahead. Taking what the market gives with our focus on risk management. 

The S&P 500 index closed down 17.4 points at 2641 as the index creates a day of volatility. The good news is it did manage to bounce back from the intraday low at 2603 showing some hope from buyers. The move is a continuation of the second leg lower which started last week. FIve of the eleven sectors closed higher with REITs and utilities leading the day. The downside came from energy and technology both losing more than 1.6%. Worries remain along with a whole list of issues. The last four weeks investors hit the sell button on stocks and we start the week with a continuation of the second leg lower. The charts reflect the damage to the short-term trendlines and investors psyche. The charts are not pretty and the damage done will take something positive to reverse the psyche as well as the trend. The chart additionally broke the long-term trendlines off the January/February 2016 low triggering exits on long-term positions as well. Short side in play with the index down 9.8% from the September high and nearing correction territory. Six of the eleven sectors are down more than 10% in the last four weeks. 

The NASDAQ index closed down 116.9 points to close at 7050. The index broke the 7297 support level with 6909 in play on the downside. The good news is the index did manage to bounce off the intraday low of 6922. The second leg lower is still in play and investors remain nervous. Blame earnings, blame semiconductors, blame the cat and dog, whatever makes you feel better. The downside energy accelerated erasing most of the bounce from early in the day off 13.1% from the September highs. QQQ is our indicator near term as we watch to see how the leaders respond… currently, not so well with a close below the $167.53 support and testing the $162.48 mark. Short side trade entry hit SQQQ $13.90. Stop $14.78.

Small Cap index made a move lower breaking below the 200 DMA again and breaking the $152.28 support. The short side is in play and renewed the move with more selling to start the week. The early bounce did little to change the outlook near term as the selling resumed on tariff news. The chart shows the negative trend since the August high. TZA entry $10.45. Stop $11.65 (adjusted). The reversal failed and looking at the weakest link in the sectors. Willing to see how this one plays out going forward.

Transports (IYT) moved lower breaking the $182.43 key level of support… and the acceleration lower was another negative for the sector. This sector is another negative indicator for the broad markets as the downside gained momentum. The renewed downside in the sector came as the Fed talks impact the outlook for the economic picture… you have to move goods and people in growing economies… slowing ones? Not so much. Watching how this unfolds taking some action on individual stocks as short trades.

The dollar (UUP) moved higher clearing the $25.53 resistance and continuing the uptrend. Watching as the buck breaks higher from the trading range on the chart but stalls the last two days. The overall move higher is positive from my perspective, but there are many who think a weak dollar helps US companies. Simply not true… history validates a strong dollar favors the US despite the short-term setbacks.

Gold (GLD) Gold gapped higher to break from the consolidation at the current highs and resistance. Watching how it responds to the move with confirmation going forward. This is a continuation move off the break from the bottom range. The dollar and geopolitics have been the catalyst for the metal… both up and down. Entry $114. Stop $115.40 (adjusted). The gold miners (GDX) equally respond to gold moving higher. However, they sold off in response to the dollar move. Watching how this unfolds. Flag pattern breaks lower for reversal. Entry $18.50. Stop $19.50 (stop hit). Watching divergence from the metal…

Crude oil (USO) Crude remains in a speculation trend of uncertainty. The moves over the last six to seven months have been driven by speculation. The current downside from the October 3rd high is about the speculation of higher demand driven by the Iran sanctions has not panned out on supply data. Now we retest the support near the $66 level and watching how it responds. The commodity closed at $67..04 on Monday. A bottoming pattern in place.

Emerging Markets (EEM) failed to clear resistance and tested lower again. That test accelerated retesting the September lows and spiked below that level with a modest bounce that failed again and heading lower in the current trend. Too many questions in this sector with China providing the biggest question marks on trading tariffs. Emotions are high along with selling volume.

The Volatility Index (VIX) closed at 24.7 on Monday as the anxiety levels renew their upside pressure on tariff talk. The spike higher validates the upside trade in the VIX, but also shows the anxiety of investors… we still don’t have a climax peak like February… watching how this unfolds. There has been complacency in the index the last three months… but, it jumped higher as investors sold stocks. VXX entry at $35. Stop $37.50 (adjusted). Sold 1/3 of position at $41…

For the Third week, investors focused on the Federal Reserve and interest rates. This week they started to focus on the economic outlook as well… earnings from Google and Amazon didn’t help matters missing revenue numbers. There is renewed speculation in the media and it is a selling opportunity for those wanting to take money out of the markets. The weak attempt at a bounce this week ended with a retest of the current lows. Watching how this all unfolds with investors confirming the second leg lower for the broad markets. There are no changes on the tariff front with China. The Small-Caps are the weakest sector with technology playing catchup on the week. The S&P 500 struggled to find support closing below the 2675 level. All eleven of the sectors closed the week in negative territory showing the breadth of the selling. Energy, industrials, and financials led the downside move as money heads to the sidelines and safer havens. Investors are using any reason to justify selling. We are in the midst of an official correction on the NASDAQ down more than 10% from the high. The question remains about a recovery, bounce, buyers, something to curb the downside momentum…  There is plenty of dynamics working in the markets overall and we will take it one day at a time as the short term trend confirms the second leg lower. All we can do is manage our risk according to the charts and not speculate on what if… the greatest challenge for us all is not letting our emotions get involved in a process that requires a disciplined strategy and action.  

Monday was a rollercoaster ride for investors as news and worries rule the intraday swing of more than 100 points on the S&P 500 index. Downside remains in play and the correction mode continues with the second leg lower. Looking for some consolidation near the current lows. Watch and manage the risk accordingly. 

(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 breaks lower. Bounced and retesting the downside. Watching how the new week unfolds. Bear flag pattern resulted in a continuation of the downside or a second leg lower. Took our profit on the short side trade and watching how this unfolds.  

Semiconductors (SOXX) tried to bounce off the $167.34 support… failed broke lower with the second leg down in play. (SOXS) Entry $12.20. Stop $14.78 (adjusted). Higher volume on selling is a bad sign. 

Software (IGV) The sector broke support at the $178.87 as the second leg of the downside confirms. 

REITs (IYR) indecision showing on the chart following the decline to support at $75.20… The 200 DMA broke… tested the $75.20 support and bounced only to test lower again on Friday. Watching how this unfolds without chasing the rabbit. 

Treasury Yield 10 Year Bond (TNX) closed the week at 3.07% breaking lower from the pennant pattern on the chart. Flight to safety? Maybe, but the Fed is still determined to hike rates and the upside to yields is likely to return. Watching and waiting for the next opportunity. 

Energy stocks (XLE) The stocks confirmed the move lower to start the week and accelerated to the downside. The short side trade remains in place and watching how this one unfolds. ERY entry $38. Stop $44. 

Big volatility on Monday, but little changes as the charts show an attempt at consolidating near the current lows. 

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

Daily Scan Results:

MONDAY’s Scans 10/29: Big swings in a volatile day. Overall the charts held the lows from last week and we are looking for some consolidation near term. The second leg lower has added another 3+ percent to the losses and now puts the S&P 500 index down 9.8% from the September high. The NASDAQ is down more than 13%. Correction mode for investors, but more importantly decision time for this leg lower. Watching and letting this unfold near term.

  • Energy (XLE/ERY) continued the downside move with crude oil finding near-term support. Stop at $47 on the move to protect the gains. GASX stop at $28 on the move as well. Crude (SCO) ‘V’ bottom pattern moving sideways… stops raised as it unfolds.
  • Biotech (IBB/LABD) showing some consolidation… willing to take some profit from the short side trade.
  • NASDAQ 100 (QQQ/SQQQ) raised stop and watching how this unfolds.
  • China (FXI/YANG) downside resumed on the tariff rumors.
  • Volatility Index (VXX) topping pattern… watching to see if investors are ready to take a break from the anxiety and sell side for now?

Plenty to watch, plenty of speculation, plenty of news… all moving markets short term. The downside is in control… any reversal will have to find some convincing data or news to change the trend. One day at a time.

FRIDAY’s Scans 10/26: The scans are of interest since the bounce off the intraday low leaves most charts at the same level of the close on Wednesday. The bounce was negated… but the question marks about the low being established remain. The move lower on earnings data gave way to a bounce early in the day, but the last hour was still on the downside… We have adjusted our stops on the short side trades, taken some money off the table on the early selling, and watching how this unfolds near term… not willing to say the downside is over, but the charts show some pause in the motion… let the consolidation play out and the trend define itself. The short-term trend is lower… need a shift in sentiment if that is to change near term.

  • S&P 500 Index (SPY) down 9.3% from the high. Found some support… watching how the near term direction unfolds.
  • NASDAQ Index (QQQ) down 11.4% and in an official correction state. Watching how this will unfold near term. The second leg lower looking for support and watching.
  • Semiconductors (SOXX) leading the technology sector lower and watching how this unfolds. An indicator of the outlook for all things growth currently.
  • Volatility Index (VXX) climax run? Is the worst of the emotions over? Not likely, but the near term looks ready for a pause on the chart. It will take some news to disturb investors near term to accelerate the chart higher. Took money off the table and watching how this unfolds.
  • Brazil (EWZ/BRZU) upside attempt in place with the cup and handle pattern in play.

All things are negative… right? Watching the charts as they look ready for a pause in the selling as the second leg lower takes a break. News drove the selling on Friday and the bounce off the intraday lows has my attention. Are the buyers ready to step back in? Watch and take what the market gives.

THURSDAY’s Scans 10/25: Nice bounce for the broad markets as the buyers step in to stop the bleeding. The moves were positive, the breadth was positive, and the sentiment showed some positive signs. It still didn’t change the charts relative to the trend. We will watch to see how the day unfolds on Friday, but earning after-hours are not likely to offer a favorable opening bid. Watching to see if the buyers will take action on the initial selling or if the downside accelerates on the open. This is a game of volatility… if you don’t like this type of environment sit on the sidelines until the direction is defined and the opportunities are more clear. Patience is a well-defined strategy to be used… there are no rules stating you have to be in the market.

  • Technology (XLK) bounced… still in negative trend. Willing to see how it plays out before negating the downside trend. The 200 DMA is key if the upside is to resume. Watching the AMZN and GOOG impact from earnings as well.
  • Consumer Discretionary (XLY) bounced… recovered all the losses from Wednesday… positive move. How does the Amazon news impact the sector? Downtrend still in play.
  • NASDAQ 100 Index (QQQ) Downside still in play. Bounced back to the $170.93 level of support… the after-hours data not looking good as the opening bid is near $165. Watching.
  • Financials (XLF) modest bounce and the downside trend still in place. Watching the Wednesday low as an indicator for the sector on the downside.
  • Small Caps (IWM) downside trend gets a bounce… challenges still in place and letting this unfolds. Watching the low on Wednesday as an indicator for the downside trend.

Plenty of happy comments on Thursday about the bounce. Taking it in stride as the Wednesday lows now become the key to the bounce. If we move below that level the downside continues… if we manage to hold that level and bounce further the buyers may have an opportunity… patience is letting this unfold.

WEDNESDAY’s Scans 10/24: It was a butt kicking on the downside for the broad markets. Short side trades played out well as the trend lower accelerated. We didn’t have many long positions and the ones we do have were fine like utilities and the dollar. Managing money is a matter of having a defined strategy and the discipline to follow it. No, it is not easy, but the rewards are always worth the effort and work it takes. Downside firmly in place… bounce today? Maybe, but it will not likely be enough to negate the downtrend. Managing my risk related to my positions, not the market, is my goal.

  • NASDAQ 100 (QQQ/SQQQ) manage the risk of the trade adjust stop to $14. Could get a rally in index following the beat down…
  • S&P 500 index (SPY/SPXS) manage risk adjust stop to $26.25.
  • Small Caps (IWM/TZA) manage risk adjust stop to $11.40.
  • Financials (XLF/FAZ) manage risk adjust stop to $11.60.
  • Energy (XLE/ERY) manage risk adjust stop to $44.

The downside move was definitely confirmed on Wednesday… we added some positions Friday, Monday , Tuesday on the moves lower. They accelerated on Wednesday… locked in some gains on positions and letting the balance play out. Stops in place and watching how this next leg lower unfolds.

Remember to manage your risk and avoid the emotions of the markets and the talking heads. It’s your money… manage it!

TUESDAY’s Scans 10/23: As much as the media, the data, and the speculation toss the market around of late there is one clear trend evolving short-term… down. The break of the current consolidation pattern on the downside shows there is a high probability of another leg lower for stocks. Bull markets die hard. The rationale for the drop is coming from all fronts… tariffs, interest rates, global weakness, debt, etc. The list is long, but the reality is in the trend. Watching this current downside trend unfold is key and the break lower on Tuesday has my full attention. Stops in place and short side trades being watched.

  • Semiconductors (SOXX/SOXS) the break lower is almost expected based on the news from companies like Texas Instrument… fundamentals are eroding and the outlook is not rosy. This sector is a leading indicator for the markets and watching how it unfolds. Entry $13.20. Stop $12.25.
  • Energy (XLE/XRY) Broke lower Monday and took the entry on short side trade. The acceleration lower on Tuesday came on the back of crude supplies. Watching the data today as we will get more input from Saudi Arabia. Entry $37.75. Stop $36 (adjusted). Short side of crude trade is SCO as well.
  • Industrials (XLI) and Basic Materials (XLB) charts show spike lower in the last three weeks. They are reacting to the tariffs overall, but the slowing growth globally is another impact to the sectors.
  • Small Caps (IWM/TZA) more downside with a continuation move in the trend. We are already short this sector on the weakness in the chart and stocks.
  • Gold (GLD/GLL) and Gold Miners (GDX/NUGT) are moving higher. The fear/anxiety factor is pushing money into the sector. The dollar has been strong and not impacted the move higher in gold… speculation alive and well in the commodity short term.

Volatility alive and well as the VIX index spikes above the 20 level again. VXX/UVXY worth trading on the moves.

Homebuilders (XHB) bounced on Tuesday, but the trend since February has clearly been lower. Higher interest rates are taking a toll on the sector as well as the cost of materials from the tariffs. The downside is still in place.

Plenty of rumbling and trends developing in the charts… take what the market offers and focus on your strategy not what the talking heads have to say.

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:

Sellers looking to remain in control of the near-term direction. The bounce failed to materialize and the downside starts the second leg lower for the sectors. Watching both up and downside moves in the sectors as covered below.

  • XLB – $58.44 Bear flag… breaks lower and the short side still in play. Setting up another bear flag pattern.
  • XLU – The utility sector bounced off support at the $51.50 level and back to the previous highs completing a ‘V’ bottom. $54.75 resistance in play. The downside move on Friday has my attention. Bounced back on Monday. 
  • IYZ – Telecom fell to support at the $27.63 mark and closed lower on Friday… downside in play. 
  • XLP – Consumer Staples held support at the $51.86 mark and moved back to the previous highs. Need to clear the $54.92 mark upside to continue. The defensive money is rotating. 
  • XLI – Industrials broke lower and below the $71.43 target? The negative trend remains in place for the sector. Added to the downside move. 
  • XLE – Energy stocks fell with the market and confirm the downside trade as breaks support. ERY in play. Added to the downside move. 
  • XLV –  Healthcare broke the uptrend from the May lows and breaking the 50 DMA as the trendline. Consolidation confirmed the downside with second leg lower. Watching $86.74 support and the 200 DMA. Attempting to hold support. 
  • XLK – Technology breaks lower opening short side trade. 200 DMA breaks and watching how this unfolds on the downside. 
  • XLF – Financials move lower breaking support at $26.33 and opening the downside trade. 
  • XLY – Consumer is under pressure from interest rates and Fed talk. 200 DMA broke. Looking for support with teh downside in play. Attempting to hold support. 
  • RWR – REITs have been under pressure from interest rates. Bounced at $88 support… at the 200 DMA… letting the direction unfold. 

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

FINAL NOTES:

Markets are in a second leg lower in the current downtrend. The first leg is always with high anxiety and emotions… the second is more methodical… watching how it unfolds. The rotation to defensive sectors has slowed with money heading to the sidelines. The break of key leaders lower again shows the willingness to take money out of harm’s way. It was a bad week of trading as the consolidation pattern broke lower to establish the next leg lower. There is plenty of influencers in the markets currently. We have discussed the tariffs, interest rates, geopolitics, earnings, the economic picture, and many other issues over the last few months and they continue to stimulate speculation and now selling. The Fed is currently the biggest influencer on investors psyche and they aren’t helping with the continued comments on inflation and higher rates to stall growth. The move lower this week was the reality of the Fed’s determination to move on with higher rates. The attempted bounce was done in by earnings from Amazon and Google. The financial stocks fell as worries rise about global slowing. How this all unfolds is a matter of time and the reality rising through the smoke and noise. Taking what the market gives one day at a time… no reason to panic just follow your strategy… stops were hit on short and long-term positions locking in gains and protecting principle (hindsight). Short side trades have been added and they benefitted with positive gains (hindsight). The uncertainty seen in trading leaves us patiently watching how this will unfolds (foresight) with our stops in place should something change in the direction. Being in or getting out of positions prior to major moves 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 to do short-term. 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.