Investor anxiety rises to the point of selling

Stocks started sluggishly and then rolled over to create a downside move that changes some charts near term. The Treasury auction didn’t go well as fear remains a real thing for bonds with rising interest rates. The move reversed the breakout highs for the Dow and Midcap indexes. The volatility index jumps to 29 showing anxiety was present on the day. Running scans for the day show plenty of distribution versus rotation. Sell signals showed on charts and overall the sentiment shift was negative. Taking it for what it is… one day in the market. Watching how it unfolds and looking for the opportunities in the resulting moves up or down.

Short news notes of interest…

  • Treasury bonds get the blame for the market’s reaction on Thursday… maybe we should blame the stimulus packages releasing too much money to chase too few goods. The ten-year bond yields jumped to 1.53%… the yield of the S&P 500 index is 1.51%. The yield has risen 43 basis points this month alone… which is huge believe it or not. The vicious cycle is that the expectation for growth and inflation are what have contributed to the jump in yields… now with higher yields, the expectation is for slower growth… oh my!
  • Initial jobless claims decreased by 111,000 to 730,000 and continuing claims fell by 101,000 to 4.419 million. A positive sign for the labor market could be pointing to the recovery picking up momentum as states reopen their businesses.
  • Durable goods orders for January jumped 3.4% month over month. Excluding transportation, the number rose 1.4%. This shows an ongoing pickup in business spending as it shows estimates of 8.3% growth this year.
  • Pending home sales decreased 2.8% in January. Not great news for the housing market… consider rates are up to 1.53% on the ten-year bond in February we could see more slowing going forward.
  • Moderna (MRNA) after-hours announced double the sales expected from vaccine sales. The company expects $18.4 billion in sales this year. The stock fell on the resulting financial loss for the quarter, but some believe the outlook is positive. On my watchlist near term.

Sector Rotation and the S&P 500 Index:

The S&P 500 index closed down 96.1 points to 3829. It was down 2.45% on the day. The index closed just above the 50 DMA and erased the gains from earlier in the week. Money flow was flat as it rotates to where it will be treated best. Eleven of the eleven sectors closed in negative territory for the day. The VIX index closed at 28.8 up significantly on the day. It could run higher and allow for more selling based on the current sentiment… watching.

Thursday: Sellers took control of the day and sent the index lower by 2.4%. This has the index up only 2% for the year. The downside move was led by the technology and consumer sectors as expected. All eleven sectors closed in negative territory on the day. This was the first solid distribution day we have experienced since January 27th. The test of the 50 DMA is duly noted and we will continue to watch how this unfolds and the resulting opportunities.

  • XLB – Basic Materials bounced off the lows with money flow bottoming on the reversal. $70.80 support held and the upside has returned. Solid gains Friday hit entry $74.50. Stop $74 (adjusted). Thursday erased the early week gains… watching.
  • XLU – Utilities don’t like rising interest rates… thus some downside pressure on the sector near term. Watching as earnings have been good and may offset some selling. Big downside on expenses related to upgrading the power grid is discussed and rising interest rates.
  • IYZ – Telecom bounced at the support of $30.95 and moved back to the previous highs and stalled. Watching and managing the risk. Downside for the week breaks 50 DMA and tests $30.95 support.
  • XLP – Consumer Staples moving lower to establish a near-term downtrend. Watching. Testing the $64.25 support.
  • XLI – Industrials broke from the trading range on Friday keeping the upside trend in place. More upside as cyclicals gain favor but tested on Thursday erasing upside move.
  • XLE – Energy tested $39.12 support and bounced offering entry. Crude has been the catalyst and watching how it continues. Entry $41. Stop $44 (adjusted). Big gains on crude moving stocks higher. Test on Thursday.
  • XLV – Healthcare hit new highs and has struggled since. Watching the move below the 50DMA currently. Biotech equally has struggled as vaccine rollout is slower than expected. Lower as stimulus bill holds some interesting responsibilities for drugmakers.
  • XLK – Technology remains in an uptrend but tested the upside and has struggled along with other growth sectors of late. Letting this unfold for now. Led the downside technology money heads to other sectors. Breaks below the 50 DMA on Thursday… watching how it unfolds.
  • XLF – Financials bounced at the support of $28.95 and bounce back to the previous highs creating a ‘V’ bottom on the chart and a break higher. The upside in play near term. Entry $29.75. Stop $31.53. Benefactor of higher interest rates helping banks… watching Thursday’s move lower.
  • XLY – Consumer Discretionary holds uptrend line and bounced at the 50 DMA. Resumed uptrend and tested the move at the new highs. Watching. Consumer under pressure on inflation concerns. Below the 50 DMA and testing $160.48 support.
  • 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. Positive week for the sector moving to new highs. Big test from higher rates on Thursday.

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 down 478.54 points to 13,119 as The index was down 3.52% on the day closing below the 50 DMA again. 12,977 is support level to hold near term. The NASDAQ 100 index (QQQ) was down 3.49% for the day as money flow continues to decline. Broke the $315 support levels and testing $312.80. The large caps have been lagging and remain a concern as rotation affects the sector. Semiconductors (SOXX) closed down 5.7% on big distribution day. Technology (XLK) moved down 3.5% watching the $128.57 level of support. Manage your risk accordingly.

Semiconductors (SOXX) The sector remains in an uptrend breaking higher from the consolidation and resuming the uptrend. The sector closed the week on a positive note and watching for the leadership to resume. Entry $415. Stop $426.26 (Stop Hit). Tumbled 3.6% on selling in the sector Monday and hit our stop. Added to the downside Tuesday. Solid bounce on Wednesday as the volatility remains in the sector. The selling resumed on Thursday confirming the downside from the February highs on higher volume and volatility.

Software (IGV) The sector came back to life after six weeks of consolidation and volatility. Broke to new highs and showing some consolidation at the current highs. Entry $361.77. Stop $376 (Stop Hit). Monday fell 3% and hit our stop. Added more downside on Tuesday and bounced on Wednesday. The selling resumed on Thursday breaking the 50 DMA and confirming the downside from the February highs.

Biotech (IBB) The sector broke higher after testing support and maintained the uptrend. Managing the risk and letting the current testing playout. Entry $164.70. Stop $164.70 (Stop Hit). Monday fell 2.5% and hit our stop. Added to the downside breaking the 50 DMA and bounced back on Wednesday… resumed selling on Thursday and testing $156 support.

Small-Cap Index (IWM) The sector consolidates near the new highs. Entry at $213.76. Stop $219.38 (adjusted). The uptrend remains in play with some testing at the highs. Watching how it unfolds moving forward. Negative trading on Tuesday and rebound on Wednesday. Negative again on Thursday testing the $218 support.

MidCap (IJH) The sector turned higher along with small caps. Solid move and holding near the highs. Managed to close at new highs and then reversed on Thursday testing $249 support.

Retail (XRT) The retail sector volatility dropped and some normal returned following the GME frenzy. This week XRT has traded sideways as money flow drops. $81 is the level we are watching to clear on the upside. Broke lower from the consolidation. GameStop boosted temporarily on Wednesday only to push lower on Thursday.

Emerging Markets (EEM) The sector recovered from and moved to new highs. China (FXI) is the leader in the sector. Big downside move… hit stop levels if you own the sector. China led the downside move.

Transports (IYT) The sector has struggled but seeing some upside recovery and interest in stocks. Hit new highs and letting the parts show the leadership. Airlines, shipping, trucking, and ports are all struggling with the logistics side of the equation of late. Higher on Wednesday with a break from the trading range hitting new highs. Down on Thursday, but holding the trend.

The Dollar (UUP) The dollar tested lower to end the 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. Lower on higher rates and stimulus package.

The Volatility Index (VIX) Volatility closed 22 up from last week’s 19.9 level as anxiety levels rose on the inflation talk. Watching how this unfolds relative to the outcome. Higher on concerns about inflation. Fell on Wednesday as buyers show up to help the cause. It is equally interesting to note that the Put/Call ratio remains below 1. Only six days in the last 60 has it been above that level. Anxiety returned on Thursday pushing the index to 28.9. This puts us on watch near term.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.34% up from 1.2% last week. Rates are rising on inflation fears… negative for bonds. TBT hit entry at $17.84. Stop $19 (adjusted). 1.53% and climbing. The yield is up 43 basis points in February.

Crude oil (USO) Crude moved to $59.15 from $59.47 for the week or down 0.005% for the week. Plenty of speculation to influence prices as OPEC cuts to supply are 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 $49.40 (adjusted). Over $63 a barrel and up 6% for the week.

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. Tried to move higher and stalled with retest of the $165.80 support.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

THURSDAY’s Scans for February 25th: Selling was the song of the day… this put short side trades on the table if we follow through on the downside move. The stops have been hit in some sectors earlier in the week freeing up cash. Other stops remain in place as we watch to see how this unfolds. Today’s scans are focused on the downside opportunities it they follow through.

  • NASDAQ 100 index (QQQ/SQQQ) Broke the first level of support and watching the $312.80 level… a follow-through on the downside move would offer an opportunity. $14.17 entry. $14 stop.
  • Semiconductors (SOXX/SOXS) $405 level to hold. If we follow through on the downside looking at short side trade.
  • Volatility Index (VXX/UVXY) watching the jump in the index and it could offer upside trade. Watching.
  • Biotech (IBB/LABD) There has been selling this week in the sector. Watching for follow through and short side opportunity.
  • Internet (WEBS) the downside in the technology sector is presently alive and well. We drilled down to the internet stocks as they are under pressure from governments and sellers.

WEDNESDAY’s Scans for February 24th: More of the same with tests of the 50 DMA from the NASDAQ and the Dow pushes to new highs. The Fed is committed to keeping money flowing for the economic growth outlook. There is money pushing into cyclicals and out of growth… how long will that last? Semiconductors staged a nice bounce at support and the NASDAQ held the 50 DMA. The winners remain energy and financials with solid gains again on the day.

  • Semiconductors (SOXX) buyers put effort into rebound with the sector up more than 3% and holding the trend. Tech is still holding tough despite some recent selling.
  • Regional Banks (KRE) still showing upside leadership and letting it run as we adjust our stops.
  • Midcap (IJH) moved to new highs to take on some leadership.
  • Crude Oil (USO) moved above $63 and climbing… speculation in the commodity continues to rise as we let it run and manage the risk in the stocks as well.
  • Treasury Bonds (TLT/TBT) downside still in play as money exits bonds.

TUESDAY’s Scans for February 23rd: intraday volatility takes investors for a ride… a big downside to start the day and then and climb back to positive on the close. Inflation fears and the Federal Reserve policy were at the root of the issue on the day, but the battle has only just begun. We have to manage the risk of the rotation and the outlook for what will benefit the emerging economic picture. Inflation is definitely part of the equation and cyclicals will benefit. Growth stocks will struggle and thus, the current rotation. Taking what we are given and managing the risk.

  • Biotech (IBB/BIS) downside accelerated early on concerns within the stimulus package and more. Short-side setup with the move… watching how it plays out Wednesday.
  • Semiconductors (SOXX/SOXS) watching how the selling unfolds and what is offered relative to the trend.
  • Retail (XRT) sold and watching how the downside unfolds or if unfolds.
  • Financials (XLF/FAS) upside playing out well with higher rates in place. Raised the stop and let it run.
  • Energy (XLE) breaking higher and adjusting the stops… plenty of individual opportunities in the sector.

MONDAY’s Scan for February 22nd: Markets tale of two cities as technology and large caps head lower… but, the cyclicals head higher. The challenge on the horizon is inflation as shortages continue to show up in the manufacturing sector. Opportunities are to be had and they will be needed to be able to afford the goods we will need to consume. The bigger challenge will be price increases that will not be rescinded even if the cost of production falls in the future. Time to put on your work pants and manage your money.

  • Semiconductors (SOXX) declined enough to hit the stops and watching how this unfolds… the downside is setup currently if it follows through.
  • Software (IGV) equally declined on the day hitting stops. Watching how this opportunity unfolds.
  • NASDAQ 100 Index (QQQ) fell on the day and watching the downside. Adjusted our stops on positions and looking for signs of more selling.
  • Gold (GLD) finally moved higher on the day as the dollar falls and inflation raises its head. Hit the entry-level.
  • Treasury Bonds (TLT/TBT) heading lower as rates continue to rise. Adjusting our stops and letting it play our near term.

FRIDAY’s Scans for February 19th: Markets remain mixed with the separation and rotation becoming more pronounced. Cyclicals rise on inflation concerns and growth stocks decline as money moves. The risk is rising overall, but the stimulus is advancing, and therein lies the solution to the game being played on Wall Street. Semiconductors remain strong growing demand in the manufacturing sectors. Automobiles have a big delay in chips due to rising demand. Overall we see areas of opportunity and areas of concern. Patience as it all unfolds.

  • Bitcoin (GBTC) hits the one trillion dollar mark… enough said.
  • Treasury Bonds (TLT) with yields rising the bond has been under selling pressure helping our TBT/TMV holding. With the inflation talk, this isn’t going to change tomorrow… watching and managing the risk.
  • Crude Oil (USO/UCO) and Gasoline (UGA) hit resistance this week and stalled… watching how it unfolds as supply data shows a steady drawdown in storage across the board. Natural Gas (UNG) has been higher on cold weather… watching as well.
  • Semiconductors (SOXX) solid uptrend in play and the renewal on Friday was positive to the trend.
  • Copper (COPX) prices have topped $4 a pound for the first time in over nine years.

(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:

Thursday: Selling pushed money to the sidelines on the day. The rotation efforts were derailed by the yield on treasury bonds rising above 1.5%. Watching the activity here as it shows distribution from growth stocks as well as the cyclicals on the day. One day does not make a trend or break one and thus, let this unfold and look for the resulting opportunities. Some short side setups in place, some upside opportunities ass well… let them unfold and most importantly don’t speculate.

Wednesday: More rotation, more push in commodities, and cyclicals on the upside. Powell reaffirmed the Fed’s commitment to money supply despite inflation. All is well… right? The technology sector remains under pressure with money rotating to other areas. NASDAQ held the 50 DMA and the outlook remains optimistic but cautious. Taking what is offered and following the money.

Tuesday: The rotation accelerated at the open as money left the growth stocks. The question is, did Powell say enough to dampen the fear of the Fed intervening with higher rates. The answer will take time to unfold, but interest rates are setting themselves by moving higher. Thus, inflation is happening with or without the Fed. The concern is more relative to money supply than rates. For now, he appeased the markets with a loose money supply stance. However, if you read his comments he stated inflation has been low for a long period of time and the Fed is willing to let it run above 2% for an extended period… i.e. they believe inflation can heat up to 2-3%… that will stall growth without the Fed. It is an interesting game that is unfolding near term. Manage the risk.

Monday: Taking note of the rotation in sectors… the value of the dollar… the decline in treasury bonds… manufacturing shortages… and inflation! Plenty on the horizon to be concerned about as the storyline of Jimmy Carter (I mean Joe Biden) unfolds. Too much spending and too few goods are not a good combination. The was on Covid is creating shortages that will impact the economic recovery they are fighting for in Washington… As mom said, sometimes the best action is no action and to let things unfold. We are now in a position of too much money chasing too few goods… This will be more interesting as we move forward… Time to pay attention and do some risk management.

Weekend Wrap & Outlook… The market’s sentiment remains positive with a twist of concerns overall. The upside hope is alive and well with stimulus driving the hope currently. The same stimulus is driving concerns relative to inflation as investors finally believe to some extent rising rates are a challenge for stocks and the economy moving forward. With that in mind, the markets closed the week essentially flat across the major sectors. The cyclicals enjoyed a positive boost on Friday from the discussions. Growth stocks stepped back and watched as money rotated to other areas. Commodities remain a hot topic as well with the rising prices adding to the inflation talks. The long-term trends remain on the upside following the test of momentum. For the week four sectors closed in positive territory as some profit-taking appeared in the markets. The VIX index closed at 22 and higher on the anxiety around inflation. The dollar headed lower thanks to the new Treasury head pushing $1.9 trillion in stimulus. Crude moved sideways at $59.15 after moving near $65 earlier in the week. This is the highest level 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.