Investors still looking for clarity in leadership

Market outlook for September 10th

A mixed day without much in terms of headlines and drivers. Left to itself there were leaders, laggards, and nonevents in the sectors. Small caps were one of the leaders along with energy, large caps and software were the laggards, and telecom was unchanged. Something for everyone, but not what everyone thought the day would hold. Some rotation in play as money looks for where it will be treated the best in the attempted upside breakout. This lead to some testing and some follow-through, but overall left some questions. Take what the market offers and manage the risk as the market lacks true clarity and conviction.

The S&P 500 index closed down 0.3 points to 2978 as the index held the break from the trading range on a mixed day of movement. There were limited news events on the day and money rotated somewhat overall. Four of the eleven sectors closed higher on the day led by financials and energy. The downside was led by healthcare and technology closing slightly lower. Plenty of questions remain relative to how this unfolds with the up and down movement, but for now, the buyers showed some moxie pushing stocks higher and we will watch how it unfolds. The long-term trend remains in question with the move lower breaking the trendline from the December lows.

The NASDAQ index closed down 15.6 points at 8087. The index is testing the move higher and some weakness in technology and software on the day. QQQ added to the soft trading with the large-cap stocks weaker on the day and testing the move higher. The gap above resistance at the $190.50 mark was positive as well. Watching how this unfolds moving forward and looking for the best opportunities. Solid moves from WBA, NTAP, PCAR, KHC, and WYNN to show follow through upside moves. Dig in an find the movers.

Small-Cap Index (IWM) The sector is leading the downside effort but remains above the $144.65 support. The gap higher had my attention as it cleared the $149.33 resistance. Monday the sector showed some leadership with a solid 1.3% gain on a sluggish day for the broad indexes. $152.28 is the entry point if the momentum continues.

Transports (IYT) The sector sold back to the lows and bounced off support. The $182.43 resistance was cleared and $186.70 level cleared giving entry point on Monday. Entry $186.70. Stop $$184.31.

The dollar (UUP) The dollar moved lower on the trade talk news. Moved back below the $26.77 breakout point. Closed at $26.73 on Monday and watching how it unfolds going forward.

The Volatility Index (VIX) closed at 15.27 falling as the tariff banter with China and the US remains in the headlines with talks coming in October. The positive news on the economic data helped buyers step in and the volatility decline. This is the lowest level in six weeks… watching how it impacts trading.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector tested the $182.55 support again. Bounced and cleared resistance at the $190.44 mark. Challenge is to hold and move higher. Solid upside to start the week and showing some positive upside moves.

Biotech (IBB) The sector tested support near the $101 level again. The sector has been content to trade int he $101-107 range for several weeks. Watching how it unfolds. Overall the sector remains in a downtrend. Weakness prevails in the sector testing the lows again. Short side setting up.

Semiconductors (SOXX) The sector shed 4.4% in reaction to the tariffs. Bounced again and gaining 4.3% for the week and clearing $210.90 resistance. Left a doji candle on Friday to watch how it trades on Monday… looking for entry point following the gap higher. Modest gains on the day and holding upside move.

Software (IGV) The sector tested the $213.40 support, bounced, cleared the $219.08 resistance and tested the move on Friday… Watching for an entry point if the upside move follows through. Weakness on the day dropping 1.5% as the sector struggles to find any momentum.

REITs (IYR) The upside trend remains on the long-term chart. Patience with our long term positions and short term watching how interest rate market unfolds. Holding near the highs. Testing resumes.

Treasury Yield 10 Year Bond (TNX) remains at the 1.55% level on all the worries. Money rotated to safety and our TLT trade remains in play on the fear. Stop $142.70. Still watching the Fed talk and once again the trade war. Yields are rising… buying into the Fed talk on higher rates.

Crude oil (USO) Tried to bounce on rumors of supply drawdowns and remains in the current range. Bounced on the tariff talk schedule… positive for oil? Watching support at $52.50 and resistance at $58.25. Crude jumped 2.3% as anticipation of trade talks pushes oil prices.

Gold (GLD) The upside in gold has been driven on speculation of the rate cut and global weakness overall. Jumped higher on worries about trade and breaking from the consolidation. The stop is now at $141.10. Economic data sent the metal lower breaking $143.76 support… watching with stops in place. Third day of sliding lower… watching and stop in play.

Emerging Markets (EEM) Broke lower in the trading range as tariff threats add to the worries about an economic slowdown. China helped by announcing trade talks would resume in October… hope springs eternal and the sector rallied to $41.23 resistance. Trade talk hopes are keeping the sector alive and well.

China (FXI/YANG) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Watching the bounce play out as Mr. Trump makes his intentions clear… as does China. Gapped higher on the comments about talks in October. Holding near the current highs.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

MONDAY’s Scans for September 9th: Lack of news allowed the markets to trade on their own with some rotation in effect. Energy moving higher as crude breaks through resistance. Small Caps took on a leadership role for the day… finally. Large Cap NASDAQ struggled, but some parts showed solid upside moves to continue the breakout. Overall it was a consolidation day and looking for the leadership and opportunities in the current environment.

  • Small Caps (IWM) break above resistance and offering some opportunities if it follows through.
  • Large Caps (QQQ/SPY) looking at the parts versus the whole as some solid breaks higher in key stocks has my attention. Scan for leaders.
  • Energy (XLE) hit the entry point on the break through resistance. $59.63. UCO $18.,45 entry. UGA $28.82 entry.
  • Treasury Bonds (TLT/TMV) short side setting up… $10.50 is the entry point if rates continue to push the upside trek.
  • Natural Gas (UNG/UGAZ) solid upside follow through as the winter predictions continue to higher consumption of natural gas. Take what the market offers and keep your stops in place… raised to $19.

FRIDAY’s Scans for September 6th: Jobs report left plenty of questions about the state of the economy, but left enough hope it would spur the Fed to cut rates at the next FOMC meeting. It was a mixed day for stocks, but not disappointing… there was a small test of the upside move and now we watch to see if the trade opportunities unfold.

  • Small Caps (IWM) moved higher Thursday, tested on Friday… looking for the entry point if the upside follows through. If not, short side trade entry will be offered.
  • Semiconductors (SOXX) nice upside gap. Held Friday and watching for the trading opportunity on a test and run.
  • Gold (GLD) if the positive bias remains about the economic picture… look for more downside. Adjusted our stop and managing the potential risk to the position.
  • NASDAQ 100 index (QQQ) Positive gap higher on Thursday… looking for a test and run in the chart pattern.
  • Natural Gas (UNG/UGAZ) continues to run higher… adjusted stop and let this run.

THURSDAY’s Scans for September 5th: The trade talk continues to help stocks, but the real catalyst on Thursday was the economic data… ADP report showed a marked improvement in jobs. If the jobs report on Friday is equally positive it could add the needed boost for stocks to reverse the current trend. Productivity data improved along with labor cost… wages are improving finally. Throw in a Fed rate cut at the FOMC meeting this month and investors will buy into the rally. Hope is present and maybe, just maybe, we get some follow through on the upside move. Taking what the market gives and managing the risk.

  • NASDAQ 100 index (QQQ) Followed upside move with a gap higher and break from the trading range. $191 entry. Watching with a stop at $188.90.
  • Semiconductors (SOXX) upside follows through with a gap higher $211 entry and stops $206.
  • Financials (XLF) gapped higher and watching for a test of the move for an entry point. Banks (KBE) and brokers (IAI) leading.
  • Emerging Markets (EEM) gapped higher for the second day led by China (FXI) and Brazil (EWZ).
  • Gold (GLD) and Silver (SLV) gap lower on the reversal of sentiment towards stocks.
  • Watching how this newfound optimism follows through on Friday and into next week.

WEDNESDAY’s Scans for September 4th: The news of talks being scheduled in October pushed the indexes back to the high end of the trading range. The news daily on the topic making people immune to listening. Wall Street takes each piece of data on the topic to trade the swings. The news pushed technology, energy, and industrials higher. The question remains relative to follow through. All the sectors remain in their respective trading ranges as we watch how this unfolds. Hong Kong ISM data fell to 40.8… That followed the US falling below 50… It’s about the economy… eventually this will show up in stock prices.

  • Technology (XLK) bounced back from the selling… something has to give… up or down. SOXX bounced back to the top as well… looking for the follow-through.
  • Energy (XLE) solid bounce after testing lower. Crude oil (USO) bounced nicely on the news. Watching for follow through here as well.
  • Natural Gas (UNG/UGAZ) continues to rally upside and we adjusted our stops accordingly. $15.80
  • Homebuilders (ITB/NAIL) upside remains in play with a solid move higher on Wednesday.
  • Emerging Markets (EEM) bounced as China (FXI) and Hong Kong (EWH) lead upside move. Brazil (EWZ/BRZU) nice bounce as well.
  • Distribution is a concern… higher volume on selling into the bounces. Eventually, this leads to a break lower. Or, it finds enough buyers to start the new trend higher… Watching how this tennis match ends.

TUESDAY’s Scans for September 3rd: Plenty of downside moves as investors react to the news on tariffs. The economic data is bigger concern, but not many headlines about how bad the news was. Contraction in the ISM data for the first time in over three years doesn’t matter? As I have learned, it doesn’t matter until it matters. Maybe since the Fed is buying bonds for the first time since QE it is holding up the markets? That is speculation on my part, but the reality is the data stinks… not a good sign for stocks. Watching how the downside unfolds and if any opportunities arise.

  • Small Caps (IWM) weakest link and short side opportunity.
  • Technology (XLK) showing some strength on the downside turn Wednesday… watching how that unfolds along with semiconductors (SOXX).
  • NASDAQ 100 index (QQQ/SQQQ) fell nearly one percent to lead the NASDAQ lower… short side setup in place.
  • Financials (XLF) short side looks attractive if rates continue lower.
  • Volatility Index (UVXY) closed above the 20 level showing some anxiety in the markets.

(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 broke support at the $55.95 level and reversed to end the week. Attempt to break from the range… needs to follow through. Tested the move.
  • XLU – Utilities broke from the trading range and continued higher. Tested on the rise in interest rates and testing near term support at the $62.50 mark. Collecting the dividend and letting it play out. Testing the first level of support.
  • IYZ – Telecom held support at $27.62. Hit entry at $28.70 and followed through on upside move to close the week. Stop $28.55. Couldn’t hold the move higher on Monday.
  • XLP – Consumer Staples held support and the uptrend line. Watching how this unfolds near term. Holding near the current highs.
  • XLI – Industrials moved back to support in the trading range and bounced back and gapped higher clearing $76.80 resistance.
  • XLE – Energy broke support at $58.19 tested support and then bounced clearing resistance and looking for the entry opportunity on a follow-through. Broke higher on crude adding position ERX $15.60. Stop $15.
  • XLV – Healthcare held support… small bounce followed by modest gain… plenty of work to do. $91.75 entry-level to watch. Moved lower on the day… setting up short side trade. RXD.
  • XLK – Technology tested lower, bounced, cleared resistance with a gap higher and held. Looking for test and go for entry. Tested with weakness in software.
  • XLF – Financials have been under pressure with lower rates and global weakness. The positive data gave some life to the sector and looking for the opportunity in the gap higher. Test and go? Solid upside addition on Monday. Entry $27.60.
  • XLY – Consumer Discretionary moving higher on earnings from the retail sector earnings… gapped higher from the trading range on positive data… looking for test and go. Adding to the upside move.
  • IYR – REITs held $88 support and cleared the $90.80 resistance. Remains in a positive uptrend… collecting the dividend and letting this run with a stop in place. Inching lower towards support.

There are currently four sectors in confirmed short term uptrend. Four sectors in consolidation or sideways trends. Two in a confirmed downtrend. The result is SPY in a confirmed sideways trend. The positive gap higher last week could offer some upside trading opportunities going forward. We have to remain patient and let this all unfold. Remember the parts make up the whole.

(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:

Monday: It was a day of no news and left stocks to themselves… always gives insight into the beliefs overall. Some rotation with energy leading on the upside with crude driving higher. Some trade entry points setup… some weakness in healthcare, software, and treasury bonds. Taking what the market offers and enjoying the opportunities and managing the risk.

Markets found enough buyers to break from the five-week trading range. While positive on the surface the challenge comes with the validation of the move. I am looking for a test of the gap which in turn will validate the move. If there isn’t a test the risk of the trade is higher. Thus, we will see how the beginning of the week unfolds and what opportunities it offers. The risk remains high for upside opportunities as the underlying data remains weak. The market remains controlled by headlines as each day holds movement related to the speculation of what might happen. Trade with China and the US remains at the top of the list with China once again wanting to resume talks in October. Interest rates and Fed banter remains high as well with all eyes fixed on the next FOMC meeting. Throw in Brexit and other global issues and you get the picture. The economic data showed mixed news with the jobs report showing a weaker headline number but a better participation rate along with higher wages. There are still too many questions unanswered and that invites speculation and volatility. Speaking of volatility the index fell to a six week low as the buyers stepped forward. We remain focused on what is working and what is failing. Therein lies the opportunities. The break from the five-week trading range is on my watch list moving into the new trading week. 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.