Large caps lead the day

Apple and the rest of the large caps carried the day as energy, materials, and financials all struggled. The NASDAQ 100 closed at new highs again with the SOXX leading the upside after resting on Wednesday. PCAR, INTC, MRNA, ASML, and NVDA led the day. The economic data was positive with jobless claims declining, housing starts jumped 5.8%, and the Philly Fed index jumped in January… strong data doesn’t bode well for large stimulus… plenty for investors to think about along those lines. Watching the party and keeping our stops in place to know where to exit when it is over. Based on the current activity that may take a while, but better prepared than reacting.

Short news notes of interest…

  • Jobless claims fell 26,000 to 900,000 for the week. Continuing claims fell 127,000 to 5.054 million. Continuing claims remain high and thus the call for additional stimulus.
  • Housing starts increased 5.8% in December. That was the strongest since September 2006. Building permits rose 4.5% and the strongest since August 2006. Can anyone say bubble?
  • Philadelphia Fed index jumped to 26.5 in January, well ahead of the 9.1 reading in December. That was a strong report for the region.
  • Dr. Doom (Fauci) was out again talking about the vaccines being less effective against the new strains. But, he still recommends getting it! Good news for all. In that vein, London health experts warned about the new strain’s rapid transmission. The disease itself has the same health effect, but it quickly spread. This is not good news overall and will have to be factored in moving forward for the economic recovery.
  • Bitcoin sliding to $28,800 before closing at $32,000 down 11% for the week. Why the rush to exit? Worries of course… regulations are rumored to be on the way. I say it was way overpriced at $42,000… but, that is logical and not speculative.

The S&P 500 index closed up 1.2 points to 3853. It was up 0.03% on the day. The index is holding well above the 3550 support as the markets remain on an upward trajectory with the index closing at new highs. The consumer discretionary and technology sectors led the upside on the day as investors remain optimistic. Three of the eleven sectors closed in positive territory as stocks struggled with virus worries. The downside came from financials and energy as sellers were present. Money flow was higher on the day as investors continue to be active in response to the news. The VIX index closed at 21.3 moving lower on the buying. Watching the investor sentiment and how it proceeds.

The NASDAQ index closed up 73.60 points to 13,530. The index was up 0.55% on the day as large-cap stocks lead the day. The NASDAQ 100 index (QQQ) was up 0.82% for the day as money flow into the sector was higher again. Watching how earnings impact the large-cap sector moving forward with INTC adding positive news on Thursday. Semiconductors (SOXX) closed up 1.45% following a new high on Tuesday. Technology (XLK) moved up 1.29% as the consolidation pattern breaks to new highs confirming the breakout. 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. Added 1.6% on the upside as buyers continue to put money to work. The doji candle on the close Wednesday resulted in some selling on Thursday… watching how this plays out near term.

Transports (IYT) The sector tested support and bounced back to break above the $226 resistance and test that level again to close the week. Stop $222. Watching support. Added 1.6% on Wednesday to push back to the previous highs. Down 1.6% on Thursday… Watching the railroads here for leadership… CSX, NSC, KSU… tested and looking for the uptrend to continue.

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

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. Fell on buying in broad markets to 21.3.

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. Struggled on Thursday.

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). Moved higher and watching the pennant pattern.

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. Added to new highs on Tuesday. Tested lower on Thursday.

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). New highs on Thursday.

Software (IGV) The sector tested lower this week and held above support at the $340 level. Watching how it plays out near term. Broke higher from the consolidation pattern offering entry or adding opportunity in the sector. Watching how it unfolds 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. Yields lower on stimulus talk.

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). Inching higher on stimulus and holding at highs.

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. Watching as we test $171 support levels. Gapped higher from the consolidation at the low? Opportunity on the upside? Watching.

Emerging Markets (EEM) The sector moved back to new highs. Entry $44.50. Stop $54.25 (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. Gapped higher last few days and adjusted stop.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

THURSDAY’s Scans for January 21st: There was not a lot of positive takeaways from the market on the day. The large caps continued to rally and push the NASDAQ higher. The news on the virus front was not positive, earnings from Intel helped the SOXX index. Energy faded on the virus data. There was little to write home about and we made our adjustments and watched the grass grow… and it’s winter so you know how slow that is. Taking what is offered and managing the risk.

  • Crude Oil (USO) fell slightly as the US showed a build in supplies… watching how that mixes with the virus news. Interesting side note to the Biden promise to ban new permits for drilling. The existing ones could take up to five years to be depleted… oops.
  • Gasoline (UGA) topping pattern on the chart. Watching any downside risk currently.
  • NASDAQ 100 index (QQQ) upside gap is positive on the chart and watching the current move in the mega-cap stocks. Solid earnings helping the cause for now.
  • Homebuilders (ITB/NAIL) strong permits and starts data pushing the sector higher again. Take what is offered but be very aware of the risk that exists in the sector.
  • Financials (XLF) becoming more volatile near term. Watching how the topping pattern plays out looking forward.

WEDNESDAY’s Scans for January 20th: Inaguration day happens with little fanfare and a lot of talking heads predicting what is going to happen. We will take the upside moves and adjust our stops and keep looking forward. There is plenty on the table in Washington and how that impacts the markets will take time. The first plan I have for the new administration is to watch, listen, and manage my risk accordingly. For now, it is full speed ahead to the stimulus world.

  • REITs (IYR/DRN) Gapped higher from the consolidation pattern… offering an opportunity. Watching how this unfolds.
  • Technology (XLK/TECL) solid upside move led by the large caps. The exception was SOXX and watching how that unfolds as well. Adjusted stops on positions.
  • China (FXI/YINN) continued the gap higher on optimism about the new administration and Alibaba. KWEB took off as well and moved the stop.
  • Homebuilders (ITB/NAIL) Ran higher following up on yesterday’s move… you can thank the stimulus talks.
  • Emerging Markets (EEM/EDC) gapped higher the last two days on optimism about the vaccines and the US stimulus.

TUESDAY’s Scans for January 19th: The markets headed higher for the day as talk of nearly $2 trillion of new stimulus is proposed by Yellen to Congress. Spend now and pay later… after all, it has worked so well with the current debt models. Not our job to make policy for the Treasury or the Fed, but we will need to manage our money in response to the aftermath of their actions. It may be a year or longer from now, but we will have to manage our money and risk accordingly.

  • Energy (XLE) climbs 2% on the stimulus discussions and how that will impact the sector. Crude hit $53 per barrel.
  • China (FXI) gapped higher as Jack Ma was seen in public for the first time since October. The relief rally in China and Alibaba.
  • Semiconductors (SOXX/SOXL) moved to new highs and adjusted our stop.
  • Biotech (IBB/LABU) moved to new highs and adjusted our stop.
  • Homebuilders (ITB/NAIL) back to the top of the trading range… does it break higher? Interest rates could how the answer near term.

MONDAY January 18th: Holiday for Martin Luther King Day.

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.

(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:

Thursday: News driven day as some profit-taking, some rotation, and some speculation led the day. Energy saw profit-taking as the news on supplies rattled investors. The housing sector was a benefactor of the data on started and permits. The dollar was lower on all the stimulus talks. Clean energy moved higher as Biden worked on banning new permits for the oil sector. Semiconductors continue to lead the upside, and large-cap technology remains the strength of the NASDAQ.

  • 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. Lower on Thursday on worries.
  • 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. New highs.
  • XLP – Consumer Staples moving lower to sideways as test support. Struggled on the day with a downtrend in play.
  • 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. Some selling on supply data in the US.
  • XLV – Healthcare found buyers and broke above resistance to push to new highs and stall in a consolidation pattern. Watching how that plays out. Adjusted stop to $113. New highs.
  • XLK – Technology remains in an uptrend with a consolidation pattern for the last three weeks. It is struggling on news and analyst downgrades keeping it in check. Gapped to new highs.
  • 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. Testing the move higher.
  • 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. New highs.
  • 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. Back to the top of the current range.

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:

Thursday: Some reality creeping into the markets following the hype of a new president. The economic picture showed some positive signs of Thursday but was offset by the renewed worries about the virus and the effectiveness of the vaccines against the ‘new’ strain. The market took a rest for the most part on the day and we will watch to see how it settles out the week on Friday. Patience and discipline are the goals.

Wednesday: New administration… new hopes, dreams, and taxes. Another positive day for stocks as we adjusted our stops to manage the risk. Plenty of positive moves in sectors and some closing at new highs. The challenge facing investors now is the valuations or overbought situation in the indexes. I don’t want to overstate this issue, but it’s one we need to be aware of and manage accordingly. Let the upside run and manage the exit points if they turn south. Stay focused and most of all stay disciplined.

Tuesday: Positive start to the week as investors were willing to put money to work with the mindset there is 1.9 trillion dollars of free money on the way from Congress. That said, stocks rallied. The earnings data thus far has been good with plenty of data to be released in the next two weeks. Taking what is offered and managing the risk that is.

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.