OUTLOOK: August 10th
The markets spent the day running in place. China moved higher as some talk from within the communist party states their leader may be underestimating the impact of the trade tariffs. The leadership of the current move higher is not showing great strength. The volume is weak and there have been no breakouts on the upside that are impressive. The sellers have not shown up either, but they are there lurking. The PPI was softer at 0.1% helping ease some of the angst about inflation… CPI is out today and will offer more insight on the topic. Caution is the theme as we move forward one day at a time.
The S&P 500 index closed down 4.1 points at 2853 as the index continues the pause from the bounce off support and near the January highs. The trend remains on the upside and technically the chart remains in an uptrend from the April lows. The volume remains on the weaker side as it stalls near the highs. Telecom and basic materials led the upside as five of the eleven sectors closed in positive territory on Thursday. Energy led on the downside as the sector still reacts to the tariff on crude from the US to China. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.
The NASDAQ index closed up 3.4 points to close at 7891. The move to new highs was erased as the index tested support and has since bounced to recover nicely and remain in a positive trend since the February lows. The index held the 50 DMA and bounced back towards the previous highs. Semiconductors (SOXX) have been positive and finally managed to move above the $187 resistance with a modest test on Thursday. The key remains patience along with a strategic approach to managing money. Stops in place and watching how the day unfolds.
Small Cap index moved back to support at $164.43 and held with a modest bounce. The sector remains in a consolidation topping pattern and $170 highs are the level to clear. The leadership of this sector has been key to the bounce from the April lows. A turn lower would be a negative for the broad markets overall. Neutral to the sector currently.
Transports (IYT) moved above $192.40 level and followed through clearing the resistance at the $200.53 mark with a modest test on Thursday. This is a key level for the index to clear in an effort to regain the previous uptrend. The sector remains in a positive upside move from the June lows. Some positive moves in the shipping and logistics stocks are keeping the upside in play. Watching the bottoming formation on the chart. Held the move and offered an entry point. Entry $192.50. Stop $195 (adjusted).
Gold (GLD) broke support at the $115.86 and continues lower. The additional downside below support confirms the downtrend is still in play. The gold miners (GDX) moved lower as well breaking support at $21.92 and supporting the downside trade. Metals and Mining (XME) moving back below the 200 DMA after hitting resistance at the $37.40 mark. Tariff talk from China reverses the bounce. Base metals (DBB) dumped lower on tariffs worries, but still building a base at support.
The dollar (UUP) closed above the $25 mark as the up and downs continue. The resistance at the $25.17 level remains in place, but the move higher on Thursday keeps the trend in place. The bounce above the previous highs is of interest as China continues to take verbal jabs and add tariffs on the US. They have devalued the yuan with some quantitative easing adding to the dollar. The Fed comments on raising rates helped as well. There has been some selling showing on the chart with a topping pattern. Watching how this unfolds along with global politics. 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.
Crude oil (USO) was consolidating after selling on worries about the supply data, but added worries on the tariff news from China on Wednesday and crude finds itself back at the support of $66.28. The commodity closed at $66.81 on Thursday declining on the news. When traders believe supply is short prices rise… when there is too much supply prices drop… supply data the last three weeks has not favored crude prices… simply put. Remember all of this is about the sanctions on Iraq… OPEC controlling the supply… Russia as a wildcard… and don’t forget the US can influence production as well. We banked our gains for the upside trade and watching how the current selling unfolds.
Emerging Markets (EEM) The bottoming consolidation in the sector broke higher with a follow through, but then China started the negative talks in the media and the upside is struggling at the $44.09 support. Still plenty of questions in the sector.
The Volatility Index (VIX) closed at 11.2 on Thursday as the anxiety levels subside along with the bounce in tech stocks. Geopolitics helped with talks about tariffs easing in Europe. The renewed bantering with China added some interesting thoughts to the topic not being settled yet. Short term the market is driven by emotions… trade accordingly by managing your risk. There is plenty on the stove that could boil over at any time… watching how this unfolds.
The NASDAQ set the tone as the index sold lower to test the 7600 level of support and then bounce to clear the previous 7800 resistance. Worries over earnings were the catalyst and good news from Apple helped right the cart. Is the worst over? Not likely as there are more earnings to come as the banter about valuations be overvalued continue… we will watch the chart trend and fundamental data to determine our stance and holdings. The S&P 500 ended the week higher as money migrated to REITs, healthcare, and consumer staples. Economic data was positive with the jobs report showing more growth in July. Interest rates moved higher as talks about raising interest rates again. Earnings have been a challenge for large caps. With the exception of Apple and Amazon, things have not been all roses. The positive move overall for the week negates some of the negative sentiment we started the week with… there are still plenty of issues on the table with China striking at more tariffs against the US. Small caps showed weakness but remain near their current highs. 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. Energy and crude oil remain challenged by the supply data and we continue to watch as that story unfolds. Utilities and REITs are watching interest rates as both moved higher for the week. There is plenty of dynamics working in the markets overall and we will take it one day at a time as the trend remains positive. There is some short-term repositioning in play and we will look at the opportunities, exit positions that warrant it, and take what the market gives. Manage your risk and look on the horizon for answers to the trends.
(The notes above are posted daily based on the activity of the previous days trading)
KEY INDICATORS/SECTORS &LEADERS TO WATCH:
Biotech (IBB) The break lower from the flag pattern was negative and hit our stop. The sector tested support at $114 and bounce back keeping the uptrend in play. Watched the $116.50 level Thursday on a test of the move and added the position again at $116.75. Stop $114. Tested the move to close the week on Friday. Consolidation at the highs for now. Nice bounce to the previous highs and holding in a consolidation pattern.
Semiconductors (SOXX) The sector moved lower breaking the support at the $182.38 mark and testing the 50 DMA. The bounce off support was positive as we moved back above $182.38 level… testing resistance at the $187 mark now. I like the positive sentiment shift as we need some leadership from the sector. Entry $182.50. Stop $182.50. Cleared the $187 resistance and added to the upside on Wednesday with follow through. Positive upside trend in play near term. Modest test on Thursday to keep our eye on. A reversal in the sector would be a negative for the broader indexes.
Software (IGV) The sector tested support, bounced, remains in an uptrend, needs to clear the $191 mark. Watching how this unfolds to start the week. Creeping higher…
REITs (IYR) The sector made a break from the trading range clearing $76.22. Rates moving below the 3% mark got the credit for the rally. With interest rates suddenly moving back to the 3% mark raised questions about the move. Rates tested lower on the week and the sector rallied back above the June highs. Entry $75. Stop $79.30 (adjusted). 3.8% dividend. Hitting some resistance at the June highs as the yield on the ten-year bond moves higher. Watching how this unfolds near term.
Treasury Yield 10 Year Bond (TNX) moved to 2.95% on the week after moving above 3% on the FOMC meeting. TMV hit entry and watching how things unfold for bonds. Yields at 2.97 Wednesday… 2.93 on Thursday… upside move stalls again. Watching.
Energy stocks (XLE) The stocks tested the move higher and moved into a consolidation pattern. You have to love speculation to trade crude or energy stocks as the news, hype, and speculation are a key part of the trends. Supply worries are back and this is keeping the stocks in check for now. Letting the next opportunity unfold. Lower on tariff news, but remains in the consolidation pattern.
Daily Scan Results:
THURSDAY’s Scans 8/9: Another day of jockeying for indexes as they remain near the highs, but stalled. NASDAQ, S&P 500, and Mid Caps all remain near the highs. Low volume. Buyers are watching as well as the sellers. All we can do short term is manage our stops, evaluate the risk of the current environment, and be patient.
- Semiconductors (SOXX) stall on the day with a modest decline. The near-term trend remains up and we adjust our stops accordingly.
- Energy (XLE) continues to struggle as the tariff on crude oil creeps into the stocks on worries about the future sales to China.
- China (FXI) the country ETF moved higher on the comments within the communist party about too hard of a stance against the US. Watching how that unfolds.
- Russia (RSX) Breaks lower on rumors of more US sanctions. The ruble fell 3% and at a two-year low. The country ETF is testing the June lows.
- Treasury yields tumble back to 2.93% after a short move above 3%. Good for the bond as the PPI data helped ease some worries.
Another day of running in place. Good exercise, but not going anywhere. Stops adjusted based on the current environment short term. Longer term outlook remains in positive uptrend. Stay focused and disciplined as you manage your positions.
WEDNESDAY’s Scans 8/8: It was a grind it out kind of day. Some indexes pushed higher and some drifted lower. No real changes to speak of from the scans. The move by China on tariffs did impact the oil sector as well as the commodity. It was a day to sit back and watch as the talking heads rambled about new highs like the market was taking off. It is still consolidating, still churning, still looking for conviction from the buyers. The sellers have not been present either… thus, the lower volume. I am more than willing to let this all unfold, keep my stops in place, and maybe go fishing.
- Crude Oil (USO/SCO) the move lower was prompted by the tariffs from China pushing the commodity down 3%. Watching as the chart tests to support and the news unfolds.
- Natural Gas (UNG/UGAZ) rallies in the face of the tariffs. The move above $23.76 resistance is positive with the near-term uptrend in play.
- Base Metals (DBB) bounced again off the current lows. The consolidation pattern at the lows has my attention along with the news. Letting this unfold.
- China (FXI) the country ETF bounced on the news of the tariffs. Maybe this will help stem the selling near term. Short side is still in control technically.
- Healthcare (XLV) moving higher with the continued upside in XPH (drugs), IHF (providers), and IHI (medical devices). Adjust stops and let it run.
Plenty of headlines and little activity in the overall markets. Watching and letting this unfold. Adjust your stops and manage the risk.
TUESDAY’s Scans 8/7: Continue to positive upside moves for the week as the leaders move higher and the laggards lag. Interest rates moved higher impacting the interest sensitive stocks on the day. Financials followed through on the upside along with consumer discretionary and technology. China continues to threaten the US and now Apple gets thrown into the mix. They stated that the tariffs are not the cause of their markets decline… interesting to note… must be their economy! All of the worries remain in the background as the buyers continue to exert activity that has gradually moved the indexes back towards their previous highs.
- China (FXI) the country ETF did manage to bounce off the current lows but remains in a bottoming trading range. Too much speculation and bantering for my taste, but worth our attention as the entire picture unfolds.
- Natural Gas (UNG) the bottom reversal pattern continues to play out nicely with more upside on Tuesday. $23.76 and $24.50 are the next levels of resistance to clear for the commodity.
- Gold Miners (GDX/DUST) the downside trade accelerated on Tuesday with the sellers taking advantage of the current lack of interest in the stocks. Strong dollar, higher interest rates, and geopolitics all playing a role in the current outlook for the commodity.
- Semiconductors (SOXX) cleared resistance and the upside move from the June lows is a positive for the sector as well as the NASDAQ. Nice follow through on Tuesday.
- Mexico (EWW) the uptrend from the June lows continues to move back towards the April highs. The country ETF continues to benefit from positive trade talks with the White House.
Overall the upside continues to show positive momentum albeit on lower than average volume. We continue to take what the market gives and let this all unfold one day at a time… stops in place.
MONDAY’s Scans 8/6: Positive start to the week as the upside remains in the overall market. Telecom bounce was positive on merger rumors working its way through the judicial system. Tech, financials and consumer stocks continue to inch higher. Some individual stocks are performing better than the sectors, some sectors better than the market, this is all a process and one that takes time to resolve. Follow the leaders and let the rest take care of itself. Financials, REITs, utilities, consumer, and manufacturing are leading. Semiconductors are still a question mark. Still taking this one day at a time.
- Telecom (IYZ) held support at the $27.63 level and continues to move back towards the July highs. The merger news with Sprint helped the move on Monday.
- Financials (XLF) made a move above resistance at $28.25… barely. Watching for the break higher to evolve short term. Insurance (KIE) continues to lead the sector.
- Healthcare (XLV) continues to add to the upside trend. IHE, IHI, IHF leading the sector.
- Agriculture Commodities (DBA) moving higher as WEAT clears resistance to hit a new high for the year. CORN moved from the July low and in solid reversal. MOO moved higher as well.
- Semiconductors (SOXX) cleared resistance at the $162.70 mark keeping the bottom reversal alive with the trend working higher. Following the leaders in the sector as well. SIMO, IDTI, and QCOM.
Solid day for stocks as the trends remain in place and the upside efforts remain solid. Manage your risk and let it all unfold one day at a time.
FRIDAY’s Scans 8/3: Some positives on the day as jobs report offsets the worries about China adding another $60 billion in tariffs. The continued challenges from news pushed volume lower on the week and money is moving faster to where it is treated favorably by the news. Utilities broke through resistance adding to the upside move. REITs broke higher on lower interest rates again. Energy continues to struggle with crude basing on weaker supply data. Key remains looking for short-term momentum. This is clearly a traders market short term.
- Consumer Staples (XLP) broke above the 200 DMA and leading in a positive uptrend. We will adjust our stop and continue to manage the risk of the sector. KMB, CLX, TAP, KHC, and SJM helped lead the sector highs this week.
- REITs (RWR/DRN) showing positive upside move as rates subside and make move to new highs. Trends remain positive for the sector overall as SRG, FCEA, MAC, KIM, and FRT lead the sector higher.
- Utilities (XLU/UPW) breaks above $52.72 resistance and clears the top of the current trading range. Postive for the trend and the position currently held. Raise stops and manage the risk accordingly.
- Brazil (EWZ/BRZU) the break above $26 tested and Friday showed a positive momentum move higher to maintain the uptrend from the June lows. Emerging markets have been challenged by the dollar and tariffs. Managing our risk of this position.
- Healthcare (XLV/CURE) remains in a positive uptrend with a positive addition on Friday. Uptrend remains… adjusted stops… IHE, IHI, IHF, IBB all continue to show positive trends for the sector.
Other sectors on the watch list to make moves or are making positive moves… FAS, EWW, TECL, DDM, SSO, TQQQ, SPLV, CORN, SKYY, IYT, SOXX, and KIE.
Sector Rotation of S&P 500 Index:
One big change of note concerning sectors… The Global Industry Classification Standard is making a change to the Telecommunications Services Sector. It will become the Communications Services Sector which sounds minimal but could have a significant impact going forward. They are adding NFLX, DIS, CSMSA, FB, and GOOGL. The new structure will be enforced by the end of September. This will make it more of a growth sector overall but could dampen some of the volatility the sector has experienced over the last two years.
- XLB – Materials moved back above the $58.44 level and continues to consolidate on worries about tariffs, etc. Watching how it unfolds.
- XLU – Utilities got relief as rates moved back below the 3% mark for the week and cleared the resistance at $52.72 and looking good currently. Uptrend remains in play… entry $49.55. stop $51.80 (adjusted).
- IYZ – Telecom moved back above the $27.63 resistance and is looking for momentum in the sector. Entry $27.80. Stop $27.50. Nice bounce higher to keep upside trend in place. Moved to resistance of the March highs.
- XLP – Consumer Staples finally found support and has been in a gradual uptrend from the May lows. The ability to gain some momentum is shown in the nice move above both the 50 and 200 DMA . Entry $50.50. Stop $53. Going with the trend and being patient. Testing the last three days with move to the 200 DMA.
- XLI – Industrials made a move back to $71.43 holding support and a bottom reversal pattern cleared the $74.20 resistance and $75.72 mark is being tested. Holding steady for now. Entry $72.50. Stop $74.10 (adjusted). Testing the move above $75.72.
- XLE – Energy stocks have been volatile as they deal with the question of production impacting the price of crude. Too much speculation as the sector remains in the current pattern. Patiently awaiting a break in direction. Reacted to the tariffs from China, but remains in the consolidation pattern.
- XLV – Bounced off $83.24 support. Upside follows through as the sector moved back above the $86.74 resistance and gained momentum from drug stocks. Solid week for the sector as we let trend run and manage our risk. Entry $83.25. Stop $87.50 (adjusted). Adding to the upside trend.
- XLK – Earnings missed… stocks drop. Earnings beat… stocks rise. Bounced off support and attempting to regain the upside momentum short term. $72.50 cleared and moving back towards the previous highs. Entry $72. Stop $70.50. Made move back towards the July highs.
- XLF – Tested support at $26.90… rallied on earnings and bounce in interest rates. Watching resistance at the $28.24 mark. Insurance is leading the sector higher. Entry $27.50. Stop $27.50. Nice follow through to the move above resistance at the $28.24 mark. Tested on Thursday.
- XLY – Consumer remains a leader after testing support and bouncing back near the June highs. Letting this unfold as the sector remains in a trading range currently. Consolidation pattern in play at the highs. Moved to new high on Thursday.
- RWR – REITs have been in a clear uptrend since the February lows. Granted it has come with some volatility and speculation, but the upside is in place. Positive bounce after testing lower. Entry $93.40. Stop $91.50. 3.8% dividend. Eyeing the tick higher in interest rates.
Earnings, tariffs, Fed, and economic data help the upside as investors put money to work… albeit on lower volume. The earnings season has been positive thus far with some obvious exceptions stealing the headlines. We ended the month of July positive, started August with question marks, but overall the indexes posted positive gains for the week. Jobs report helped offset the tariff bantering with China on Friday. We have to focus on our own strategy and ignore the news. We have booked positive gains on positions and added others as we continue to trade what the market gives. All of the economic data remains on track for growth. There is always something to worry about, but at the end of the day it is about the trend and we continue to see a positive uptrend for stocks as seen in the bounce this week. The S&P 500 index showed seven of the eleven sectors moving higher for the week. The volume remains on the low side. The results for the week were positive for the index and the NASDAQ managed to find some buyers to bounce off support from last weeks selling. REITs, healthcare, and consumer staples offered leadership efforts on the week. Bonds rallied after getting hit by the FOMC news of higher rates on the horizon. Utilities move through resistance to keep the upside trend moving. Energy is consolidating along with crude oil as speculation about supply and demand keep the commodity and the stocks in check. We need stocks to hold their own in the face worries in order to keep the uptrend moving. We will keep our focus on our strategy in the current market environment. We continue to manage all positions as trades until we gain some clarity on the longer term views. The long-term uptrends remain in place and we will manage our longer-term holdings in light of that trendline. The goal remains money management, not market speculation…
ONE DAY at a time is the key for now. Take a longer-term view of your overall portfolio and manage the risk of your short-term trades accordingly.
“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.