Market continue higher

Market Outlook for November 27th

The upside continued with mixed results on Tuesday. Small gains and some negatives, but the overall results were to hold the move from Monday. The Fed continues to provide liquidity as noted in speeches by Mr. Powell and other Fed presidents. Trade is still the topic of nauseating drivel that never seems to end. This remains the crying wolf syndrome and the market is becoming desensitized to the comments and lack of progress. I don’t expect much to change with the Thanksgiving holiday on Thursday. We will monitor the progress, but planning on taking some R&R the remainder of the week. The next updates will be brief unless we have something special to report… HAPPY THANKSGIVING!

The S&P 500 index closed up 6.8 points to 3140. New highs again in follow up to Monday’s move. Money flow was positive on the day with some laggards on the day. Eight of the eleven sectors closed higher on the day with REITs and consumer staples leading the upside. The downside was led by energy as money continues to look for a home. Trade negotiations continue to drag on with China unwilling to make changes. Slowing trading expected into the holiday. The long-term trend is higher and steady.

The NASDAQ index closed up 15.4 points at 8647. New highs following positive move on Monday and the uptrend remains in place. Technology moved higher on the day as semiconductors struggled along with networking sectors. Adjusting our stops on positions and letting this unfold. Large caps have resumed their leadership as seen in QQQ also higher on the day. Watching how this unfolds near term.

Small-Cap Index (IWM) The sector led the move back to the April highs and has stalled the last two weeks in a consolidation pattern. The move above the July highs and the $158 resistance are positive, but the question is, can it break to new highs? The 2% gain on Monday provided the break higher we have been looking for the last two weeks. Held the gain on Tuesday.

Transports (IYT) The sector moved above the July highs and $200.55 only to hit resistance and test back to the $192.42 support level. Watching as some uncertainty creeps into the sector. Solid bounce and follow through on the test lower. Plenty of work to be done in this sector.

The dollar (UUP) The dollar is swinging up and down on the China trade hopes of a deal. If the deal is struck the current sentiment is it is bad for the dollar. If it is not done… good for the dollar. Watching as the tennis match plays out. Watching FXE, FXY, FXB. Holding the bounce from support last week.

The Volatility Index (VIX) closed the week at 12.3 after some intra-week volatility. We remain at the July lows as investor anxiety washes away. Watching how this plays out in the coming weeks. SVXY remains near the current highs… managing the risk. Dips below 12 for the first time since April.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector moved to new highs and has stalled the last few weeks. The bounce moved above the $198.50 level has been positive for the sector. Currently in at range at the highs. Breaks to new highs finally.

Biotech (IBB) Tested support at $96 bounced and moved back above the $101 and $105 resistance level. We did clear the July highs and the renewed uptrend is in play as we manage the risk accordingly. Entry $101.45. Stop $114.53 (adjusted). LABU $32.55. Stop $48.50 (adjusted). Great week for the sector and we adjusted our stop. Solid upside move to start the week. Adjusted stop.

Semiconductors (SOXX) The sector bounced, cleared resistance and the July highs. The sector paused this week as we see some topping on the chart and a test of the $228 support level. The sector moved back below the 20 DMA on the week… watching and managing our risk. The parts are where we have added positions versus the whole. NVDA, MU, QRVO, CCMP, SWKS, AMD, and LRCX. Bounced at support. Watching for leadership to resume.

Software (IGV) The sector tested the lows of the trading range and bounced at support in October. The steady grind higher has not been easy. The move above $220 was a big positive for the sector. We have been looking at the leaders. NTNX, CVLT, CTXS, CDK, and PANW are few. IGV entry $220. stop $224.87 (adjusted). Added to the upside move… adjusted stop.

REITs (IYR) The upside trend remains on the long-term chart but the short term moved lower breaking key support levels. Interest rates rising rattled short term investors creating the selling in the sector. The bounce at support has given way to selling again as the sector retests support at the $90.50 level. Resumed bounce off the recent lows.

Treasury Yield 10 Year Bond (TNX) The yield closed at 1.77% down 6 basis points on the week. Money is rotating again as investors remain focused on the deal or lack of a deal with China.

Crude oil (USO) Held support at $52.50 and $58.25 is top of the current range. Watching as the data points show plenty of oil and lower demand. Talk from OPEC and Russia on supply sent crude higher to resistance at the $58.25 mark. UCO entry $16. Stop $16.60 (adjusted).

Gold (GLD) The upside in gold has been driven by speculation of the rate cuts and global weakness overall. The tug-o-war of tariffs, interest rates, and speculation has been keeping gold in play. The move below $140 may change that perspective short term. The consolidation pattern on the chart breaks lower. GLL @ $55.43. Tested lower on Monday. Bounced.

Emerging Markets (EEM) Bounced from the bottoming range established in August cleared resistance at $42.25 and cleared the September highs. The positive trend higher from the hope of a US/China trade deal remains the driver. Trump comments tested the move as we let this continue to unfold. One big pennant pattern at the highs… watching. Bounced on the trade talks.

China (FXI/YANG) weaker economic data hurting the stocks currently as the move higher stalls at the September highs. Watching and listening for now how it responds to the move lower on the week. Bounced on the trade talks.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

TUESDAY’s Scans for November 26th: Mixed day that managed to close higher. Positive housing data, more were getting close-talk from China, and the Fed continues to provide liquidity. An overall positive day with some sectors showing signs of needing help. Semiconductors are consolidating versus leading. Taking it one day at a time with the holiday week dampening trading volume. Below are stocks of interest we have found digging into the leading sectors.

  • Crude Oil (USO) trying to break from the bottoming range. UGA made solid move upside as well… however, XLE continues to lag.
  • GE made solid upside swing and has stalled at the $11.50 mark. We have tightened our stop on the position and watching $11.21 level.
  • FCX – double bottom breakout has now moved to key resistance at the $11.90 mark… watching for the break higher.
  • MSFT – solid upside continuation following the break from the trading range. Adjusting stops and letting this run.
  • AMD – solid run higher from the October low. Flag pattern at the highs has our attention…

MONDAY’s Scans for November 25th: Solid start to the trading week. The upside catalyst was trade, but the reality is money wants into the markets… it has that feel of not wanting to be left behind and the last money in is always treated the worst… watching for a solid factor behind the move… I am looking at the Fed and the support they continue to provide in the form of liquidity. Solid breadth in the move higher and we take what is offered, adjust our stop, and look forward. One note that supports the last money in is M/A activity. LVMH and TIF. SCHW and AMTD. eBay and ViaGogo. Pleny of money moving at inflated prices.

  • Small Caps (IWM/TNA) solid break higher for the sector after several weeks of consolidation at resistance. Watching how this unfold moving forward.
  • NASDAQ (QQQ/TQQQ) solid jump higher as technology and retail lead the index upside.
  • Healthcare (XLV/CURE) solid upside as biotech, pharma, and providers.
  • Financials (XLF/FAS) continued leadership from the sector.
  • Emerging Markets (EEM) and China (FXI) make solid moves on the news about trade. This is a volatile environment without many facts around any deals being made.

FRIDAY’s Scans for November 23rd: Calm day for Wall Street as we close the week. It was a week of consolidation and watching for the catalyst to appear. We didn’t make any significant changes and we continue to manage the risk of the current environment. The biotech sector moved up nicely on the week and made some adjustments. Financials remain in a leadership role. Technology is testing support and interest rates ticked lower again on the week as some money moves to safety. Focus is key as we move to the holiday week.

  • Biotech (IBB/LABU) solid upside move for the week and adjusting our stop… we will look to take some profits in the coming week.
  • Financials (XLF) solid upside leadership. Closing at new high for the week.
  • Natural Gas (UNG/UGAZ) solid bounce off support.
  • Retail (XRT) struggled to start he week on earnings reports… bounced Friday… watching both the whole and the parts as we move into the holiday season.
  • Pharma (XPH) breaks above resistance at $39.40 positive signs for the sector.

THURSDAY’s Scans for November 22nd: Global economic data didn’t help the cause, earnings were okay, no real anxiety in stocks overall. Watching how this unfolds… will we test key support levels near term? It is time to manage your risk and let the markets unfold along with the reality of the news. No major changes on the day.

  • Semiconductors (SOXX) tested the $229.40 support. Watching the leadership of the sector.
  • Crude Oil (USO/UCO) upside move follows through as Russia chimes in about production cuts to control supply.
  • Schwab (SCHW) jumps higher on merger rumors with TD Ameritrade (AMTD). That could explain the jump in IAI the last six days. Adjust stop on IAI and let this unfold.
  • Healthcare (XLV/CURE) moving higher as pharma and biotech take the lead… providers IHF also pulling the sector up.
  • Gasoline (UGA) leading the charge in the energy sector. Cleared $32 and watching how this unfolds.

WEDNESDAY’s Scans for November 21st: Early selling on WSJ statement on the deal not getting done. Bounced back as buyers stepped in and closed modestly lower on the day. Now the speculation train is back on track and will likely lead to mover volatility. China stated later that there was still a chance the deal would get done… Stop the madness. We have to take a deep breath, evaluate the current risk, and manage our stops. Patience is needed to let the new playout near term.

  • Basic Materials (XLB) moved to support at the $59.22 mark.
  • Telecom (IYZ) fell below $29.50 support and tested the $29.10 mark.
  • Technology (XLK) tested the 10 DMA.
  • Crude Oil (USO) up 3% after falling 3%… joining the circus.
  • Treasury Bonds (TLT) headed higher again as fear seeks safety.

(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 bounced at support $55.95 level and moved back above the $60resistance. Nice break to new highs near term. Sells on China news as would be expected.
  • XLU – Utilities moved lower as the move in interest rates impacts the sector. Broke support at $63.17. Bounced at support… interest rate stall helped the cause. Resistance at $63.17.
  • IYZ – Telecom picked up volatility with the markets and testing the $29.50 level of support.
  • XLP – Consumer Staples remains in the uptrend and in a near term trading range at the current highs. Patience.
  • XLI – Industrials moved back and cleared the $79 resistance. Moved above the July highs and hit new highs. Consolidation pattern at the highs and watching.
  • XLE – Energy remains in at a point of indecision. It did clear $58.19 resistance and showing a double bottom pattern in play.
  • XLV – Healthcare held support at the $86.75 level. Bounced and cleared resistance at the September highs. Taking on a leadership role as the sector moves to new highs. Solid break higher and good leadership.
  • XLK – Technology broke to new highs along with semiconductors. Both are now testing the moves and watching how it unfolds in the coming week. Strong move and leadership.
  • XLF – Financials got a boost from solid earnings pushing the sector higher. Cleared $28.24 resistance. Broke to new highs and testing currently. Flag pattern at the highs. Solid move higher and leadership.
  • XLY – Consumer Discretionary tested lower but remains within the current trading range. Needs some good news on the consumer side. Earnings from KSS and HD send the sector lower. Testing the key support levels near term. Nice bounce off support.
  • IYR – REITs moved lower on higher interest rate concerns. The test of support at the $90.50 held and bounced… only to retest the lows last week.

There are currently four sectors that are in a sideways or consolidation trend. Five sectors are in confirmed uptrends. Twp sector in a confirmed downtrend. The result is SPY in a confirmed upside trend short term. 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:

Tuesday: Day of consolidation with an upside bias overall. Holding our positions and measuring our risk. Housing data was positive overall even with price increases slowing. The Fed continues to ramble about the economy slowing and providing liquidity to the markets. China remains a talking head without action. We remain disciplined in our approach to managing money.

Monday: Trade rumors spark rally… but the reality is money is pushing back into the market in fear of being left behind. Good time to evaluate risk of the markets at the current levels. Look at the drivers versus the underlying data. The Fed’s National Activity index hit a two-year low on Monday… other economic indicators are steadily declining as well. Eventually the data will matter, but for now, money is flowing into stocks and we have to take what is offered while managing the risk that exists.

Markets held the move higher and continued sideways as the trade deal comes into question. The bounce off the August lows pushed to a six-week uptrend and a two week sideways move in consolidation. There is enough hope to continue the move on the upside, but there would have to be a catalyst of some kind to spark the move. With next week a holiday week, it will be low volume trading and not likely to get any clear answers. Earnings have been a key catalyst to the current trend as the numbers have been solid. Early in the week, retail earnings from KSS and HD didn’t help matters but the data improved as the week progressed. This is a sector to watch as we move into the peak of the holiday buying period. The economic data remains benign and lethargy would be the best word to describe. The backstop of the Fed for liquidity has been key in the move higher as well as they remain engaged in the process of helping banks. Brexit remains in the background as meetings continue with the EU and parliament to find a resolution. The dollar found some support and bounced. Interest rates fell 7 basis points on no trade deal talk showing some money moving towards safety. Money flow has been lower overall during the last two weeks as investor conviction is showing signs of concern. Thus, the consolidation patterns at the current highs. This, of course, raises questions about a test before we move higher. The VIX index fell back to the July lows as investor sentiment shifts. The market remains controlled by the news 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. The key is to watch the trend, know which side the Fed is on, 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. 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.