Market ring up gains for the new year!

OUTLOOK: Week of January 8th

The 2018 new year started with a positive welcome from investors. All four days of trading ended higher with the major indexes posting new highs and attitudes positive towards stocks. The only challenge… volume and breadth.

The upside was led by technology (XLK) and healthcare (XLV) on the last trading day of the week. For the week basic materials (XLB) energy (XLE) and technology were the leading sectors. The S&P 500 index, as a result, the last three days posted new highs. My question remains the catalyst for the move? It would be simple enough to say it is the new year and new money, but there is something driving the buyers to be willing to put money to work. My view is hope and optimism about the new year as the logjam in Washington are broken on the tax cut bill. We will take what the market gives and remain cautious moving forward with our stops in place on both short and long-term positions. The downside was led by telecom (IYZ), REITs (RWR) and utilities (XLU) with interest rates creeping higher on the speculation surrounding Washington and the tax cuts. Interest rates remain a hot potato despite the move higher to start the week it remains at the 2.46% mark on the ten-year bond. For now, the broad indexes lead to new highs and hoping for a continuation of the upside move in the new week.

The S&P 500 index closed up 19.1 points at 2743 and closed at new highs. The uptrend remains in control of the index on average volume for the week. All the moving averages are pointing higher in a solid uptrend as the move lower was modest. The biggest movers in the index were WU (gap higher reversal), XLNX  (breaking higher from bottoming range), EA (break higher in the bottom reversal), CVS (remains in uptrend off the November low), and BA(moved higher in the uptrend). The downside leadership came from RRC, JCI, WYN, SCG, and UTLA. Mixed activity on the downside as money rotates towards leadership. The broad index moved higher for the day and pushed to new highs. The leadership for the last thirty days has come from technology, basic materials, and energy… getting some rotation of late with energy and basic materials leading over the last ten days.

Gold (GLD) tested lower at the $117.38 support and bounced on the Fed hiking interest rates. The metal cleared the $123.05 resistance mark breaking higher and has come to rest at the $125 mark… watching with stops in place on the vertical short term. The dollar (UUP) worries abound relative to the Fed, taxes, and geopolitics. The downside accelerated and break below the November lows showing more weakness. Modest bounce to watch on currently. The emerging markets (EEM) has gone vertical on the weaker dollar and talk of resurgence globally in the economics. The Volatility Index (VIX) moved lower as the anxiety subsides in conjunction with the buying. There is plenty on the table relative to dynamics and agendas from traders and investors alike. The key is to remain disciplined within your trading strategy and not let the anxiety of the situation change your mind. Manage your risk and stay focused on the horizon, not the rear-view mirror.

(The notes above are posted daily based on the activity of the previous days trading)

KEY, INDICATORS/SECTORS TO WATCH:

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare. There is no clear resolution to that issue and that has now led to money rotating to where is it has better opportunities and clarity. The downside broke support at the $103.65 level only to recover as the challenges remain with a lack of clarity about Washington more than anything at this point. Bottom reversal started? Made move to resistance at $107 level and broke higher last week. Entry $107, Stop $105.50. 

REITs (IYR) The sector tested the $79 level of support and bounced back to resistance and tested, and bounced, cleared the $81 resistance… only to test lower again… We continue to focus on managing our risk and collecting our dividend versus the near-term volatility and uncertainty. This is a growth and dividend holding with a 4.2% dividend from our entry point in April. Entry at $75.75. Stop $76.25 (adjusted). Rates are creating the uncertainty short term… patience. 

Treasury yields (TNX) moved to 2.47% last week as the worries return on the weaker dollar. The lack of commitment from the Fed and Washington’s wanting a weaker currency isn’t helping. Watching how this unfolds, but for now, rates remain in a trading range and we remain out of treasury bonds for now. 

Gold (GLD) Gold remains in a long-term uptrend with a broad trading range in play the last five months. The volatility of the trend is speculation and news driving money. The selling speculation on the rumors of the Fed hiking interest rates broke the $120.45 support. On the decision prices moved higher???? Yes, higher. The “worries” about the dollar and the outlook for growth has money rotating on speculation… regardless taking what the market offers. Entry $120.70, Stop $123. 

Crude Oil (USO) has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue, but speculation about the dollar is impacting the price near term. The last three months the commodity has managed to fight its way back above the $50, $52.50, $57.50, and now $61.60 levels of resistance and confirm an uptrend off the June low. Entry $50.20, Stop $57 (adjusted). The price accelerated on a weaker dollar this week and remains in the uptrend… let it unfold. 

Energy stocks (XLE) Continue to climb off the August lows and the double bottom pattern clearing $63.22 for entry and a stop at $70.50 (adjusted). Investors reacted to the decline in price and found support at the $67 mark. With the bounce in price, the stocks are again responding on the upside… A nice break above $72 as money flow shows faith in price. Broke to new highs currently. This gave the opportunity to add to positions or trade the move with ERX $32.30 entry, $34.50 stop (adjusted).

Volatility Index (VIX) The positive week for stocks keeps volatility in check. The close at 9.2 is a move back near the lows. Watching to see how it unfolds this week as we investors continue to have faith in the upside move. 

The S&P 500 index closed the week at new highs and posted a positive return for the week gaining 2.6%. The drivers last week technology and healthcare which bounced back from selling into year-end. All the moving averages are positive and volume was average with the traders returning from the holidays. There is plenty to ponder as we start the new year… not the least of which is the rotation to commodities of late on the weaker dollar along with emerging markets. The question to ask, how low will the dollar fall? The rattling over bitcoin hasn’t helped nor will it going forward. We remain on guard about how the buck will impact the inflation picture as well as commodity prices. Remember rising commodities impact inflation relative to spending and discretionary dollars from consumers. Overall we are still cautious about the direction looking forward. Watching how small caps perform (sluggish) to start the year along with semiconductors (positive upside last week). Patience is required with this market overall as news leads the parade. The data points are not offering enough to help my outlook… ISM manufacturing numbers were higher and positive… ISM services numbers were lower and negative. The balance of data is mixed and that doesn’t boost confidence in growth. We watch as the market and investors settle into the new year.  

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

Daily Scan Results: (NO Scans During the Holiday’s )

FRIDAY’s Scans 1/5: Positive trading day to end a positive week for stocks. Despite the data points on the economy money and speculation continue to drive the direction. Technology resumed the role of leadership and commodities continue their trek higher. We will follow the golden rule of following the leaders as the new year swings into full trading mode next week. The scans reflect the upside optimism currently with the downside reactions coming from interest-sensitive stocks.

  • The NASDAQ (QQQ/TQQQ) fell to the 20 DMA to end the year and rose to a new high to start the year. Hit entry at $147 with a stop at $140 for the upside trade. Longer term positions we raise our stop to $140 as well.
  • Crude Oil (USO/UCO) upside in play on a weaker dollar. The demand side is higher, but not enough to warrant the higher move. We added to our position at the $21.80 level, stop $$22 (adjusted) and will manage our risk accordingly.
  • Technology (XLK/TECL) upside moves to reverse the near-term direction. Positive move overall and looking for the leadership to remain. SOXX helped the upside move with a positive reversal.
  • Gold Miners (GDX/NUGT) upside trade saw some buying on FOMC… cleared $31 resistance and offered another entry point for the miners. $28.67 stop still in place on other positions ($28.67 entry). Gold (GLD/UGL) is the reason for the rise! Breaking above the $123.05 mark. UGL offered another entry point on the break above resistance $40.50 (stop $40).
  • Semiconductors (SOXX/SOXL) bounced at support $166.10… tested… and showed positive upside to start the year. Entry $175, stop $170. Need the leadership for the NASDAQ and technology to rise further.
  • Commodities are moving… thanks to the dollar. USO, XME, GLD, SLV, BAL, DBB, etc. all showing rotation… and opportunity.

The market is poised for more upside near term as money rotates based on the current outlook. Watching the data points for the economy as well as the global picture. The key is patience and observation are how the belief factor unfolds moving forward.

The upside leadership:

  • Crude Oil (USO/UCO) positive moves to clear near-term high.
  • Gold (GLD/UGL) positive upside moves setting the pace.
  • Homebuilders (ITB/NAIL) upside remains after a test with flag pattern in place. Looking for the resumption of the uptrend in the leader. $43.25 entry point if upside break.
  • Natural Gas (UNG/UGAZ) break upside is worth attention.
  • Brazil (EWZ/BRZU) upside break and positive move on a weaker dollar.

Risk management of positions and a disciplined strategy for any and all trades.

Watching:

  • Homebuilders (ITB/NAIL) upside is back on the upswing and watching how it unfolds relative to the move in interest rates and tax cuts.
  • Latin America (LBJ) – double bottom reversal. $32 level of entry confirmed nicely on upside move.
  • Emerging Markets (EEM/EDC) – clear previous highs of interest. $121 entry, stop $130). The dollar is helping the upside move.
  • Technology (XLK/TECL) upside move clears resistance at the previous high ($119.11) offering an opportunity to add a position. Stop $115.20.
  • Healthcare (XLV/CURE) upside move clears resistance at the previous high ($48.95) offering an opportunity to add a position. Stop $47.50.

Other moves of interest: KOL, BRZU, EURL, KWEB, FAS… for the week… YINN, DGAZ, OIH, TQQQ… plenty of positives leads to cautious outlook as well.

FRIDAY’s Scans 12/29: No big changes as money juggled for the new year. The week was down then ended lower with some rotation to commodities on a weaker dollar. Below is what we are watching to start the new year…

  • The NASDAQ fell to the 20 DMA which is worth watching. $152.10 is support for QQQ currently as let the pressure unfold on stocks.
  • The dollar (UUP) continues the decline breaking below the November lows. This is good for commodities and not so great for stocks short term.
  • Crude Oil (USO/UCO) upside in play on a weaker dollar. The demand side is higher, but not enough to warrant the higher move. We added to our position at the $21.80 level and will manage our risk accordingly.
  • Treasury Bonds (TLT/TMF) bonds rallied this week on lower interest rates. Still in range, but watching how they unfold moving forward with the Fed and the dollar.
  • Natural Gas (UNG/NUGT) upside continues and the vertical move the last three days is impressive. $5.67 entry, Stop at $5.35.
  • Gold Miners (GDX/NUGT) upside trade saw some buying on FOMC… cleared $31 resistance and offered another entry point for the miners. $28.67 stop still in place on other positions. Gold (GLD/UGL) is the reason for the rise! Breaking above the $123.05 mark. UGL offered another entry point on the break above resistance $40.50.
  • Semiconductors (SOXX/SOXS) bounced at support $166.10… no conviction in the buying and a break of support would be a big negative overall.
  • Commodities are moving… thanks to the dollar. JJC, USO, XME, UNG, GLD, SLV, BAL, etc. all showing rotation… and opportunity.

The market is poised for more rotation of money as this unfolds near term. The key is patience and observation are how the belief factor unfolds moving forward.

The upside leadership:

  • Crude Oil (USO/UCO) positive moves to clear near-term high.
  • Gold (GLD/UGL) positive upside moves setting the pace.
  • Homebuilders (ITB/NAIL) upside remains after a test with flag pattern in place. Looking for the resumption of the uptrend in the leader. $43.25 entry point if upside break.
  • Natural Gas (UNG/UGAZ) break upside is worth attention.
  • Brazil (EWZ/BRZU) upside break and positive move on a weaker dollar.

Risk management of positions and a disciplined strategy for any and all trades.

Watching:

  • UVXY – volatility picked up to end the week. $10.50 level to watch.
  • TZA – small caps showing some weakness. $12.50 level to watch.
  • LBJ – double bottom reversal. $32 level of entry needs to confirm.
  • EDC – clear previous highs of interest. $127.50.
  • SQQQ – clears $21.55 could offer upside trade with the index moving lower below the 20 DMA as indicator short-term trade.

 

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

FINAL NOTES:

Investors are happy with the upside activity as it relates to the current trends. Traders are driving the short term swings and opportunities. The week was filled with optimism about the new year. The focus remains on the impact of the tax cuts and which sectors win… there are political and geopolitical issues in the headlines, but the worry factor has not escalated enough to warrant any downside. I expect more of the same as we towards a full week of trading and business back to normal. Our goal is to take the opportunities that meet our strategies and allow us to manage our money with the least amount of risk. The rationale for the current trading environment is more speculation than fact. As we start a new year there will be plenty of statistics and data put forth to help decision making about the outlook. As seen with the economic reports it remains mixed and allows speculation to remain in control. Earnings and retail sales for December will all be reviewed in light of expectations in 2018 as we move forward. Since the market trades looking forward and evaluates based on past data investors have been buying in advance of the reality and hoping the data will confirm the belief. That is why we manage positions with stops daily. There is still plenty of work to be done in order for the rumors becoming truth. The outlook for the economy is partly cloudy at best, the dollar is not helping as commodities will impact the consumer spending if gas prices continue to rise. Patience is the key for now. There are plenty of short-term trading opportunities and the long-term remains in an uptrend overall. We will proceed with caution and patience taking what comes our way and fits our strategy for investing both short and long-term.

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.