Markets close lower again

The markets ended the week in negative territory in what I would say was broader-based than Thursday. Ten of the eleven sectors all closed lower. Intel was the poster case for disappointing Wall Street… the stock fell 16% on a six-month delay in their next-generation 7nm chip technology. On the other hand, AMD was the benefactor to the news rising 16.5% as investors switched ponies in the semiconductor race. Gold continued the vertical climb higher posting a great week. Overall the markets are in test mode and investors are moving money around as they look for the next hotspot to invest. Take some time over the weekend to review your portfolio, make adjustments as necessary to stops, and realign the risk factor to your tolerance.

In The News:

Short news notes of interest… 1) New home sales jumped 13.8% in June well above estimates. The urban to suburban shift in living is moving along at a solid pace. 2) More talk from the analyst about the concentration of money in the mega-cap stocks. This is all a warning sign relative to the risk rising in these stocks. If money flow continues to reverse the downside risk rises. Manage the risk as it is widespread with mutual funds, ETFs, pension funds, and 401k’s are all heavily allocated to these stocks. 3) Are investors finally ready to shift from technology (XLK)to cyclical stocks (XLP/XLY)? The charts are showing some early signs and worthy of our attention and scans. 4) US-Ching tensions continue to rise as they banter over closing consulates. This is ongoing and not likely to stop anytime soon. It is interesting that it becomes a concern when the markets move lower and not in the headlines when markets move higher… just saying. 5) Elon Musk stated more government stimulus was a bad idea and sets a false expectation from people and businesses looking for handouts. About time someone spoke up about the way money has been doled out during this pandemic.

The S&P 500 index closed down 20 points to 3235. It was down 0.62% on the day as the index saw selling broaden out on Friday. The index moved back into negative territory for the year and the first level of support at 3214. The stimulus package remains the top headline as many look for more assistance. One of the eleven sectors closed in positive territory… showing some weakness on the day. Consumer discretionary was the leader of the day. Technology and healthcare were the weakest sectors on the downside. The VIX index moved to 25.8 as anxiety stepped up in the index. Watching how the data points all add up looking forward.

The NASDAQ index closed down 98.2 points at 10,363. The index closed down 0.94% for the day. The overall movement on the day was lackluster as the technology sector came under pressure again from sellers. Technology and large-cap stocks were lower on the day after testing the new highs from Monday. The NASDAQ 100 index (QQQ) was down 0.95% for the day and as the mega caps moved lower leading the downside. The topping pattern broke higher on the chart but failed to hold the move testing the 30 DMA. The $255 level is the stop as we adjust and watch how this unfolds. Semiconductors (SOXX) closed down 1.5% for the day led lower by INTC. Technology (XLK) was down 1.2% for the day and testing the $103.85 support. Watching how this unfolds moving forward as some believe the top is in…

Small-Cap Index (IWM) The sector broke from the consolidation pattern with $144.65 resistance the level to clear. The sector attempted to climb higher this week but failed to hold the move. Looking for upside follow through.

Transports (IYT) The sector moved above the $167.50 resistance as airlines and trucking helped the move. June high is the next level to watch. Entry $167. Stop $171.62. Tested all week as news continues to disrupt the current trend.

The Dollar (UUP) The dollar broke lower from a consolidation pattern and has moved into a trek lower. The EU stimulus package news didn’t help. There is a concern about the dollar moving into a free-fall. Watching.

The Volatility Index (VIX) Showed up to end the week and the index settled at the 25.8 mark and essentially unchanged on the week. Watching for clarity here as investor emotions are not rattled… yet.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector remains challenged as growth stocks still not in favor, but it did manage to break from the consolidation pattern. Needs to follow through to the June highs.

Biotech (IBB) The sector broke higher from the consolidation pattern and hit a new highs only to reverse and test the 50 DMA. We hit our stop on the position and watching how it unfolds from here. Entry $128.50. Stop $139.90 (Hit Stop).

Semiconductors (SOXX) The sector remains in an uptrend but challenged by some volatility of late as money rotates. Money flow remains in a downtrend. Taking what is offered and managing the risk. $272 stop.

Software (IGV) The sector established a bottom at $185 and bounced. Stop at $280 (adjusted). Entry $205.10. Some testing with the markets moving higher and challenging support.

REITs (IYR) The sector collapsed as talk of defaults in the commercial debt market spooked investors. The Federal Reserve has stepped in to stem the downside. The current pattern shows consolidation with a downside bias… watching how it unfolds.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.58% down slightly from 0.62% last week. TLT has been a benefactor of the fear trade emerging again. Bonds made a key move higher and watching as they consolidate. Entry $161. Stop $163.55 (adjusted).

Crude oil (USO) Crude moved to $41.34 on the week holding steady near the highs. The data is showing a reduction in production based on the cuts from OPEC+. The EIA raised the forecast for the consumption of the balance of 2020 helping the commodity. I continue to like the long-term outlook with entry at $13.81 and a two-year target of $45. In addition, there are trading opportunities in and around the commodity. UGA.

Gold (GLD) The metal tested lower to $158.94 support and bounced giving a trade opportunity in the trading… added at $158.90. Stop at $172.29 (adjusted). Broke from a consolidation pattern and has started a vertical move. Adjusting stops on the move and letting it run.

Emerging Markets (EEM) Broke from the consolidation pattern as money flowed into the Asian markets lifting the index. Now testing the move higher on tension with US-China rising. The BRIC index fund also showed a break higher. Taking what is offered short term as it unfolds.

China (FXI/YANG) Gapped lower again this week. The news from China about the economy didn’t help. Add rising tension with the US and it sees money moving out of the sector. Watching and letting this unfold.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

FRIDAY’s Scans for July 24th: The selling took a broader path to end the week. This raises concerns about the mega-cap stocks and technology. Watching how this unfolds a the charts are still in good patterns and the overall market shows healthy trading. Some selling is always expected when valuations rise to levels of undue risk. Watching the rotation of money… where does it go? Cash? Bonds? Commodities? Watching and managing our risk accordingly.

  • Consumer Discretionary (XLY) will this be the sector of choice moving forward? Watching at it has done well but the parts are where to dig.
  • Gold (GLD/UGL) definitely has been a benefactor of rotation and concerns about the global economies. Gold miners (GDX) also benefitting from the price move in gold.
  • Silver (SLV) equally a benefactor to the move higher in metals. Gapped on the week and raised our stops to account for the move.
  • Semiconductors (SOXX) Intel laid an egg and pulled the sector lower… questions is how the sector as a whole responds. Watching for the next opportunity here.
  • NASDAQ 100 Index (QQQ) topping pattern is back… watching the large-cap rotation and how the index responds. This will offer an opportunity near term.

THURSDAY’s Scans for July 23rd: Technology large caps take a toll on the markets pushing the indexes lower. What leads higher can be what leads lower… watching the storyline relative to the large-cap technology stocks. It was kind of like a warning shot from investors as money has been moving all week, but not heavily. There is a modest migration from technology. The question is where is the money going? TLT? IYR? XLU? All are defensive solutions. Watching how this unfold and taking what is offered.

  • Treasury Bonds (TLT/TMF) broke higher as money flow continues to rise. Adjusted our stop… and considering adding some money near term.
  • Volatility Index (VXX) interesting move on Thursday at support. The bounce came from the selling in mega-cap stocks. Important to look at the NASDAQ volatility (VOLQ) as well with the current news surrounding that index.
  • Regional Banks (KRE) posted a solid upside day to help the financial sector… worthy of our attention in a bottoming pattern.
  • Natural Gas (UNG/BOIL) bounced off the near term lows… is it rally time for natural gas? Watching how this unfolds.
  • Oil Services (OIH) moved higher on the day and shows a positive five-day trend. Watching how this sector unfolds.

WEDNESDAY’s Scans for July 22nd: The rotation in sectors continues as money looks for alternatives to technology stocks. The recovery stocks made moves but nothing to write home about. It was a positive day overall and some movement due to earnings and existing home sales. Taking what is offered and managing the risk looking forward.

  • Gold (GLD/UGL) turned vertical as the dollar remains weak. Adjusted the stop on the move. Silver (SLV) was up 9% on the day.
  • Homebuilders (ITB/NAIL) solid boost from the existing home sales on the upside. People are buying homes as the thought of coronavirus being here to stay pushes people to ownership.
  • Healthcare (XLV) moved higher on vaccine news and earnings.
  • Treasury Bonds (TLT) Moving back towards the April highs. Holding for now.
  • Europe (IEV) moved back to the June highs… stimulus is a great drug for stocks to move higher. Dig into the parts and leaders for opportunities.

TUESDAY’s Scans for July 21st: The leader’s rest and the recovery stocks post modest gains on the day. The movers were energy stocks as they jump on the move in crude prices. Natural gas (FCG) and oil services (OIH) joined the upside as well. Gold jumped higher as well with the stimulus in Europe and the dollar taking a dump lower. Silver (SLV) followed the upside in gold jumping higher as well. Financials bounced after struggling following earnings announcements. Retail (XRT) broke higher from the trading range. All was upbeat despite the leaders lagging on the day. Letting this all unfold.

  • Energy (XLE) positive day for the sector to add to the bounce from the recent lows. Watching how this unfolds with the parts all posting a positive day… FCG, OIH, XES, UGA, USO, XOP.
  • Precious Metals (DBP) gapped higher as gold (GLD) and silver (SLV) lead the upside.
  • Gold Minders (GDX) moved higher in the uptrend as well. Silver miners (SIL) were moving higher as well.
  • Retail (XRT) moved higher and is challenging the January highs. A Positive trend in play for the sector.
  • Financials (XLF) moved higher on the day as banks make a move off support… plenty of work left to do in the sector.

MONDAY’s Scans for July 20th: The mega-caps return to lead the upside as other sectors struggle. Narrow rise for the markets but that is where the money flow remains. Watching how this unfolds moving forward as the volatility declines, money flows into the leaders and the balance of the market watches. There is plenty to consider with the new promise of the EU to offer stimulus and the hope of a vaccine by the end of the year. We are playing follow the leaders and not much left to say about it… manage your risk and let this all unfold.

  • Technology (XLK) rose to new highs as the leadership remains in the narrow parts of the market.
  • Semiconductors (SOXX) rose to new highs maintaining the leadership role. Adjusted our stops.
  • Biotech (IBB) rose to new highs. Adjusted our stops.
  • Volatility Index (SVXY/VXX) Adjusted our stop on the short side trade as the index continues to show less volatility with investors taking a more confident role.
  • Natural Gas (KOLD/UNG) short side trade continues to work… adjusted our stop and watching.

(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 solid break above the $45.87 resistance offering upside trade opportunity. Tested the $54.15 support levels and bounced. Solid bounce above the June highs and holding.
  • XLU – Utilities found support again at the $55.24 mark and bounced. Trading higher in the current range and moving back towards the previous highs.
  • IYZ – Telecom found support again at the $27 level and bounced. Moved off support and heading back towards the previous highs.
  • XLP – Consumer Staples moved lower again testing support at the $57.17 mark and bounced back to the previous highs. Then broke higher and showing near term leadership. Defensive money moving into the sector.
  • XLI – Industrials moved sideways and managed to break above resistance at the $71.43 level. Watching how this unfolds near term.
  • XLE – Energy broke the trendline moving lower and found support as the downtrend remains in play. Testing the bounce and letting this play out with short side bias.
  • XLV – Healthcare broke above the $104 resistance. Watching as it posted a solid follow-through. Upside back in play for now. Pushing higher on the hope of vaccine and earnings.
  • XLK – Technology cleared $82.37 resistance and offered upside trade. Remains the leadership for the broader index currently with a solid uptrend on the chart. The testing this week has us on watch… testing support and stops in place.
  • XLF – Financials broke below the $23.50 support moved sideways and back above $23.50 on banks (KBE) rising on earnings. The challenges remain for the sector overall and watching how this unfolds.
  • XLY – Consumer Discretionary broke from the trading range and established a solid uptrend. Stalled and is trading in a consolidation pattern. Watching the outcome of the renewed leadership.
  • IYR – REITs struggle to find money flow. The move below $77.90 was negative but bounced at support and holding for now. Descending triangle pattern in play.

The trends are being challenged by news and investor activity. Plenty of consolidation patterns building the last few weeks and watching how they unfold going forward. We have positions based on our defined strategies and managing the risk accordingly. Using the six-month charts as an indicator for the short term view… Seven sectors are in confirmed uptrends as the consolidation phase continues. Four are consolidation patterns showing indecision from investors, and none are in a downtrend. The result for SPY is in a move to sideways trend short term with upside the bias for the week. The leadership is seeing some rotation as money flow shifts directions.

(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:

Weekend Wrap & Outlook… The coronavirus remains a headline impacting markets with the record rise in new cases in eight states. That puts caution in the markets and money begins to rotate looking for opportunity. The broad indexes posted a negative week as the investor psyche turns to some worries about large-cap stocks. The NASDAQ’s was the weak link for the week closing down 1.3% at 10,363 on the week. The Fed and the Treasury continue to mouth support for further stimulus and helping get the economy back on its feet. The EU chipped in to help the European countries offering a stimulus of more than 2 trillion euros. The hope of a strong recovery in the second half is dwindling on comments from the Fed as they warn of slower recovery. The jobs data was steady as more jobs are being found, but first time climbs actually climbed for the first time in seven weeks. The reopening process is being challenged by the spike higher in coronavirus cases. California closed again causing some grief to businesses as each state and city makes decisions independently. They also took the lead for the most cases in the country. The VIX index moved down to 25.8 showing settling at support but didn’t raise on the selling this week. We continue to find opportunities near term to put money to work even in some sectors that have been lagging. Our job remains to manage the risk accordingly. Eight sectors posted gains for the week and three closed in the red. Technology saw money flow shift to negative as money was on the move again. Gold went verticle posting new highs as money flow rises. Crude oil remains near the highs and closed above the $41 a barrel level. The focus is starting to turn to the spread of the virus versus vaccine development. Something to watch as the markets remain in an overall uptrend since the March lows. 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.