Markets close the week on positive note

OUTLOOK: Week of July 9th

Tariffs? What Tariffs? The markets moved higher again on Friday to end the week in positive territory. Despite the first day of the Chinese and American tariffs investors where focused on the jobs report… it was “just right” news as jobs grew 213,000 and unemployment moved up to 4%. The latter showing workers are returning to the workforce at a rate that will keep wage inflation in check as well as help the growth of the economy going. The news brought out the buyers and kept the sellers at bay… at least for the day.

The S&P 500 index closed up 23.2 points at 2759 as the index holds the 2707 support and moves above the 2740 resistance again. Technology and healthcare lead the day as all eleven sectors closed higher with intraday activity positive and volume on the low side. Investors embraced the positive jobs report which set the tone for the trading day. The move in healthcare was led by biotech helping the upside move and the broad leadership contributed to the upside. Financials, on the other hand, remain a laggard of concern for the broad index. Next week will be a test to see how the tariff impacts investors psyche as well as the momentum. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.

The NASDAQ index closed up 101.9 points to close at 7688. The move back above the 7505 mark and cleared the resistance at 7600 was all positive for the index. Technology, software, and biotech helped lead the index higher and keeping the uptrend hopes alive. The long-term uptrend remains in place and the tug-o-war with the sellers is not likely over. The large caps (QQQ) equally moved back above the $170.93. The SOXX moved back above the key $182.38 mark… next up for the sector is to follow through. Watching how this unfolds near term… some weakness in previous leaders remains the challenge for the upside overall. The key remains patience along with a strategic approach to managing money.

Small Cap index tested $162.50 support to start the week and then moved back above the $166.65 level and advanced on Friday. The current activity showed some rotation from the growth sector to safety, but the moves on Thursday and Friday were positive overall. The leadership of this sector has been key to the bounce from the April lows. Watching for the next opportunity to arise.

Gold (GLD) dumped lower to start the week but bounced amid the angst about trade and global markets. Will this follow through and build an upside trade opportunity? The strong dollar isn’t helping matters and worries over global geopolitics have only added to the downside momentum. The downtrend is in play along with the short side trade. The break of $120.45 support adjusted our stop to $74.69 on GLL. Entry $71. The gold miners (GDX) produced a solid bounce this week holding the support at $21.92. Metals and Mining (XME) produced a modest upside Thursday and a nice follow through move on Friday clearing $36… watching. Base metals (DBB) continues to dump lower on tariffs worries confirming the short side trade. Small bounce on Friday has my attention with the stop at $17.25 on the short trade.

The dollar (UUP) closed below the $25 mark with some selling showing a topping pattern in the buck. The clearing of resistance at the $23.65 level started an uptrend above the November highs for the current trend. Stops are in place and watching how this unfolds near term. Plenty of reasons to believe the dollar has peaked short term… watching how this unfolds with global growth. The overall move higher is a 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. Took the upside trade near term as the move above $23.75 was the entry point for UUP. Stop $24.85 (stop hit Friday).

Crude oil (USO) has enjoyed the upside momentum following the news of the production increase from OPEC. The increase was obviously less than many expected and rallied investor interest. Crude oil moved above the May highs at $74.15 and tested on Thursday. Speculation trading at its best again in play. 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 added a new position at $68. Stop $72. (UCO $29.10 entry. stop $32.98 (Stop hit))

Emerging Markets (EEM) The cliff dive for the last two weeks was a big negative for the sector. The modest bounce of late shows some signs of hope. Bear flag pattern building near the lows and could offer some clues moving forward. Tariff worries? Stronger dollar? Weaker commodities? You choose, but each has some influence on the sector. Watching how this unfolds with the consolidation at the lows. EDZ entry $42.40. stop $52.90. (Sold 1/2 of position at $54.50. Hit Stop on balance.) Watching how the bounce unfolds next week.

The Volatility Index (VIX) closed at 13.3 on Friday as the anxiety levels move lower. Tariffs are still an emotional challenge near term for investors as they attempt to understand the possible outcomes. 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 week started negative and we took the holiday break and then ended positively. Economic data or fundamental data will always trump speculation… it may only be for the day, but in the end, fundamentals add clarity to the markets. The uncertainty of the tariffs being started is still on the table and next week will hold my interest as to how investors respond. We may have experienced the infamous sell on the rumor and buy on the news fate. 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. The bounce in growth stocks the last two days helped keep the uptrend in play despite weakness in semiconductors and financials. Small caps showed weakness but equally showed leadership to end the week. The leaders are showing money rotating out towards safety with bonds on the rise again. Energy and crude oil continue to get a boost from the OPEC news on increased production. Utilities and REITs are the benefactors of the lower interest rates. 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. The big question facing us going into next week… will traders use the implementation of tariffs from China and the US to sell stocks lower? Technically the market remains in an uptrend… but there is plenty of news in play to impact the stability of the trend. 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) Uptrend is back in play after a test of the $107 mark. The solid bounce on Friday pushed the index well above the $112 resistance as BIIB posted positive results on a new drug.  Test of $109 was our entry point… Entry $111. Stop $109. 

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 and the upside cleared the $82.38 level as we now watch to see if there is upside momentum and follow through. $183 level to clear with volume to add a position. 

Software (IGV) The sector tested to the $178.87 mark of support. Nice bounce on Monday to clear $183.27 resistance. This has been a key leader for the move higher. Bought the position back as upside resumed. Entry $184.60. Stop $178. 

REITs (IYR) The sector made a break from the trading range clearing $76.22. Rates moving below the 3% mark get the credit for the rally as we let this unfold on the move higher. Entry $75. Stop $79.70 (adjusted). 3.8% dividend. Lower rates remain and favor the sector. Watching and letting this run for now. 

Treasury Yield 10 Year Bond (TNX) moved back to 2.83% as money rotates to safety. TLT has been a benefactor in the rotation moving above the $121.68 resistance. The lower yields created upside to bonds, REITs, utilities, and telecom the last few weeks. One word… Patience as this plays out. 

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. Crude has rallied to a new high and put hope back in the stocks. $77 level to clear near term. 

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

Daily Scan Results:

FRIDAY Scans 7/6: solid follow through to Thursday as investors embrace the jobs report over tariffs. There was positive momentum on the day despite the lower volume trading. Money flow is still sideways and worries are still on the horizon. As always we are happy to take what the market offers and then manage our risk accordingly. A positive end to a mixed week. Look for trading to return to normal next week with everyone back from their holiday vacation.

  • Biotech (IBB/LABU) was the leader for the day as BIIB announced positive results from their new Alzheimer’s drug. Nice pop higher for the sector.
  • Emerging Markets (EEM/EDC) showing signs of life. Looking for the sector to clear the upside resistance in the bottoming pattern.
  • NASDAQ 100 (QQQ/TQQQ) resumed upside move with positive leadership from the large-cap growth stocks. BIIB, DISH, LILA, GILD, FB, and NFLX all posted positive moves on the day.
  • Healthcare (XLV/CURE) equally added to the upside move breaking above resistance at the $49 level.
  • Technology (XLK/TECL) positive move above the $138 resistance.

Overall positive two days for the markets to bounce off support and keep the uptrend in play.

Question marks… tariffs, earnings, volume, and clarity.

Optimism… drug stocks, lower interest rates, earnings, jobs, inflation, and hope.

Taking it one day at a time for now.

THURSDAY’s Scans 7/5: Nice bounce across the broad indexes with most showing positive moves and a recapture of the selling from Tuesday. Volume was better but the uncertainty around the tariffs, and outlook remain. Letting the day unfold and investors the opportunity to digest the impact of both tariffs and jobs report. This remains a traders market as the volatility remains with a lack of clarity going forward.

  • Semiconductors (SOXX/SOXL) bounced off support showing solid volume in buying as the sector builds a bottom pattern. Needs to follow through and clear the $147.30 level.
  • Mexico (EWW) nice continuation of the bottom reversal… initial entry signal was $45.33. And $46.40. Watching and managing the stops as the country ETF rises. Stop $47.65.
  • Technology (XLK/TECL) sporting a head and shoulder pattern. Watching for some resolution.
  • Small Caps (IWM/TNA) nice bounce off support and showing some positive upside on Thursday. Letting it play out near term.
  • Gold Miners (GDX/NUGT) nice follow through on the bounce off support. Needs to hold move above the $25.76 mark.
  • Europe (IEV/EURL) bottoming pattern building… looking for upside follow through.

The bounce on Thursday was a positive now we need follow through. Otherwise it was just another move in the current test of support. Consolidation in play… need buyers to emerge if the upside is to follow through… watching the data reports today as well as the tariff implications on the deadline passing and implementation.

TUESDAY’s Scans 7/2: Forfeit the gains from Monday. Watching as the churning continues and no real trend defined other than sideways. Taking it one day at a time… no real scan on the trade shortened day and we will look to Thursday for more realistic moves in the charts and opportunities. 

  • Bottoming – BRZU, LBJ, SOXS, NUGT, TECS, EWW, FAZ, SIL
  • Trending – URE, TMF, SKF, CORN, GLL, DBP, XLU

Happy 4th of July!

MONDAY’s Scans 6/30: Positive start to the week as the buyers return. Some positive leadership from technology and the NASDAQ overall… small caps rise again… biotech bounce nicely off support… and overall positive day for the broad markets. There was low volume as expected during the holiday week. We will let this unfold and take what the market offers. 

  • China (FXI/YANG) downside back in the country ETF. Letting it unfold… 
  • Energy (XLE/ERY) some selling on the day as crude picks up some volatility.
  • Biotech (IBB/LABU) upside back in play for the key sector.
  • Gold (GLL) the downside leading the metal lower again.
  • Emerging Markets (EEM/EDZ) downside back in play.
  • Technology (XLK/TECL) nice upside bounce and watching how it develops.
  • NASDAQ 100 (QQQ/TQQQ) solid upside move for the leading index.

Plenty of positive moves on Monday… but, we need to see follow through and some conviction from the buy-side. Patience as the holiday week unfolds.

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

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 below the $58.44 support and broke the uptrend again. Watching how it unfolds with the cloud of worries over tariffs in play. Nice bounce back to the $58.44 level to end the week… 
  • XLU – Utilities had been under pressure from higher interest rates. They got relief as rates moved back below the 2.9% mark. A positive week again with a move above the $52.72 mark and the uptrend accelerates… entry $49.55. stop $52 (adjusted). Watching how it unfolds this week. 
  • IYZ – Telecom moved back above the $27.63 resistance and watching the elongated consolidation pattern clearing $28. Entry $27.80. Stop $27.10. 
  • 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 the 50 DMA. Entry $50.50. Stop $50.75. Upside remains in play. 
  • XLI – Industrials made a move back to $71.43 and holing at support. Looking for some type of reversal or break lower. Patience as it continues to bottom.
  • XLE – Energy stocks have been volatile as they deal with the question of production impacting the price of crude. The announcement was less than expected to produce a rally in oil and some upside off the lows in stocks… looking at how this one unfolds. 
  • XLV – Bounced off $83.24 support. Some follow through as the sector moved back above the $85.65 resistance and getting momentum from drug stocks. BIIB led the upside on Friday. Entry $83.25. Stop $82.50. 
  • XLK – Holding support at the $68.75 mark. Downside pressure came from the semiconductors. Letting this play out near term as we clear $70.25 resistance. A positive move to end the week… looking for follow through and semis to recover. 
  • XLF – broke support at $26.90… and in bottoming consolidation pattern. No momentum to speak of with earnings announcement coming soon. 
  • XLY – Consumer remains a leader, but that is being challenged with the tariff worries pushing the sector to key support levels. Letting this unfold with some clarity and then we will decide how to trade. 
  • RWR – REITs have been in a clear uptrend since February lows. Granted it has come with some volatility and speculation, but the upside is in place. Entry $87. Stop $91.20. 3.8% dividend. Safety net for money as it rotates. Watching as the move higher plays out… raising stop and looking to take some money off the table if the tide shifts in rates. 

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

FINAL NOTES:

The question remains about direction and volume despite the buying to end the week. We booked positive gains on positions and continue to trade what the market gives. The positive news from the jobs report on Friday added to the bounce on Thursday. There is plenty of fundamental data on the horizon with earnings starting soon. The data showed all eleven sectors moving higher for the week. Despite the tariffs starting investors were willing to put money to work. The volume, however, was on the low side. The end result was a positive bounce on positive data ending the week. Next week will be interesting as we start the earnings season. Healthcare, utilities, telecom, and technology offered leadership efforts on the week. Bonds, utilities, REITs and other defensive sectors continue to fare well in the current rotation and upside movement. Energy is consolidation along with crude oil as speculation about supply and demand keep the commodity and the stocks in check. Financials continue to show struggles under the weight of the uncertainty in the financial markets. We need stocks to hold their own in the face of news and worries in order to keep the second leg of the bounce in place along with the uptrend. We will keep our focus on our strategy in the current market environment. We added some positions on the move this week and 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.