Markets close week with a volatile day

Volatility would describe the activity on Friday as options expiration adds some activity up and down for the indexes. The S&P 500 index was up 1.3% early but closed down 0.6% for the day. The headlines were focused on the second half of 2020 as the Fed Presidents were out discussing slower recovery due to the renewed spread of the coronavirus… not what investors wanted to hear. Biotech (IBB) was the star for the day gaining 3.3% on as money flow moved to companies getting closer to a drug for the coronavirus. Utilities headed lower giving up 3.1% as money flowed out of the sector. Crude was up 2.5% as the price approached $40 per barrel. Plenty of jockeying on the day as money continues to look for where it will be treated the best. For the week the S&P 500 index gained 1.8%.

In The News:

Short news notes of interest… 1) It was rumored that Apple was closing stores in four states due to the rise in the coronavirus. 2) Warren Buffet goes on record as saying the stock market is in la la land and is insanely disconnected and due for a reckoning. 3) Record increases in six states after reopening on Thursday… 4) WHO declares the pandemic has entered a “new and dangerous phase”. 5) Markets are reacting to the news on coronavirus spread and slower economic recovery.

Leading ETFs for the Week… following the money is a key factor to know what investors are thinking and EFTs offer a simple way of tracking movement. This week the leaders were… Biotech (IBB) as it breaks from the trading range. Crude Oil (USO) attempting to move above $40 per barrel. Gasoline (UGA) breaking to a new high. China Internet (KWEB) broke to new highs and accelerated. Social Media (SOCL) moved to new highs in the uptrend.

ABM Industries stock jumped 19.9% on Thursday… their earnings report was impressive as the stock got lost in the pandemic bounce. They are a major provider of janitorial services… thus, a pandemic benefactor. They provide whatever maintenance business might need and thus… they are doing well in the current environment.

Carnival posts larger-than-expected earnings… the ups and downs for the sector have been obvious, but the worse than expected losses don’t help investors feel good about the dive in revenue. They were down 85%… that is similar to many of the restaurant and airline stocks. Not sure why there was a surprise in the revenue number… they are not even returning to sailing ships until September. Another case of stocks being ahead of themselves on the rebound. Another reason why you have to have a strategy for every holding in your portfolio. Risk management versus greed.

Roth IRA conversions… most people fail to understand the value of a Roth IRA or use one in their portfolio. The key advantage for individuals is the tax-free withdrawal from the account in retirement… Yes, tax-free… that means the income from the account doesn’t count against your social security income being taxable. It also means more spendable income without a tax bite. With the correction earlier in the year capital loss harvesting allowed you to offset withdrawals from your traditional IRA that could be converted to a Roth IRA. There are opportunities if you will take the time to do some homework.

The S&P 500 index closed 17.6 points to 3097. It was down 0.5% on the day as the index struggled on the day. The worries about the coronavirus surge and stock valuations kept a lid on the markets again but the index managed to gain 1.9% for the week. Eight of the eleven sectors closed in positive territory for the week led by healthcare (+3.1%) and consumer staples (+2.4%). The downside was led by utilities (-2.4%) and energy (-1%). The VIX index moved to 35.1 moving higher to end the week. The rise in investors’ anxiety is on our watch list. Plenty to ponder as we take time to review and manage our risk.

The NASDAQ index closed up 3.1 points at 9946. The index closed up 0.03% for the day. The index gave up the intraday move above 10,000 and settled the week up 3.7% erasing most of the previous week’s losses. The leadership from the technology stocks helped the move higher. The NASDAQ 100 index (QQQ) was up 3.5% for the week and back near the previous highs. The $233.41 level is the stop as we now watch how this unfolds. Semiconductors (SOXX) closed up 3.2% fo the week and holding support at the $255 level and bouncing. Technology (XLK) was up 2.8% for the week holding key support on the bounce. Watching how this plays moving forward.

Small-Cap Index (IWM) The sector had posted solid gains and had taken on a leadership role only to give that up and test lower. It held support at the $132.55 level and moved into a consolidation pattern on the chart. Watching for clarity.

Transports (IYT) The sector jumped 16.6% on optimism and rotation. The sector fell 10% since… Fast money moving and watching how this unfolds relative to the trend. Transports remain weak on the revised outlook for the second half of 2020.

The Dollar (UUP) The dollar broke lower from the consolidation pattern and was in a downtrend short term. There was a modest bounce this week in the dollar. Watching the bounce and the outlook near term.

The Volatility Index (VIX) Anxiety returned to end the week after falling to support at the 32.3 level. We closed at 35.1 thanks to the weaker economic outlook from the Fed.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector tested off the high and is moving sideways of late. The challenges facing growth is the rationale… watching how it unfolds with not holdings currently.

Biotech (IBB) The sector has been in a consolidation pattern and Friday broke higher… now we need to see a follow through to the move as we adjust our stops on positions.

Semiconductors (SOXX) The sector tested the $255 support and held. The uptrend is still in place and the anxiety level a little higher… The money flow is flat. Taking what is offered and raising our stop to $255.

Software (IGV) The sector established a bottom at $185 and bounced. Stop at $267.50 (adjusted). Entry $205.10. Some testing with the markets moving lower, but the trend remains positive.

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 0.69% flat from 0..69% last week. TLT was also flat for the week after some volatility in bond yields. Bonds are still in a downtrend from the April highs.

Crude oil (USO) Crude moved to a high of $39.83 closing at the high for the week. The data is showing a reduction in production and consumption as this unfolds relative to the data. I like the long-term holding with entry at $13.81 and a two-year target of $45. Trading opportunities as well in the commodity. Added a position in UGA as well at $17.40. Stop $18.54 (adjusted).

Gold (GLD) The metal tested lower to $158.94 support and broke lower for a day… we were looking for a bounce and trade opportunity in the trading range and it unfolded… added at $158.90. Stop at $158.90. Closed the week at the top of the current range. Manage the risk.

Emerging Markets (EEM) Broke from the trading range and above the April highs. Positive money flow as the optimism rises for the global economies as everything attempts to reopen. Tested on the week, but watching how it unfolds. Struggling but holding support.

China (FXI/YANG) Moving higher on the recovery phase starting for the global economies. Despite all the banter with the US/China trade, the country ETF is making moves higher with some testing on the week. Erased the break higher and holding in the previous range.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

FRIDAY’s Scans for June 19th: Volatility described the trading day and there was not much at the end of the day that changed. We continue to be diligent in managing the risk of the current environment and watching how the data impacts the movement on the charts. Money flow is slowing and the outcome is getting cloudier. Watching how institutional money moves from here.

  • Biotech (IBB) breaks from the trading range and moves to the upside.
  • Dollar (UUP) nice drift higher for the week.
  • Volatility Index (VXX) bounced higher on Friday. Watching how investor anxiety moves going forward.
  • Gasoline (UGA) broke higher for the week to new highs.
  • China Internet (KWEB) solid break higher and follow through.

THURSDAY’s Scans for June 18th: There were plenty of challenges for the trading day, but the markets managed to close flat overall. There were sectors bouncing back like energy and those testing the range like REITs. We will take it as digestion day as investors were content to watch and learn more data. Friday is options expiration and could cause some jockeying for positions, but looking for an uneventful conclusion to the week.

  • Software (IGV) closed at new highs as the sector remains one of the leaders overall.
  • Gasoline (UGA) closed up 3.4% and breaks from the consolidation at the highs the last two weeks.
  • Biotech (IBB) moved back to the previous highs within the current trading range.
  • Social Media (SOCL) climbed to new highs helping the leading technology sector.
  • Base Metals (DBB) are attempting to break from the consolidation pattern near the highs.

WEDNESDAY’s Scans for June 17th: It was a lackluster day for stocks as they spent most of the day pondering events, data, and hope for stronger economics. The positive news on Tuesday left investors with little to do on Wednesday but think about all they know… and more of what they don’t know. Letting this run it’s course and following the money. There will always be opportunities on the horizon.

  • Energy (XLE) continues to struggle to move higher but keeping the uptrend alive for now. USO and UGA holding well.
  • Financials (XLF) still not showing signs of an upside run… credit markets remain a big worry for the sector.
  • China Internet (KWEB) positive trend higher despite the struggles in the China ETF FXI.
  • Technology (XLK) remains a leader as the parts continue to move higher. SOCL closed at new highs. HACK, WEBL, IGV all look good.
  • Online Retail (IBUY) showing solid move to previous highs.

TUESDAY’s Scan for June 16th: Positive economic helps lift stocks from the selling last week. The initial jump from the lows in April and May is giving hope to investors. The challenge as put by Mr. Powell in his testimony to the Senate Banking Committee yesterday, it is a long road to recovery. The initial data is positive, but there is a lot that will have to be overcome during the next six months or longer. Taking the good for now and managing the risk that is based on our strategy.

  • Retail (XRT) solid bounce off the support levels and looking positive for the near term.
  • Small Caps (IWM) recovered about half of the losses from last week… watching how the risk-on trade unfolds.
  • Banks (KRE/KBE) held support and bounced on the talk from Mr. Powell to the Senate… but not enough confidence to surge. Watching how the sector unfolds.
  • Transports (IYT) key sector to watch on the upside… goods and services impact the sector… if the economy is recovering the sector will need to show solid signs of improvement.
  • Healthcare (XLV) bounced on the news relative to UK positives on drugs impacting the severely ill patients. Watching the drug sector (IHE) as well.

MONDAY’s Scans for June 15th: Negative start to the day reversed as the Fed offered more liquidity. Plenty of stimulus to keep the markets happy and for now, you don’t want to bet against a market backed by the Fed. China, Florida, and Texas see spikes in Covid-19 cases… that stimulated fear about further shutdowns around the world. The news is keeping the markets interesting and we will remain diligent in managing our risk.

  • Financials (XLF) get a boost from the Fed comments… moved higher on the day and holding above the $23.50 support levels.
  • REITs (IYR) bounce back… thanks to the Fed.
  • Energy (XLE) flat on the day, but crude oil (USO) and gasoline (UGA) headed higher.
  • Homebuilders (ITB/NAIL) solid bounce at support. Positive data in the sector as housing remains positive.
  • Natural Gas (UNG/DGAZ) downside accelerates… adjusted stop on the downside trade.

(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. Cleared $54.15 resistance and moved higher.
  • XLU – Utilities reversed the downtrend and heading higher. Tested back to the 200 DMA and watching how the sideways trend unfolds. Negative move on Friday.
  • IYZ – Telecom moved to the April highs and follows through to $29.50 resistance. Back to $27.63 support.
  • XLP – Consumer Staples offered short term trading opportunities as it trades in a range. Support at $57.20 level. Stop $56. $60.45 level to clear to continue the upside. Back to the 200 DMA.
  • XLI – Industrials broke higher from the consolidation pattern. Tested support at the $67.50 mark.
  • XLE – Energy moved above the $31.20 entry-level as the bottom was established. The uptrend remains in play with a gap higher was given back on the week and test the $38.80 support.
  • XLV – Healthcare moved above $88.50 level and offered upside opportunity. Letting it play out and adjusted our stops. Stuck in the trading range as money flow declines and attempted to break lower.
  • XLK – Technology cleared $82.37 resistance and offered upside trade. Remains the leadership for the broader index currently and broke higher from the topping pattern and adjusting the stop.
  • XLF – Financials broke higher showing some solid upside momentum the last two weeks. That ended as sold back to support at the $23.50 level… watching.
  • XLY – Consumer Discretionary broke from the trading range and established a solid uptrend. Approaching the February highs and stalled. Watching the outcome.
  • IYR – REITs broke lower below $71.30 support and bounced… Solid upside the last two weeks as the laggard gains momentum. Moved back to support at the $78.83 mark.

The trends are resumed on the upside with some consolidation patterns building this week. Watching how this unfolds moving forward as investor confidence seems to be shaken on news. 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… Eight sectors are in confirmed uptrends. Three are consolidation patterns, and none are in downtrends. The result for SPY is in an uptrend short term with a consolidation bias for the week. The leadership is seeing some rotation as questions get answers on the charts.

(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 leads the headlines with the record rise in new cases in six states. That put some caution in the markets overall as speculation of what the outcome will be for the economic picture. Add to that the Fed taking the lead to say it will weaken the second-half results for 2020 and prolong the recovery. All said it threw a wet blanket on the market along with some increased volatility on Friday. China-US trade tensions all but disappeared from the headlines this week, but that issue is far from dead. The NASDAQ’s pushed back towards the record highs giving up the gains on Friday… but, still showed positive movement. There are so many questions left unanswered for the simple reason it will take time to know… thus, investors are focused on putting money to work on the fear of missing out (FOMO) versus the risk that is present in the markets currently. The Fed remains fully engaged in the recovery process as it continues to put liquidity into the financial system, buying debt, and providing stimulus. We are not through the worst of it as the reopening process is slowly progressing and the rise in the number of reported cases is weighing on the markets. The VIX index moved back to 35.1 after testing the support levels earlier in the week. We continue to see short term opportunities and put some money to work over the last few weeks as money rotates. Our job remains to manage the risk accordingly. The rotation is showing up on the charts with fast money looking for opportunities. Five sectors posted a loss for the week and six were higher. Gold continued to bounce moving back to the top of the trading range. Crude oil posted solid gains as it approached the $40 level per barrel. The focus is starting to turn to the future outlook for growth and how long it will take to see a recovery. Many analysts are now saying the fourth quarter… I say that is a bit optimistic. 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. Remember fear and speculation create opportunities. Watch the trend, know which side the Fed is on (they keep telling you almost 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. 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.