Markets continue optimistic trek higher

By December 1, 2017Jims Notes, Research Post

OUTLOOK:  December 1st

The S&P 500 index heads to another new high and the NASDAQ bounces from the selling on Wednesday. The move higher was more in tune with a normal move higher as technology bounced, but left plenty of question marks about the move. A quick survey of the landscape shows positive uptrends and few questions as we start the last month of the year. Will the Santa rally continue? Does the Fed hike rates? Does the ‘yes’ vote by the House moves to the Senate to approve tax cuts? Plenty of things simmering on the stove and any of them have a potential to disrupt the rally. Watching how it unfolds with our stops in place and our eyes on the charts. Following the trends makes it easier to deal with the noise and speculation.

Eleven sectors moved higher with the S&P 500 index posting again on Thursday to hit new highs. Energy (XLE), consumer staples (XLP) and industrials (XLI) led the upside again for the second day. The leadership was interesting with industrials again heading vertically. That is not something you see every day from the sector that is usually a plodder. There is little in terms selling as all the sectors of the index made a positive move. REITs continue to be the laggard and cannot find a way to break from the current trading range. Interest rates remain a hot potato with the up and down tug-o-war over the Fed making a decision on raising rates prior to year-end. Yields gapped to 2.41% sending the bond lower. Plenty of question marks still remain relative to the overall direction and we will let this all unfold moving forward.

The S&P 500 index closed up 21.5 points at 2647 and closing at another new high. The uptrend remains in control of the index with an above average volume on the move. All the moving averages are pointing higher. The biggest movers in the index were LB (gap higher in the uptrend), KR (gap higher in cup pattern), HCA (break higher from the consolidation pattern), CVS (move higher to continue the reversal), and HUM (moved higher in the range back to the previous high). The downside leadership came from JNPR, MU, TGT, WDC, and CELG. Mixed activity leading the downside with technology stocks leading the downside for the third day. The broad index moved to a new high and the leadership for the last thirty days has come from REITs, consumer discretionary, and consumer staples… getting some rotation of late with financials, industrials, and telecom leading over the last ten days.

Gold (GLD) tested lower again after an attempted to break through resistance at the $123.05 mark. The $120.45 support is still in play as we trade within the range. The dollar (UUP) can’t find direction as worries abound relative to the Fed, taxes, and geopolitics. The emerging markets (EEM) moved to new highs near $48 and tested the move all week falling to the 50 DMA and testing the $45.52 support level. The Volatility Index (VIX) closed at 11.2 with a move upside on the day. There are some worries present despite the move to a new high. Watching how this unfolds moving forward with the new month of trading starting today and some jockeying for the year-end at hand. 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 $311 level only to recover as the challenges remain with a lack of clarity about Washington more than anything at this point. Bottom reversal started? Watching how this one unfolds. $311 remains the key level to watch with a bounce to $315 on Thursday.  

REITs (IYR) The sector tested the $76 level of support and bounced back to resistance and tested, and bounced, cleared the $81 resistance… only to test lower again… and bounce 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). Testing again finding support at $79. Ended the week back above $81 again… letting this play out as a long-term position. Consolidation pattern at the highs. Moving sideways this week. 

Treasury yields (TNX) moved to 2.34% last week as talk of the Fed hiking interest rates renews despite the talk of tax-cuts stalling in Washington. We still have the price of crude climbing and a stronger dollar impacting the rates as well. Willing to let this unfold for now as the rumors and speculation create a lack of clarity for bonds. Head and shoulder pattern on the chart currently.  Gap higher in yields this week keeps the Fed anxiety in place. 

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 tested the $120.45 support. The bounce on to end the week back to resistance at $123.05 is what we will watch in the coming week of trading. Moved above $123.05 but couldn’t hold the move and now back to bottom end of the range.  

Crude Oil (USO) has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue. The last seven weeks the commodity has managed to fight its way back above the $50, $52.50, and $57.50 levels of resistance and confirm an uptrend off the June low. Entry $50.20, Stop $55 (adjusted). The price continues to climb despite some worries about the supply. Patience remains the key for now. Test of the move from last week… watching. Upside bias in play. 

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production had not resulted in any real measurable cut that would impact prices. The double bottom pattern clears $63.22 for entry and a stop at $66 (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… still plenty of work to do going forward relative to the belief factor. Responded to crude selling lower to support again at $67. Bounced back Wednesday to where we started the week. Willing to add to our position if we can get through the resistance on some volume. Ran through the $68.50 mark and added to our position on the move. We will manage with the same stop.  

Volatility Index (VIX) The positive week for stocks ended the jump higher in volatility with the index returning to the lows and closing the week at 9.6. Watching how the new week unfolds with all the optimism towards stocks. Will it last? Adding some movement to 11.2 as anxiety shows despite the positive move in stocks. 

The S&P 500 index closes at new highs to clear the rolling top and resume the uptrend. The willingness of the buyers to keep stepping in at each attempt by the sellers to push the index lower shows some resolve. I remain cautious overall. The rotation of money is showing telecom, consumer discretionary, and energy leading the week. Patience is required with the markets overall with news leading the parade and the data points not offering enough to keep the long-term money engaged. NASDAQ is the worry currently as technology and semiconductors experience some selling… one day is not a trend as we saw with the bounce on Thursday and watching how this one unfolds. This same types of trading happened in September only to see the index bounce back to new highs. 

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

Daily Scan Results:

THURSDAY’s Scans 11/30: Final trading day for November was positive and the upside continues with the technology sector joining on the day with a reversal from Wednesday… plenty to watch with the catalyst coming from the rumors of a tax bill vote heading towards the Senate. Overnight, however, some interesting developments could change that action today. Stocks could very well respond to the news with futures flat to lower currently.

  • Biotech (IBB/LABU) break to the upside from the bottoming range is a positive… now need a follow through an entry at $75.30. Watching how it unfolds today.
  • Energy (XLE/ERX) Cleared the $68 entry level on Wednesday… added and got the follow through Thursday. $69 level is key to hold the move higher and watching how this unfolds near term with crude oil stalled.
  • Healthcare (XLV/CURE) follow through on the break above $45.20… raise stop to $46 and let this unfolds. Target $49.
  • China (FXI/YANG) downside move above the $6.25 mark hit entry and stop at $5.90. Patience required along with following through on the selling.
  • Oil Services (IEZ) cleared $33 on reversal of test lower. Looking for the follow through on the move and crude to move higher. Entry$33.50 and stop at $31.70.

The move on Thursday came from the rumors of a tax cut vote… after hours the Senate was finding ways not to vote. Watching how that unfolds today… other moves to watch from Thursday’s scans… FCG, IYT, IEO, IHF, FAS, RUSS, XLI, ZSL, DIA, ITA, MVV, and KOL.

WEDNESDAY’s Scans 11/29: the tale of two cities. NASDAQ fall hard and the S&P holds steady thanks to financials gapping higher. The semiconductors (SOXX) drop 4.4% to set the downside pace for the index. This breaks the uptrend off the August low and the 50 DMA is in play now. Stops were hit on trading positions at the $175.50 mark and our longer-term positions remain with stops at $164. Software (IGV) joined the selling hitting stops at $155. SOCL fell as well with Facebook leading the downside. Technology (XLK/TECS) tumble to support near the $62.50 mark. Not pretty, but we watch to see how it unfolds going forward… opportunities arise from these type of moves. Financials (XLK/FAS) followed through on the upside move Tuesday with a solid gain. Industrials (XLI) and telecom (IYZ) each added to their respective upside moves. There were plenty of interesting moves on the day and that means today and tomorrow and the next week will have to validate the activity.

  • China (FXI/YANG) back on the downside move we discussed Monday. $6.25 is of interest for short trade if the negative continues in the country ETF ($46.50 level breaks short trade is attractive).
  •  NASDAQ 100 (QQQ/SQQQ) looking at the short side trade if this follows through. You have to trade with logic versus emotions and this setup is not one I can ignore despite my emotional beliefs.
  • Emerging Markets (EEM/EDZ) downside setting up as well in this sector. Watching how it unfolds with support at $45.52.
  • Natural Gas (UNG/UGAZ) Followed through on the entry level from Tuesday. $11.04 is the target and we will see how it unfolds with a stop at the $9.15 mark.
  • Transports (IYT) I discussed these on Monday as key to watch for the economic outlook of the market as they had moved to support in at the $170 level and bounced… since they have now climbed to the October highs and cleared $180 on Wednesday… positive sign and trade with the move above $174.

This market is one that keeps you on your toes. It also defines my belief that there is always something to trade somewhere. The NASDAQ downside move opens the door to the short side traders and if they follow through will make it interesting for the balance of the markets. The move higher in financials is equally interesting as the Fed remains in limbo about interest rates. We will take what the market gives with a disciplined approach to each position. Stay focused and trade your strategy not your emotions.

TUESDAY’s Scans 11/28: another day for the buyers as ten of the sectors in the S&P 500 index move higher with financials (XLF/FAS) leading the upside move. Banks (KRE/KBE) both posted positive upside to new highs. Natural gas (UNG/UGAZ) hit the entry for trade at $9.45. Watching how today unfolds and what opportunities this brings. Homebuilders (ITB/NAIL) gap higher in the vertical move. Dollar (UUP) made upside move last two days and watching. Midcap (MDY) hit a new high in the uptrend. Broker-Dealers (IAI) leading upside for financials. Transports (IYT) push higher in bottom reversal. Industrials (XLI) solid move through resistance at $71.42. Dividend (DVY) large caps made break higher and hit the entry at $95.85 on move higher. Overall positive day with little worry to speak of.

  • Small Caps (IWM/TNA) Break above the resistance and hit the entry for a trade at $68.50. This is a trade to add to our longer-term position and stop at $66.
  • Regional Banks (KRE) hit entry at $57.50 level on a break to a new high. Watching how this unfolds on the day and stop at $56.30.
  • Brazil (EWZ/BRZU) upside move in bottom reversal to resistance. Break above the $42.50 level is of interest to me for a trading opportunity short term. Patience as this unfolds.
  • Retail (XRT) cleared resistance and entry point at $42. Stop $41.25 and letting this unfold into the holiday season as investors like the results from the weekend retail data.
  • Healthcare (XLV/CURE) made move above the $45.20 level resistance offering entry and stop at $44. The sector has struggled with Washington failing to make any reform efforts creating uncertainty. IHF and IHI leading the upside move. XPH is doing well but lagging.

Overall the buyers are keeping the upside trend alive with optimism about the future economic picture. True or not it is a belief that is driving. Without worries holding the markets back, the uptrend is alive and well.

MONDAY’s Scans 11/27: a day of moves higher to start that failed to hold. This is nothing major overall, but it does show some worries in the market. We will let this play out and take what the market gives following the upside move last week. Utilities (XLU/UPW) added to the upside move following the test and remains in a positive uptrend. Telecom (IYZ) remains positive in the move higher from the low two weeks ago. Healthcare (XLV/CURE) attempting to move above resistance at $81.81. Energy (XLE) tested support at $67 again.

  • Natural Gas (UNG/UGAZ) finally bounced off the lows and now we look for follow through and a possible reversal in the commodity.
  • China (FXI/YANG) sold lower for the second day leading the downside for the emerging markets (EEM). Watching.
  • Energy (XLE/ERY) downside in position with reverse head and shoulder pattern in place. Watching the $11.55 level.
  • Gold Miners (GDX/NUGT) attempting to break resistance at the $331.03 level and follow through along with gold (GLD/UGLD) on the upside.
  • Dividend Select (DVY) moved to new highs as the large-cap sector shows leadership short term.

Markets spent the day digesting the moves higher from last week. They could not hold the upside moves to start the day and flounder into the close. Watching how the week unfolds with some moves of interest going forward.

WEDNESDAY & FRIDAY 11/24: stocks enjoyed the upside momentum hitting new highs and showing some renewed leadership in technology (XLK/TECL) and consumer discretionary (XLY). Telecom (IYZ) resumed bounce from lows confirming the bottom reversal pattern. XLY, XLK, XLU, and XLP are the upside leader for the broad index. Semiconductors (SOXX/SOXL) continue their current leadership advancing the uptrend. Homebuilders (ITB/NAIL) continued the vertical move higher as well with stops moved to $79. Solar (TAN) solid move upside to new highs. Base metals (DBB) post positive move on the upside. Japan (EWJ) adding after test lower and back to the previous highs. Energy (XLE/ERX) is finally making a move in conjunction with oil again. Watching how the belief factor grows in this opportunity ($29 entry if continues upside). Pharma (XPH) following through on the bottom reversal move started last week with entry at $41.50 hit. Medical devices (IHI) equally broke to new highs from consolidation pattern. Dollar moves lower offering short side trade in UDN.

  • Natural Gas (UNG/DGAZ) downside acceleration confirms the short trade and we have to protect the gains by raising or stop to $29.75.
  • Crude Oil (USO/UCO) the upside continues following the teat last week. The move back above $22 confirms the uptrend and we will let this run as long as the buyers remain engaged. The upside for crude is double edge sword for the economic picture. Gasoline (UGA) moving higher again as well.
  • Europe (IEV/EURL) nice upside move and follow through to the reversal test lower. Entry $35.86 Wednesday… nice follow through on Friday. I like the euro (FXE) here as well with the dollar breaking key support. EWQ, EWG, EWO, EWN, EWL, and EWI all moved higher as well.
  • NASDAQ (QQQ/TQQQ) renewed upside move and adjust stops to $134. This sector continues to provide solid leadership for the broad indexes. AMZN, AVGO, MELI and INTU adding to the upside move.
  • Technology (XLK/TECL) the leadership from this sector is key for the overall move. SOXX, FDN, SOCL, HACK, and IGN all leading the upside move.

Key is to let all this unfold as the optimism springs eternal from the buyers. The volume remains on the lower side for the move and we will watch how this unfolds in the coming week.

Sector Rotation: 

  • XLB – Materials continue the wave type pattern of rolling up and rolling down in an uptrend. The upside resumed in August and the positive wave has ensued. Cleared $58 and continues to hold near highs. Entry $54.75, Stop $56.50 (adjusted). Broke the first level of support at $58.44, but found buyers to move back to $58.45. Watching how the new week unfolds.   Holding move higher
  • XLU – Utilities have been under pressure from the speculation of higher interest rates from the Fed, but they have attracted buyers the last four weeks. A nice move above resistance at $53.65 and solid move to confirm entry at $53.80. Stop $55.24 (adjusted). Testing the move higher with support at the $55.25 mark. Creeping upside. 
  • IYZ – Telecom has become more of a trading sector than the buy and hold historically. The volatility has increased and thus swing trading works better. Some buying? Some selling? Retested the lows as the downside took root and broke support at $30.40. The bounce last week was positive and added a position on the upside… $28.55 entry. Stop break even $28.55. Gapped above the $29.50 resistance and moving higher for now.
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The break of the $54.50 support put the downtrend is in play again. The buyers returned to recapture the upside momentum. A continued move higher from the low last week hitting resistance at the $54.76 mark.  Nice upside follow-through move above $54.76. 
  • XLI – Industrials moved sideways for two months and then back to the previous highs breaking out stalling at the $73 level. The long-term uptrend remains in play and the move sideways broke support and hit stop. Moved back to the $71.43 level of resistance and watching how this unfolds. entry if the momentum warrants on the move. Cleared the $71.43 level of resistance and pushed to a new high again on Thursday. 
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. Entry $65.20 with a stop at $66.50. Watching as this unfolds short term with the move back to $67 support unfolds. Positive bounce to end the week and looking for follow through. $68 entry to add to the position if we can gain any momentum in the sector. Moved back above the $67 support with solid follow through on Thursday.  
  • XLV – Healthcare has been a big roller coaster ride with a promise to reform healthcare and then the failure to follow through. The test of support at $81 back in play as the uncertainty returns. Watch the parts as well as the whole here… IHF, IHI, XBI, XPH. Positive moves in the parts give hope to the whole. breakthrough resistance and entry at $82. Stop $81. Letting this play out. Nice follow through again on Thursday. 
  • XLK – Technology uptrend remains in place with more new highs. Entry $48.50. Stop $60.50 (adjusted). Semiconductors hitting new highs. SOXX leading in the bounce off support. The new high test proves positive for the resumption of the move.  Gap lower on the selling in semiconductors. Support $63 holding for now. 
  • XLF – Financials pushed lower on worries about interest rates, the Fed, and no tax cuts. The retest of support at the $25.82 level was a concern for the short-term uptrend. Hit stops testing the next level of support and watching how the direction unfolds. No, follow through to the banks (KBE) finding some buyers… caution remains with Fed hangover.   Nice upside move back to new highs with KRE and IAI leading upside move. 
  • XLY – Consumer Discretionary moved back near the previous highs and remains in a sideways trend. Entry $83.50. Stop $90.50 (adjusted). The clarity about the consumer is a challenge for investors, but the sector did manage to clear $90.70 resistance and the previous highs. The uptrend is in play. Turkey rally on – watching how the retail (XRT) continues to add to the move. Moving vertical in the uptrend on optimism. 
  • RWR – REITs reacting to the current uncertainty around the Fed potential increase of rates. The longer-term view clearly shows the trading range and the opportunity to collect the dividend while investors continue to make up their collective minds on direction. We added the position in December on the move off the lows and continue to babysit the dividend of 4%. Big triangle pattern still in play (weekly chart). Watch how the week unfolds. Testing of the move higher as interest rate worries rise and trading at the ranges high. Stuck looking for direction.

Solid trading week as uptrend remains with the leaders and the laggards are still in play as the indecision overall remains. This is a market driven by sector and not an overall belief despite the move to new highs for the major indexes. Taking what the market offers and nothing more. Four sectors are trending higher, two trending lower, and five moving sideways… about what you would expect in the current environment. We have to remain disciplined in our approach to investing our money. The goal is risk management as the storylines continue to unfold.

(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 earnings currently. Traders are driving the short term swings and opportunities. 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. The economic data remains mixed and earnings have the same theme of some good, some bad, but enough to keep the buyers engaged. The political belief is there will be tax cuts on the horizon and a bill to reform healthcare, but the lack of progress has stalled the upside in stocks. 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. The challenge is the rumors becoming truth. The outlook for the economy is cloudy at best, the past data is not helping as it remains mixed with some good and some bad. Patience is the key for now. There are plenty of short-term trading opportunities, but the long-term remains less confident but has produced equal opportunities for those willing to be patient. 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.