Markets end the week slightly higher

MARKET OUTLOOK FOR April 22nd, 2019

Another week of trading in the books as the market is closed for Good Friday. The trading was more of the same… topping patterns, consolidation patterns, and a few downtrends confirming. No big changes on the day, but the break lower from healthcare was confirmed and we are watching how REITs unfold with a spike lower. Economic data was positive as retail sales showed improvement and earnings posted positive results in the industrial sector helping the sector the S&P 500 to positive territory. Positive week for stocks and plenty of things on the table heading into the long weekend. Relax and enjoy your holiday weekend.

The S&P 500 index closed up 4.5 points to 2905 testing near the October highs of 2930. Trading improved on Thursday with eight of the eleven sectors closing in positive territory. The industrials and REITs were the leading sectors. Industrials are pushing towards the September highs and REITs attempted to bounce off the selling on Wednesday. Energy continues to struggle to break from the current trading range and healthcare failed to bounce from the two-day push below support. The long-term trendlines are approaching the key levels to resume the previous uptrend. We will watch how the current activity unfolds and if the buyers can maintain control. SPXL entry $33.50, stop $47.93 (adjusted).

The NASDAQ index closed up 1.9 points to close at 7998. The large-cap stocks (QQQ) have been the leader for the move higher and tried to add to the move above the March 21st high (7838). The 7849 support is the level to watch should the sellers’ appear near term. Technology held up and remains in a leadership role. QQQ is our indicator near term and needs to hold $185.05. Semiconductors have been the leaders for the last two days. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark and holding. TQQQ entry $34.17. Stop $60.54 (adjusted). Solid leadership in this sector and watching how it unfolds with the move above $180.28.

Small Cap index (IWM) the sector has been in a consolidation pattern. The need to close above the $154.90 level was key to breaking higher to continue the previous uptrend. Need to hold above $156 and clear the Feb 25th highs to show positive progress in the current move. The hesitancy we discussed showed up in the index as it moved below the $158 mark. Start of the current trend was the break lower testing the $149.05 support and back to the resistance at $154.90. The trend from the February highs was heading lower… it did reverse back to positive and has tested the move again. The chart is still not very convincing with the buyers not quite as robust and the volume on the low side. We are looking at what opportunities result near term.

Transports (IYT) hit some resistance at the $192.42 level and the index cleared the resistance with a solid move higher. The week was positive with the index breaking higher… yet on below-average volume. The test of the $182.43 mark failed then bounced back above that level and $186.70 cleared. Added a position at $188.30. Stop $192.25 (adjusted). Taking what the sector offers.

The dollar (UUP) The reaction to the FOMC pushed the buck to support at the $25.50 level. A dovish Fed willing to offer stimulus is not favored by the dollar… But, a weaker economic picture globally is helping the dollar currently. The IMF revised GDP numbers lower for around the globe. It is a matter of which news story holds the greatest belief for the buck. The big question mark for the buck remains a possible resolution to the trade tariffs with China. The ETF closed at $26.13 and remains in a positive pattern holding support… Watching as this continues to unfold.

The Volatility Index (VIX) closed at 12.1 on Thursday moving to a six month low on positive stock activity. The IMF warned of global growth slowing for the third time in six months adding some volatility. For now, the tug-o-war between buyers and sellers is being won by the buyers. Watching how this all unfolds patiently.

Economic Data: April starts a new round of data for the month of March… looking for some improvement over February.

MONDAY: Empire State index rose better than expectations as a positive sign for the economy. Fed spoke and stated they were good with the current interest rates environment and growth.

TUESDAY: Earnings were solid to help upside. Industrial production fell 0.1% missing estimates. Homebuilders index rose to beat expectations. This is being reflected in ITB’s gains of late. Capacity utilization declined and missed expectations. Still showing slowing overall in the economic trends.

WEDNESDAY: The trade deficit shrank in February helping some believe spending is shrinking again in Washington. Wholesale inventory fell and is a good sign for company sales. Beige Book showed slight to moderate growth with some regions strengthening. The story-line remains the same… for now.

THURSDAY: Weekly jobless claims were below expectations and at the lowest point in many years. Wholesale inventories fell more than expected confirming the rise is sales for March. The Philly Fed index was disappointingly lower, but still showed positive growth. Retail sales blew away estimates posting the best month in the last 18. Some positive data that matters for growth.

It is all about the progress following interest rates were hiked by the Fed… we continue for the fourth straight month to see slowing in the data. Eventually, this will show up in stock prices through earnings. Those have started and we are seeing mixed data from companies. Interpreting the data versus the emotions… following the trends.

(The notes above are posted daily based on the activity of the previous days trading. The BOLD/ITALIC comments are current day changes worth noting.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) The selling resumed and moved back below the $107 level of support. The break down is coming from the small-cap stocks. XBI is the large-cap stocks and it is not fairing much better on the chart. We don’t hold any positions in the sector currently. Why the downside acceleration? Government banter about Medicare for all. That type of social medicine doesn’t help capital driven stocks. Short side in play…

Semiconductors (SOXX) Tested below the $187.41 support and managed to hold and added to the upside this week as the sector moves higher. Watching how this unfolds going forward and managing the risk. Entry $187.50. Stop $207.50 (adjusted). Upside accelerated on the week and adjusted our stops.

Software (IGV) Broke $167.88 and bounced back above the same level to create the December lows and start the new trend. $167 level added a trading position. Entry $167.90. Stop $208.44 (adjusted). The rolling top pattern is back as the sector test support.

REITs (IYR) Tanked on uncertainty from the Fed and the economic outlook. Broke $75.21 and bounced… trading opportunity on reversal above $75.21. Entry $75.25. Stop $85 (adjusted). Tumbled lower on higher interest rate talk. Added to the downside and closed at the 200 DMA.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.56% same as last week forfeiting the gains from early in the week. The bounce from the low in March is in play and watching the bond near term as it declines. TLT hit exit point at $123.40.

Crude oil (USO) showing resolve to work higher. Plenty of issues remain around the supply data. The US data showed a build this week and crude tested briefly and remains in a trading range. The sanctions in Venezuela and Iran are being factored in… then OPEC stated they would start increasing production to fill the gap… then conflict in Lybia adds to worries about supply shortages… and the saga goes on. In the end, the data will prevail relative to pricing. For now, the speculation is driving prices. The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $21.80 (adjusted). Managing our risk and letting this play out with resistance at $64.20 (crude price).

Emerging Markets (EEM) Watching as the bounce from the bottoming pattern moves above the $43.80 resistance and holds. Rumors of trade resolutions and talks with China helped the index but needs some reality to follow through. Watching for the clarity to unfold. Cleared $40.88 and broke higher from a double bottom pattern. Entry $41. Stop $42 (adjusted). News from China helping on the week, but the details are what will matter moving forward.

Gold (GLD) spiked lower again breaking support at the $121 level. Watching how the metal responds to the dollar and global chatter of slower growth. Downtrend developed on the chart. Short side trade offered (GLL) $74.50.

MidCap (IJH) The uptrend from the December lows are tested with a move below the $190.44 support. They have now managed to move higher and cleared the February highs completing the reversal. Entry $190.45. Stop $192.10.

China (FXI/YINN) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Bounced off support at $43.50 level. Talk of tariff agreement back on the table… but, we have heard this too long. The break from the eight-month bottoming pattern finally getting some follow through. Entry $39.80. Stop $42. The news remains positive from China on economic stability.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

THURSDAY’s Scans for April 18th: No big changes on the day as earnings from industrial sector pushed the sector up 1.1% to lead the day. REITs bounced 1% from the selling on Wednesday. Technology remains the solid leadership and healthcare raises concerns about the sell side. Some positive signs, some negatives signs, and plenty of talk, rumors, and speculation. Letting the charts define the opportunities…

  • Healthcare (XLV) short side confirms with a failure to reverse with any conviction on Thursday. Rumors and speculation about “Medicare for All” hitting the sector.
  • Gold Miners (GDX/DUST) downside pressure on gold sends the miners into sell territory. Watching for confirmation on the move.
  • Homebuilders (ITB/NAIL) solid upside as the data confirms better days in the sector… lower interest rates are helping.
  • Natural Gas (UNG/DGAZ) short side trade playing out nicely. The downside for the price of natural gas is seasonal with winter ending. Watching and adjusting our stops.
  • Industrials (XLI) confirm the break higher and post a positive week on solid earnings.

WEDNESDAY’s Scans for April 17th: Two sides to the market currently. The upside being led by technology and semiconductors. The downside being led by biotech and healthcare. This raises questions as to which side will win the battle for overall direction. Taking the upside gains for what they are and adjusting stops. Taking the downside for what it is and adding short trade positions. Sticking to our knitting and not allowing the emotions of the activity to interfere with the objectives.

  • Semiconductors (SOXX) hit new highs again on Wednesday. Tested the highs and closed with a solid gain on the day. Adjusted our stops and watching how it unfolds.
  • Healthcare (XLV) tanked 2.9% on the day Adding to the short position from Tuesday. Adjusting the stop to $24.50. The sector is undergoing renovations as money rotates away and towards technology.
  • Biotech (IBB) same story here as money rotates out of the sector and breaks key support levels. LABD hit entry $19.30.
  • Transports (IYT) added to the break higher and continues the uptrend. This is a positive sign for the overall economic picture.
  • NASDAQ 100 (QQQ) hits new highs thanks to semiconductors. Watching to see if it can hold the move and add to the positive uptrend.

TUESDAY’s Scans, April 16th: Some unique discrepancies in the market on Tuesday and worthy or our attention. Money rotated out of XLV and RWR. Money moved into XLF and SOXX. The broad indexes barely closed in positive territory as a result. The good is leadership. The positive is money stayed in the market. The bad is two sectors change their trends for now. Taking what the market gives, but keeping our eye on the overall sentiment of the markets.

  • Healthcare (XLV) breaks lower on higher volume from the consolidation pattern. Big negative and confirms the short entry $89.70. Providers (IHF) and medical devices (IHI) led the downside move. RXD entry $22.75. Stop $22.50.
  • Financials (XLF) solid upside on the day, but earnings from BAC missed top line growth. Warnings about net interest income were negative for the stock… but, it also shows the impact of lower interest rates on the ten-year bond. Just think inverted yield curve.
  • REITs (RWR) declined 2.5% negating the break above $97.92. Why the change in direction? Interest rates. Several banks have pointed to a slowing in net interest income. Lower rates aren’t helping the sector. REITs traded in sympathy with the chatter on interest rates. Watching how this sector unfolds.
  • Semiconductors (SOXX) solid upside move to add to the new highs. The leadership from this sector is key overall. Riding the wave and adjusting our stops.
  • Interest rates (TNX) ten-year bond yield moved to 2.59%. Not a huge deal, but it is a follow through to the move higher last Friday. The impact to bonds (TLT) is negative obviously, but it also impacts the interest-sensitive sectors like REITs (RWR) and utilities (XLU). This has my attention as it unfolds. Short Treasury Bonds (TBT) entry $33.55. Stop $33.55.

MONDAY’s Scans, April 15th: Some selling, some weaker earnings in banks, some talk by the Fed, some economic data and the markets closed basically unchanged. No break downs, no breakouts. It was a boring day for stocks and we move to Tuesday.

  • Financials (XLF) earnings from GS and C missed top line numbers. Sector test the move higher from Friday. KRE, KBE, IAI all in the mix.
  • Natural Gas (UNG) moves to February lows. Short side DGAZ trade working well… watching if it holds this level of support.
  • Homebuilders (NAIL/ITB) solid upside remains in play with lower interest rates helping the sector.
  • EWO, GREK, EWL, EURL all moving higher.
  • Consumer Staples (XLP) moved to the October highs.

FRIDAY’s Scans, April 12th: There is plenty in the headlines and it is impacting stocks in both directions, but overall, the upside is winning. Financials and Transports make positive breakouts. Technology, consumer discretionary, industrials, and basic materials remain in a leadership role. The VIX dropped to a six month low. Everything is positive to end the week. That said, we remain cautious and have adjusted our stops accordingly.

  • Financials (XLF) JP Morgan posted solid numbers for earnings and boosted the sector breaking above resistance and resuming the uptrend.
  • Transports (IYT) broke above resistance and posted a positive week to resume the uptrend.
  • Technology (XLK) moved to new highs. SOXX, SOCL, IGN, IGV all move to new highs a well.
  • Consumer Discretionary (XLY) moved to new highs. Consumer is alive and well based on the charts.
  • Crude Oil (USO/UCO) moved to resistance at the $64.20 level and watching as the data is conflicting with the belief.

Sector Rotation of S&P 500 Index:

  • XLB – New lows and found support… got the move above the $50.35 mark. Entry $50.50. Stop $56.75 (adjusted). Upside hitting resistance at the $58.13 level. Letting this unfold.
  • XLU – The utility sector found support at $51.11… moved above $52.72 for entry. Cleared $57.10 resistance and showing some near term topping. Watching and managing the risk. Entry $53. Stop $56.75. Topping pattern showing on the chart and the $57.12 level of support in play.
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $28.25 (adjusted). Cleared the February highs and continued the uptrend. Tested after hitting the $30.95 resistance. Watching.
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and continued upside trend. Managing our risk. Entry $51.90. Stop $54.25 (adjusted). Cleared resistance at the $54.92 level. Remains in an uptrend. Solid move to the October highs.
  • XLI – Industrials moved to near-term low and bounced. $65 level cleared for trade opportunity. Entry $65. Stop $74.05 (adjusted). Broke above the $76.80 resistance and moving higher on positive earnings.
  • XLE – Energy stocks bounced back with crude prices moving higher. Breaking from the trading range and plenty of uncertainty in the sector overall. Watching for a move above $67.
  • XLV –  Healthcare fell below the 200 DMA and accelerated. The cause of the doom-and-gloom for the sector is a proposed “Medicare for All” healthcare from Washington. Obviously rumor-driven… Looking for the opportunity in the mess.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $75.93 (adjusted). Trading at new highs. SOXX, IGN, HACK, SOCL, and IGV all part of the puzzle for the upside to continue. Moved higher with the help of SOXX. Adjusting our stop.
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $25.76. Stop $25.76. Cleared $26.33 level of resistance and watching. Positive earnings push the sector above resistance and renewing the uptrend. Moved upside on earnings and looking solid for now.
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $113.50 (adjusted). Cleared resistance at $113.50 level. Taking on a solid leadership role and hitting new highs. Adding to new highs.
  • RWR – REITs broke lower… bounced from lows clearing $93.21 resistance… positive upside move. Entry $88. Stop $96.50. Watching and managing the risk. Made move to new high last week. Reacting to interest rates with a sharp move lower… watching.

(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:

Markets tested and held key support levels and have bounced back near the October highs as resistance. The S&P 500 closed with solid upside for the week. The leadership remains in place and transports confirming the upside effort to end the week. Looking at the charts you can see the key levels of support holding, the key resistance levels remain in play as well. April is unfolding with earnings season and the overall positive economic data thus far from March. The rumor mill remains about the strength of the markets and the economic picture. The talk in Washington of social medical programs has the sector in a tailspin. Some sectors are moving higher, some are moving lower, some remain sideways. Plenty of question marks and only time will tell the outcome. There are some issues facing investors as the trade agreement has not materialized with China. We will take the positive week for what it was as we continue to emphasize sound money management. We will look at positions to take profits, adjust stops, and manage the risk of the current environment. The goal is to avoid speculation and follow our disciplined strategy for each position. Taking it one day at a time.

Seven of the eleven sectors managed to close the week in positive territory as money continues to move with some rotation. Financials and industrials led the upside for the week. Transports posted a positive break higher along with industrials. Healthcare was the laggard as money looks for a new home. Money is rotating out of the sector as we watch the break below the 200 DMA. Seven sectors remain in a positive uptrend with three moving sideways in consolidation patterns. One has broken into a new downtrend short term. Interest rates ended at 2.56% as they were unchanged on the week despite rumors of them moving higher. Bonds have declined 3.3% from their recent highs. The dollar bounced back as the global picture remains uncertain. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers.

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.