Markets find support and buyers…

The indexes closed in the green… albeit not a big upside, but it was positive. The NYSE led the upside gaining 0.8% and the cyclicals led the upside sectors as telecom, transports, and financials offered solid strength on the day. Technology remains weak closing flat. Small caps bounced back gaining 2.4% after finding support at the $208 level on IWM. The dollar continues to tick higher reaching levels from November. Crude reversed lower again as the nerves over the Suez Canal remain. The fact remains that we lack clarity for now and we will remain focused on our strategies for managing money and let the markets find their way.

Short news notes of interest…

  • President Biden held his first news conference and restated he wanted 200 million vaccines by April 30th, which is double his original goal. And he promised a new infrastructure bill by next week… only $4 trillion. The best news was he said he would run for reelection in 2024. The bottom line was nothing was really newsworthy and the markets took it all in stride.
  • Initial jobless claims declined 97,000 to 684,000 and continuing claims fell 264,000 to 3.87 million. That is the lowest number since March 14, 2020. The data shows an improving economy… one plus for the day.
  • The GameStop drama continues as the stock rose 52.7% following a 34% decline in earnings… this stock remains a daytrader’s dream come true.
  • Georgia changed their elections laws and it has started a renewed argument over the November elections. This remains a heated debate among many and it is very well defined by party lines. This will impact elections in the state moving forward and it is likely to be challenged legally in the courts.
  • The cargo ship stuck in the Suez Canal may take weeks to clear… which is not good news for an already stressed transport system. It is estimated that nearly 50 ships per day pass through the canal carrying cargo to various parts of the world… this storyline will have an impact near term on stocks and trade. Watching how it unfolds.

Sector Rotation and the S&P 500 Index:

The S&P 500 index closed up 20.3 points to 3909. It was up 0.52% on the day. The index moved to 50 DMA and bounced at support. Money flow was higher and volume was below average. Ten of the eleven sectors closed in positive territory as the market still remains news-driven. The VIX index closed at 19.8 removing some anxiety on the day. The index remains above support after testing on news-driven trading. We remain patient and allow this to unfold near term. Long-term trends remain on the upside.

Thursday: The index was led by telecom, financials, and industrials on the day. The downside came from the consumer and technology sectors. The tech stocks remain challenged as investors are unwilling to put money to work and the rotation out of the sectors remains a trade. Small caps bounced at support finally after falling the last three days. Our focus is on the uncertainty building in the markets overall. As we have discussed this week, there is a lack of clarity coming from the White House, the Treasury, and the Fed. That prompts speculation and in turn, markets trade on news versus fact. Stay focused on your strategy.

  • XLB – Basic Materials bounced off the lows with money flow bottoming on the reversal. $70.80 support held and the upside has turned sideways. The sector shows a topping pattern on the chart. Some topping on the chart turned to selling on Tuesday. Held on Wednesday. Bounced on Thursday.
  • XLU – Utilities found support at $61.75… watching how this unfolds. Rising interest rates don’t help the sector. Remains in a trading range. Testing lower again and bounced the last three days.
  • IYZ – Telecom now shows a triple top on the chart and remains near the previous highs showing a channel or trading range. Looking for a break from the consolidation pattern to continue the previous trend. Topping pattern on the chart and watching the outcome.
  • XLP – Consumer Staples found support at the 200 DMA and bounced. Watching and digging for the opportunities in the sector. Pushing through resistance at the $66.60 level and closed higher.
  • XLI – Industrials broke from the trading range and rose to new highs. The test lower held and now we let it play out with stops in place. Some topping on the chart and watching the outcome.
  • XLE – Energy surged higher the last month and rose to near term highs. The fall in crude prices on the week pushed stocks lower and hit our stop on both stocks and commodities. Watching how this unfolds near term. Weakness on the chart as it retraces more than half of the gains on the break above $44.80. Bounced Wednesday on shipping worries hitting supplies.
  • XLV – Healthcare moved below the 50 DMA with the downtrend from the January highs establishing itself. Bounced at support and now struggling to move back above the 50 DMA. Money flow is rising… looking for opportunities. IHF hit entry last week is still the leader. Consolidating and needs to clear the 50 DMA and $116.
  • XLK – Technology remains in an uptrend but is definitely testing near term. Money flow is lower and sentiment remains negative. Rising interest rates hurting the sector overall. Solid upside Monday followed by some selling… needs to break from the consolidation pattern.
  • XLF – Financials bounced at the support of $28.95 and bounce back to the previous highs creating a ‘V’ bottom on the chart and then proceeded higher. The upside in play near term with some testing on the week. Entry $29.75. Stop $33.50. Some topping on the chart, but interest rates favor the sector. Testing the move higher at support and watching.
  • XLY – Consumer Discretionary ‘V’ bottom in play after bouncing near the 200 DMA. Needs to hold above the $167 level or the 50 DMA. Watching what unfolds near term. Closed below the 50 DMA and consolidating. Looking for support and direction.
  • IYR – REITs made a run to new highs as hopes of reopening the country will benefit the retail space available along with a return to offices. It may be blind hope, but the sector rose to new highs nonetheless and is now testing the move… watching. Positive upside as tested the support at $89.50.

Using the six-month charts as an indicator for the short-term view… Nine sectors are in confirmed uptrends with some sideways activity the last six weeks. Two are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for S&P 500 index is an uptrend short term with a reversal bias on the charts short term. We remain defensive and cautious about the broad index.

(The notes above are posted at the end of each week based on the activity of the previous week’s trading. The BOLD/ITALIC comments are the current day changes worthy of note.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

The NASDAQ index closed up 15.7 points to 12,977 as the index was up 0.12% on the day and closed at the 12,977 support. The index remains challenged by growth being out of favor near term. Money flow was flat and remains in a downtrend. The growth stocks struggled again on the day. The NASDAQ 100 index (QQQ) was down 0.17% showing the downside in the large caps on the day. The $312 support is now in play with the close below that level. Semiconductors (SOXX) closed down 1.37% and below the 50 DMA. Technology (XLK) moved down 1.2% and remains in the consolidation pattern with a downside bias. There is plenty to watch and that will take some patience.

Semiconductors (SOXX) The sector remains volatile and the head and shoulder pattern has our attention. Watching as the sector isn’t out of the woods yet. It remains an indicator for the broader index and it will give clues overall about direction moving forward. Erased the upside move from Monday and added to the downside with a break lower from the consolidation pattern and watching the $375 level of support. Downside bias remains in play.

Software (IGV) The sector showed volatility again after testing the current lows. The up and down week shows the uncertainty in the sector. If the upside is to return to the broad index we will need semiconductors to lead… patience as it unfolds. Erased the three days of moving higher… retesting the 200 DMA as support.

Biotech (IBB) The sector broke lower from the January highs and has struggled since. The sellers pushed the sector to the 200 DMA and bounce… not overly convincing in the action. Watching for opportunities. Erased the upside move from Monday and added more downside testing the 200 DMA as support… ugly chart.

Small-Cap Index (IWM) The sector held the 50 DMA as support and bounced but the sellers returned and watching how the trend unfolds. Stops remain in place. Struggled on Monday with negative money flow and rotation from the sector. Tuesday followed through selling off 3.6% and breaking support at $219.50. Now below the 50 DMA and negative turn of events for the sector. Wednesday and Thursday morning the sector tested support at the $209 level and bounced… watching how this unfolds.

MidCap (IJH) The sector tested the 50 DMA bounced off support and took on a leadership role last week. This week tested the move higher and watching how it plays out with stops in place. Struggled on Monday with negative money flow and rotation from the sector… watching. Tuesday followed through dropping 2.6% and break support at the $255.15 level. Looking to hold the 50 DMA and watching. Added to the downside on Wednesday. Tested support on Thursday and bounced. Uptrend still in play… barely.

Retail (XRT/RTH) The retail sector volatility was back as GME was back on the volatility drive. But, the balance of the sector has moved higher and shown some positives on the reversal. Looking for opportunities. Positive bounce from lows still in play as holds near support.

Emerging Markets (EEM) The sector moved sideways on the week with no real positives. No positions, but the downside is setting up for a move if the data follows through. Held support at $53.60. Broke lower from consolidation pattern signaling a negative note for the sector and offers short side trade. Small bounce on Thursday.

Transports (IYT) The sector has been showing positive signs and leadership for the Dow. Tested lower, but held and moved back to new highs to end the week. The uptrend remains in play. Raised stops. Failed to hold a positive open Monday… worthy of note. Tuesday followed through with more selling… watching. Bounced Thursday.

The Dollar (UUP) The dollar has bounced of late as a safe haven move globally. The bottoming pattern on the chart is in play with the dollar up 3.3% since January. The rise is due to the rise in treasury yields helping the dollar. The Fed is going to let the capital retention requirement expire on March 31st put on banks during the pandemic. That will have a positive impact on both. Dollar remains on run higher this week.

The Volatility Index (VIX) Volatility closed at 20.6 down from last week’s 24.6 levels as anxiety declined on positive activity in the markets. Watching how this unfolds relative to the outcome and influence on the broad market sector. At the previous lows… bounced 12% as anxiety returns to close at 21.5. Fell to 19.8 and the intraday remains interesting… watching.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.73% up from 1.61% last week. Rates are rising on inflation fears… negative for bonds. The bonds (TLT) have declined nearly 15% since the highs in January. Raise your stops and protect the gains on the short positions. TBT entry $17.84. Stop $21.04 (adjusted). 1.61% as bonds get some relief... watching the rotation on uncertainty.

Crude oil (USO) Crude moved to $61.42 from $65.59 last week. Despite the rise on Friday, the commodity ended the week down 6.3%. Fear of renewed closing in France due to the virus rocked the price for investors. We hit our stops and banked solid gains on the trade. Now looking at $40.25 as support and what it offers up or down. Crude fell 4.3% closing at $58.52 per barrel. Suez Canal issues offering some volatility in both directions.

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. The break of support at $166.50 finds support at the $157.29 mark and a small bounce… watching. Bottom reversal remains in play… Entry $162.45. Stop $159. Selling in commodity as the dollar moves higher.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

THURSDAY: Scans for March 24th: Indexes started the day lower and tested key support levels and bounced to close in positive territory for the day. The bottom test intraday was a positive sign on the close. Now we see if the buyers are willing to return and push the indexes higher. Clarity remains an issue for investors and news is the driver for now. Taking what is offered and letting it all unfold… patiently.

  • Small Caps (IWM) test to support and find buyers. The move off support intraday and closing higher gives some hope that the near-term selling is done… watching how it unfolds.
  • Technology (XLK) tested lower, bounced, closed negative, and watching for some clarity on direction. The consolidation pattern remains in play with a downside bias.
  • NASDAQ 100 (QQQ) like technology tested lower, bounced, closed negative, and watching for some clarity on direction. The consolidation pattern remains in play with a downside bias.
  • Homebuilders (ITB/NAIL) nice upside on the day to previous highs. Still in a consolidation pattern at the highs.
  • Crude Oil (USO/SCO) Downside is testing the 200 DMA for the commodity. The recent selling reflects the move higher needing to consolidate and digest the move. Now comes the challenge for direction moving forward and it remains a supply and demand issue.

WEDNESDAY: Scans for March 23rd: Another mixed day with intraday volatility picking up again as news drives the direction. The large growth stocks remain in a phase of indecision and not helping the cause. The ‘recovery’ stocks are fighting to hold near-term levels of support. Clarity remains a primary issue with too many potential roadblocks remain in the news. Virus, inflation, economic growth, unemployment, too much spending… and more. Taking what is offered and holding on to our cash for now.

  • Technology (XLK) and Semiconductors (SOXX) testing lower and causing havoc for the large-cap NASDAQ 100 index (QQQ). Broke support on the NASDAQ and watching how it unfolds near term… short side trades are set up at this level.
  • Biotech (IBB) selling accelerated the last two days… downside risk rises. The large-cap biotech (XBI) looks similar on the charts… but JNJ, PFE, and HUM are showing some potential.
  • Small Caps (IWM) fall below the January highs. Raised stops on short side trade offered and letting this unfold.
  • China (FXI/YANG) downside accelerated and we adjusted our stops again as the break higher in YANG gained 11.1%. Managing our risk.
  • Emerging Markets (EEM/EDZ) downside breaks lower and accelerated the move higher in EDZ. Adjusted stops and letting it run.

TUESDAY: Scans for March 22nd: Mixed day as investors renew some old worries and add new ones to the mix. The key here is the more worries the less certainty the markets have and in turn the higher the volatility day to day as the market swings on news headlines versus reality. With that in mind, we have to take what is offered and understand the environment we are investing in… shorten timeframes are one, volatility is two, and risk management is three… stay focused.

  • Small Caps (IWM) and Midcaps (IJH) both broke a key level of support in the current trend. Watching if the short side of the trade develops.
  • Crude Oil (USO/SCO) short side is playing out as the decline of 6% on Tuesday accelerated the decline in prices. Raised our stops and watching how this unfolds.
  • Oil Services (OIH) fell 5.2% on the drop in crude… the move fell below the 50 DMA and gave up the entire gain of 21% on the move.
  • Transportation (IYT) showed some weakness the last two days. Tightened our stops and watching how this unfolds. There is plenty of pent-up demand sitting on docks with no way to move it currently. This remains a big storyline in the economic picture.
  • Biotech (IBB) made a big move to the downside… Watching to see if we can hold support or if the downside builds momentum.

MONDAY’s Scans for March 21st: Large caps lead the day for a change as money continues to look for a home and some longer-term views. The anxiety levels dropped over the last week and investors seem more at ease. Watching how the tide rises near term with the NASDAQ showing some positive signs on the chart. Exercising some patience currently and let the trend define itself in some key sectors like technology, semiconductors, and consumer.

  • NASDAQ 100 Index (QQQ) positive upside on the day and showing some of the old leadership. Move back above the 50 DMA would offer some positives near term.
  • Technology (XLK) in a big consolidation pattern and watching for some signs of positive reinforcements. Patience as we need to clear the $133.70 mark.
  • Energy (XLE/ERY) at a key level of support near term. A break lower would offer some short side interest… bounce back we watch.
  • Natural Gas (UNG) second positive day following a month of downside. Stops in place on short side positions.
  • Semiconductors (SOXX) positive day to follow up on Friday… watching to see if any momentum catches in the sector.

FRIDAY’s Scans for March 19th: Interesting day for the markets overall as they struggle to find upside momentum following the selling on Thursday. Energy still looking for buyers to resume the upside move. Four sectors have moved into sideways trends over the last six weeks. The opportunities now lie on both the long side as well as the short side. Don’t assume this will automatically bounce and resume the previous uptrends. Stay focused and look for where the money is going.

  • Transports (IYT) remain positive on the charts and that is due to the backlog of products stuck on docks around the world. Logistics are becoming a nightmare and the outlook isn’t improving. Throw in the cost of fuel rising and you have some interesting dynamics in the sector overall. BDRY has moved up nicely the last month as well.
  • Mining (XME) still in a positive trend off the November lows. There are parts that are rising even faster within the sector… scanning to find them is key to finding the money flow. URNM is one example.
  • Gold Miners (RING/GDX) showing a bottom reversal on the chart… looking for a move above the 50 DMA to keep the move alive.
  • Homebuilders (XHB/ITB) still on the rise after a test of the 50 DMA. The housing sector is still seeing buyers despite the rise in interest rates. Existing home sales are equally as hot currently. Watching and taking what is offered.
  • Dividend/Value Stocks (FVD) the sector has been in favor as money has rotated from growth stocks. The chart shows the positive break higher from the consolidation pattern.

(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.)

FINAL NOTES:

Thursday: markets headed lower at the open and then reversed course as buyers stepped in at key support levels. The intraday reversal is a positive from the charts standpoint… the question will be if they can follow through on Friday. Watching as news remains the primary driver. Some are focused on Washington and the first press conference from Biden… infrastructure spending was the main news of note from the talk… watching how the bill is presented and following the money that will be spent to make some investments. Suez Canal blockage will have ripple effects worth watching as well… some news is tradeable some is just gossip not worth listening to or entertaining.

Wednesday: more intraday anxiety to keep investors on their toes. No promises here as the news leads and logic is pushed to the sidelines for now. Too much news with a lack of direction creates volatility and we are experiencing that now. There are trades setting up on the charts with EEM heading lower, FXI heading lower, QQQ breaking support, and more. Take what is offered and manage the risk accordingly. Don’t get caught up in the news remains focused and disciplined in managing your money.

Tuesday: not the follow-up day many wanted to Monday… the mixed moves and increased uncertainty levels pressured stocks. Money was on the move as rotation was towards safety and speculation. The latter tends to increase when uncertainty rises. Holding cash and letting the uncertainty unfold is not a bad thing. We have hit stops on the moves in volatility the last few weeks and we continue to take the opportunities as they emerge, but our time horizon is shortening on the current events. Patience is the key as we move forward.

Monday: positive day for the large-cap stocks as the NASDAQ 100 leads the upside move. Technology showed signs of life, but still has plenty to prove if the leadership is to return. AAPL, MSFT, CSCO showed positive moves on the day. Some have raised the question if the move to cyclicals is over? Only time will answer that question, but the money flow was definitely negative on the day. We have an eye on the small caps (IWM) chart as it shows some distribution, but not enough to throw in the towel. Patience is the goal for now.

Weekend Wrap & Outlook… The market shifts sentiment again as buyers sellers fight for direction. The NASDAQ remains challenged as growth remains out of favor for now. The upside hope is alive and well with cyclical and recovery stocks leading with some rotation to value and dividend stocks. Economic data is leaning towards growth aided by the stimulus. There are plenty of issues facing the US and global economies as inflation rises and central banks step in globally. Food and energy prices are rising and it is likely that energy prices are driving food prices higher due to the logistics of moving it around the country. Shipping is leading as there is a backlog of products sitting on docs around the world. Pandemic restrictions and closures continue to show up in the supply of products and raw goods. The move by France to shutdown 19 regions didn’t help the cause this week. Energy fell 7% on the news showing what investors think about the resurgence reported in the virus cases. The impact becomes a balancing act for both consumers and investors. The bond market is the larger concern as money rotates out of bonds on fear of yields rising even further, evidenced by the 1.73% yield on the ten-year bond. Remember who the largest bondholders are in the world and watch what happens to their portfolios, credit ratings, and profits… therein lies some opportunities.

With that in mind, the markets closed the week with a broad-based move to the downside. The cyclicals are leading and growth stocks are lagging. Value /dividend stocks are in favor versus growth and thus they are acting more like growth stocks. Commodities have cooled as money exits for greener pastures of current moves. The long-term trends remain on the upside but I remain cautious about the current environment. For the week consumer, healthcare led the upside. The VIX index closed at 20.9 and off the lows of the week. The dollar was elevated again as a safe haven option. Crude moved slightly lower on worries about the shutdowns. Watching the current movement in the broad markets as money continues to rotate and some heads to cash.

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.

“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 your trading strategies with a disciplined approach to investing and managing the risk of our money.