Markets finish the week in positive territory

Stocks rallied into the final hour on Friday to close at the highs of the day. The intraday trading was just like the balance of the week with the indexes starting higher and then moving lower only to rally back at the end of trading. It has been up and down all week with money looking for a home. What was different this week? The reality that the slowdown is taking root thanks to the rise in corona cases reported throughout the US. It has delayed reopening the economy fully and impacted the consumer with the stay at home advisories. As this continues to unfold the economic data has slowed in July and we will start getting reports on Monday with July coming to a close on Friday. Thus, what is an investor to do? Follow a strategy that fits the current market environment that finds what is trending and manages the risk accordingly. Money flow has picked up in sectors like precious metals, utilities, REITs, and others. Follow the money.

In The News:

Short news notes of interest… 1) Personal income declined 1.1% in June following the 4.4% in May… Not a good thing for the economic picture. 2) Personal spending rose in June by 5.6%… PCE price index rose 0.4% in June showing some pricing strength on the rise in spending. Thus, income fell, spending rose… how does this play out moving forward? A question we will want to look for the answer as move progress in the covid economic era. 3) Weaker economic data with GDP falling brings into question the cyclical stocks. They have tried to recover near term, but not enough data to support the move… thus, what about the mega-cap stocks… will they continue to support the upside? Earnings are positive, but we have to see what investors think moving forward. 4) Starbucks’ same-store sales fell 40% in Q2 thanks to the virus. The toll of the pandemic is mounting larger than most believe. 5) CBL, one of the largest mall operators in the US, is reportedly planning on filing for bankruptcy. Anchor stores are not paying rent and the longer it goes the worse it will be. 6) Some interesting stats for the week: Consumer spending rose 5.6% in June. Walmart laid off hundreds of corporate works in an effort to restructure and consolidate. Dunkin Donuts is shutting 800 stores or about 8%. JC Penney’s has elected to sell itself to the highest bidder the bankruptcy courts will allow. Landlords collected 91.4% of the rent from freestanding retail space… That is amazing. Shopping centers… only 69.5%. 7) Halfway through earnings and the S&P 500 numbers have been far better than expected… hope springs eternal.

The S&P 500 index closed up 24.9 points to 3271. It was up 0.77% on the day as the index remains back and forth on the week. The index continues to try and hold the first level of support at 3214 in the confusion. Corporate earnings are showing the impact of the shutdown and it worse than some imagined, but then overall earnings have been positive. Six of the eleven sectors closed in positive territory… showing some weakness on the day. Technology and consumer discretionary were the leaders on the day. Energy and healthcare were the weakest sectors on the day. The VIX index moved to 24.4 as indecision has defined the week. Watching how the data points add up looking forward.

The NASDAQ index closed up 157.4 points at 10,745. The index closed up 1.49% for the day. The overall movement on the day was positive as the technology sector added positive gains on earnings. The NASDAQ 100 index (QQQ) was up 1.78% for the day and back to the previous highs. The test lower bounced back this week as we watch to see how this unfolds. The $255 level is the stop as we adjust and watch. Semiconductors (SOXX) closed down 0.4% for the day testing the new highs. Technology (XLK) was up 2.5% for the day and posting a new high. Watching how this unfolds moving forward as some believe the top is in…

Small-Cap Index (IWM) The sector broke from the consolidation pattern with $144.65 resistance the level to clear. The sector attempted to climb higher this week but failed to hold the move. Looking for upside follow through.

Transports (IYT) The sector moved above the $167.50 resistance as airlines and trucking helped the move. June high is the next level to watch. Entry $167. Stop $171.62. Tested all week but closed higher on Friday as news continues to disrupt the current trend.

The Dollar (UUP) The dollar broke lower from a consolidation pattern and has moved into a trek lower. The EU stimulus package news didn’t help. There is a concern about the dollar moving into a free-fall near term as other nations’ economies bounce.

The Volatility Index (VIX) Showed up to end the week and the index settled at the 24.4 mark and essentially unchanged on the week. Watching for clarity here as investor emotions are not rattled… yet.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector remains challenged as growth stocks still not in favor, but it did manage to break from the consolidation pattern. Needs to follow through to the June highs.

Biotech (IBB) The sector broke higher from the consolidation pattern and hit new highs only to reverse and move lower. The $134 mark is support and a break lower would be a short side trade opportunity.

Semiconductors (SOXX) The sector remains in an uptrend but challenged by some volatility of late as it pushed to new highs. Money flow returned to the sector this week. Taking what is offered and managing the risk. $272 stop.

Software (IGV) The sector established a bottom at $185 and bounced. Stop at $280 (adjusted). Entry $205.10. A consolidation wedge pattern has formed on the chart and has our attention. Watching how it unfolds near term.

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 an attempt to break higher… watching as it needs to follow through.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.53% down slightly from 0.58% last week. TLT has been a benefactor of the fear trade emerging again. Bonds made a key move higher and watching as they consolidate. Entry $161. Stop $163.55 (adjusted).

Crude oil (USO) Crude moved to $40.13 on the week holding steady near the highs but down slightly from the $41.30 level last week. The data is showing a reduction in production based on the cuts from OPEC+. The EIA raised the forecast for the consumption of the balance of 2020 helping the commodity. I continue to like the long-term outlook with entry at $13.81 and a two-year target of $45. In addition, there are trading opportunities in and around the commodity.

Gold (GLD) The metal tested lower to $158.94 support and bounced giving a trade opportunity in the trading… added at $158.90. Stop at $172.29 (adjusted). Broke from a consolidation pattern and has a vertical move in play on the chart. Adjusting stops on the move and letting it run.

Emerging Markets (EEM) Broke from the consolidation pattern as money flowed into the Asian markets lifting the index. Now testing the move higher on tension with US-China rising. The BRIC index fund also showed a break higher. Taking what is offered short term as it unfolds.

China (FXI/YANG) Gapped lower again this week. The news from China about the economy didn’t help. Add rising tension with the US and it sees money moving out of the sector. Watching and letting this unfold.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

FRIDAY’s Scans for July 31st: The market day reflected the week with a positive start, traded into negative territory, and closed up on the day. Why the change in movement? My favorite word… uncertainty. It is becoming clearer to investors that the outlook for the economy is uncertain relative to growth and thus, stock growth will be uncertain. This is a market that rewards good news and punishes bad. Gilead earnings validate how missing earnings are treated as it sold off 4%. We have to take what is offered and avoid the downside risk as it is presented. Manage what you know not what you believe.

  • NASDAQ 100 (QQQ) big push higher on the earnings from four of the largest stocks on Friday. The question is how it plays out moving forward. Many questions about the valuation of these stocks from analyst… watch the trend and money flow.
  • Retail (XRT) consumer spending was higher in July and the outlook is steady… will it be enough to keep the sector moving higher? For now, the answer is yes… adjusted our stops.
  • Apple (AAPL) jumped 10.4% on earnings. Announced a 4 for 1 stock split and continues to lead the upside trend.
  • Biotech (IBB/LABD) Tested support and looking at downside move. Money flow turned negative and watching how this unfolds… GILD earnings miss was catalyst on Friday.
  • Social Media (SOCL) broke higher from the consolidation pattern on the chart as a positive sign. Needs to follow through on the move next week to confirm the upside.

THURSDAY’s Scans for July 30th: News and data points are coming like a firehose and it is raising questions as investors look towards safety. Treasury bonds are rallying higher. The dollar is declining and pushing gold prices higher. Consumer staples and utilities are seeing a rise in money flow… plenty to watch and money to protect. Stops are in place as we see how the last day of the week unfolds. Watching if the upside bias holds throughout the day from the earnings of the mega-caps after hours. Not a time to be passive with your management of risk.

  • Semiconductors (SOXX) broke to new highs and showing some resolve in the face of uncertainty about the economic picture.
  • AAPL, AMZN, FB, and GOOG all announce positive earnings after-hours and trading higher. Watching if they can hold the gain in Friday’s trading.
  • Energy (XLE) more pressure from the economic data pushes the sector lower on the day and crude move lower and back below the $40 level.
  • Biotech (IBB) at a decision point testing a key level of support. Looking at how it unfolds near term and what opportunities it presents.
  • China (FXI) stocks remain under pressure as the data from China remains weak and the outlook isn’t promising.

WEDNESDAY’s Scans for July 29th: News drove the day with FOMC, earnings, Monopoly hearing with Congress, and more covid cases. The challenges facing the market are adding up and it has created a week of back and forth for the markets. Watching money flow and trying to determine what and how it all unfolds. The fast money is chasing safety and defensive sectors the FOMO money is still chasing the dips in the old leadership. We are taking what is offered and managing the risk.

  • Gold (GLD) new highs and a vertical chart. Advancing the stop and managing the risk. Gold miners showing some topping and profit-taking.
  • Regional Banks (KRE) posted solid upside on the day. We continue to manage our position and looking to break above resistance near term.
  • Homebuilders (ITB/NAIL) heading higher on the data as housing continues to show strong growth in the current environment.
  • Small Caps (IWM/TNA) positive upside momentum of late and watching to break above resistance and continue higher.
  • Financials (XLF) watching for some upside momentum as the sector approaches resistance.

TUESDAY’s Scans for July 28th: The profits from Monday reversed course on Tuesday as the virus cases and Congress weigh on investors. Taking what is there, but I don’t expect the issues to be resolved easily. There are opportunities in the rotation as well as the fear creeping into stocks. Patience is the key as this all unfolds.

  • REITs (IYR) solid bounce, but needs to follow through as there is plenty of uncertainty in the sector.
  • Utilities (XLU) money rotating to safety. The sector has been a benefactor near term.
  • Natural Gas (UNG) bounced at the lows again… letting this unfold.
  • Treasury Bonds (TLT) moving higher again… adjusted stop and letting this unfold near term as money looks towards safety.
  • Consumer Staples (XLP) showing leadership from the defensive sectors.

(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 cleared $60 resistance and tested the move this week… watching how it unfolds near term. Stop $60.
  • XLU – Utilities found support again at the $55.24 mark and bounced. Trading higher in the current range and moving back towards the previous highs.
  • IYZ – Telecom found support again at the $27 level and bounced. Moved off support and heading back towards the previous highs.
  • XLP – Consumer Staples remains in uptrend off the June support test at $57. Stop $61.
  • XLI – Industrials moved sideways and managed to break above resistance at the $71.43 level. Testing the move and needs some upside momentum.
  • XLE – Energy broke the trendline moving lower and found support as the downtrend remains in play. Struggling to find any momentum. Watching the downside bias.
  • XLV – Healthcare broke above the $104 resistance. Watching as it posted a solid follow-through. Turned sideways the last two weeks as earnings are playing into the trend.
  • XLK – Technology posted solid bounce on Friday to keep the uptrend in play. Stop $104 and letting this play out near term.
  • XLF – Financials moving sideways near term. The banks have been on our watchlist for upside trades. Letting this unfold.
  • XLY – Consumer Discretionary remains in the uptrend. The bump in consumer spending was positive, but still watching the chart.
  • IYR – REITs struggle to find money flow. The move below $77.90 was negative but bounced at support and holding for now. Descending triangle pattern in play.

The trends are being challenged by news and investor activity. Plenty of consolidation patterns building the last few weeks and watching how they unfold going forward. 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… Four sectors are in confirmed uptrends as the consolidation phase continues. Seven are consolidation patterns showing indecision from investors, and none are in a downtrend. The result for SPY is in a move to sideways trend short term with upside the bias for the week. The leadership is seeing some rotation as money flow shifts directions.

(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 remains a headline impacting markets with the record rise in new cases. This weekend we will add the hurricane off the coast of Florida as a new threat… especially since I live directly in the path! Love it. These and other news points put caution in the markets and money begins to rotate looking for opportunity. The broad indexes posted a positive week as the investor psyche turns to some worries about the future outlook for the economy. The NASDAQ’s was the catalyst for the week closing up 3.6% at 10,745 on the week. The Fed and the Treasury continue debate more stimulus as politics get in the way of a near term resolution. Mrs. Pelosi said… NO Deal to the Senate and White House. This will play into the markets next week as well. The hope of a strong recovery in the second half is coming into question as the data shows slowing and growth in unemployment… Plenty of data out next week to ponder. The jobs data showed weakness as continuing jobless claims rose. The reopening process is being challenged by the spike higher in coronavirus cases. The VIX index moved down to 24.4 and settling at support. We continue to find opportunities near term to put money to work even in some sectors that have been lagging. Our job remains to manage the risk accordingly. Seven sectors posted gains for the week and four closed in the red. Technology saw money flow shift to positive again as earnings in the tech sector impress. Crude oil remains near the highs and closed at $40.13 a barrel. Watching the current up and down movement in the broad markets as uncertainty finds a home in investors’ minds. 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.

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.