Markets follow through on upside move

OUTLOOK: February 1st

More upside for the broad indexes as earnings continue to drive the trend. We now face another Friday… will it be a repeat of the last two where the markets sold off their gains? Not my job to decide just watch and see how it unfolds. Facebook garnered all the attention with good earnings data while others were not so great. Investors using selective news to buy stocks. There were some negatives from UPS, MSFT, QCOM, DDP, HSY missing revenue numbers… some like TSLA missed both. Sales slowed in the fourth quarter and the numbers are reflecting that. Warning? Maybe, remember that the government was shut down for most of January. We will continue to watch how the data unfolds and investors react… for now they are in a buying mood. 

The S&P 500 index closed up 23.1 points to 2704 and adding to the bounce from the December lows. The third leg has resumed after being wobbly at resistance. Watching how this unfolds.  Eight of the eleven sectors closed in positive territory on the day. Utilities and consumer staples were the leading sectors to close on the upside. The downside was led by basic materials and financials as some money rotates. The long-term trendlines are improving, but still, have work to be done to offer an entry signal. We will watch how the current activity unfolds and the impact on the trends longer term. SPXL entry $33.50, stop $38.38 (adjusted). 

The NASDAQ index closed up 98.6 points to close at 7281. The upside follow-through showed investors are in a good mood for now. The close was back above the 7103 mark and third leg higher advancing for now. The index has been the leader for the current move and the follow-through kept the leadership alive. Technology led the upside on earnings report from Apple and now Facebook added to the momentum. QQQ is our indicator near term. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark and holding. TQQQ entry $34.17. Stop $43.89 (adjusted). Got the move above the $162.48 resistance and watching how this unfolds with the positive advance this week. Manage our risk as we hit our next target at the $167.53 mark. 

Small Cap index (IWM) found some buyers as the third leg of the move higher accelerates in the current trend. The sector shifted to a leadership role as it tested and held the $144.65 level of support. Solid move to the next resistance point of $149.04 and puts the sector in good shape to continue this leg higher. Added a position on a move above the $133.78 mark. Entry $133.90. Stop $144.40 (adjusted)

Transports (IYT) bounced off support and looks positive with the move above resistance at $172.33. Clearing the $164.73 level offered upside trade opportunity. Entry $165. Stop $172.30 (adjusted). The gap higher was positive and the next target is $182.43. Watching with the stop in place. 

The dollar (UUP) fell on the news Wednesday as the Fed stands down on interest rates.  It bounced on Thursday to regain some upside. The move higher last week was helped by the economic data and hopes of a trade resolution with China. Failed to hold the move back above the $25.53 support and closed Thursday at $25.39 and renewing the move lower, but holding above the $25.25 support. New volatility in the dollar resulting from lower rates and what is perceived as a weaker stance for the dollar. Gold is the benefactor along with other currency… FXE/ULE hit entry at $109.75. FXY/YCL equally renewed the upside pattern at $87.50. 

The Volatility Index (VIX) closed at 16.5 on Thursday with anxiety falling again after Fed puts concerns to rest over interest rates… for now. Watching how this unfolds with anxiety levels moving up and down. 

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

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) The sector broke below support and finally bounced. $95.04 was the level to clear and did so with momentum. Entry $96. Stop $106.50 (adjusted). Solid move through $107 resistance and hit the 200 DMA as resistance… small trading range at support and looking for a catalyst. Stop in place. Testing the $107 support with a nice bounce on Thursday… 

Semiconductors (SOXX) Broke support at the $153 level… Solid bounce… some follow through. $153.13 cleared and added a trading position on the move… entry $78. stop $95.24/$105.24 sell half if reverses (adjusted). SOXL – Raised our stop – managing the risk. A target of $167.34 cleared with two solid days of upside moves. Earnings are the catalyst and let this run play out. Tested support at $167.34 and recovered on Monday… Sold half at $105.24 (above) Monday, and hit the stop at $100 on the close. Wednesday the sector returned to the upside and struggled on Thursday. 

Software (IGV) Broke $167.88 and bounced back above the same level. The sector was oversold producing a solid bounce… and follow through. $167 level added a trading position. Entry $167.90. Stop $183.20 (adjusted). Raised stop – managing the risk. A nice move higher to end the week. Tested lower on Monday and Tuesday breaking below the 200 DMA again. Reversed on Wednesday to renew the upside move with a solid follow-through on Thursday breaking above resistance at the $189.30 level. 

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 $79.54 (adjusted). Big move for the week as the Fed shows signs of no further rate hikes near term… benefits the sector short term.  Added to the accelerated move higher all week… adjust stop to $81.50.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.75% as yields remain below support and tested lower early in the week. The bounce off the bottom is in play… the bond responds by moving lower…  Fell to 2.69% as the FOMC meeting concludes with rates unchanged and the bond rallied again. The rally in the bond continued on Thursday with the yield dropping to 2.63%

Crude oil (USO) worries about the IMF data on the global economy. Rising supply remains a concern and the move above $52.51 resistance stalls. OPEC production cuts move to the back burner as a catalyst due to doubts about the promise The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $$15.10 (adjusted). Managing our risk and letting this play out. $52.51 resistance cleared and testing. Lost 3.1% on global growth slowing and worries Monday. Gained  2.5% on the Venezuela sanctions on Tuesday… FOMC news and supply data spark a gain of 1.7% on Wednesday… Needs to break resistance if the upside is to continue. 

Emerging Markets (EEM) Watching what happens as the bounce from the bottoming pattern follows through on the upside and stocks run higher. Rumors of trade resolutions and talks with China helped the index. Watching for the clarity to unfold. Cleared $40 and working on a double bottom pattern. $40.88 level to clear. Thursday closed at $40.93… with a follow through on Friday. Entry $41. Stop $40.50 (adjusted). Big test for the sector on worries about global growth. Bounced back nicely on Tuesday and Wednesday gains came on the FOMC news. Nice follow through on Thursday. 

Gold (GLD) moved above the $120.45 resistance digested it and moved higher. The dollar and geopolitics have been the catalyst for the metal… both up and down. The move in the dollar lower helped the metal move higher on Friday. Managing the risk. Entry $116.50. Stop $122.40 (adjusted). The gold miners (GDX) equally respond to gold moving Friday with a solid 3.3% gain. Watching how this unfolds near term with the metals and the miners moving together again… Entry $19.70. Stop $21.25 (adjusted). Solid follow through to Friday’s move higher and added to the upside on Tuesday. Wednesday gets a hand up from the FOMC news and the weaker dollar… Letting it run for now. 

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

THURSDAY”S Scans, January 31st: Last day of the trading month and money flow was high. Plenty of positives on the day with good earnings news where it mattered. That allowed the missed earnings data to hide. News from the meetings with China was mixed and the leaders were hoping to accelerate an agreement… we will see how that works out. China needs a settlement as their economy is declining from the tariffs. Broad indexes follow through on the upside moves and all is well heading into Friday… Watching how it unfolds and managing our stops.

  • Utilities (XLU) accelerate on the upside as interest rates continue to decline to help the interest-sensitive sector.
  • Consumer Staples (XLP) break higher clear the 200 DMA and keep the uptrend in play.
  • Healthcare (XLV/CURE) breaks higher and gets the trend back on the upside after testing to the 200 DMA.
  • REITs (RWR/URE) accelerated trend getting help from lower interest rates. Adjusted the stop again.
  • Homebuilders (ITB/NAIL) break from the bottoming trading range to show the first positive signs in three months. Again, lower interest rates helping the outlook for housing.

China (FXI/YINN) breaks higher on optimism about trade talks. Watching for follow through in the country ETF and talks.

Overall solid follow through for the major indexes and the leaders. Lower interest rates are helping as well. Watching and managing our risk going forward.

WEDNESDAY’s Scans, January 30th: FOMC puts the halt to interest rate hikes for now. The return was a rally in stocks, a weaker dollar, global markets rallied, and gold posted solid gains. All is well… It was on Wednesday… how it unfolds is still a matter of news and reality. The talks with China start today and will be the next hurdle for the markets. Watching and taking it one day at a time. There is still plenty on the table and the earnings data is not that great looking forward. Not for me to decide… we will take what the market offers and keep moving forward.

  • Gold (GLD/UGL) solid upside continuation of the trend higher. Gold miners (GDX/NUGT) gain as well. SLV and SIL both moving higher along with the base metals (XME). Adjusted stops and let this run.
  • REITs (RWR/URE) upside continues as well with stops adjusted on the run higher.
  • Technology (XLK/TECL) upside breaks higher adding to trend. SOXX led the upside move on the day.
  • Brazil (EWZ/BRZU) solid break higher and the upside resumes. The Fed news helped the break higher and managing our stops.
  • China (FXI/YINN) upside breakout as the FOMC helped the cause and the start of meetings on tariffs. We will see how that unfolds and managing the stop on the positions.

QQQ, SPY, DIA all break above resistance and looking for the follow through to the move again…

FXE and FXY breaking back to the upside on the weaker dollar.

EURL making a positive break to the upside along with EEM on the weaker dollar and hope of better economics globally.

TUESDAY’s Scans, January 29th: FOMC meeting, earnings, and China trade talks starting all weighed in on the markets and kept it in check with some winning sectors and some losing ones. The broad indexes remain in limbo looking for direction. Technology led the upside and is leading the downside currently in the test. Watching, scanning and looking where money is flowing near term. Taking what the market offers and keeping our eye on the prize, not the news.

  • Gold (GLD/UGL) more upside for both the metal and the miners (GDX/NUGT). The uncertainty globally and a weaker dollar adding to the upside moves. Adjust stops and let it run. SIL and SLV are following the metal higher as well. Base metals (XME) made a solid move as well on the upside.
  • REITs (RWR/URE) upside added again and heading vertically as rates continue to hold near 2.7% helping the sector.
  • Treasury Bonds (TLT/TMF) posted solid gains on rates declining on the day. Watching how this responds to the FOMC announcements today. Stops remain at $18.40 on the position.
  • Brazil (BRZU/EWZ) still consolidating from the trend higher from the December lows. $37.52 is level to clear near term. Stop remains at $33.
  • Water (CGW) solid uptrend remains in play and moved higher on Tuesday.

Apple announced earnings after hours and was up 4% on comments from Tim Cook… watching what impact that will have on the technology sector today.

MONDAY’s Scans, January 28th: The worries remain for investors over trade, Fed, and earnings outlook. The selling early held into the close and the second failed attempt to break above resistance is a concern on the charts, we adjusted stops and watching how this unfolds moving forward. Not speculating anything at this point just protecting the short term gains on positions and looking where the next opportunities lie.

  • REITs (RWR/URE) continues the positive upside move and adjusted the stop.
  • Gold (GLD/UGL) solid follow through for the upside move and looking at adding to position if the move holds above the $122.46 mark. SLV moving higher again as well.
  • Gold Miners (GDX/NUGT) successful move above the $21.24 resistance. Watching for follow through an opportunity to add to the position. SIL making a similar move.
  • Solar (TAN) continues the vertical upside move… nice run, adjust the stop.
  • Regional Banks (KRE) keeping the uptrend alive and adjusted the stop.

Watching the move on Monday for follow through… patience and stops in place.

FRIDAY’s Scans, January 25th: News leads stocks higher as the government heads back to work for three weeks. It will be an interesting time of headlines. President threatens executive order to build the wall and will fund the $7.2 billion necessary. China talks are on again… maybe. Earnings were the key driver for semiconductors and financials. The balance of the market reversed higher on hopes of more money flow from government spending… what true capitalist economy we have. All said we return to last Friday’s levels after testing earlier in the week. Watching how the new week unfolds and what catalyst develop looking forward.

  • Semiconductors (SOXX/SOXL) solid follow through to the move Thursday. INTC and WDC both missed on earnings, but the sector still advanced 2.1% on the day. Adjusted our stop and letting it run.
  • Technology (XLK/TECL) break higher to continue the uptrend from the December lows.
  • REITs (RWR) solid break through resistance at the $91.20 mark and sending the trend higher.
  • Emerging Markets (EEM/EDC) breaks from the bottoming pattern with above-average volume and some conviction to the move… finally a sign worth trading the sector.
  • Gold (GLD) solid move higher to confirm the uptrend after some sideways movement. The catalyst was a weaker dollar short term. Gold miners (GDX) are moving higher as well on the move in the metal.

The confirmation of the upside remaining and the third leg following through are a positive near term. Taking what the market offers and letting this unfold.

Update to follow the developments. These scans are looking for trends, reversals, breakouts, and other notes of interest.) 

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 $52.25. Upside continues with a gap higher on Friday. Test of the upside move. Solid upside move on Tuesday and Wednesday. Gave up some gains on Thursday. 
  • XLU – The utility sector found support at $51.11… moved above $52.72. The PG&E bankruptcy news sent the sector lower… but, buyers returned and we are back above the $52.72 level again and managing our risk. Entry $53, Stop $52. Watching the selling on Friday. Back to testing support at the $52.72 mark again. Solid bounce on FOMC news. Solid break higher on Thursday with interest rates moving lower again. 
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $26.90 (adjusted). Nice follow through to close the week with a gap to the 200 DMA.  Testing support at the $27.63 level. Broke lower on earnings and bounced back to even on the day. Thursday the sector bounced back near the current highs on the positive move. 
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and looking for upside trade opportunity. $51.86 next level to clear as the sector struggles at this level. Bounced back with the broad markets on Wednesday. Gets solid move higher on Thursday. 
  • XLI – Industrials to near-term low and bounced. $65 level to cleared for trade opportunity Entry $65. Stop $67.80 (adjusted). Upside leader with a solid move to end the week.  Led the upside on Tuesday and Wednesday with a solid gain. 
  • XLE – Energy stocks bounced with the market. OPEC talks to cut production is helping the upside move clearing $58.20 and now $63 resistance. Entry $58.30. Stop $61.30. (adjusted). Need an additional catalyst to keep upside moving near term. Consolidating as the day-to-day news confuses investors about direction. Sanctions on Venezuela added to the upside after selling on Monday on supply increases in US production. Wednesday rallied on lower US production. Tried to break higher on Thursday and watching.  
  • XLV –  Healthcare fell to near-term lows and bounced. $85.74 level cleared for upside trades. Entry $85.25. Stop $88 (adjusted). Cleared $89 resistance and stalled with flag pattern. Adjusted stops. Earnings not helping the cause. Ugly test lower with biotech leading the downside Monday. Small bounce back on Tuesday at the 200 DMA. Nice upside follow through on Wednesday with the Fed. Thursday moved above resistance to regain the uptrend. 
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $63.45 (adjusted). Cleared $63.69 resistance and followed through upside. Semiconductors lead the upside for the sector… earnings setting the tone. More selling on earnings and testing the $63.69 support. Solid gains on Wednesday to resume leadership in the current trend. Struggled on Thursday. 
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.10. Solid earnings on week boosted the sector and adjusting our stop. Modest test of the upside move. Soft in response to the FOMC meeting. Moved lower on Thursday as earning from V and PYPL disappointed. 
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $104 (adjusted). Cleared resistance at $105 and positive short term. $107.05 next level to clear. Holding support at the $105 level. Solid upside on Wednesday and Thursday to resistance at $109.21.  
  • RWR – REITs broke lower despite lower interest rates… bounced from lows clearing $88 level and $91.20 on the close Friday… positive upside move. Fed talk keeping rates in check and the buyers engaged. Solid move higher to $93.21 target… looking to take some gains and letting it play out. Added more upside all week as we adjust the stops again as money rotates to where it is treated the best. 

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

FINAL NOTES:

A glut of data out this week with earnings, FOMC meeting, trade talks with China start on Wednesday, and Europe economic data softens again… Watching how this impacts the current direction and if it adds to the stress on the upside moves. 

Fed helps the rally as it stays neutral and adjusts comments on the economic picture and outlook.

Watching how the trade talks with China unfold as they seemed to have a positive start on Thursday. Manage your positions and let the upside unfold.  

Markets continue the bounce from the December lows with test early in the week and managed to close back at last weeks highs. The third leg of the move higher remains in play and we have adjusted our stops accordingly. The government shutdown gets a three week back to work vote, but remain in play as a key concern for the economy. The hope of a trade agreement with China remains a beckon of light on the distant shore. Emerging markets, however, are trading like it is a done deal as EEM breaks from the trading range. Semiconductors (SOXX) are leading the upside move for the NASDAQ. Financials and Tech lead the S&P 500 index and the NYSE shows the solid broad-based move current in motion. 

Nine of the eleven sectors managed to close the week in positive territory as money rotates modestly. Technology, industrials, and financials led the upside for the week. Interest-sensitive sectors fared well despite the move higher in interest rates last week with REITs clearing resistance in the trend higher. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers. The Fed remains the biggest influencer with a shift again on interest rates which have pushed the long end of the yield curve back below 3% to 2.75%. Tariff wars coming to an end would be a huge influence in the outcome looking forward. How this all unfolds is a matter of time and confidence. Disciplined entry and exit points allow for 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. 

There are plenty of issues and plenty of speculation short-term. What we need is confidence in the outlook going forward… until that happens, expect more volatility and possible downside. Let it unfold… take the trades or opportunities offered… manage your risk and remember cash is a sector and there are times when it makes the most sense versus forcing something that really isn’t there… patience is a strategy as well. 

“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.