Markets hold steady while money rotates

Less volatility on Tuesday compared to Monday, but there are still issues facing the markets as investors sort through emotions versus facts. The separation between large caps and small caps continued with the large caps holding steady on the day and small caps selling lower again on the day. Rotation continues with money looking for stability versus risk. Bonds were flat along with interest rates and the dollar was lower. Overall the day showed little change as investors jockey for position while looking for the next catalyst up or down.

Short news notes of interest…

  • Earnings remain in the headlines as MSFT beat after-hours moving up $10. JNJ, GE, and MMM all moved higher on the day as well with AXP and VZ get no love despite positive results from earnings.
  • Case-Shiller Home Price Index increased 9.1% in November versus 8% in October. Some old news to confirm a strong housing sector.
  • Consumer Confidence Index rose to 89.3 in January from 87.1 in December. Positive news despite the tweaking views of current business and labor conditions. Watching the impact relative to stocks.
  • Beyond Meat (BYND) jumped 17.7% after the company formed a partnership with Pepsico (PEP) to create plant-based snacks and beverages. Worth watching moving forward.
  • Gamestop (GME) saga continues with the war between short traders and Robinhood traders. The stock rose 92.7% today as the buy-side put more pressure on the short-sellers. Nothing like trading getting in the way of reality.

The S&P 500 index closed down 5.7 points to 3849. It was down 0.15% on the day. The index is holding well above the 3550 support as the markets remain on an upward trajectory with the index closing near current highs. The telecom and utility sectors led the upside on the day as investor worries remain. Four of the eleven sectors closed in positive territory as stocks struggled with investor worries. The downside came from basic materials and energy as sellers were present. Money flow was flat on the day as investors continue to be active in response to the news. The VIX index closed at 23.02 holding its elevated status. Watching the investor sentiment and how it proceeds.

The NASDAQ index closed down 9.9 points to 13,626. The index was down 0.07% on the day as large-cap stocks lead the day. The NASDAQ 100 index (QQQ) was up 0.15% for the day as money flow into the sector was flat. Watching how earnings impact the large-cap sector moving forward as many start to report. Semiconductors (SOXX) closed down 1.62% and testing the move higher. Technology (XLK) moved up 0.07% as the consolidation pattern broke to new highs confirming the upside and holds. Watching how this unfolds as the market shifts gears again.

Small-Cap Index (IWM) The sector moved up 2% for the week as it remains in a leadership role and pushing higher. The uptrend remains in play as we manage our position. Entry $155. Adjusted stop to $208.06. Concerns are being sounded by analyst relative to the risk of the sector… watching. Down slightly on Tuesday.

Transports (IYT) The sector tested support and bounced back to break above the $226 resistance and test that level again to close the week. Stop $222. Watching support. Testing the 50 DMA.

The Dollar (UUP) The dollar found some support at the $24 level… how long will this hold up? Watching the politics surrounding the buck. Lower on uncertainty.

The Volatility Index (VIX) Volatility closed 21.9 amid renewed concerns about vaccines and the virus spread. The economic data and politics also injected some anxiety. Watching how this unfolds along with the news. Flat with worries from investors in play.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector remains in a solid uptrend near term hitting new highs with some testing. Watching the current trend and managing the risk. Stop $238 (adjusted). Hit new highs and tested modestly. Down 1% on the day.

Retail (XRT) The retail sector showing a spike higher for the week as money flow remains positive. This has been a key leader for the markets and watching how this unfolds near term based on the slowing in sales the last two months. Stop $71.50 (adjusted). Gamestop influence moved higher.

Biotech (IBB) The sector moved higher for the week with some testing along the way. Stop $159.Watching how this unfold moving forward. Moved lower giving up 1.7%.

Semiconductors (SOXX) The sector remains in an uptrend with some testing near the highs. The $367.50 level of support is a long way off… Managing the risk and letting this unfold. The uptrend remains in play. Stop $405 (adjusted). Down 1.6% on the day.

Software (IGV) The sector broke higher from the consolidation but remains in a range. Watching how it plays out near term. Money flow has been consistently declining since the December highs. No positions currently. Slightly lower.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.09% even with the 1.09% last week. Rates are holding above the 1% level currently and watching as some volatility in the bond picks up. As we have stated short trades on the bond remain in place. TMV stop $58.88. Yields down to 1.04% as bonds rise on worries.

Crude oil (USO) Crude moved to $52.33 from $52.38 for the week or flat on the week forfeiting early gains. Plenty of speculation to influence prices and watching how this unfolds. As we stated nearly seven months ago… the greatest opportunity was in crude. Taking what is offered and managing the risk. Stop $34. UCO trade position entry $25.78. Stop $39.25 (adjusted). Showing near term volatility.

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. Watching as we test $171 support levels. Gapped higher from the consolidation at the low but failed to hold the move. Unchanged.

Emerging Markets (EEM) The sector moved back to new highs. Entry $44.50. Stop $54.25 (adjusted). China (FXI) was the leader on a break higher as well and we adjusted our stop on those positions. The break higher is positive for positions, but managing the new risk. Gave up the Monday gains.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

TUESDAY’s Scans for January 26th: More volatility same results. Jockeying for positions and leadership. Some money moving to safety and some chasing what is moving. There is the issue of Game Stop (GME) influencing the retail sector and there is the small caps testing the resent gains. Too much talking and speculating… we need to follow the facts, but until the emotions are under control and the speculation subsides… it is hard to add risk to our positions. Taking it one day at a time.

  • Software (IGV) being challenged by the data and speculation. Watching the topping pattern along with the move in leadership… ZS, COUP, CRWD, HUBS. Looking for the opportunity.
  • Cloud (WCLD) pressure as well on the downside with TWLO, PTON, ZM all fading on the day. Watching how it unfolds.
  • Retail (XRT) being influenced by the move in GME. Taking what is offered and managing the risk for when the madness stops.
  • Cannabis (YOLO) showing some topping following the big run higher.
  • General Electric (GE) upbeat outlook for business as CEO Larry Culp’s turnaround plan is gaining traction… has my attention on the break higher.

MONDAY’s Scans for January 25th: Some volatility as money rotates… some to safety some to speculation. There is plenty of chatter in the headlines as worries about the virus, vaccine delivery, and valuations hit the trading day. Volatility rose and there is a shift in sentiment near term. That said, not a bad day for stocks it was just the sentiment and intraday volatility with a low to a high day on the chart. Taking what is offered and taking the necessary precautions.

  • Moderna (MRNA) Stated the vaccine does work on the virus strains from the UK and South Africa. That sent the stock up 12%… watching how this unfolds. IBB was a benefactor of the move as well.
  • Apple (AAPL) reports earnings Tuesday… that will set the tone for the NASDAQ and the FAANG stocks. Worth watching in many ways.
  • Kimberley-Clark (KMB) beat expectations on earnings, but more importantly announced a stock buy-back… something that was halted by many during Covid. This may be the start of another positive for stocks.
  • California lifted their stay-at-home mandates and reopening of businesses. This is good news for many business owners. Watching how this unfolds and the economic impact.
  • China (FXI) back on the upside Monday as it continues the vertical rise.

FRIDAY’s Scans for January 22nd: Mixed news on the day as virus vs vaccine remains in the headlines. The new administration continues to tell all they are doing to help everyone. The news is there but not overwhelming… the valuations remain a concern and money flow is shifting amid concerns. Earnings from big names start next week and will have an influence on the current sentiment and outlook. Intel and IBM didn’t help matters Friday with unimpressive data. Watching and managing the risk while looking for the next opportunities.

  • Leading Sectors for the Week: ITB, FXI, QQQ, KOLD, and XLK.
  • Losing Sectors for the Week: KBE, OIH, SOYB, XLE, and RSX.
  • Interesting patterns on charts: RWX, TBT, PHB, IHF, and UGA.
  • Stock patterns on charts: MRNA, GTEC, NMRK, ATNX and AEP.
  • Sector watch… Financials (XLF, KRE, KBE, KIE).

THURSDAY’s Scans for January 21st: There was not a lot of positive takeaways from the market on the day. The large caps continued to rally and push the NASDAQ higher. The news on the virus front was not positive, earnings from Intel helped the SOXX index. Energy faded on the virus data. There was little to write home about and we made our adjustments and watched the grass grow… and it’s winter so you know how slow that is. Taking what is offered and managing the risk.

  • Crude Oil (USO) fell slightly as the US showed a build in supplies… watching how that mixes with the virus news. Interesting side note to the Biden promise to ban new permits for drilling. The existing ones could take up to five years to be depleted… oops.
  • Gasoline (UGA) topping pattern on the chart. Watching any downside risk currently.
  • NASDAQ 100 index (QQQ) upside gap is positive on the chart and watching the current move in the mega-cap stocks. Solid earnings helping the cause for now.
  • Homebuilders (ITB/NAIL) strong permits and starts data pushing the sector higher again. Take what is offered but be very aware of the risk that exists in the sector.
  • Financials (XLF) becoming more volatile near term. Watching how the topping pattern plays out looking forward.

WEDNESDAY’s Scans for January 20th: Inaguration day happens with little fanfare and a lot of talking heads predicting what is going to happen. We will take the upside moves and adjust our stops and keep looking forward. There is plenty on the table in Washington and how that impacts the markets will take time. The first plan I have for the new administration is to watch, listen, and manage my risk accordingly. For now, it is full speed ahead to the stimulus world.

  • REITs (IYR/DRN) Gapped higher from the consolidation pattern… offering an opportunity. Watching how this unfolds.
  • Technology (XLK/TECL) solid upside move led by the large caps. The exception was SOXX and watching how that unfolds as well. Adjusted stops on positions.
  • China (FXI/YINN) continued the gap higher on optimism about the new administration and Alibaba. KWEB took off as well and moved the stop.
  • Homebuilders (ITB/NAIL) Ran higher following up on yesterday’s move… you can thank the stimulus talks.
  • Emerging Markets (EEM/EDC) gapped higher the last two days on optimism about the vaccines and the US stimulus.

(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:

Tuesday: more uncertainty as stocks lose some ground, but remain near the highs. For all the talk about valuation, there is no hurry to push stock prices lower currently. Earnings are pushing out data and awarding the winners. The leadership remains challenged as large caps, small caps, and commodities jockey for money flow. All is well for now, but we maintain our stops and willing to remain patient as this all unfolds.

  • XLB – Basic Materials testing lower as money flow declines. Fourth day of declines.
  • XLU – Utilities hold support on the test lower and find some buyers. Watching interest rates and the dollar currently. Gains are given back on the day.
  • IYZ – Telecom moved above $30.95 resistance and held. The support at $29.67 held and we bounced back to break higher. Stop at $30.50. New highs.
  • XLP – Consumer Staples moving lower to establish near term downtrend. Rise in money flow.
  • XLI – Industrials moving sideways and looking for a catalyst.
  • XLE – Energy gapped higher on speculation of growth relative to the vaccine. Moved above $42 resistance. Testing on supply data and virus worries. Stop to $40.50.
  • XLV – Healthcare found buyers and broke above resistance to push to new highs and testing. Watching how that plays out. Adjusted stop to $115.30.
  • XLK – Technology remains in an uptrend breaking from the consolidation pattern and hitting new highs. Adjust stop and let it unfold. New highs.
  • XLF – Financials struggle on earnings and outlook relative to the virus. The first level of support is $28.24. Adjusted stops. Moving lower.
  • XLY – Consumer Discretionary bounced to new highs as the consumer continues to show strength. Retail (XRT) moved higher and the trend remains in place.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Held support at the $82 level. Did manage to bounce on some rotation in money flow. Higher on lower interest rates.

The trends remain positive but there is a shift in sentiment in the air. We saw sectors respond to worries and some shifts in money flow to end the week. Proceeding with caution. Using the six-month charts as an indicator for the short term view… Eight sectors are in confirmed uptrends with some near term testing. Three are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for SPY is in a move to a sideways trend short term with an upside bias currently. The leadership is rotating as money flow shifts directions.

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

FINAL NOTES:

TUESDAY: More rotation, but not enough to send up any red flags. The volatility intraday has been of interest and the rotation of money looking for a home is equally of interest. Stocks are moving based on news and earnings, leadership is struggling between small caps and mega caps. The virus is still in the headlines along with vaccine delivery news. Taking what is offered and managing risk.

MONDAY: Mixed trading day… following the money as it moves in reaction to sentiment and volatility. Apple earnings on tap for Tuesday. Vaccine concerns rising globally with new strains in place. Put it all together and we have to manage our current risk against the longer-term risk and be patient in how we manage our money. Stay focused.

Weekend Wrap & Outlook… The markets remain positive overall but some renewed worries are keeping trends in check. We will continue to let the risk unfold along with the data. The leadership remains in small caps and technology stocks. Inflation is becoming a word used more of late as commodities move higher. CPI and PPI showed increases over the last two months. Then there are the never-ending worries with the shutdowns and mandates relative to the virus. This is a global issue not just in the US. We continue to watch how it is impacting the global economies. The stimulus package for another $1.9 trillion being proposed by Mr. Biden has its concerns. Some juggling already along party lines. The long-term trends remain higher in the hope of more stimulus. Technology stocks found buyers and moved higher. The retail sector is moving higher despite worries about the shutdowns growing along with less spending. The VIX index closed at 21.9 showing anxiety in the markets near term. The dollar found some support finally holding near the current lows. Crude moved above the $52 level the highest since February 2020. UGA settled but prices at the pump are elevated. We continue to own the ETF so we can afford the hike at the pump:). Watching the current movement in the broad markets as money continues to rotate and traders look for leadership. 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.