Markets hold steady

Market Outlook for November 6th

The indices started higher and then settled in to close flat on the day. The dollar jumped along with oil prices. Gold fell along with bonds as rates move higher. It is that time of year where money looks for where it will be treated the best for the year-end holiday season. Watching the fund and managing the risk. Take what is there without reading too much into it. If nothing else there is one truth about the markets… they can remain irrational longer than you can remain solvent betting against the trend.

The S&P 500 index closed down 3.6 points to 3074. Holding at the new highs on the day. Money flow has leveled off the last few trading days and watching the rotation in play. Seven of the eleven sectors closed higher on the day with energy and financials leading the upside. The downside was led by REITs and utilities as interest rates jump higher. Earnings have been better than expected and thus positive for the index. The long-term trend turns higher and steady with an upside bias.

The NASDAQ index closed up 1.4 points at 8434. A solid move higher as the index closed at new highs. Technology equally posted a new high and semiconductors closed higher along with software. Adjusting our stops on positions and letting this unfold. Large caps have resumed their leadership as seen in QQQ closing at a new high. Watching how this unfolds near term.

Small-Cap Index (IWM) The sector led the move back to the July highs and then led the downside move to the August lows. This week it managed to work its way back to the July highs. Question is, can it break to new highs? Question answered, yes. Cleared the $158 resistance and held.

Transports (IYT) The sector moved to the July highs and back to the August lows only to return to the July highs again. The index struggled all week but posted a solid move back to the $192.42 level of resistance. Watching how the new week unfolds. Added solid gains and at the April highs.

The dollar (UUP) The dollar reacted to the FOMC cut in rates moving modestly lower on the week. Watching how this unfolds near term. Gold and oil will respond to the move as well. Nice bounce at support. Gapped higher on Tuesday.

The Volatility Index (VIX) closed at the week at 12.3 and is at the July lows as investor anxiety washes away. Watching how this plays out in the coming weeks. Solid gains in SVXY for the week and adjusted the stop. Bounced to 12.9 on Tuesday and watching.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector moved to the July highs and back to the August lows. The bounce moved back above the $193.35 resistance and watching the $198.50 level to clear. Added to upside hitting new highs.

Biotech (IBB) Tested support at $96 bounced and moved back above the $101 and $105 resistance level. The downtrend is attempting to reverse the gains near term. Solid upside follows through as the sector shows positive signs. Entry $101.45. Stop $108 (adjusted). LABU $32.55. Stop $38. Hit resistance at the $110.60 mark. Watching.

Semiconductors (SOXX) The sector bounced, cleared $210.92 resistance and the July highs. The sector looks solid on the charts and showing leadership. The parts are where we have added positions versus the whole. NVDA, MU, QRVO, CCMP, SWKS, AMD, and LRCX. New highs and solid gains on the week. Solid gain on a gap higher.

Software (IGV) The sector tested the lows of the current range again and bounced at support. Not overly convincing activity… the cloud stocks are dragging the sector down… worth scanning and looking for leaders. NTNX, CVLT, CTXS, CDK, and PANW are few. Moved back to the top of the range for the week. Failed to break out of range as hit some resistance.

REITs (IYR) The upside trend remains on the long-term chart. Patience with our long term positions and short term watching how interest rate market unfolds as the sector tested to end the week. Reacting to higher interest rates moving lower. Hit near term stop and watching.

Treasury Yield 10 Year Bond (TNX) The yield closed at 1.72% and mixed for the week. Money is rotating again this time to stocks… Watching how this unfolds. Rates rose to 1.86% on Tuesday.

Crude oil (USO) Held support at $52.50 and $58.25 is top of the current range. Watching as the data points show plenty of oil and lower demand. China/US trade rumors send oil higher to end the week, but still very volatile on the outlook. UCO entry $16. Stop $16.60 (adjusted). Solid gains in crude and energy stocks rising as well.

Gold (GLD) The upside in gold has been driven by speculation of the rate cuts and global weakness overall. The tug-o-war of tariffs, interest rates, and speculation are keeping gold in play. Watching how the bounce at support unfolds near term. Consolidation pattern on the chart. Big test lower and watching as dollar rises.

Emerging Markets (EEM) Bounced from the bottoming range established in August cleared resistance at $42.25 and cleared the September highs. The positive trend higher from the hope of a US/China trade deal remains the driver. Gapped higher and cleared the June highs.

China (FXI/YANG) weaker economic data hurting the stocks currently as the move higher stalls at the September highs. Watching and listening for now. Gapped higher to the $42.50 resistance.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

TUESDAY’s Scans for November 5th: Some positive upside early that faded by the end of the day, but the financials and energy lead their respective sectors higher. Some rotation with the dollar rising and interest rates jumping off their lows. Volatility remains low. Trade still being pontificated by the talking heads and all is well on Wall Street for another day. Adjusting stops, managing risk, and enjoying the ride.

  • Treasury Bonds (TLT/TMV) we have been on the short side of bonds and maybe the downside is ready to run.
  • Financials (XLF) upside run has been positive… watching and managing the gains.
  • Energy (XLE/ERX) break to the upside is positive along with crude (UCO) moving higher. UGA, IEZ, IEO looking upside as well.
  • Natural Gas (UNG/UGAZ) playing out on the upside. Adjusted the stops and letting it run for now.
  • REITs (IYR/SRS) watching the downside move on Tuesday as rates rose. If this follows through the short side trade is attractive.

MONDAY’s Scans for November 4th: The indices moved higher on the day overall but the leadership was of interest. SOXX gapped higher setting the tone on the day. The S&P 500 moved higher but closed on a doji candle raising some questions in my mind. Watching how this follows through. The underlying data points remain on a steady decline. Taking it one day at a time and taking what the market offers while protecting against the downside risk. Rumor of the trade deal is the driver if that doesn’t materialize in a timely manner… watch the downside risk.

  • Semiconductors (SOXX/SOXL) solid gap higher adding to the upside from Friday. Adjusted our stop to account for the move.
  • Dow Jones Industrial (DIA) moved to new highs joining the other major indexes.
  • NASDAQ 100 (QQQ) added to the new highs and adjusted our stop on TQQQ.
  • Small Caps (IWM/TNA) Gapped above the July highs. Still a laggard overall, but made solid gains worth our risk in the sector.
  • Energy (XLE/ERX) gapped higher to lead on the day. Watching how this unfolds near term. Solid gain as it bounced back from the test last week.

FRIDAY’s Scans for November 1st: Markets moved higher on the trade agreement rumors getting closer. Buy the rumor… Economic data was mixed with jobs report better than expected. The manufacturing data remains below the 50% level showing contraction. Services are still holding up the economy, but plenty to watch next week as we get more information to show the state of the economy. The indexes post new highs led by technology, healthcare, and industrial stocks. Plenty to ponder as we look towards the new month of trading.

  • Technology (XLK/TECL) breaks to new highs as SOXX leads and others IGN, IGV, SOCL, HACK, follow.
  • Financials (XLF/FAS) leading upside move to new highs.
  • Healthcare (XLV/CURE) pushed to new highs as IBB, IHF, IHE, and others rally.
  • Natural Gas (UNG/UGAZ) attempting to break higher.
  • Brazil (BRZU/EWZ) adding to the upside move. EEM showing positive upside as well with emerging markets trading higher trade talks.

THURSDAY’s Scans for October 31st: Markets recovered from early losses, but struggled throughout the day to deal with weaker economic data. The deeper concern from my view is how and when the weaker data impacts jobs. If jobs start to drop then markets will react. Bonds responded to the FOMC action on Thursday with the yield dropping to 1.69%. Money rotated into bonds on the Fed declaration it was done cutting rates for now. Another key indicator to watch moving forward. Looking at some key indicators in the markets today and what role they will play going forward.

  • Treasury Bonds (TLT/TMF) two solid days of upside in the bond as yields drop 20 basis points to 1.69%. Buy signal for bonds?
  • Gold (GLD/NUGT) nice upside move in the current trading range. Investors are looking for where money will rotate and this may be one based on the data about the economies around the world.
  • Crude Oil (USO/SCO) some downside as economic and supply data worry investors and money rotates away from the commodity.
  • Volatility Index (VIX/UVXY) will volatility pick up based on the worries? Watching how this unfolds in the coming days.
  • Small Caps (IWM) money moving away from growth stocks again. Watching how this unfolds as well.

WEDNESDAY’s Scans for October 30th: The FOMC decision to cut rates was expected… the cue that they will pause was not. GDP was better than expected thanks to consumer spending. Trade talks changed as Santiago cancels the summit meeting. All was well in the headlines and investors rallied slumping stocks following the FOMC announcement. Software made a solid bounce back from selling. Energy drops on supply data. Overall the markets hold steady and money is on the move again.

  • S&P 500 index (SPY) hits another new high on the FOMC decision. Watching how it unfolds near term and raising stops.
  • NASDAQ 100 index (QQQ) solid day as large caps take the leadership role yet again for the markets. Positive pattern reversals in the leadership of late worthy of attention. ATVI, ADBE, WYNN, CTRP, and others breaking from consolidation and reversing trends.
  • Natural Gas (UNG/UGAZ) solid follow through on the bottom reversal trade opportunity. Adjusting the stop.
  • Cyber Security (HACK) bottom reversal and follow through doing well. Adjusting stop on the positions.
  • Healthcare (XLV/CURE) accelerating on the break above resistance. Adjusting the stop.

(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 bounced at support $55.95 level and moved back above the $58.13 resistance. Watching how it unfolds. Gapped to new highs.
  • XLU – Utilities moved higher and now forming a consolidation pattern near the highs. Support is at the $62.50 mark. Collecting the dividend and letting it play out. Topping pattern in play. Suffered on higher rates. Broke key support offering short side trade.
  • IYZ – Telecom held support at $27.62 bounced and cleared the $29.50 resistance only to forfeit again. Watching. Reacts to interest rate move, but holding at support.
  • XLP – Consumer Staples remains in the uptrend and in a near term trading range at the current highs. Patience. Moved lower showing negative signs on chart.
  • XLI – Industrials moved back to and cleared the $76.80 resistance. Moved above the July highs. Let it run. Gapped higher hitting new highs.
  • XLE – Energy broke lower on weaker oil prices and bounce on stronger oil prices… indecision. Cleared $58.19 resistance and showing a double bottom pattern in play. Solid gap breakout following a test last week.
  • XLV – Healthcare held support at the $86.75 level. Bounced and cleared resistance at the September highs. Taking on a leadership role. Tested the move higher with follow through on Tuesday… watching.
  • XLK – Technology broke to new highs to end the week as earnings drive semiconductors higher. Parts and whole providing solid leadership. Continued higher led by SOXX.
  • XLF – Financials have gotten a boost from solid earnings pushing the sector higher. Cleared $28.24 resistance. Broke to new highs for the week. Solid gap higher on Monday and solid move on Tuesday.
  • XLY – Consumer Discretionary tested lower but remains within the current trading range. Needs some good news on the consumer side. In consolidation pattern.
  • IYR – REITs moved to new highs and testing the move. The uptrend remains, but interest rates made a bump higher causing some profit-taking. Broke support offered a short signal on Tuesday.

There are currently six sectors are in sideways or consolidation trends. Three sectors are in confirmed uptrends. Two sectors are in a confirmed downtrend. The result is SPY in a confirmed sideways/consolidation trend with an upside bias. We have to remain patient and let this all unfold. Remember the parts make up the whole.

(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:

Tuesday: Divided efforts on the upside led to a neutral day. Watching money flow and leadership as we go forward. Some rotation with energy and dollar rising. There are some short side setups along with upside as money moves to find a new home. The trends in the broad sectors remains positive along with the indices. I would look for a test near term of the move higher the last five weeks. Maybe the Santa rally will arrive this year. Manage your money and take the opportunities presented.

Monday: Solid upside move as trade talk rumors continue to lead the headlines. This time there was a number assigned to the report… $112 billion in tariffs. That is nearly half of the tariffs currently levied by the US. There are a lot of moving parts in the tariffs and this is just the tip of the iceberg… The follow-through to the talking has been the challenge. Taking it for what it is… more talking. When it is signed we will believe what we hear. Speculation and lack of details are driving stocks. We will see what happens when the reality is achieved.

Markets held the move higher and continued the melt higher for the week. The bounce off the lows has now pushed above the September highs with the S&P 500 index hitting new highs. There is enough hope to continue the move on the upside. The trade talks remain the catalyst with rumors of an agreement signed this month… earnings added to the hope again this week with positive data overall… throw in the backstop of the Fed for liquidity as they cut rates again at the FOMC meeting. Brexit remains in the background as meetings continue with the EU and parliament to find a resolution. The dollar continues to struggle as rates cuts work against the buck. Investor conviction is getting stronger as indexes and sector hit new highs. The VIX index fell back to the July lows as investor sentiment shifts. The upside move this week offered some trade opportunities and we have adjusted our stops to manage the risk. The treasury bonds show rotation out as rates move back towards the 2% level. The market remains controlled by new as each day holds movement related to the speculation of what might happen. Trade with China and the US remains at the top of the list. The key is to watch the trend, know which side the Fed is on, and ultimately the data will establish the long-term trend. We remain focused on what is working and what is failing. Therein lies the opportunities. Manage your risk accordingly and let this unfold… one day at a time.

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.