Markets look forward to earnings

OUTLOOK: January 14th

The week ended with a whimper as investors look to earnings for the fourth quarter. There is a concern after some of the retail sales data was below expectations. The economy is showing signs of slowing more than some anticipated and it is creating some near term anxiety despite the upside bounce off the December lows. Energy sector remains a drag on the outlook and financials struggle with earnings starting on Monday… JP Morgan, Citigroup, Bank America, and others are set to reveal how they did in the last quarter. Then there are the trade talks with China on the table, the Fed stating they may be done with interest rate hikes for now, and closed government that is facing investors… all said, take what the market gives and manage the risk. 

The S&P 500 index closed flat at 2596 and continuing to hold the bounce from the current lows. Six of the eleven sectors closed in positive territory on Friday. Telecom and healthcare led the upside posting positive moves. The move through resistance at the 2582 mark was positive and we adjust our stops accordingly. This now becomes a reversal with the second leg higher in place. 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. 2582 level cleared to keep the upside moving. SPXL entry $33.50, stop $34 (adjusted). 

The NASDAQ index closed down 14.6 points to close at 6971. The index moved above 6909 clearing resistance and keeping the upside bounce alive. The index continues to be the leader for the current move as growth stocks lead the move higher. Technology stocks have shown positive upside moves. 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 $38.60 (adjusted). Manage the risk of the upside move. 

Small Cap index (IWM) reversed and found some buyers as the second leg of the move higher continues to unfold. The sector shifted to a leadership role and is showing some positive momentum short term. $144.65 is the level to watch for resistance. Added a position on a move above the $133.78 mark. Entry $133.90. Stop $140.23 (adjusted)

Transports (IYT) the bounce 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 $169.26 (adjusted). 

The dollar (UUP) fell on talk of the Fed is done with rate hikes and hope of a solution to China trade. Closed Friday at $25.36 bouncing from the selling on Wednesday. UDN entry $21. ULE entry $15.05. 

The Volatility Index (VIX) closed at 18.1 on Friday with anxiety moving lower on the day and falling as the buyers show up. Watching how this unfolds with anxiety levels falling on the charts. SVXY entry $43.05. Stop $44.60 (adjusted). 

(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 $105 (adjusted). Solid move through $107 resistance 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 $86.60 (adjusted). SOXL – Raised our stop – managing the risk. A target of $167.34 is outlook now. 

Software (IGV) Broke $167.88 and bounced back above the same level. Still not in horrible shape and the sector was oversold producing a solid bounce… and follow through. $167 level added a trading position. Entry $167.90. Stop $178.50 (adjusted). Raised stop – managing the risk. A nice move higher for the week as follow through. 

REITs (IYR) Tanked on uncertainty from the Fed and the economic outlook. Broke $75.21 and bounced… looking for a trading opportunity on reversal above $75.21. $75.21 clear on upside move and added. Entry $75.25. Stop $76.25 (adjusted). Big move for the week as the Fed shows signs of no further rate hikes near term… benefits the sector short term.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.7% as yields remain below support and the long bond rallies. TLT entry $115.25. Stop $120.50 (Adjusted). The bounce off the bottom is in play… watching how the bond responds to the Feds rhetoric. 

Crude oil (USO) remains in a well-defined downtrend breaking the bottoming pattern with a move lower. The new bottoming pattern breaks to the upside as OPEC talks cuts. The move above the $48.03 level offers hope and opportunity to add a trading position. UCO entry $15.10. Stop $$15.10 (adjusted). $52.51 resistance now in play and watching this unfolds. Next weeks supply data will have everyone’s attention. 

Emerging Markets (EEM) Watching what happens as we bounce from the bottoming pattern. 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… failed to follow through on Friday.

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 of late. The inverted yield curve is drawing some interest to the metal short term on the upside. Wedge pattern in play near the highs. Entry $116.50. Stop $119.95 (adjusted). The gold miners (GDX) equally respond to gold moving. Watching how this unfolds near term with the metals and the miners moving together again… Entry $19.70. Stop $20.25 (adjusted). Similar consolidation pattern near the highs and resistance at $21.24. 

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

FRIDAY’s Scans, January 11th: Consolidation day for the broad markets as they look towards earnings starting on Monday. Not much changed from Thursday as we manage our positions and our risk of the current environment. Watching the storylines as they unfold with the Fed, earnings, Chinese trade, and the economic picture looking forward. Taking it one day at a time for now.

  • Semiconductors (SOXX/SOXL) solid upside move on Friday to lead the sectors… adjusted our stop and letting it unfold.
  • Telecom (IYZ) posted solid gain to add to the break above resistance at $27.63. Adjusted stop and letting it play out.
  • Natural Gas (UNG/UGAZ) made a bounce from the bottoming pattern. Interesting look at the chart shows the power of speculation on the commodity with all the talk of weather driving demand… they ignored the amount of capacity built up in supply.
  • Energy (XLE) continues to struggle with the speculation surrounding the oil production and supply data. OPEC promising cuts, but the proof will be in the pudding.
  • VIX Index (VXX/SVXY) with the upside moves the volatility has continued to decline. The short side trade on the VIX is working well and we adjusted our stops.

Keep your eyes on the prize/objective and manage your risk accordingly.

THURSDAY’s Scans, January 10th: Upside still in play and some rotation with the news from retail and transports not positive for the holidays. This could pose some issues for the sector earnings out in March… speaking of earnings they begin next week and will shed some important light on how the economy performed in Q4… my guess is we see more signs of slowing overall. The consumer is the first to contract and the data for the holidays is evidence things are not progressing as the Fed expected and adjustments will have to be made.

  • REITs (IYR/URE) positive bump on the upside as interest rates become less of an issue with the Fed posturing to hold rates steady for the near term. Hit Entry $58. Stop $56.
  • Utilities (XLU) test $51.72 support/resistance and holds for entry $53, stop $52. Watching how this unfolds near term.
  • Consumer Discretionary (XLY) downside move on sales reports for the holiday… Watching how this unfolds and if the short side trade develops on the news.
  • Biotech (IBB) upside accelerates again as the sector remains a leader in the bounce from the December lows. I like the activity in the sector and adjusted our stop.
  • Treasury Bonds (TLT/TMV) rates have bounced with the dovish talk from the Fed. This puts the downside to the bond back in play near term. Watching for short side entry signal if this unfolds. $18.84.

WEDNESDAY’s Scans January 9th: The upside remains in play and the opportunities to trade the second leg higher have panned out thus far. Taking what the market gives as it remains news driven. The Fed is giving some confidence to money flow and growth stocks are leading the way higher. We have added positions on the move and we continue to manage them aggressively relative to stops. Volatility creates opportunity… taking it for what it is… a bounce on news.

  • Energy (XLE) offered some positive upside as the OPEC deal to cut production helps the price of crude rise. Offered entry at $58.20 and to add to the position at $60.52.
  • Technology (XLK) cleared resistance at the $62 mark and now needs to clear $63.69. Parts are moving as well with SOXX and IGV leading the upside move.
  • NASDAQ 100 index (QQQ) positive follow through on the upside with solid leadership in the bounce from the current lows. Dig into the moving pieces to trade as well.
  • Small Caps (IWM) small-cap growth stocks are taking on a leadership role in the bounce from the lows. Solid moves and managing the risk of the upside trades.
  • Crude Oil (USO/UCO) positive continuation of the upside reversal. The OPEC announcement to cut production was the big catalyst on Wednesday and followed through with the entry and we added at the $15 level.

Still plenty of work to be done if the trend is to continue higher. Not convinced this is anymore than a rally on the Fed softening their view in talks. OPEC needs to cut production and does… now we see if they do more than talk.

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 $50.50. Upside continues with solid moves all week. 
  • XLU – The utility sector found support at $51.11… moved above $52.72 and looking at the entry point if it can gain any momentum upside. Clears $52.72 for entry opportunity short term. Entry $53, Stop $52
  • 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.  
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and looking for upside trade opportunity. $51.86 next level to clear. 
  • XLI – Industrials to near-term low and bounced. $65 level to cleared for trade opportunity Entry $65. Stop $65 (adjusted). Upside leader on Thursday. 
  • XLE – Energy stocks bounced with stocks. OPEC talks to cut production is helping the upside move clearing $58.20 and now $60.52. Entry $58.30. Stop $60 (adjusted). Cleared resistance $60.52 on rumored cuts from OPEC. Consolidating near current highs.
  • XLV –  Healthcare fell to near-term lows and bounced. $85.74 level cleared for upside trades. Entry $85.25. Stop $86.50 (adjusted). Cleared $86.74 resistance. 
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $61 (adjusted). Needs to clear $63.69 resistance. 
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $23.50. Stalled again with earnings starting on Monday. 
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $101 (adjusted). Retail sales for holidays turn in a negative day… watching. Facing resistance at the $105 mark. 
  • RWR – REITs broke lower despite lower interest rates… bounced from lows and $88 level to clear. Fed talk keeping rates in check and the buyers engaged. 

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

FINAL NOTES:

Markets get a bounce after breaking the October lows as the broad-based selling accelerated on the Fed, China, and Budget impasse. Throw in some economic worries and you get the picture. Lack of clarity is the death of any bull market. As seen above investor think they want to buy the bottom and so far they have… but, the proof is in the follow through. The Fed continues to offer olive branches in the form of talk… we will see how the action is at the next FOMC meeting. All eleven sectors managed to close the week in positive territory as money rotates modestly. REITs, Industrials, and Consumer Discretionary led the upside for the week. Interest-sensitive sectors fared the worst despite the drop in interest rates again last week. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers. We have discussed the tariffs, interest rates, geopolitics, the Fed, earnings, the economic picture, and many other issues over the last few months and they continue to stimulate speculation. 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 2.7%. How this all unfolds is a matter of time and confidence. There is no reason to panic just follow your strategy… Disciplined entry and exit points allow for you to manage your risk in up or downtrends. Investing and trading is a matter of discipline. It is not magic. It is not being a prophet. It is about following your defined strategy one day at a time. 

There is 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.