Markets move slightly lower on uncertainty

Market Outlook for November 21st

Another day of tennis with stocks going back and forth, but remain near the current highs. No real changes in the news front as it relates to trade and earnings. The global markets continue to struggle as the economic data reports some of the worst data in 40 months. German GDP reported a growth of 0.1%… not really growth is it? UK PMI service reported a reading of 48.6 showing contraction. The Eurozone flash PMI manufacturing was 46.6 also showing contraction. This remains a challenge for the world markets as economic growth is virtually nonexistent. This adds to the uncertainty for stocks overall and the US markets are feeling the pain.

The S&P 500 index closed down 4.2 points to 3103. Holding near the new highs following some modest selling the last two days. Money flow dipped on the day with some rotation in sectors. Two of the eleven sectors closed higher on the day with energy and healthcare leading the upside. The downside was led by REITs and consumer discretionary as money continues to look for a home. Economic data showing weakness globally. The long-term trend is higher and steady.

The NASDAQ index closed down 20.5 points at 8506. Held near the highs following another test for the index and the uptrend remains in place. Technology moved lower on the day as well with semiconductors and networking sectors pushing the broader index lower on the day. Maintaining our stops on positions and letting this unfold. Large caps have resumed their leadership as seen in QQQ also down on the day. Watching how this unfolds near term.

Small-Cap Index (IWM) The sector led the move back to the April highs and has stalled the last two weeks in a consolidation pattern. The move above the July highs and the $158 resistance are positive, but the question is, can it break to new highs? Trying to hold above the $158 level.

Transports (IYT) The sector moved above the July highs and since the solid move above the $192.42 level, it found some resistance at the $200.55 mark. Watching as some uncertainty creeps into the sector. Moved below the key support at the $192.42 level again.

The dollar (UUP) The dollar is swinging up and down on the China trade hopes of a deal. If the deal is struck the current sentiment is it is bad for the dollar. If it is not done… good for the dollar. Watching as the tennis match plays out. Watching FXE, FXY, FXB.

The Volatility Index (VIX) closed the week at 12.05 after some intra-week volatility. We remain 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. Some intraday volatility Monday and Tuesday… not enough to change things. Wednesday spiked to 14 on the selling and news. Settled at 13.1 at the close Thursday and watching.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector moved to new highs and has stalled the last two weeks. The bounce moved back above $193.35 resistance and holding the move above the $198.50 level has been positive for the sector. Back to the bottom of the range and testing support… watching.

Biotech (IBB) Tested support at $96 bounced and moved back above the $101 and $105 resistance level. We did clear the July highs on the week. The renewed uptrend is in play as we manage the risk accordingly. Entry $101.45. Stop $110 (adjusted). LABU $32.55. Stop $42. Solid break higher on Tuesday and adjusted the stop. Added to the gains on Wednesday and Thursday.

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. Tuesday sold to the 10 DMA. Wednesday sold to the 20 DMA… raising some eyebrows. Thursday sold below the 20 DMA and testing the uptrend.

Software (IGV) The sector tested the lows of the current range again and bounced at support in October. The steady grind higher has not been easy. The move above $220 this week was a big positive for the sector. We have been looking at the leaders. NTNX, CVLT, CTXS, CDK, and PANW are few. IGV entry $$220. stop $223.90 (adjusted) Nice move on Monday and Tuesday adjusted stop. Added upside on Wednesday. Tested on Thursday.

REITs (IYR) The upside trend remains on the long-term chart but the short term moved lower breaking key support levels. Interest rates rising rattled short term investors creating the selling in the sector. Small bounce to end the week and keep the trend intact. Watching. The sellers returned on Thursday challenging the bottom reversal… watching how this unfolds.

Treasury Yield 10 Year Bond (TNX) The yield closed at 1.83% down 10 basis points on the week. Money is rotating again as investors remain focused on the deal or lack of a deal with China. Some bond buying on the lack of China news. More buying on Wednesday as rates dip to 1.73% on the news. Thursday back to 1.77%.

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). Defined consolidation range breaks lower and watching $54.93. Wednesday bounced back to $57 on speculation. Cleared resistance at $58.25 on Thursday… OPEC, Russia to the rescue on “production cuts”. Watching.

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 has been keeping gold in play. The move below $140 may change that perspective short term. The consolidation pattern on the chart breaks lower. GLL @ $55.43.

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. Trump comments tested the move as we let this continue to unfold. Some downside on news last few days.

China (FXI/YANG) weaker economic data hurting the stocks currently as the move higher stalls at the September highs. Watching and listening for now how it responds to the gap lower on the week. Some downside on the trade news.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

THURSDAY’s Scans for November 22nd: Global economic data didn’t help the cause, earnings were okay, no real anxiety in stocks overall. Watching how this unfolds… will we test key support levels near term? It is time to manage your risk and let the markets unfold along with the reality of the news. No major changes on the day.

  • Semiconductors (SOXX) tested the $229.40 support. Watching the leadership of the sector.
  • Crude Oil (USO/UCO) upside move follows through as Russia chimes in about production cuts to control supply.
  • Schwab (SCHW) jumps higher on merger rumors with TD Ameritrade (AMTD). That could explain the jump in IAI the last six days. Adjust stop on IAI and let this unfold.
  • Healthcare (XLV/CURE) moving higher as pharma and biotech take the lead… providers IHF also pulling the sector up.
  • Gasoline (UGA) leading the charge in the energy sector. Cleared $32 and watching how this unfolds.

WEDNESDAY’s Scans for November 21st: Early selling on WSJ statement on the deal not getting done. Bounced back as buyers stepped in and closed modestly lower on the day. Now the speculation train is back on track and will likely lead to mover volatility. China stated later that there was still a chance the deal would get done… Stop the madness. We have to take a deep breath, evaluate the current risk, and manage our stops. Patience is needed to let the new playout near term.

  • Basic Materials (XLB) moved to support at the $59.22 mark.
  • Telecom (IYZ) fell below $29.50 support and tested the $29.10 mark.
  • Technology (XLK) tested the 10 DMA.
  • Crude Oil (USO) up 3% after falling 3%… joining the circus.
  • Treasury Bonds (TLT) headed higher again as fear seeks safety.

TUESDAY’s Scans for November 20th: Interesting day for retail stocks as they miss earnings with KSS, HD, and URBN showing slowing sales. Does this mean the consumer is not spending? This will shed new light on the holiday season and end of year movement in stocks. It should have your attention as the risk level just moved up a notch. Adjusting stop, taking some profits, and letting this unfold.

  • Homebuilders (ITB) versus Home Depot (HD) both reporting on the same day give some insight into the economic picture. Housing permits are at a 12 year high showing growth in the housing market. HD has missed revenue growth month after month for four consecutive quarters… something isn’t right. Poor management at HD or top in the housing market? Worth our attention.
  • Biotech (IBB) another solid move on the upside and raised our stop on positions… looking at booking some gains.
  • Financials (XLF) showing strength and leadership as well. Watching and managing the risk. MS, C, JPM all showing consolidation tops. Insurance looks good along with exchanges (IAI).
  • Software (IGV) looking solid on break from consolidation pattern. The parts are making solid moves upside.
  • Crude Oil (USO/USO) inventories rose and the price fell as investors see the lack of tariff deal a reason for concern.

MONDAY’s Scans for November 19th: The markets were set to move higher on the day, but the rumored news that China was willing to wait and see put stocks in limbo. Some indecision short term could creep back into the markets or produce a test of the current highs. Watching, setting stops, and protecting our money… while we look for the best opportunities. Not much changed on the trading day… below are few interesting moves on Monday.

  • Natural Gas (UNG/DGAZ) after a run higher in the commodity it has decided to give up the gains on the downside dump.
  • Turkey (TUR) breaking to new highs from bottom reversal.
  • Saudi Arabia (KSA) bottom reversal breaking higher.
  • Technology (XLK) hitting new highs. Adjusted stop.
  • Biotech (IBB) in position to break through resistance for the September highs and start the second leg higher from the October bottom.

FRIDAY’s Scans for November 15th: Mixed reviews on the week of trading with Friday closing at new highs. The challenge remains the lack of a trade deal. Even if we get the deal done by year-end what changes for the US markets near term? Plenty of questions… not many answers. Following the trends and the leaders. Taking it for what it is one day at a time.

  • Technology (XLK) new highs. SOXX, IGN, IGV, HACK, SOCL all moving upside on the week.
  • Healthcare (XLV) solid bounce last week that got a big run higher on Friday. Adjust your stops and manage the risk. IHF gained 3.5% on Friday. IHI equally gapped higher.
  • VIX index (SVXY) big jump higher on Friday — adjusted stop and letting this continue to unfold with lethargy from investor anxiety.
  • NASDAQ 100 (QQQ) solid move to new highs… adjusted our stops.
  • Retail (XRT) still trying to provide some leadership… uptrend in play.

(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 $60resistance. Nice break to new highs near term. Sells on China news as would be expected.
  • XLU – Utilities moved lower as the move in interest rates impacts the sector. Broke support at $63.17. Bounced at support… interest rate stall helped the cause. Bounced on the flight to safety.
  • IYZ – Telecom held support at $27.62 bounced and cleared the $29.50 resistance with a positive week of trading. Watching and adjusted our stops. Broke key support and watching.
  • XLP – Consumer Staples remains in the uptrend and in a near term trading range at the current highs. Patience.
  • XLI – Industrials moved back and cleared the $79 resistance. Moved above the July highs and hit new highs again this week. Letting it run. Sold in reaction to the China news.
  • XLE – Energy remains in at a point of indecision. It did clear $58.19 resistance and showing a double bottom pattern in play. Responded to the rise in supply data. Moved back to support at the $55.19 level. Bounced back on Wednesday and Thursday to remain in the current trading range.
  • XLV – Healthcare held support at the $86.75 level. Bounced and cleared resistance at the September highs. Taking on a leadership role as the sector moves to new highs with a gap on Friday. Flag pattern at the highs.
  • XLK – Technology broke to new highs to end the week with semiconductors higher. Parts and whole providing solid leadership with HACK, IGV, and IGN breaking higher. Testing the highs.
  • XLF – Financials got a boost from solid earnings pushing the sector higher. Cleared $28.24 resistance. Broke to new highs and testing currently. Flag pattern at the highs.
  • XLY – Consumer Discretionary tested lower but remains within the current trading range. Needs some good news on the consumer side. Earnings from KSS and HD send the sector lower. Testing the key support levels near term.
  • IYR – REITs moved to new highs and reversed higher interest rates. Bounced on lower rates… The uptrend remains long-term, but short term the charts are reversing and testing. Sellers return testing the bottom reversal.

There are currently three sectors that are in a sideways or consolidation trend. Seven sectors are in confirmed uptrends. One sector in a confirmed downtrend. The result is SPY in a confirmed upside trend short term. 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:

Thursday: Global economic weakness remains an issue for the markets. US markets flat to down on the day as everyone digests the news. This is a time to reflect on the facts, manage the risk, and let the data unfold. Too many headlines and too much drama create bad trading environments. Avoid the drama and gossip… focus on your money, not the headlines or the talking heads.

Wednesday: News sets the tone for the day. Retail sales data was better, but the news of China not making any deals befoe year-end ‘trumped’ that. Bad humor… They supposed responded by stating the deal was not dead… Oh my, is anyone really talking to each other? Why not use the media to have your discussion and manipulate the markets. We will continue the course until the charts show us something different. The buyers stepped in late to erase some of the downside. There was some rotation of sectors as well. Taking it one day at a time with our stops in place.

Tuesday: Moving day? Good question as money does rotate out of sectors in harm’s way and towards some safety and cash. The question was raised about the consumer based on earnings… it is a bigger question as we head into the peak of the holiday season. The housing starts were positive and hit 12-month highs. That brings good news, but also raises the questions if the sector will overshoot as normal and leave room for pricing correction? Tuesday was a day of interest and questions raised. Now we do what we need to relative to our money, the risk presented, and what unfolds moving forward.

Monday: Solid start to the week as stocks fightback from the rumors that China’s new wait and see approach to a deal on tariffs. The indexes held their own throughout the day with some intraday volatility, but now it raises questions of what happens to stocks and the economic picture globally… which by the way, were already questions. Stay focused on what you know, manage the risk on what you see and know, don’t listen to the news without validation. Patience is a good word to add to your vocabulary.

Markets held the move higher and continued sideways with a nice bump on Friday. The bounce off the August lows has now pushed to a six-week uptrend 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 in place still hanging over the markets. Watching how that unfolds next week. Earnings have been a key catalyst to the current trend as the numbers have been solid. The economic data remains benign and lethargy would be the best word to describe. The backstop of the Fed for liquidity has been key in the move higher as well as they remain engaged in the process of helping banks. Brexit remains in the background as meetings continue with the EU and parliament to find a resolution. The dollar found some support and interest rates fell 10 basis points on no trade deal talk. Investor conviction is getting stronger as indexes and sectors hit new highs. This, of course, raises questions about a test before we move higher. 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 as the hope of a trade deal looms. 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 longer-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.