Markets pause for FOMC meeting results

Market outlook for October 30th

The broad markets paused for the cause as the FOMC meeting concludes on Wednesday. Will the Fed cut rates is one issue on the table as well as some explanation of what is taking place in the repo markets. That left stocks in a wait and see mode. The large caps were even on the day, the NASDAQ declined as energy stocks struggled on Exxon’s earnings report, and technology gave up some of the gains from Monday. There was a pause also in the talks of a signed phase one agreement with China and the US putting some pressure on stocks during the day. Overall not a bad trading day as we look to the end of the month and more economic data to digest.

The S&P 500 index closed down 2.5 points to 3036 holding the new highs set on Monday. Watching how stocks respond to the Fed announcement on Wednesday. Seven of the eleven sectors closed higher on the day with healthcare and basic materials leading the upside. The downside was led by technology and consumer discretionary. Trade agreement hopes and earnings remain the driver for the broad market currently. The long-term trend remains sideways and steady with an upside bias.

The NASDAQ index closed down 49.1 points at 8276. The index struggled on Tuesday as technology gave up more than one percent on the day. Semiconductors forfeited some gains as well with software struggle as well. Adjusting our stops on positions and enjoying the run. Questions remain relative to growth stocks and large caps despite the bounce at support. QQQ clears resistance and test the move on Tuesday. 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 stalled at the $155 resistance level and never made a move higher to join the broader indexes. There is still apprehension about growth stocks. Taking it one day at a time. Finally made a follow-through move upside.

Transports (IYT) The sector moved to the July highs and back to the August lows only to return to the July highs again. Solid upside moves this week as the sector joined the leadership of the broad markets. The sector moved above the $192.42 mark and looking at a break to new highs potentially next week. Unchanged and stuck at resistance.

The dollar (UUP) The dollar reacted to the Brexit news as it moves off support and heads higher again. Watching how gold and oil respond to the move. The euro and pound have moved lower on the news.

The Volatility Index (VIX) closed at the week at 12.6 and is moving towards 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. Small bump to 13.2 on Tuesday.

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 to see if the index can play catch-up to the balance of the market. Solid move back towards the July 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. Looking for upside follow through as the sector shows positive signs. Entry $101.45. Stop $104.50 (adjusted). LABD $32.55. Moved above the $107 resistance.

Semiconductors (SOXX) The sector bounced, cleared $210.92 resistance and back above the July highs. The sector looks solid compared to others 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 and modest test on the week.

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. Struggling to find buyers currently as money has rotated from the sector. Digging in the parts versus the whole.

REITs (IYR) The upside trend remains on the long-term chart with a solid break to new highs last week. Patience with our long term positions and short term watching how interest rate market unfolds as the sector tested to end the week. More downside to start the week. Modest bounce on Tuesday.

Treasury Yield 10 Year Bond (TNX) The yield closed at 1.80% and higher for the week. Money is rotating again this time to risk… Added a short position on bonds and watching how it unfolds. TMV entry $10.40. Stop $10.87 (adjusted). Yields bumping higher on stock optimism… 1.83% 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. That aside the commodity moved higher on the week. We continue to manage our position in crude. UCO entry $16. Stop $16.60 (adjusted). Some selling on weak economic data in China.

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 wedge pattern on the chart.

Emerging Markets (EEM) Bounced from the bottoming range established in August cleared resistance at $42.25 and cleared the September highs. Positive trend higher as the hope of a US/China trade deal remains the driver. Global optimism following the US upside. Tested on Tuesday.

China (FXI/YANG) weaker economic data hurting the stocks currently as the move higher stalls at the September highs. Watching and listening for now. Weaker economic data… testing the upside move.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

TUESDAY’s Scans for October 29th: S&P 500 takes a pause, NASDAQ gives up some gains, and the FOMC meeting is on deck. After a solid start to the week now we look to see how this unfolds. Earnings have been positive overall. Economic data remains weaker with consumer confidence at 125.9 versus 128 and pending home sales were up 1.5% versus 0.7% expected. Trade talks hit a snag as rumors fly that the phase one agreement will not be signed in Santiago, Chile. Overall it was a slower day with a pause into the FOMC meeting.

  • Technology (XLK) gives up some gains on the day, but still in good shape on the charts.
  • Small Caps (IWM) rejoining the upside and adding to the move on Monday. IJR back at the September highs.
  • Gasoline (UGA) clears $31.14 resistance and showing positive moves despite the lower oil prices.
  • Some positive trending stocks… BAC, FIT, XNET, T, MSFT, ROKU, TSLA
  • Some pattern setups worth watching… CSCO, PFE, ADBE, GME, WFC

MONDAY’s Scans for October 28th: Hope springs eternal with the S&P 500 index hitting new highs and the NASDAQ within five points. The Fed remains in the background of this rally providing plenty of liquidity. The old adage of ‘don’t fight the Fed’ is true over the last three weeks. Semiconductors hit new highs leading the upside move. Money is rotating out of utilities, consumer staples, and REITs. They are migrating to growth in the technology sector as well as financials. Watching and taking what the market offers with our stops in place.

  • Semiconductors (SOXX/SOXL) up 6.2% in the last three trading days… adjusting stops and letting it run.
  • NASDAQ 100 index (QQQ/TQQQ) solid upside move for the large-cap index. The $66 entry is playing out well for the last two days. Stop to break even on the move.
  • Financials (XLF) more upside and adjusting our stops.
  • Upside moves worthy of attention… UGAZ, LABU, DPST, BRZU, CURE, YINN, and TMV.
  • Downside move of note… XLE, IYR, OIH, WEAT, CORN, GLD, and XLU.

FRIDAY’s Scans for October 25th: Trade talk rumors, positive earnings, and hope pushed stocks slightly higher to end a positive trade week. The S&P 500 and NASDAQ closed up more than one percent… how does this unfold moving forward? Good question as the markets seem content to melt higher on optimism of a trade deal and a Fed that will continue to add stimulus. There are issues and there is hope, but nothing is better than the Fed being engaged in the markets.

  • Semiconductors (SOXX/SOXL) followed through with Intel beating earnings estimates and providing a catalyst on the upside and broke to new highs. Technology (XLK) as a result, broke to new highs as well.
  • Financials (XLK) clears the July highs and showing some leadership for the broad markets.
  • Crude Oil (UCO/USO) heading higher on hope. Taking what the markets offer and watching near term. Adjusted our stops.
  • Brazil (EWZ/BRZU) continues to move higher.
  • NASDAQ 100 (QQQ) clears resistance at the July highs. Some rotation in leadership for the sector and worth scanning to find opportunities. TSLA, INTC, CHTR, AAL, and NVDA are few we have been benefitting from on the upside move.

THURSDAY’s Scans for October 24th: Interesting market day with activity in both directions. Earnings were on the upside, Fed repo money additions on the upside, and economic data weaker. The impact on stocks was mixed and all the question marks about the markets overall remain in play. There were some bright spots and some dark spots on the day.

  • Semiconductors (SOXX/SOXL) answered some questions about the downside activity on Wednesday… moving up 2.4%. Back to the September highs.
  • Telecom (IYZ) moved back below $29.50 level dropping 1.3% as Netgear and Commscope tank on the day.
  • Dollar (UUP) bumped higher as Brexit continues to be in the headlines.
  • China Internet (KWEB) showed up on the scans today with the move back to the previous highs. Watching for a move above $45.
  • Cyber Security (HACK) attempting to complete a bottom reversal with a solid move higher on Thursday.

WEDNESDAY’s Scans for October 23rd: Interest day as lower start gives way to a modest gain on the day. The markets overcame disappointing earnings data from some key stocks and show some commitment to the buy-side. No big changes overall just more juggling of money flow as investors look for leadership.

  • Crude Oil (USO/UCO) upside follows through with another strong day for the commodity. Raised our stop and watching how it unfolds. UGA cleared resistance on the upside as well.
  • Energy (XLE/ERX) nice upside follow through to the break higher on Tuesday.
  • Semiconductors (SOXX/SOXS) Watching the downside move on earnings. This will get interesting if the sellers take control?
  • Brazil (EWZ/BRZU) nice follow through to the break higher.
  • Commodities (DBC) upside move continues with a double bottom pattern on the chart.

(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 to end the week. Watching how it unfolds.
  • 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 with some selling on Friday. Selling ramps up in the sector.
  • IYZ – Telecom held support at $27.62 bounced and cleared the $29.50 resistance only to forfeit again. Watching. Bounced back above the resistance.
  • XLP – Consumer Staples remains in the uptrend and in a near term trading range at the current highs. Patience.
  • XLI – Industrials moved back to and cleared the $76.80 resistance. Moving towards the July 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. Tested on Monday.
  • XLV – Healthcare held support at the $86.75 level. Bounced and facing some resistance at the September highs. Nice move higher on Monday and Tuesday.
  • XLK – Technology broke to new highs to end the week as earnings drive semiconductors higher. Parts and whole providing solid leadership. Leadership with semiconductors on Monday.
  • XLF – Financials have gotten a boost from solid earnings pushing the sector higher. Cleared $28.24 resistance. Testing the previous highs. Moved to new highs on Monday. Tested on Tuesday.
  • XLY – Consumer Discretionary tested lower but remains within the current trading range. Some selling on Friday.
  • IYR – REITs moved to new highs to start the week and ended the week testing the move. The uptrend remains, but interest rates made a bump higher causing some profit-taking. Higher interest rates impacting the sector.

There are currently eight sectors are in sideways or consolidation trends. Two sectors are in confirmed uptrends. One sector is in a confirmed downtrend. The result is SPY in a confirmed sideways/consolidation trend. 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: Paused for the FOMC meeting. Possible delays in the US/China trade agreement. Mixed economic data. Weak earnings from Exxon. It all adds up to a mixed day for stocks as they await the outcome of the Fed meeting on Wednesday. Risk is elevated with a three-week rise in stocks… watching, managing the risk, and taking what the market gives.

Monday: Solid gains on the day led by semiconductors. The broad indexes are showing positive upside moves backed by the Fed money supply. NASDAQ in position to join the party at new highs. Earnings, trade, and the Fed leading the markets… cautious not to get caught up in the love fest for stocks. Take what the market gives and manage your risk accordingly.

Markets held the move higher and melted higher for the week. The bounce off the lows has now pushed back to the September highs with the S&P 500 index eclipsing those highs. There is enough hope to continue the move on the upside. The trade talks remain the catalyst… earnings added to the hope this week with positive data overall… throw in the backstop of the Fed for liquidity and you have a market that is melting higher. Brexit was the main headline last week as a positive, but the no vote from Parlament put a halt to the optimism. The dollar bounced on the news, but the fight is far from over. Earnings came to the forefront as other news fades. The challenge remains clear conviction from investors. The VIX index fell back near 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 shifted lower with rates moving higher to 1.8%… The market remains controlled by headlines 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. There are still too many questions unanswered and that invites speculation and volatility but for now hope springs eternal. 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.