Markets post solid low to high day

Markets started the day lower with some selling, but found their footing and closed slightly higher on the day. The early challenges came from the ADP Jobs Report which showed weaker than expected data for November… that led to speculation the jobs report would not be good on Friday. Throw in the lack of any stimulus on the horizon and you can understand the mindset of investors. The action on the charts sets up a continuation move to the upside. We will watch how it unfolds, but the bias remains to the upside currently. We thus take what the markets offer and protect against the downside move should it arise.

Short news notes of interest…

  • ADP Employment Report estimated 307,000 jobs were added. This was below expectation and well off the October data. The numbers posted a four-month low for the data. Thus, worries about the jobs report on Friday. Watching how Friday unfolds and not making any judgments today.
  • The Fed Beige Book Report showed four of the Fed regional banks experiencing little to no growth in their regions. The cause is the virus spread within those regions and jobs are likely to contract before continuing to expand. Throw that in with the ADP data and the economic picture is looking weaker in the next 3-4 months. Remember that is the belief… the data going forward will have to validate first.
  • The House with a unanimous vote passed a bill that will allow the delisting of foreign companies that fail to comply with the Public Company Accounting Oversight Board. This will impact many companies like Alibaba, Kandi Technologies (KNDI), Pinduoduo (PDD), and JD.com (JD)… worthy of attention. Trump has stated he will sign the bill.
  • The dollar fell to another 30-month low as talk of stimulus resurfaced in Washington on Tuesday. Not good from my perspective and something to watch as we move forward. Oil (USO) is priced in dollars… puts pressure on fuel prices (UGA) and gold (GLD) has moved higher the last few days as well.
  • Pfizer’s (PFE) vaccine won UK approval and sparks a rally in both the stock and the country ETF (EWU).

The S&P 500 index closed up 6.5 points to 3669. It was up 0.18% on the day. The index held 3550 support closing at new highs. Large-cap stocks were the leaders on the day helping the index recover from early selling. The financial and energy sectors led the upside on the day bouncing back from early selling. Six of the eleven sectors closed in positive territory as investors continue to find ways to put money to work. The downside was led by basic materials (XLB). Money flow has been positive the last week The VIX index closed at 21.17 as anxiety ticks slightly higher. Watching the momentum changes and how it proceeds.

The NASDAQ index closed down 5.7 points at 12,349. The index was down 0.05% on the day as the index held above the 10 DMA on a mixed day. Semiconductors have been the leader for the index near term. Tech overall continues to show signs of fatigue closing slightly lower on the day. The NASDAQ 100 index (QQQ) was up 0.13% for the day. The index broke from the trading range to a new high. Semiconductors (SOXX) closed up 0.29% for the day hitting another new high. Technology (XLK) moved down 0.15% and holding well above the $118 support. Watching how this unfolds as the market shifts gears again.

Small-Cap Index (IWM) The sector moved up 3.9% for the week as it remains in a leadership role and continues the uptrend. Volatility in the sector remains a challenge as we added a position on the bounce from the $151 support. Adjusted stop to $175. Some profit-taking? Give and take in the sector this week.

Transports (IYT) The sector tested support at $193.50 and continues in a solid uptrend near term. Stop $217.95. Dipped as it tests the new highs.

The Dollar (UUP) The dollar turned lower this week talk of stimulus sends the buck lower. The move below the September lows is a negative short term. Dumped lower on the stimulus talk to hit 30-month lows.

The Volatility Index (VIX) Volatility is dropping against the backdrop of the vaccine announcement. The move below 21.6 is of interest from my perspective and end the surge started in March. Managing our position in SVXY, entry $38. Stop $40. Settling in near the 20 level after breaking support.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector posted a solid 2.5% gain to add to last week’s gains. Watching the current trend and managing the stops. Ups and downs for the week.

Retail (XRT) The retail bounced back from the test of support and is at new highs. Posted solid gains on the week as the data points to record online sales. Adjusted stops and letting it run. Despite upbeat retail data for black Friday, the sector fell 1.8% Monday and bounced 1.2% on Tuesday.

Biotech (IBB) The sector remained in a trading range with a solid push higher on Friday. XBI has broken to new highs as the large-cap biotech leads the way. Taking the opportunities that are offered in the large-cap stocks. Gained 1.2% on the vaccine applications in the US and Europe. Volatile on Tuesday and watching.

Semiconductors (SOXX) The sector remains in an uptrend and continued higher for the week. The $303 level of support held and the bounce offered an opportunity to add positions. Managing the risk and letting this unfold. Solid move for the week gaining 3.5%.

Software (IGV) The sector added to the upside move and closed at the previous highs. Looking for upside breakout and continuation of the trend. Solid upside to starting the week as the sector struggles to break to new highs at resistance.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.84% up from 0.82% last week. Rates flirted with the 1% level as inflation slows again and stimulus talk started up again. Watching how it unfolds. Rates spike higher on stimulus talks spurs inflation rumors…

Crude oil (USO) Crude moved to $45.52 from $42.17 for the week or up 7.9%. Plenty of speculation to drive prices and watching how this unfolds. Taking what is offered and managing the risk. Fell 1.8% on the OPEC news to delay talks and decision on production quotas. Bounced on declines in supply data Wednesday. Watching the impact of the weaker dollar here as well.

Gold (GLD) The commodity broke lower from the range and offered a short side trade. Taking what is offered with GLL. Gap off the bottom as dollar declines and inflation talks rumble.

Emerging Markets (EEM) The sector turned lower, bounced, and broke to near term highs. Entry $44.50. Stop $48.50 (adjusted). China (FXI) was the leader on a break higher as well. and we adjusted our stop on those positions as well. Fell 2.6% as more bans on Chinese companies looms in Washington. Bounced back as China reports solid economic data? Watching how reality unfolds.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

WEDNESDAY’s Scans for December 2nd: Modest upside following a lower start to the day. The outlook remains the same as investors moving money and looking for opportunities on the horizon. Watching gold and oil versus the dollar. Jobs report due out Friday. Bond yield rising back near 1%. Retail sales data for the holidays. Some opportunities will come from the current data dump.

  • Retail (XRT) some topping on the chart, but the outlook remains solid for now… watching the earnings data as the sector reports soon.
  • Energy (XLE) up 3.2% on the day… trying to move higher and watching how the price of crude responds to data on supply and the dollar.
  • Natural Gas (UNG/KOLD) short side continues to play out near term.
  • Russia (RUSL) continues uptrend.
  • Defense (DFEN) moving higher with flag pattern in place.

TUESDAY’s Scans for December 1st: Optimism springs eternal as the large-cap technology stocks spring higher. The S&P 500 followed suit with solid upside in financials and technology. Both indexes hit new highs yet again as the challenges remain as Washington stimulus rumors renew. Some solid moves in sectors as we discussed above, but there is also some rotation and worries about the dollar, inflation, and growth. Nothing new about any of it, but we continue to measure the balance between reality and belief. Let the chart unfold relative to reality and keep your beliefs from pushing your emotional buttons.

  • Technology (XLK) solid move higher, but the sector remains in a well-defined trading range. The parts are doing better than the whole with Semiconductors (SOXX) leading the upside.
  • Gold (GLD) solid 2.1% gain on the day as the talk of inflation surfaced again along with a big downside move in the dollar. The first step in a bottom reversal near term.
  • Brazil (EWZ/BRZU) solid upside trend from the October lows and broke above the July highs… looking for more upside and leadership in the emerging market.
  • Treasury Bonds (TLT) yields spiked on the dollar decline and stimulus talks. Watching the downside implications to the bonds.
  • NASDAQ 100 index (QQQ) pushed to new highs and watching the breakout for confirmation of more upside on the horizon. Patience with the sector as it remains challenged by talks of valuations.

MONDAY’s Scan for November 30th: Some juggling of money on the last day of the month. Watching how the new month unfolds with energy dipping more than 5% on the day and small caps dropping 1.8% as well. Some profit-taking? OR is this money moving to safety as some feel the markets are overpriced? Either way, the upside remains in play for now and the outlook is for Santa to continue the rally to year-end. Taking what is offered and managing our stops in the process.

  • Energy (XLE) added downside on the OPEC disagreement on production cuts for the next quarter.
  • Semiconductors (SOXX) another new high as they continue to lead the upside for the technology sector.
  • Cannabis (POTX) breaking higher again with a 6% gain. Watching as the volatility in the sector continues to be high:)
  • Biotech (IBB) gaining momentum on the vaccine advance for approval and distribution. XBI large-cap ETF at new highs.
  • Cloud (WCLD) hitting new highs to help elevate the technology sector.

FRIDAY’s Scan for November 27th: The markets made it through the holiday week with some solid gains and opportunities continue to unfold in the current environment. Plenty of talk about the current valuation being too high… remember the buyers set the prices… if and when they deem them too high they will adjust what they are willing to pay and prices will adjust. It is just that simple. Let others speculate as you manage the risk that is present in the positions you hold.

  • Retail (XRT) solid upside as the chart extends the gains and we tighten our stops accordingly.
  • Energy (XLE) solid upside move with some testing to end the week.
  • Biotech (IBB/LABU) solid upside move on Friday to add to the gains in the position… adjusted the stop.
  • China (FXI/YINN) solid gap higher on Friday to break from the current topping pattern on the chart.
  • Semiconductors (SOXX/SOXL) posted new highs for the week and continues in the uptrend. Adjusted stops.

(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 break to a new high as clears the highs of the trading range. Holding the trend for now.
  • XLU – Utilities trying to hold support on the test lower. Watching how it plays out near term. Failed to hold support breaking lower.
  • IYZ – Telecom moved above resistance at the $29.67 level and holding. Watching how this unfolds with our stop at $29.
  • XLP – Consumer Staples double bottom and break higher. Offered upside trade opportunities and watching as the sector test the breakout.
  • XLI – Industrials gapped higher on breakout and continuation of the uptrend. Watching.
  • XLE – Energy gapped higher on speculation of growth relative to the vaccine. Moved above 200 DMA resistance. Raised stop to $36. Big test lower to start the week on OPEC news.
  • XLV – Healthcare continues to struggle relative to the upside. Biotech broke higher and watching how that plays out. Vaccine news attempting to elevate the sector overall. XBI/IBB move higher.
  • XLK – Technology is in a trading range and looking for upside momentum. Semiconductors broke higher and leading the sector. Moving back to the top end of the range… looking for a break higher.
  • XLF – Financials gapped higher and getting support news from interest rates, dollar, and economic outlook. Watching the near-term outcome. Adjusted stops. Fell 2% to start the week. Bounced 1.5% on Tuesday. Up 1.3% on Wednesday.
  • XLY – Consumer Discretionary bounced back to the previous highs as the consumer continues to show strength. Breaking from the trading range for now.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Tested support at $76.22 and bounced to the top of the with a break above $84.45… testing currently. Moved below $85.45 support and bounced back.

The trends shifted higher again based on investor activity. We saw sectors bounce off key support levels and followed through to resume some uptrends. Proceed with caution. Using the six-month charts as an indicator for the short term view… Six sectors are in confirmed uptrends as two breaks higher. Five 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 weeks trading. The BOLD/ITALIC comments are current day changes worth noting.)

FINAL NOTES:

Wednesday: No big changes to the indexes as the low to high day shows buyers are still willing to put money to work. Watching how the future unfolds as the charts remain in a positive trend and the internals are solid for the markets overall. The talk of overvalued stocks remains a big headline, but the momentum on the upside remains in play… this can obviously change quickly, and we continue to manage our risk accordingly. The focus remains on the jobs report on Friday along with the other economic data due out soon. Patience remains the goal.

Tuesday: Plenty of issues facing the markets again with a different twist… inflation, weaker dollar, and transition in Washington. How all of this plays out in the short term is of interest, but the markets seem content to focus on the seasonal period and moving higher as the Santa rally develops. The goal is patience, stop/risk management, and focus on the goal. All the chatter and speculation will take care of itself.

Monday: Mixed day for stocks as only two sectors close in positive territory. Watching how the OPEC news unfolds and the impact on the sector overall. There are plenty of questions about the economic picture as Fed Chair Powell made clear in comments on Monday. He and Mnuchin are due to talk with Congress this week about stimulus and aid for small businesses. Some rotation and some profit-taking on the day as the money starts to rotate again to where it will be treated the best moving forward. Watching retail data for the holidays as well as the first quarter with a new administration due in Washington.

Weekend Wrap & Outlook… The markets moved higher in the holiday week and show positive support to the renewed uptrends. As with any market, there will be dissenting voices and there have been plenty this week as analysts and talking heads believe stocks are too high. That may prove to be true, but we will keep our stops in place and let the markets decide what is too high. The virus remains center stage with the rise in cases and fear rising of more shutdowns. Los Angeles announced a three-week stay-at-home order on Friday which started more speculation. We will want to see how that unfolds moving forward. The economic data remains on the positive side as we continue to see improvement in the numbers. The jobless claims on Wednesday did show a second week of rising claims… something to watch near term. There is plenty to like, but there is also plenty of uncertainty surrounding the outlook for the markets as well. The virus spike in cases is an issue that is raising concerns. This fear factor is one thing that can disrupt the short term if it becomes believable enough. The long-term trends remain and the near-term bounce is positive as some sectors resume uptrends and indexes are pushing back to the previous highs and some setting new highs. How all of this plays out will be of keen interest to investors and traders alike. Technology stocks continue to struggle near term, but the semiconductors bounced and closed at new highs for the week. The retail sector is at new highs as well with the rumors of positive Black Friday sales online. The VIX index moved to 20.8 posting delinces in the anxiety index. The dollar moved below support and down as stimulus talk were in the headlines. The S&P 500 was up 2.5% for the week and Ten of the eleven sectors posting gains for the week inspite of the holiday week. The market getting leadership currently from small caps again this week. Energy continued the bottom reversal with a solid gain on the week as crude continues to move higher. Watching the current movement in the broad markets as money continues to rotate and traders look for the new shinny object. 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.