OUTLOOK: February 19th
As the bounced played out this week the major indexes posted solid recoveries of 4-5 percent. The move tested some intraday on Friday as the indexes opened higher only to watch them erode throughout the day with some profit taking. This remains a trading market from my view and thus looking at the Fibonacci retracement levels off the low of last week technically selling/profit points were hit and you saw money move again. The volume was average on the day and the distribution modest with it being options expiration day. Looking forward I continue to have the belief this is a downside bias market environment and the bounce is just that, a bounce. The retest of the February 9th low is what I see taking place going forward. Thus, upside trades I willing to take some profit and did on Friday. I will adjust stops accordingly and look for short position setups as we start the week of trading.
The S&P 500 index closed up 1 point at 2732 and holding the bounce off the 200 DMA. The chart remains in line with the long-term trendlines off the January/February 2016 low and is showing a bottom reversal pattern in play. The key level of 2695 held on the move confirming the upside move. We will take what the market offers in terms of trades on the upside, but we look for the downside to offer more opportunities going forward. For the day the upside was led by CMG (gap higher off the established low, news), NUE (gapped higher confirming the bottom reversal), HII (broke from trading to continue upside second day), KIM (bottom reversal confirming… REITs bounce), and VRSN (breaks higher from the trading range). Utilities and telecom led the upside for the index on Friday. The downside came from VFC, UAA, VMC, CBOE, and CHK. Consumer discretionary led the downside on the day. There is still volatility in the broad index as the direction unfolds. The last ten days all the sectors are posting negative returns with utilities, consumer discretionary, and technology leading the upside moves. The last month is similar to consumer discretionary, technology, and financials leading the bounce. Plenty to watch, listen and learn as this unfolds in the coming days.
Gold (GLD) found support at the $124.45 level and cleared the $126.02 mark with ease on the CPI data. That erased the indecision in the metal of late and pushed the price back near the previous highs and holding. The dollar (UUP) worries return to gap lower as CPI and PPI rattles the buck. Watching how it responds to modest bounce on Friday. Treasury Bond yields moved to 2.87% and continue to rattle interest-sensitive stocks getting a boost from the CPI and PPI. Small test on Thursday and Friday, but nothing worrisome. Crude oil (USO) breaks support at $61.60 mark but moves back on the CPI data hitting the dollar and benefitting oil. Bottoming pattern confirms and watching for trade opportunity in the commodity. The emerging markets (EEM) dump lower breaking $47.90 support and testing the November lows… yes they bounced on the weaker dollar impact from the CPI data… following the rest of the market higher on the bounce. $50 mark is level to clear. The Volatility Index (VIX) closed at 19.4… still showing anxiety present in the markets as money rotates and returns on the current bounce. A move back above 20.5 makes it interesting for stocks. There is plenty on the table relative to dynamics and agendas from the government, traders and investors alike, but the emotions injected into the market now raises questions about the downside and the level of correction that will transpire and/or the opportunities that exist in the bounce and recovery. The economic data got the attention with the CPI gaining 0.5% and showing inflation tendencies are alive and well. Growth is in the air and that will cause some inflation… but, so does lower interest rates for extended periods of time. The goal is to manage money, not markets. Manage your risk and stay focused on the horizon, not the rear-view mirror.
(The notes above are posted daily based on the activity of the previous days trading)
KEY, INDICATORS/SECTORS TO WATCH:
Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare. The sector has taken on an emotional ride of ups and downs based on the current belief and market trends. Thus making it more of a trading sector than investing. The current move lower tested the $101 support, bounced and cleared $107 as a positive sign and offering a trade in LABU at $85.20 with a stop at $85.20 (adjusted).
REITs (IYR) The sector broke the $79 level of support and continued lower breaking $75.74 support last week. SRS hedge entry $30.25. Stop $34 (Stop Hit) we added to protect our principle short term and it worked as we exit the position with a gain 12% and we collected the 4% dividend over the last year. We now look to enter the long side and collect the dividend again as the sector calms. Entry $75.15.
Treasury yields (TNX) moved to 2.87% holding near the highs of late. That is enough to solidify the move higher in yields and the short side trades in the bond. The lack of commitment from the Fed and Washington’s wanting a weaker currency isn’t helping, and neither is the comments from the new Fed Chair. Add some inflation (CPI last week) and it makes for interest times. Watching how this unfolds, but for now, rates have moved higher and the short side of the bond remains the trade with worries of yields rising further. TMV holding entry $18.50, stop $20.25 (adjusted).
Gold (GLD) Gold remains in a long-term uptrend with a broad trading range in play the last six months. The volatility of the trend is speculation and news driving money. The downside held support and bottom reversal on dollar shift and inflation showing in CPI data. Upside followed through offering upside trade in UGL at $41.85… entry $42.30. Stop $42.53 (adjusted to protect money).
Crude Oil (USO) has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue, but speculation about the dollar is impacting the price near term. The last three months the commodity has managed to fight its way back above the $50, $52.50, $57.50, and now $61.60 levels of resistance and confirm an uptrend off the June low. Posted a solid gain in the rally in December. Broke support… the dollar rally impacted the psyche… downside in buck returns on inflation talk. Looking at how this unfolds today. $24.70 UCO trade setting up.
Energy stocks (XLE) so much for the upside as the sector retest the $67 level of support. The trade worked on the break higher in December, but we were looking for a longer term gain. The support holding and crude attempting to rise again and offer a potential entry at $68.80.
Volatility Index (VIX) The positive week for stocks pushed the index lower to 19.4. The volatility is still in the market as investors continue to look for opportunities both short and long. Move above 20.5 would offer the upside trade in UVXY… watching how Monday unfolds.
The S&P 500 index closed the week up 4.3% recapturing 80% of the previous week’s losses. The drivers remain concerns over interest rates and growth heating up. The latter introduced inflation concerns as the CPI rose for January. That puts speculation in overdrive as the impact of inflation will slow the economy as consumers spend more for the same products. The belief is tax cuts will offset the loss and longer-term create a stronger economic growth versus the stimulus given by the government over the last eight years. There is plenty to ponder as we start the new week… not the least of which is the move in interest rates, the weaker dollar, inflation impact, and the Fed. Will interest rates move to 3%? Will inflation raise its head to disrupt? We remain on guard about how the buck will impact the inflation picture as well as commodity prices. Remember rising commodities impact inflation relative to spending and discretionary dollars from consumers. Overall we are still cautious about the direction looking forward. Patience is required with this market overall as news leads the parade. Plenty of talk on the table concerning a correction, a bounce, or more of the same. Let the dust settle and look for the best opportunities. I am still looking to the downside with phase two being a retest of the current lows.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
Daily Scan Results:
FRIDAY’s Scans 2/16: Some profit taking? I would say yes as we move towards the weekend. Some nice trading gains on the week as we look at the bounce as just that, a bounce. We did take some money off the table and we adjusted stops to protect our money and we look to next week with some anxiety about the outcome. The upside is fine as we have positions on… downside is fine as we are looking at setups to take advantage of the move. Bottom line… let the market define what strategy works going forward. I have beliefs, but they have to be confirmed by the market not me.
- China (YINN) took 1/3 of position off at $40.20. Stop $38.40. Watching how it unfolds on Monday.
- Emerging Markets (EDC) took 1/3 off at $142. Stop $13.60. Watching Monday.
- Technology (TECL) took 1/3 off at $127.60. Stop $122.35. Watching Monday.
- NASDAQ 100 (TQQQ) took 1/3 off at $152.30. Stop $157.50. Watching Monday.
- Same with LABU, TNA, FAS, BRZU and others.
- Gold Miners (GDX/DUST) gold stalled at the highs. Watching the downside opportunity in the miners if this unfolds next week.
- VIX index (VXX/UVXY) play on the upside of volatility if the downside returns to stocks.
- Utilities (XLU/UPW) upside trade added $41. Looking to add to the position if the upside follows through on the move at $42.50.
- Crude Oil (USO/UCO) in position to resume the upside move and looking for entry at $24.70. Watching the dollar and inflation talk as an indicator as well for the trade.
- NASDAQ 100 (QQQ/SQQQ) $17.85 level if the sellers return. This would show some selling coming back and a possible test of the previous lows.
It remains a traders market and we will focus on how this unfolds moving forward.
THURSDAY’s Scans 2/15: More upside at the open was tested and the buyers returned… despite the PPI showing inflation at the producers level. One month does not a trend make… but, we have to watch how this unfolds and it could be the catalyst to re-engage the sellers. The response to the gap higher shows the sellers are lurking. Taking the upside trades for nothing more than a trade. Willing to lock in some gains today on positions if the upside continues. Taking 25-35% of the positions off is prudent in the current environment.
- China (FXI/YINN) gap higher on the reversal. Moving stop to $37 to manage the trade. Willing to take some off the table here from the move with a nice gain.
- Emerging Markets (EEM/EDC) gap higher follow through. Moving stop to $134. Willing to take some off the table on move higher.
- Technology (XLK/TECL) nice upside follow through and moving stop to $118. Managing the risk of the trade by moving above the entry at $113.
- NASDAQ 100 (QQQ/TQQQ) nice upside follow through and moving stop to $152. Manage the risk of the trade and willing to lock in some gains today as well.
- Volatility Index (VXX/SVXY) small gain on the day, but need to manage our position. Move stop to break even trade at $11.40 and let it unfold today.
- Other Notes: CURE to $49 level on the reversal. LABU continues upside move and stops to $90. TNA clears $64.53 upside move. TAN added to entry at $23.50… stop to $24. HACK another gap higher off $32.15 entry… stop $33. FAS added to the upside. BRZU raise the stop to $52.
The upside despite the CPI and PPI showing inflation shows the buyers resolve on the bounce trade. The sellers are still lurking at they took a shot at the gap open. Willing to let this unfold, but as stated above, we have to manage the risk of the trade. UPW adds to the upside in the utility move off lows.
WEDNESDAY’s Scans 2/14: Follow through move on the bottom reversal creates trading opportunities in the bounce. This is a trade only move from my belief and we will treat any positions with that mindset. The CPI data was first seen as negative, but then the upside ensued showing investors favor the growth side of the story now and will deal with the inflation side later. Without getting into the dull and boring of the data it was a positive, but also negative as the effects of inflation on growth longer term will be harmful… but, traders are focused on now and later will take care of itself.
- Gold (GLD/UGL) solid move upside on the inflation concerns. Held support at the $126 level Tuesday and the upside followed through offering a trade in UGL at $41.85… entry $42.30. The gold miners (GDX) moved as well but opted for the move in gold to trade.
- Volatility Index (VXX/SVXY) with hope comes less volatility as money moves towards the sectors where it will be treated the best based on the current beliefs and news. Spike in volatility last week sent the index near 50 and on Wednesday closed at 19.2… short trade on the index was offered on the move below 25… SVXY entry $11.40. Stop $10.70. Target $20. Manage this trade as it will move radically based on news and sentiment.
- China (FXI/YINN) bottom reversal from the selling in play. The move above $34.56 is the confirmation. Trade entry $34.60. Stop $32.60. Target $40.
- Brazil (EWZ/BRZU) bottom reversal from the selling offered trading opportunity. The move above $49.47 was entry level. Trade entry $50. Stop $46.80. Target $59.50.
Emerging Markets (EEM/EDC) upside follows through on the bottom reversal pattern. Trade entry $$127. Stop $119.90. Target $152.
- There were other opportunities on the day as well with SOXL clearing $142.52. EURL clearing $36.25. TQQQ clearing $145.23. TECL clearing $113.01. FAS clearing $68.48.
These are all trades and we will manage them as such. First with a defined entry. Second a defined stop. Third a defined target. We will take money off the table as we approach the objectives and let the balance run until the stops are hit. Disciplined and focus is the key.
TUESDAY’s Scans 2/13: Mellow buying on the follow through bounce. The move is normal following the aggressive selling as the phase is done and the bounce is in place. How much? That depends on the belief factor of investors. 50 DMA would be my first target and maybe as much as 61.8% or 2763 on the S&P 500 index. Technology and consumer stocks are leading the bounce from Friday. One day at a time with some interesting moves on Tuesday.
- Copper (JJC) follow through on the bottom reversal Monday. Watching how it unfolds.
- Gold Miners (GDX/JNUG) bounced with gold prices of the current lows. $14.30 level to clear.
China Internet (KWEB) follow through on the bounce off the $57.20 support. Hold-move above $61.27 it is of interest for a trading opportunity.
- Emerging Markets (EEM/EDC) cleared $120 on follow through bounce off the 200 DMA. $127 level of interest on follow through move upside.
- Coal (KOL) cleared $17.12 resistance after holding at the 50 DMA support. $17.37 level to clear on upside bounce for a trading opportunity.
Not a bad day for consolidation of the move off support. I still believe this is a bounce or reaction to the selling… the buyers are edging back into stocks as their confidence rises that the worst is over. It is relative to the first phase of the move lower… now comes the follow through. Just as stocks move up in waves or steps they move down the same. I may be wrong in this belief, but that is how I see it looking forward a bounce off the selling followed by the second phase of selling. If it doesn’t materialize I have stops in place and the market will take me out of position. Trade your belief with a defined strategy and let the market validate. The key is a defined strategy with risk management.
MONDAY’s Scans 2/12: Buyers followed through with some positive moves on the day. We are watching for a bounce back to at least the 50 DMA on this move… the bias for me still lies on the downside technically. Watching and looking how this unfolds and what opportunities it brings.
- Gold (GLD/UGL) and Gold Miners (GDX/NUGT) bounce on the weaker dollar. Nothing exciting, but watching how this unfolds near term.
- Biotech (IBB/LABU) positive move upside holds the $77 level of support and $85.20 is level to clear for upside momentum to continue with trading opportunity.
- NASDAQ 100 (QQQ/TQQQ) Follow through to Friday’s intraday bounce. Looking for a move above the $145.15 mark for potential trade upside.
- Technology (XLK/TECL) upside follows through to Friday. $113 level to clear near term for upside follow through… Semiconductors (SOXX/SOXL) added to the upside move helping technology overall. $142.50 level to clear.
- Volatility Index (VXX/SVXY) short side trade on volatility is worth watching if the rally continues in stocks. $12.60 level to watch.
Nothing is done and nothing is started based on the last two days of trading. The downside risk remains in play and the bounce falls in line with historical moves like this. The drop was quick and unchallenged… thus the bounce off the key support levels. Is there more downside? That is up to the key fear points begin resolved. Rome was not built in a day, but the destruction was quick. Taking what the market offers one day at a time.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
- XLB – Materials topping pattern breaks lower hitting our stop and test the 200 DMA… watching for how this unfolds… Cleared $59.50 and failed at $61 resistance.
- XLU – Utilities have been under pressure from the speculation of higher interest rates from the Fed and a weaker dollar. Looking for support and the next opportunity as the fear evaporates and reality settles in. $48.55 level cleared for entry. Looking to add to the position as it moves higher.
- IYZ – Telecom has become more of a trading sector than the buy and hold historically. The volatility has increased and thus swing trading works better. Some buying? Some selling? Some consolidation and drop to November lows. Watch for the opportunity. Bounced off the lows. $27.75 upside trade entry. Nice follow through with a stop at $27.50.
- XLP – Consumer Staples moved to the November low and held taking upside trade on the bounce. Bottom reversal $54.76 Entry. Stop at $54.50.
- XLI – Industrials moved to support at $71.43 and bounced… watching. Bottom reversal $75.72 level to watch. Followed through upside with entry $$75.72 and stop at $75.
- XLE – Energy sold below $67 and watching to see how it responds to weaker oil prices of late. Small bounce despite any rise in crude on the failed rally, but not looking healthy. Bounced off lows and forming a bottoming pattern.
- XLV – Healthcare tested the 200 DMA and held… responds well at the $82 resistance on the bounce. Cleared $83.24 opportunity upside trade. Stop $83 and letting it unfold.
- XLK – Technology tested $62 support, bounced, and watching made positive progress with a ‘V’ bottom. $64.80 entry with volume. Stop $65.50 (adjusted). Nice follow through on the upside.
- XLF – Financials remain in a long-term tested $27 support, bounced, and watching how it unfolds this week. Cleared resistance and offered trade upside $28.25. Stop $27.25.
- XLY – Consumer Discretionary sold with the rest of the market… found support at $99.42. Positive bounce and follow-through with entry at $102.50. Stop $102 (adjusted).
- RWR – REITs reacting to the current uncertainty around the hike in interest rates. Bounced off the $82 support and watching. Tested lower again and bounced. A bottom pattern in play. Entry $84.80. Stop 83.
Finished the week with the S&P 500 and NASDAQ indexes posting solid gains on the bounce off support. The market environment is volatile with speculation on many fronts impacting the near-term direction. Last week interest rates move to 2.87% and continue to ruffle some beliefs. The CPI data on the week added more confusion for investors as inflation is added to the equation. The buyers were willing to ignore the negative, but it will sit in the background. It could be used as a catalyst for a retest of the lows and a second leg on the downside. Watching, trading what the market offers in this environment, and managing our risk based on the strategy of the trade. We took some money off on the bounce to bank the gains and continue to watch for the next opportunity based on the trends and impacting beliefs of the market overall. We have to remain disciplined in our approach to investing our money. The goal is risk management as the story-lines continue to unfold.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
Upside week for the market raises questions. Traders are driving the short term swings and opportunities with news as the catalyst along with a pinch of speculation. The week was filled with questions, speculation, and buying overall. Volume was above-average with the profit taking on Friday. The focus remains on the impact of the beliefs overall from investors, traders, and speculators. The speculation relative to the highs being to0 high to continue became a self-fulfilling prophecy. The bounce equally was a belief of the market being oversold. Either way the tug-o-war continues about the future direction, but we see the downside as the belief… this bounce is likely to be sold and a second leg lower will result. We traded the bounce upside, took some gains, and have our stops in place. We will take more profits early in the week if the upside continues. Our goal is to take the opportunities that meet our strategies and allow us to manage our money with the least amount of risk. We will proceed with caution and patience taking what comes our way and fits our strategy for investing both short and long-term.
ONE DAY at a time is the key for now. Take a longer-term view of your overall portfolio and manage the risk of your short-term trades accordingly.
“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.