Markets remain in a positive mood

The markets posted a solid week with the holiday interruptions smooth for the most part. The new buzz on Wall Street is prices are too high… sounds familiar. We will let that unfold and manage our risk accordingly. The S&P 500 Index continued to set new highs and Friday saw some juggling of positions as energy and utilities pushed lower. The retail sector was in focus all week as this is the largest shopping period of the year. The sector gained 6.3% for the week showing belief things will be fine despite the virus spread and the talk of shutting down. It has been a positive week and we take that with us to next week with the end of the month ahead which brings plenty of economic data that will be of help looking forward. The Santa rally is on and we will see if he can deliver for the year-end.

Short news notes of interest…

  • Black Friday shopping shifted to online and it is expected to hit record numbers. Discounts have been the big theme to get shoppers online to spend money… watching next week’s results for Black Friday and Cyber Monday.
  • Los Angeles issued a three-week stay-home order due to a spike in virus cases. The worries are about overwhelming the healthcare system.
  • Salesforce is being rumored to being near a deal to buy Slack. The acquisition is seen as a positive for both companies as they face more challenges from Microsoft in their respective areas. It comes with a $25 billion price tag.
  • New claims for unemployment rose for the second week up 30,000 to 778,000. Those numbers were reported before the recent closings in as many as ten states of businesses on stay-at-home shutdowns. Expectations are for the numbers to continue to rise.
  • Trump’s dispute over the election is headed to the Supreme Court and should offer some interesting reading, but Wall Street is moving forward with little worry of any changes for 2021.

The S&P 500 index closed up 8.7 points to 3638. It was up 0.242% on the day. The index held 3550 support and closed at new highs on Friday. Retail sales and the virus were the main headlines to end the week. The energy sector led the week with an 8% gain as crude moved higher on the vaccine news. Four of the eleven sectors closed in positive territory as investors continue to juggle positions. The downside came from energy and utilities on the day. The VIX index closed at 20.86 as anxiety ticked lower on the day. Watching the momentum changes and how it proceeds.

The NASDAQ index closed up 111.4 points at 12,205. The index was up 0.92% on the day as the index held above the 10 DMA. Semiconductors have been the leader for the index near term. Tech overall continues to show signs of fatigue but improved during the week. The NASDAQ 100 index (QQQ) was up 0.92% for the day. The index remains in a well-defined trading range but attempting to break to a new high. Semiconductors (SOXX) closed up 1.19% for the day and closed at new highs. Technology (XLK) moved up 0.53% and holding 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.

Transports (IYT) The sector tested support at $193.50 and continues in a solid uptrend near term. Stop $217.95.

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.

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.

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.

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.

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.

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.

Software (IGV) The sector added to the upside move and closed at the previous highs. Looking for upside breakout and continuation of the trend.

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.

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.

Gold (GLD) The commodity broke lower from the range and offered a short side trade. Taking what is offered with GLL.

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.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

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.

TUESDAY’s Scan for November 24th: Transition begins in Washington, earnings are upbeat, energy prices rising on global optimism related to the vaccine, and all is well with stocks hitting new highs. The push higher is clear on the charts, breakouts in energy, financials, and other recovery sectors offer upside trades near term. Watching, practicing patience, and letting this all play out near term. Following the leaders and managing the risks of the current environment.

  • Energy (XLE/ERX) adding to the upside break higher. This is a sector we have been watching as a key opportunity for the recovery stocks. OIH, IEZ, XEO all moving higher. UGA breaks higher from the trading range as well.
  • Gold, Gold Miners, Silver all move lower… short side trades playing out well near term.
  • Volatility Index (VXX/VSXY) moving lower as volatility fades on positive vaccine news. The short side trade has played out well on the move.
  • Emerging Markets (EEM) breaking higher on optimism as well.
  • Regional Banks (KRE/DPST) solid move higher as they lead the financial sector higher.

MONDAY’s Scans for November 23rd: More rotation to small caps and what are being deemed recovery stocks. The cyclical rotation is in place as many are now looking longer term to the recovery of mobility globally. The herd immunity will take time to unfold, but the outlook is positive for the next 12-18 months. How we get there is what remains unclear and the markets are attempting to balance the outlook to near-term realities. Yellen being named Treasury Secretary gave hope of a stimulus package in January since she is familiar with the players. All were happy on Monday with the exception of Trump as he agreed to transition power to the new administration.

  • Energy (XLE) jumped 7% on the day as optimism surrounds the recovery of crude consumption. $38.50 next hurdle to jump. OIH jumped 9% on the news as well.
  • Financials (XLF) solid upside to add to the trend higher. Adjusting stops and letting this unfold. Banks are leading the upside move.
  • Goldminers (GDX/DUST) short side playing out well and raised our stop.
  • Retail (XRT) solid upside moves as the trend higher continue on the vaccine news.
  • Small Caps (IWM/TNA) upside leadership for the sector a positive as rotation continues to benefit the sector.

(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.
  • 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.
  • XLV – Healthcare continues to struggle relative to the upside. Biotech broke higher and watching how that plays out.
  • XLK – Technology is in a trading range and looking for upside momentum. Semiconductors broke higher and leading the sector.
  • XLF – Financials gapped higher and getting support news from interest rates, dollar, and economic outlook. Watching the near-term outcome. Adjusted stops.
  • 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.

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:

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.