Markets remain uncertain

More of the same as the markets continue to look for direction. Small caps recover from their losses on Monday and overall things were fairly normal. The dollar rose putting pressure on commodities and currencies around the globe as it moved back above the 200 DMA. The S&P 500 index is facing 3984 as the next key level of resistance. The NASDAQ is still struggling to find some buyers… the index is holding support above the 12,977 level of late as we watch patiently. The semiconductors were flat and technology was off one percent on the day. Overall this remains a market of uncertainty and new continues to run the show.

Short news notes of interest…

  • Treasury yields rise to their 14-month highs. 1.77% on the ten-year bond rattled some investors as the target remains 2% near term. The ripple effect of the move in bonds will happen in time not overnight… but happen they will.
  • A $4 trillion infrastructure plan is due to be rolled out by Mr. Biden on Wednesday and that is not helping the markets with the thought of additional debt being added to the already massive spending over the virus. Watching industrial, basic materials, and defensive stocks to benefit from the news.
  • Universal Studios in Hollywood is scheduled to reopen on April 16th… This adds to the announcement that Disneyland is set to reopen on April 19th… Everything remains restricted based on the Covid issues in California, but progress is being made.
  • Oil price closed at $60.57 per barrel again as traders watch what is said at the OPEC+ producer group meeting later this week. The pressure on supply is a concern with data due out on Wednesday. The rise in prices is a challenge for consumers and inflation.
  • Covid cases on the rise in Europe and other parts of the world rise as a fourth wave evolves according to the CDC. They also reported that the cases are rising in younger patience. However, Pfizer (PFE) announced their vaccine is 100% effective in kids 12-15 years old. There is concern about the rising numbers in areas with the highest vaccine penetration… in turn, the pharm companies fell in price… go figure. Watching how this develops near term.

Sector Rotation and the S&P 500 Index:

The S&P 500 index closed down 12.5 points to 3958. It was down 0.32% on the day. The index tested for the second day and faces key resistance at the 3984 levels. Money flow was flat and volume was below average as the uncertainty remains. Four of the eleven sectors closed in positive territory as the market remains on pause. The VIX index closed at 19.6 falling from Monday’s elevated levels. The index remains challenged near term and watching. We remain patient and allow this to unfold near term. Long-term trends remain on the upside.

Tuesday: the index was mute and the movement was equal. Consumer discretionary rose one percent and consumer staples fell one percent. Energy was lower along with healthcare, technology, and utilities. It was more jockeying among sectors looking for leadership near term. We remain patient here and manage what we have and look for the next opportunities to unfold.

  • XLB – Basic Materials remains in an uptrend and closes the week at new highs after testing the 30 DMA. Adjusted our stops and watching.
  • XLU – Utilities found support at $61.75… watching how this unfolds. Rising interest rates don’t help the sector. Remains in a trading range. Broke from the trading range and tested the break.
  • IYZ – Telecom now shows a triple top on the chart and Friday closed above the top of the range… needs to follow through to complete the breakout move.
  • XLP – Consumer Staples found support at the 200 DMA and has moved higher since… Friday closed at a new high. Added to the upside moves and raising stops. Tested the move on Tuesday.
  • XLI – Industrials broke from the trading range and rose to new highs. The test lower held and now we let it play out with stops in place.
  • XLE – Energy surged higher the last month and rose to near term highs. The fall in crude prices pushed stocks lower finding support at $48. Added on Friday and watching how it plays out.
  • XLV – Healthcare moved below the 50 DMA with the downtrend from the January highs establishing itself. Bounced at support and struggled to move back above the 50 DMA. Friday it broke higher offering entry for XLV $115.50. We own IHF ($246.50) as the leader in the sector. XBI has been the weak link for the sector. Broke higher and followed through to the upside. Small test on Tuesday.
  • XLK – Technology remains in an uptrend but is definitely testing near term. Money flow is lower and sentiment remains negative. Rising interest rates hurting the sector overall. But it did manage to bounce 2.5% on Friday. Lacks direction.
  • XLF – Financials bounced at the support of $28.95 and bounce back to the previous highs creating a ‘V’ bottom on the chart and then proceeded higher. The upside in play near term with some testing on the week.
  • XLY – Consumer Discretionary ‘V’ bottom in play after bouncing near the 200 DMA. Needs to hold above the $167 level or the 50 DMA. Watching what unfolds near term.
  • IYR – REITs made a run to new highs as hopes of reopening the country will benefit the retail space available along with a return to offices. It may be blind hope, but the sector rose to new highs nonetheless and is now testing the move… watching.

Using the six-month charts as an indicator for the short-term view… Nine sectors are in confirmed uptrends with some sideways activity the last six weeks. Two are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for S&P 500 index is an uptrend short term with a reversal bias on the charts short term. We remain defensive and cautious about the broad index.

(The notes above are posted at the end of each week based on the activity of the previous week’s trading. The BOLD/ITALIC comments are the current day changes worthy of note.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

The NASDAQ index closed down 14.2 points to 13,045 as the index was down 0.11% on the day and closed above the 12,977 support. The index remains challenged by growth being out of favor near term. Money flow was flat and remains in a downtrend. The growth stocks continue to struggle. The NASDAQ 100 index (QQQ) was down 0.5% showing some challenges. The $312 support is in play with the close above that level. Semiconductors (SOXX) closed down 0.24% but held above the 50 DMA. Technology (XLK) moved down 0.95% and remains in the consolidation pattern with a downside bias. There is plenty to watch and that will take some patience.

Semiconductors (SOXX) The sector remains volatile and the head and shoulder pattern has our attention. Watching as the sector isn’t out of the woods yet. It remains an indicator for the broader index and it will give clues overall about direction moving forward. Friday’s gains helped ease the downside bias some. Added a position in SOXL. Entry $34. Stop $35. Challenged on Monday off 1.5% and looking at how this unfolds.

Software (IGV) The sector showed volatility again after testing the current lows. The up and down week shows the uncertainty in the sector. If the upside is to return to the broad index we will need semiconductors to lead… patience as it unfolds. Retesting the lows again.

Biotech (IBB) The sector broke lower from the January highs and has struggled since. The sellers pushed the sector to the 200 DMA and bounced… not overly convincing in the action. Watching for opportunities. Testing lows again.

Small-Cap Index (IWM) The sector broke the 50 DMA with three solid days of selling… bounced at $208 support and closed at the 50 DMA… now we see how it responds. Big negative on Monday… watching for short side trade. The modest bounce back on Tuesday helped for now.

MidCap (IJH) The sector tested the 50 DMA bounced off support and watching how it responds to the selling last week. Big negative on Monday… watching for short side trade. Tuesday bounced helped for now.

Retail (XRT/RTH) The retail sector volatility was back as GME was back on the volatility drive. But, the balance of the sector has moved higher and shown some positives on the reversal. Closed at new highs. Tested and held near the highs.

Emerging Markets (EEM) The sector tested lower, breaking support with some buyers on Friday. The bounce on Friday has my attention and we will see how it works through the negative sentiment. Tested.

Transports (IYT) The sector has been showing positive signs and leadership for the Dow. Tested lower, but held and moved back to new highs to end the week. The uptrend remains in play. Raised stops. Pushed higher on Tuesday.

The Dollar (UUP) The dollar has bounced of late as a safe haven move globally. The bottoming pattern validated the upside move on the chart with the dollar up 4.3% since January. The rise is due to the rise in treasury yields helping the dollar. The Fed is going to let the capital retention requirement expire on March 31st put on banks during the pandemic. That will have a positive impact on both. Resumed upside and gapped higher on Tuesday.

The Volatility Index (VIX) Volatility closed at 18.8 down from the intraday highs of 23.5. Watching how this unfolds relative to the buying on Friday and the previous negatives for investor psyche. Closed at 19.6 on Tuesday.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.66% down from 176% last week. Rates are rising on inflation fears… negative for bonds. The bonds (TLT) have declined nearly 15% since the highs in January. Raise your stops and protect the gains on the short positions. TBT entry $17.84. Stop $21.04 (adjusted). Rose to 1.72%.

Crude oil (USO) Crude moved to $60.99 from $61.42 last week. Despite the rise on Friday, the commodity had a volatile week of trading. Fear of renewed closing in France and Germany due to the virus rocked the price for investors. The blockage in the Suez Canal didn’t help matters and is creating more speculation for the commodity… no positions currently. Up 1% Monday and down 1.6% on Tuesday. The supply data is coming along with the OPEC+ meeting… important to the direction near term.

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. The break of support at $166.50 finds support at the $157.29 mark and a small bounce… watching. The bottom reversal remains in play… Entry $162.45. Stop $160 (stop hit). Rolled over again on a stronger dollar and tested previous lows.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

TUESDAY: Scans for March 30th: More of the same as leadership is lacking… money is jumping around, but the lower volume shows a lack of interest on investors’ part. Willing to wait and see how this unfolds. There was some downside in commodities on the day as the dollar gapped higher. There is still an issue related to the virus hurting the outlook with renewed fear tactics from CDC and Mr. Fauci is back taking credit for the vaccines. Plenty of news and little relative to direction. Taking it slow and catching up on my golf.

  • Gold (GLD) Gapped lower on the dollar gapping higher. Watching the commodity as the pressure remains on the downside.
  • Crude Oil (USO/SCO) Moved lower as the Suez Canal reopened and supply concerns rise. The is the OPEC+ meeting this week as well. Watching for the opportunity with my bias on the downside.
  • NASDAQ 100 Index (QQQ) Testing support… looking at the downside trade if it breaks lower. Not a lot of hope in the upside as tech and large-cap growth stocks remain out of favor.
  • Housing (ITB) Solid data from the FHFA Housing Price Index as prices increased 1%… can this sustain as interest rate continue to rise, hitting their fourteen-month high.
  • Transportation (IYT) the backup in shipping and moving goods remains a long-term challenge currently. Thus, the sustainability of the sector remains positive. Railroads are leading, but trucking is doing well along with airlines.

MONDAY: Scans for March 29th: The song continues to be the same… uncertainty creating intraday volatility all based on news. The higher oil prices acting as a tax at the pump, higher commodity prices impacting the cost of food, inflation rising, workers not working due to unemployment benefits… and more. Taking it one day at a time as the chop makes entries and exits near term a challenge and the risk factors are rising. Patience is the key for now.

  • Utilities (XLU) broke higher from the current consolidation showing positive money flow and defensive posture for investors.
  • Consumer Staples (XLP) rotation defined. Gone verticle the last two trading days in a sector that moves like a snail.
  • Healthcare (XLV) broke higher and followed through on the move. Positives from PFE, GILD, and others.
  • Treasury Bonds (TLT/TBT) yield jump again moving to 1.72% after a rest last week. Watching the short side trade volatility of late.
  • Oil Services (OIH) Fell 2.8% and continues to struggle despite the rise in crude oil. Watching the 50 DMA as support near term.

FRIDAY: Scans for March 26th: The buyers came back to push stocks higher to end the week. Some are stating this is due to the rebalancing for the end of the quarter. Whatever the reason money flow was higher overall and investors were looking for opportunities. Whether they found them will be a matter of time to see. Watching taking what is offered with our eye on the near-term moves.

  • Semiconductors (SOXX/SOXL) The sector followed through on the intraday bounce Thursday offering an entry in the sector for a bounce trade. Entry $34.
  • Basic Materials (XLB) broke to new highs as the cyclical stocks rise again.
  • Transports (IYT) broke to new highs again and remains strong in the trend.
  • Homebuilders (ITB/XHB) broke to new highs again and renewing the positive trend in the sector.
  • Small Caps (IWM) followed through on the intraday reversal on Thursday offering an upside trade opportunity.

THURSDAY: Scans for March 25th: Indexes started the day lower and tested key support levels and bounced to close in positive territory for the day. The bottom test intraday was a positive sign on the close. Now we see if the buyers are willing to return and push the indexes higher. Clarity remains an issue for investors and news is the driver for now. Taking what is offered and letting it all unfold… patiently.

  • Small Caps (IWM) test to support and find buyers. The move off support intraday and closing higher gives some hope that the near-term selling is done… watching how it unfolds.
  • Technology (XLK) tested lower, bounced, closed negative, and watching for some clarity on direction. The consolidation pattern remains in play with a downside bias.
  • NASDAQ 100 (QQQ) like technology tested lower, bounced, closed negative, and watching for some clarity on direction. The consolidation pattern remains in play with a downside bias.
  • Homebuilders (ITB/NAIL) nice upside on the day to previous highs. Still in a consolidation pattern at the highs.
  • Crude Oil (USO/SCO) Downside is testing the 200 DMA for the commodity. The recent selling reflects the move higher needing to consolidate and digest the move. Now comes the challenge for direction moving forward and it remains a supply and demand issue.

WEDNESDAY: Scans for March 24th: Another mixed day with intraday volatility picking up again as news drives the direction. The large growth stocks remain in a phase of indecision and not helping the cause. The ‘recovery’ stocks are fighting to hold near-term levels of support. Clarity remains a primary issue with too many potential roadblocks remain in the news. Virus, inflation, economic growth, unemployment, too much spending… and more. Taking what is offered and holding on to our cash for now.

  • Technology (XLK) and Semiconductors (SOXX) testing lower and causing havoc for the large-cap NASDAQ 100 index (QQQ). Broke support on the NASDAQ and watching how it unfolds near term… short side trades are set up at this level.
  • Biotech (IBB) selling accelerated the last two days… downside risk rises. The large-cap biotech (XBI) looks similar on the charts… but JNJ, PFE, and HUM are showing some potential.
  • Small Caps (IWM) fall below the January highs. Raised stops on short side trade offered and letting this unfold.
  • China (FXI/YANG) downside accelerated and we adjusted our stops again as the break higher in YANG gained 11.1%. Managing our risk.
  • Emerging Markets (EEM/EDZ) downside breaks lower and accelerated the move higher in EDZ. Adjusted stops and letting it run.

(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.)

FINAL NOTES:

Tuesday: the lack of direction and clarity remain and issue for stocks. We are willing to wait and let this all unfold. Fighting against a directionless market is my idea of stupid. Stay focused, manage your risk, and look for the opportunities to unfold.

Monday: Challenge remains day to day as news is the driver. Not what you want as it creates intraday volatility that is unrealistic overall, but believable for the day. Watching how this all unfolds and letting the markets and investors develop some clarity. Cash is not a bad thing as it keeps us out of harms way while everything defines itself. Patience is the key.

Weekend Wrap & Outlook… The market shifts sentiment again as buyers and sellers fight for direction. The NASDAQ remains challenged as growth remains out of favor for now. The upside hope is alive and well with cyclical and recovery stocks leading with some rotation to value and dividend stocks. Economic data is leaning towards growth aided by the stimulus. There are plenty of issues facing the US and global economies as inflation rises and central banks step in globally. Food and energy prices are rising and it is likely that energy prices are driving food prices higher due to the logistics of moving it around the country. Shipping is leading as there is a backlog of products sitting on docs around the world. Pandemic restrictions and closures continue to show up in the supply of products and raw goods. The move by France to shutdown 19 regions didn’t help the cause and Germany followed suit closing for the Easter holiday. Energy has been volatile on the news. Throw in the blockage in the Suez Canal and more disruption to energy and goods is on the way. The impact becomes a balancing act for both consumers and investors. The bond market is a larger concern as money rotates out of bonds on fear of yields rising even further, evidenced by the 1.66% yield on the ten-year bond. Remember who the largest bondholders are in the world and watch what happens to their portfolios, credit ratings, and profits… therein lies some opportunities.

With that in mind, the markets closed the week with a broad-based move to the upside. The cyclicals are leading and growth stocks are lagging. Value /dividend stocks are in favor over growth and thus they are acting more like growth stocks. Commodities have cooled as money exits for greener pastures of current moves. The long-term trends remain on the upside but I remain cautious about the current environment. For the week consumer staples and REITs led the upside. The VIX index closed at 18.8 and off the highs of the week. The dollar was elevated again as a safe haven option. Crude volatile as news for and against the price were present. Watching the current movement in the broad markets as money continues to rotate and some heads to cash.

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.

“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 your trading strategies with a disciplined approach to investing and managing the risk of our money.