Markets remain uncertain

The indexes closed slightly lower on the day after a positive start to the day. The early boost came from the proposed $2 trillion in stimulus money from the new administration. Small caps were the benefactor of the news as the sector rose 2.1% on the day. Tech was the laggard giving up 1%. The sectors that would benefit from inflation were moving higher with energy leading the upside move. Jobless claims were higher as well showing the impacts of the current closures in some states. Import prices were up nearly one percent as well showing the influence of higher oil prices. Overall the news continues to validate the beliefs with the wildcard on the day being a massive stimulus package proposal.

Short news notes of interest…

  • Jobless claims jumped 181,000 to 965,000 versus the estimates of 780,000. That is the highest claims number since August. Continue claims for the week increased 199,000 to 5.271 million. With the stimulus rumors in the background, this bad news was seen as good news.
  • Import prices rose 0.9% in December versus 0.1% in November. Excluding oil prices, they rose 0.4%. Export prices also rose 1.1% versus 0.6% in November… inflation is at work.
  • Biden proposed two trillion dollars of additional spending on stimulus in the coming months… Fund managers warn the spending plan could push the market into a correction phase. Too much of a good thing can turn bad relative to the reality of the action taken. Too much spending at this time could have an inflationary reaction.
  • The NASDAQ added 607 new highs… an extreme reading for the index. When new highs are so plentiful looking at other indicators helps to see what is happening… buyer beware. Stops in place and I have tightened ever more due to the valuations.
  • Leadership is interesting currently with the small caps, industrials, metals, and commodities heading higher… Even higher is cannabis stocks. Leisure and travel (PEJ) heading higher as well. All the recovery sectors are moving ahead of what they believe will be more stimulus. Buyer beware… protect against the downside on too much optimism… otherwise know as buy on the rumor sell on the news.

The S&P 500 index closed down 14.3 points to 3795. It was down 0.38% on the day. The index is holding well above the 3550 support as the markets segment their positive and negative sectors. The energy and telecom sectors led the upside on the day closing higher. Five of the eleven sectors closed in positive territory as stocks sideways. The downside came from technology and consumer discretionary as the sellers show up in the sectors. Money flow was negative on the day as investors continue to be active in response to the news. The VIX index closed at 23.2 moving up slightly against an overall improving market? Watching the investor sentiment and how it proceeds.

The NASDAQ index closed down 16.3 points to 13,112. The index was down 0.12% on the day as some sellers showed up late. The NASDAQ 100 index (QQQ) was down 0.53% for the day as money flow into the sector remained negative. The large caps joined the downside on the day as money rotated. Semiconductors (SOXX) closed up 2.12% for the day adding to the upside and new highs. Technology (XLK) moved down 0.88% as the consolidtion pattern continues near the current highs. Watching how this unfolds as the market shifts gears again.

Small-Cap Index (IWM) The sector moved up 5.9% for the week as it remains in a leadership role and renewing the uptrend at new highs. The uptrend remains in play as we manage our position. Entry $155. Adjusted stop to $200. Back to the upside gaining 2%.

Transports (IYT) The sector tested support and bounced back to December highs. Stop $218.60. Watching support. Moved up 1.1% on Thursday.

The Dollar (UUP) The dollar found some support at the $24 level… how long with the pressure from giveaways and yuan. The downtrend is in place with UDN adjusting the stop. Struggled on the stimulus news down again.

The Volatility Index (VIX) Volatility spiked early this week above 27 and closed at 21.5 erasing the nerves for now as buyers stepped end the last two days. Watching how this unfolds along with the news. Settled at 23.2 moving higher again on Thursday.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector remains in a solid uptrend near term hitting new highs. Watching the current trend and managing the stops. Stop $232 (adjusted). Hit new highs and tested modestly. New highs on Tuesday. Down 1% on Wednesday. Up again on Thursday.

Retail (XRT) The retail sector showing a solid uptrend as the buyers put money to work for the week hitting new highs. This has been a key leader for the markets and watching how this unfolds near term. Stop $68.15 (adjusted). Solid upside gaining 2.1% Monday and 3.1% on Tuesday and 3% on Thursday. Adjusted the stops.

Biotech (IBB) The sector tested support at $152.50 held and bounced back to new highs to end the week. Stop $149.50.Watching how this unfold moving forward. Up 2.4% on Thursday… new highs.

Semiconductors (SOXX) The sector remains in an uptrend and broke higher from the consolidation phase this week. The $367.50 level of support is a long way off… Managing the risk and letting this unfold. The uptrend remains in play. Stop $398 (adjusted). Added to gains and at new highs again, raised stop again.

Software (IGV) The sector tested lower this week and held support at the $340 level. Bounced… attempting to resume the uptrend. Watching how it plays out near term. Struggling to move higher.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.1% up from 0.96% last week. Rates breaking the 1% level created more downside for TLT on the week. As we have stated short trades on the bond remain in place. TMV stop $58.88. Rates move to 1.12% after modest dip.

Crude oil (USO) Crude moved to $52.25 from $48.39 for the week or up 8%. Plenty of speculation to influence prices and watching how this unfolds. As we stated nearly seven months ago… the greatest opportunity was in crude. Taking what is offered and managing the risk. Stop $34. UCO trade position entry $25.78. Stop $38.50 (adjusted). Rose nearly 1.2% on Thursday. Gasoline (UGA) up as well.

Gold (GLD) The commodity broke higher as the bottom reversal followed through. The test earlier in the week gave way to selling on Friday dropping 3.4%… Stops hit, watching how this unfolds. Testing the 200 DMA and bounced.

Emerging Markets (EEM) The sector moved back to new highs. Entry $44.50. Stop $52.50 (adjusted). China (FXI) was the leader on a break higher as well. and we adjusted our stop on those positions. The break higher is positive for positions, but managing the new risk. More new highs.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

THURSDAY’s Scans for January 14th: Some downside on the day as the money remains in motion. leadership coming from chips (SOXX), industrials (XLI), retail (XRT), cloud (SKYY), travel and leisure (PEJ), small caps (IWM), and cannabis (POTX). Taking what is offered as the upside remains in play, but the indicators show they are extended… irrational? Maybe, but fighting the trend is never a good idea. Watching which catalyst is the key now that stimulus is on the table.

  • Emerging Markets (EEM) vertical move on break higher. Adjusted stops.
  • Retail (XRT) vertical move higher… adjusted stops.
  • Energy (XLE) 17% rise in eight trading days… adjusted stops again.
  • Semiconductors (SOXX) up 9.8% in seven days… adjusted stops again.
  • Global Cannabis (POTX) up 55% in nine days… adjusted stops again.

WEDNESDAY’s Scans for January 13th: More mixed activity with technology leading the upside on the day. The utilities and REITs bounced with the drop in interest rates. The dollar looking better, but worries will rise if Biden follows through on $2 trillion in additional stimulus. Plenty on the horizon and plenty to unfold… keep following the money trail it will lead to growth and trends. Today posting some interesting returns on the five day scans for momentum…

  • Semiconductors (SOXX/SOXL) solid break higher and gained 5.6% on the continuation of the uptrend.
  • Cannabis (POTX) the global ETF for cannabis gapped higher and hit new highs on the recent drive higher in the commodity. Gained 17.6% the last five trading days.
  • South Korea (EWY) solid drive higher in the existing trend. Testing the last few days at the new highs. Interesting how it has accelerated.
  • 3D Printing (PRNT) gapped higher and consolidating. Big move due to speculation on what can be made with the machines and popularity with hampered manufacturing capabilities.
  • Oil & Gas Exploration and Production (XOP) solid move higher in the uptrend is being sparked by rising crude and energy prices.

TUESDAY’s Scans for January 12th: Mixed activity with sectors seeing buying and selling as money is in rotation mode again. The energy sector was the primary benefactor as the price of crude continues to rise. Consumer sectors with retail leading also posted positive upside on the day. The technology sector remains a challenging area as money heads to the exits near term. Financials pushed higher again led by banks and optimism about fourth-quarter earnings. Managing the risk and taking what is offered.

  • Energy (XLE) up 3.5% on the day and adjusted stops. $57 per barrel as the expectation is for supply to remain tight looking forward.
  • Crude Oil (USO) up 2%. Gasoline (UGA) up 2.3%. Adjusted stops.
  • Brazil (EWZ/BRZU) trying to break higher from consolidation.
  • Natural Gas (FCG) cup and handle pattern break higher confirming the uptrend in the sector. These stocks are benefitting from the push in crude price.
  • Agriculture Commodities (DBA) moving higher. CORN break higher. SOYB breaks higher… getting interesting.

MONDAY’s Scans for January 11th: Some selling to start the day. Buyers did step in to stem the downside risk. Leaves plenty of question marks regarding the upside to the markets near term. Managing the risk that is and watching how the news continues to impact day traders. The longer-term horizon is still a matter of the new administration’s actions and economic recovery. Too many questions for me to entertain speculating, thus, one day at a time is my focus for now.

  • Crude Oil (USO) responds to the renewed lockdowns and rising case counts for the virus. Watching near term.
  • New shifts in lockdowns are causing anguish in the outlook for stocks. This is something to understand looking forward and managing your stops.
  • Silver (SLV) Big drop with gold on Friday and attempts to hold support. Watching how this unfolds moving forward.
  • Cannabis (CNBS/YOLO) sector is getting plenty of attention of late and running higher. Watching for the opportunities that make sense.
  • Regional Banks (KRE/DPST) showing positive upside follow through to the recent gaps higher.

FRIDAY’s Scans for January 8th: More buying in stocks as the indexes hit new highs and optimism rings in the new year. The hope of further economic stimulus is in the air with the elections… we will see how that unfolds… plenty of speculation to go around and thus sector moves higher on hope, not facts. Thus, we adjust our stops and let the speculation play out. Know what is fact and what is hope… facts support themselves over time… hope has to validate it is true and now just speculation. We will spend time digging over the weekend.

  • Emerging Markets (EEM) benefactor to the rotation of money as sector hits more new highs. Adjusted stops.
  • South Korea (KORU) gone vertical the last two weeks. Adjusted stops again.
  • Energy (XLE/ERX) bounced at support and added nicely on the upside to previous highs. Watching as crude moved above $50 level.
  • Biotech (IBB/LABU) bounced at support and moved higher to end the week. Watching and added to the positions. Adjusting stops.
  • Small Caps (IWM/URTY) led the upside for the week. Adjusted stops and watching how it unfolds.

(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:

Thursday: the S&P 500 index is showing some topping as money has rotated to the outlier sectors. Energy remains the clear leader for the index as it plays catch up to the others. Financials are in a positive trend thanks to interest rates. Telecom broke to a new high on Thursday. The VIX index remains elevated as nerves are rising. The game is patience, take what is offered as you manage the risk by adjusting your stops. Stay focused on the objective not what you think.

  • XLB – Basic Materials break to a new high as clears the highs of the trading range. Holding in a trading range for now. Benefactor of the election as breaks higher.
  • XLU – Utilities try to hold support on the test lower. We did manage to bounce but with rates moving higher it puts pressure on the sector.
  • IYZ – Telecom moved above $30.95 resistance and held. The support at $29.67 held and we bounced back to previous highs. Stop at $29.60. Broke to new highs.
  • XLP – Consumer Staples sideways move remains in play. Nothing changed of late and letting it unfold.
  • XLI – Industrials gapped higher on breakout and continuation of the uptrend ($82). Watching sideways movement near term. Inching higher.
  • XLE – Energy gapped higher on speculation of growth relative to the vaccine. Moved above 200 DMA and $39.12 resistance. Tested the break and held support… bounced again on rising oil prices. Raised stop to $37. Breaks higher posts new highs again.
  • XLV – Healthcare found buyers this week and broke above resistance to push to new highs. Watching how that plays out. Adjusted stop to $113. Solid upside follows through. Testing highs.
  • XLK – Technology remains in an uptrend. But it is struggling on news and analyst downgrades. Despite the move to new highs it remains challenged by the outlook. Testing near highs.
  • XLF – Financials continued higher and broke to new highs as banks jump on the move in interest rates. The first level of support is $28.24. Adjusted stops. Letting this unfold. Breaking higher.
  • XLY – Consumer Discretionary bounced to new highs as the consumer continues to show strength. Watching how it moves going forward and adjusted our stops. Two solid days in XRT as retail moves higher.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Struggling to hold support at the $83 level. No positions and letting this define its direction near term.

The trends shifted higher again based on investor activity. We saw sectors bounce off key support levels and followed through to new highs and resume uptrends. Proceeding with caution. Using the six-month charts as an indicator for the short term view… Eight sectors are in confirmed uptrends with some near term testing. Three 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 week’s trading. The BOLD/ITALIC comments are current day changes worth noting.)

FINAL NOTES:

Thursday: more rotation from major sectors into the obscure. Plenty of speculation for everyone as the markets push higher on irrational moves. It is not ours to judge the move only to protect against the downside and measure the risk of each position near term.

Wednesday: another mixed day for stocks as the leadership on the day shifted to technology stocks and away from the recovery sectors. The small caps saw some profit-taking. Energy remains strong along with the retail stocks. Taking what is offered and watching how money flow shifts towards commodities of late.

Tuesday: Mixed day with defined leaders and laggards. Watching the rotation continue with money heading towards commodities… energy, agriculture, and mining. Global ETFs benefactors of the weaker dollar with emerging markets and Europe moving nicely on the upside. Financials heading higher as banks prepare to report earnings. Following the money trail and taking what the markets offer.

Monday: Interesting start to the week. The early selling found some buyers, but the message was sent. The upside remains in play for now and watching how the week unfolds. We can all speculate on what might happen… but, it is easier to invest based on what is happening. Trying to find the proverbial needle in the haystack is hardly worthy of the time. Focus on where the money is heading and where it is content to reside… that is where the opportunities lie.

Weekend Wrap & Outlook… The markets moved higher to start 2021 and the S&P 500 posts gains to start the new year. The previous optimism for stocks remains as the elections come to an end and the hope of stimulus is in the air. The leadership is moving as well with small caps heading the upside to start January. The worries with the shutdowns and mandates relative to the virus remain in place even they have shifted to the backburner for now. The economic data remains on the positive side as we continue to see improvement in the overall numbers from December. The jobs report disappointed, but there is hope on the horizon. The stimulus package passed with plenty of fat for everyone… we will see if it has any real impact moving forward on the economy. Thus, the new year promises to be interesting relative to economic growth and renewed lifestyles. The long-term trends remain and the near-term break higher offer more optimism. Technology stocks continue to struggle. The retail sector is moving higher despite worries about the shutdowns growing. The VIX index spiked above 27 to start the week but moved to 21.5 and recent lows. The dollar fell hard on stimulus bill passing but found some support to end the week. Market leadership currently is from small caps, commodities, and clean energy. Crude moved above the $52 level the highest since February 2020. UGA is running higher as gasoline prices jump. We own the ETF so we can afford the hike at the pump:). Watching the current movement in the broad markets as money continues to rotate and traders look for the new shiny 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.