Markets start higher end lower…

Market outlook for September 25th

Everything is fine, right? It seemed to be according to all the talking heads and the Fed. China bought some grain to show positive steps towards trade. What happened to the early gains on Tuesday? After the first hour of upside the markets started to move lower with semiconductors leading the way. Technology gave up one percent overall and the third attempt over the last two plus months to move to new highs meets with some selling again. I don’t want to read too much into the activity or question the motives, but we have to be cautious near term about how this unfolds.

The S&P 500 index closed down 25.1 points to 2966 as the index sells back from the recent highs. The market was lower following a start on the upside. Two of the eleven sectors closed higher on the day led by utilities. The downside was led by telecom and energy. Plenty of questions remain relative to how this unfolds with the up and down movement and raises questions about the move higher. The long-term trend makes improvements with the return to the previous highs.

The NASDAQ index closed down 118.8 points at 7993. The index lost 1.4% leading the downside on the day as technology stocks fall. QQQ sold lower breaking the $188.44 support level. Technology is still the key sector to watch as this unfolds. A continued move lower at this level would be a negative for the broad markets.

Small-Cap Index (IWM) The sector has been leading the upside effort as money rotates and moves above the $152.28 resistance. The test the last three days held above support, but on Tuesday the sector moved lower to the next level at $152.28. The gap higher cleared the $149.33 resistance. The move back to the $158 high is of interest. Hit the entry point at $152.28. Stop $155 (Stop Hit). Exited our position and watching how it unfolds.

Transports (IYT) The sector sold back to the lows and bounced off support. The $182.43 resistance was cleared and $186.70 level cleared giving an entry point. Entry $186.70. Stop $190.86 (stop hit). Shippers such as FedEx have not helped the sector with weaker earnings and forecast. Attempted to clear the July highs and met some resistance and selling lower hitting our stop. Watching how this unfolds.

The dollar (UUP) The dollar moved higher on the oil field attack and lower on the Fed action in the repo market and higher on the FOMC meeting results. Watching how it responds going forward. Closed at $26.77.

The Volatility Index (VIX) closed at 17.05 as worries rise. The index had some big intraday volatility the last four days… After hitting the lowest levels in seven weeks… the activity is picking up. Watching how this unfolds in the coming days of trading.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector tested the $182.55 support, bounced, and cleared resistance at the $190.44 mark. Now moved to the July highs and testing the move. Watching how this unfolds. Fell to the 50 DMA… not looking good.

Biotech (IBB) Tested support at $101 bounced and remains in the current trading range. Downtrend remains in play and watching how this resolves.

Semiconductors (SOXX) The sector bounced, cleared $210.92 resistance and moved back to the July highs and rested on Friday. Watching how the upside unfolds. This is a key sector to the current move higher. Moved lower and in place to retest the previous lows.

Software (IGV) The sector tested the $213.40 support, bounced, cleared the $219.08 resistance and tested the move on Friday… Watching how this unfolds there is weakness showing up on the chart. Held in the trading range. Back to the bottom of the trading range and show negative momentum Tuesday.

REITs (IYR) The upside trend remains on the long-term chart. Patience with our long term positions and short term watching how interest rate market unfolds. Bounced back from the selling and holding near the current highs. Pushed lower with broad markets.

Treasury Yield 10 Year Bond (TNX) were moving higher on the rate cuts by the Fed… then the global economic worries pushed rates lower as money rotates back towards bonds. The yield closed at 1.75% Friday down from 1.95% last week. Watching how this one unfolds near term. Monday fell to 1.7% as rates continue to tumble on bond buying. More rotation on Tuesday with yields falling to 1.63%. Negative sign for stocks.

Crude oil (USO) Tried to bounce but remains in the current range. Watching support at $52.50 and resistance at $58.25. The spike higher failed after a few days and the current worry about global slowing is the biggest factor. Back below $58.25 support? Watching the downside effect.

Gold (GLD) The upside in gold has been driven on speculation of the rate cuts and global weakness overall. The tug-o-war of tariffs, rate cuts, and speculation are keeping gold in play and in a current trading range. Ticked higher to start the week. Added to the upside on Tuesday.

Emerging Markets (EEM) Broke lower in the trading range as tariff threats add to the worries about an economic slowdown. China helped by announcing trade talks would resume in October… China canceled the trip to the heartland and sector reacts. Too much news driving the sector for my taste. Sold lower on the day… support $41.23.

China (FXI/YANG) the country ETF is a good benchmark for what is taking place with the current news and tariffs. The move lower over the last week is a result of the chatter from China and the US about tariffs. Watching how this unfolds currently. Steady move lower. Short side setup currently at $40.10.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

TUESDAY’s Scans for September 24th: Some selling on the day was enough to have me looking at the downside trade. Small caps and growth stocks overall had a tough day with money rotating out and into bonds. Not the end of the world, but enough to put me on the cautious side of the equation.

  • Small Caps (IWM/TZA) Bold move lower negates the positive upside influence. The break of $155 hit our stops and now looking at the short side setup.
  • Biotech (IBB) this has been a weak link for the broad markets and the retest of the $101 support is in play. Watching the short side opportunity if it unfolds.
  • Treasury Bonds (TLT/TMF) money is rotating into bonds again as the market sees some testing and selling. Watching as indicator, plus we added a position on the bottom reversal.
  • Utilities (XLU) accelerated upside showing more rotation to safety.
  • NASDAQ breaks support at 8030. Negative selling in semiconductors (SOXX) leading the downside move. Watching both for short side trades if this unfolds.

MONDAY’s Scans for September 23rd: No big moves overall. There are some parts rotating as bonds move higher. Being patient and letting it all unfold as investors look for the next opportunity.

  • Gold Miners (GDX/NUGT) solid bump higher following through on the reversal Friday.
  • Biotech (IBB) watching for break higher from consolidation.
  • Semiconductors (SOXX) still in goo shape to move higher.
  • Solar (TAN) holding near the new highs.
  • Agriculture (DBA) will commodities benefit from the inflation data?

FRIDAY’s Scans for September 20th: The day started well but the news of China cancelling their trip to the farmlands sent stocks lower on the day as analyst and investors started to pontificate on the impact of tariffs on earnings… Yes, that is and issue… but, it has always been an issue. It is the reality of the issue that was impacting markets on Friday. See FedEx earnings from earlier in the week… it was buried headline until it was a reason to give for some selling on Friday.

  • Semiconductors (SOXX) Key sector to watching moving forward as an indicator of investor risk and acceptance.
  • Small Caps (IWM) growth sector that is equally a barometer for markets looking forward.
  • Treasury Bonds (TLT) another barometer for investors appetite for risk. Some rotation to bonds to end the week.
  • Europe (IEV) Money has been rotating to Europe as a benefactor of trade with China.
  • Volatility Index (VIX) Intraday volatility has risen… watching to see if the benchmark accelerates.

THURSDAY’s Scans for September 19th: We will call it a day of rest. Not much changed as investors pushed stocks higher at the open faded and closed basically flat on the day. The sectors scans show little change. Natural gas (UNG) continued to fade lower. Gold miners (GDX) bounced off support. Solar (TAN) broke to a new high. Japan Small-Cap (SCJ) gapped to new highs. Overall a quite day as we look to Friday and options expiration.

WEDNESDAY’s Scans for September 18th: FOMC meeting set the tone for the day with some selling following the announcement. Mr. Powell’s comments explaining the action led to some positives, but then there was the argument that he stated there would not be any further rates cuts this year. The insanity of it all is the microanalysis of every sentence. Watching how trading on Thursday unfolds and making decisions base on the results.

  • Treasury Bonds (TLT) fall again as money rotates to safety… watching how this unfolds as an indicator going forward.
  • Crude Oil (USO) the price continues to move back to the previous levels prior to the bombing. Watching how the commodity performs.
  • Homebuilders (ITB/NAIL) solid upside on news that housing was up 6% last month. Lower interest rates impact sales.
  • Financials (XLF) rally on the cut in rates? Seen as positive following the liquidity story in the repo market on Monday. KBE and KRE looking solid on the chart.
  • Watching for the outcome of the move back to the July highs… not a given that we break higher… let the markets confirm the move near term.

(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 broke support at the $55.95 level and reversed and moved back to the July highs… watching. Broke $58.13 support on Tuesday.
  • XLU – Utilities broke from the trading range and is now testing as interest rates move higher. Support is at the $62.50 mark. Collecting the dividend and letting it play out. Broke to new highs showing rotation to safety.
  • IYZ – Telecom held support at $27.62. Hit entry at $28.70 and testing the move higher. Stop $29.40. Moved lower breaking support at $29.35.
  • XLP – Consumer Staples held support and the uptrend line. Watching how this unfolds near term. Testing the current highs.
  • XLI – Industrials moved back to support in the trading range and bounced clearing $76.80 resistance. Testing the July highs. Testing support with several down days.
  • XLE – Energy broke support at $60.50 Tuesday. Watching how the downside unfolds.
  • XLV – Healthcare held support… small bounce higher and now more testing to the downside. Watching how it unfolds.
  • XLK – Technology tested lower bounced and tried to move to new highs. Failed on Tuesday with selling in the semiconductors. Watching the short side setup.
  • XLF – Financials have been under pressure with lower interest rates and global weakness. Hit entry $27.60. Stop $27.75. Some weakness on Tuesday.
  • XLY – Consumer Discretionary moving higher on earnings… gapped higher and then tested the move to the July highs. Tuesday sold and watching how we progress.
  • IYR – REITs held the $88 support and cleared the 90.80 resistance. Tested the $92.67 support on Tuesday.

There are currently four sectors in confirmed short term uptrend. Four sectors in consolidation or sideways trends. Two in a confirmed downtrend. The result is SPY in a confirmed sideways trend. The positive gap higher last week could offer some upside trading opportunities going forward. We have to remain patient and let this all unfold. Remember the parts make up the whole.

(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:

TUESDAY: From boring to selling in growth stocks. Semiconductors led the downside. Biotech looking weak and money rotating to safety with bonds and utilites the leaders on the day. There was not big news on the day to disrupt the sluggish markets, but the sellers found reason to spice things up. China bought some soybeans showing a positive for trade. Consumer confidence readings fell to 125.1 in line with expectations but much lower than 134.2 prevoius. Home price index showed a increase of 3.2% year-over-year. Watching how the balance of the week unfolds.

MONDAY: Boring day! One where you set your stops and head to the golf course. It was the first day of autumn and gave a good excuse to head outside versus listening to the talking heads pontificate about the latest nothing.

Markets found enough buyers to break from the five-week trading range and make a run at the July highs. Now it is testing the move. Some pressure on Friday from the cancelled Chinese visit to the farmland. The close Friday left plenty of questions we addressed above. Last week I raised the question about the conviction behind the move. There is a modest test of the break higher, but I still have my doubts about the move. Will the test come at the July highs? Yes, and currently in motions. Thus, managing our risk. Small caps took on a leadership role and are holding for now. The treasury bonds took a hit as money rotated out of bond and yields climbed to 1.95%, but this week money found its way back with yields at 1.75%. The risk remains high for upside opportunities as the underlying data remains weak. The market remains controlled by headlines as each day holds movement related to the speculation of what might happen. Trade with China and the US remains at the top of the list with China once again creates false expectations. Throw in Brexit and other global issues and you get the picture. The economic data showed mixed news as earnings show impact to tariffs with specific sectors. There are still too many questions unanswered and that invites speculation and volatility. Speaking of volatility the index bounced from a six week low as the speculation grew. We remain focused on what is working and what is failing. Therein lies the opportunities. Manage your risk accordingly and let this unfold… one day at a time.

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.