Markets start the week nervous

Concerns were in the headlines… increased virus cases, delays in vaccines, supplies, uncertainty about the $1.9 trillion in stimulus, the valuations of stocks, and more European restrictions on business. Nothing really new just more heightened emotions which led to money rotating and some safety-seeking. The volatility index hit 26.6 intraday and settled at 23.1 on the close. The dollar was stronger on the concerns about the stimulus package and bonds jumped higher on lower interest rates on average volume. Utilities were the leading sector showing money moving to safer havens. The bottom line is investors are showing some signs of fear and that isn’t good for stocks. Taking it one day at a time with our stops in place and our focus on what is reality and what is speculation.

Short news notes of interest…

  • S&P 500 up 0.4%, NASDAQ up 0.7% and record highs… the Dow down 0.1% and the Russell Small Cap 2000 were off 0.3%. Volatility was higher on the ongoing concerns about the vaccine distributions as well as the effectiveness amid the new strains of the virus. Watching how the week unfolds.
  • Janet Yellen was approved as the first woman to lead the Treasury Department. Her appointment promises to be interesting in many ways for the dollar and spending.
  • Congress delivered the articles of impeachment to the Senate setting up the trial for former President Trump. Another interesting issue for the outlook of politics.
  • Twitter suspended Pillow CEO for election misinformation… this keeps the limelight on the power now given to companies and heightens the antitrust issues they face from Washington… gives the traders more fodder for creating volatility within the stocks.
  • Gamestop (GME) saga continues with the war between short traders and Robinhood traders. The stock gapped to $160 early on Monday and closed at $76.79. Volume hit 177.2 million shares versus the average of 9.5 million. Welcome to the wild frontier of Robinhood.

The S&P 500 index closed up 13.8 points to 3855. It was up 0.36% on the day. The index is holding well above the 3550 support as the markets remain on an upward trajectory with the index closing near current highs. The utilities and consumer staples sectors led the upside on the day as investor worries rise. Seven of the eleven sectors closed in positive territory as stocks struggled with virus worries. The downside came from financials and energy as sellers were present. Money flow was lower on the day as investors continue to be active in response to the news. The VIX index closed at 23.1 moving higher. Watching the investor sentiment and how it proceeds.

The NASDAQ index closed up 92.91 points to 13,635. The index was up 0.69% on the day as large-cap stocks lead the day. The NASDAQ 100 index (QQQ) was up 0.83% for the day as money flow into the sector was higher. Watching how earnings impact the large-cap sector moving forward as many start to report. Semiconductors (SOXX) closed up 0.14% and holding near the highs. Technology (XLK) moved up 0.84% as the consolidation pattern broke to new highs confirming the upside. Watching how this unfolds as the market shifts gears again.

Small-Cap Index (IWM) The sector moved up 2% for the week as it remains in a leadership role and pushing higher. The uptrend remains in play as we manage our position. Entry $155. Adjusted stop to $208.06. Concerns are being sounded by analyst relative to the risk of the sector… watching. Unchanged.

Transports (IYT) The sector tested support and bounced back to break above the $226 resistance and test that level again to close the week. Stop $222. Watching support. Unchanged and struggling.

The Dollar (UUP) The dollar found some support at the $24 level… how long will this hold up? Watching the politics surrounding the buck. Higher on stimulus concerns.

The Volatility Index (VIX) Volatility closed 21.9 amid renewed concerns about vaccines and the virus spread. The economic data and politics also injected some anxiety. Watching how this unfolds along with the news. Higher on worries from investors.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector remains in a solid uptrend near term hitting new highs with some testing. Watching the current trend and managing the risk. Stop $238 (adjusted). Hit new highs and tested modestly. Unchanged.

Retail (XRT) The retail sector showing a spike higher for the week as money flow remains positive. This has been a key leader for the markets and watching how this unfolds near term based on the slowing in sales the last two months. Stop $71.50 (adjusted). Gamestop influence moved higher.

Biotech (IBB) The sector moved higher for the week with some testing along the way. Stop $159.Watching how this unfold moving forward. Moved higher on Moderna (MRNA) gaining 12%.

Semiconductors (SOXX) The sector remains in an uptrend with some testing near the highs. The $367.50 level of support is a long way off… Managing the risk and letting this unfold. The uptrend remains in play. Stop $405 (adjusted). Unchanged

Software (IGV) The sector broke higher from the consolidation but remains in a range. Watching how it plays out near term. Money flow has been consistently declining since the December highs. No positions currently. Slightly lower.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.09% even with the 1.09% last week. Rates are holding above the 1% level currently and watching as some volatility in the bond picks up. As we have stated short trades on the bond remain in place. TMV stop $58.88. Yields down to 1.04% as bonds rise on worries.

Crude oil (USO) Crude moved to $52.33 from $52.38 for the week or flat on the week forfeiting early gains. 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 $39.25 (adjusted). Up 0.8% on supply worries in the US.

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. Watching as we test $171 support levels. Gapped higher from the consolidation at the low but failed to hold the move. Unchanged.

Emerging Markets (EEM) The sector moved back to new highs. Entry $44.50. Stop $54.25 (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. Moved higher on Monday.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

MONDAY’s Scans for January 23rd: Some volatility as money rotates… some to safety some to speculation. There is plenty of chatter in the headlines as worries about the virus, vaccine delivery, and valuations hit the trading day. Volatility rose and there is a shift in sentiment near term. That said, not a bad day for stocks it was just the sentiment and intraday volatility with a low to a high day on the chart. Taking what is offered and taking the necessary precautions.

  • Moderna (MRNA) Stated the vaccine does work on the virus strains from the UK and South Africa. That sent the stock up 12%… watching how this unfolds. IBB was a benefactor of the move as well.
  • Apple (AAPL) reports earnings Tuesday… that will set the tone for the NASDAQ and the FAANG stocks. Worth watching in many ways.
  • Kimberley-Clark (KMB) beat expectations on earnings, but more importantly announced a stock buy-back… something that was halted by many during Covid. This may be the start of another positive for stocks.
  • California lifted their stay-at-home mandates and reopening of businesses. This is good news for many business owners. Watching how this unfolds and the economic impact.
  • China (FXI) back on the upside Monday as it continues the vertical rise.

FRIDAY’s Scans for January 22nd: Mixed news on the day as virus vs vaccine remains in the headlines. The new administration continues to tell all they are doing to help everyone. The news is there but not overwhelming… the valuations remain a concern and money flow is shifting amid concerns. Earnings from big names start next week and will have an influence on the current sentiment and outlook. Intel and IBM didn’t help matters Friday with unimpressive data. Watching and managing the risk while looking for the next opportunities.

  • Leading Sectors for the Week: ITB, FXI, QQQ, KOLD, and XLK.
  • Losing Sectors for the Week: KBE, OIH, SOYB, XLE, and RSX.
  • Interesting patterns on charts: RWX, TBT, PHB, IHF, and UGA.
  • Stock patterns on charts: MRNA, GTEC, NMRK, ATNX and AEP.
  • Sector watch… Financials (XLF, KRE, KBE, KIE).

THURSDAY’s Scans for January 21st: There was not a lot of positive takeaways from the market on the day. The large caps continued to rally and push the NASDAQ higher. The news on the virus front was not positive, earnings from Intel helped the SOXX index. Energy faded on the virus data. There was little to write home about and we made our adjustments and watched the grass grow… and it’s winter so you know how slow that is. Taking what is offered and managing the risk.

  • Crude Oil (USO) fell slightly as the US showed a build in supplies… watching how that mixes with the virus news. Interesting side note to the Biden promise to ban new permits for drilling. The existing ones could take up to five years to be depleted… oops.
  • Gasoline (UGA) topping pattern on the chart. Watching any downside risk currently.
  • NASDAQ 100 index (QQQ) upside gap is positive on the chart and watching the current move in the mega-cap stocks. Solid earnings helping the cause for now.
  • Homebuilders (ITB/NAIL) strong permits and starts data pushing the sector higher again. Take what is offered but be very aware of the risk that exists in the sector.
  • Financials (XLF) becoming more volatile near term. Watching how the topping pattern plays out looking forward.

WEDNESDAY’s Scans for January 20th: Inaguration day happens with little fanfare and a lot of talking heads predicting what is going to happen. We will take the upside moves and adjust our stops and keep looking forward. There is plenty on the table in Washington and how that impacts the markets will take time. The first plan I have for the new administration is to watch, listen, and manage my risk accordingly. For now, it is full speed ahead to the stimulus world.

  • REITs (IYR/DRN) Gapped higher from the consolidation pattern… offering an opportunity. Watching how this unfolds.
  • Technology (XLK/TECL) solid upside move led by the large caps. The exception was SOXX and watching how that unfolds as well. Adjusted stops on positions.
  • China (FXI/YINN) continued the gap higher on optimism about the new administration and Alibaba. KWEB took off as well and moved the stop.
  • Homebuilders (ITB/NAIL) Ran higher following up on yesterday’s move… you can thank the stimulus talks.
  • Emerging Markets (EEM/EDC) gapped higher the last two days on optimism about the vaccines and the US stimulus.

TUESDAY’s Scans for January 19th: The markets headed higher for the day as talk of nearly $2 trillion of new stimulus is proposed by Yellen to Congress. Spend now and pay later… after all, it has worked so well with the current debt models. Not our job to make policy for the Treasury or the Fed, but we will need to manage our money in response to the aftermath of their actions. It may be a year or longer from now, but we will have to manage our money and risk accordingly.

  • Energy (XLE) climbs 2% on the stimulus discussions and how that will impact the sector. Crude hit $53 per barrel.
  • China (FXI) gapped higher as Jack Ma was seen in public for the first time since October. The relief rally in China and Alibaba.
  • Semiconductors (SOXX/SOXL) moved to new highs and adjusted our stop.
  • Biotech (IBB/LABU) moved to new highs and adjusted our stop.
  • Homebuilders (ITB/NAIL) back to the top of the trading range… does it break higher? Interest rates could how the answer 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:

Monday: a mixed trading day with some positives and some negatives as money was on the move. Notable was the move lower in yields and rallying treasury bonds and the rise in the dollar. Utilities were the leading sector showing more shifts to safety on the day. Consumer staples equally led on the day showing more defensive shifts in money flow. There is still plenty of speculation in the technology and retail sectors to keep the uptrends alive. The key is to manage the risk that is and let this unfold relative to the renewed worries.

  • XLB – Basic Materials testing lower as money flow declines. Third day of declines.
  • XLU – Utilities hold support on the test lower and find some buyers. Watching interest rates and the dollar currently. Solid upside day.
  • IYZ – Telecom moved above $30.95 resistance and held. The support at $29.67 held and we bounced back to break higher. Stop at $30.50. New highs.
  • XLP – Consumer Staples moving lower to establish near term downtrend. Rise in money flow.
  • XLI – Industrials moving sideways and looking for a catalyst.
  • XLE – Energy gapped higher on speculation of growth relative to the vaccine. Moved above $42 resistance. Testing on supply data and virus worries. Stop to $40.50.
  • XLV – Healthcare found buyers and broke above resistance to push to new highs and testing. Watching how that plays out. Adjusted stop to $115.30.
  • XLK – Technology remains in an uptrend breaking from the consolidation pattern and hitting new highs. Adjust stop and let it unfold. New highs.
  • XLF – Financials struggle on earnings and outlook relative to the virus. The first level of support is $28.24. Adjusted stops. Moving lower.
  • XLY – Consumer Discretionary bounced to new highs as the consumer continues to show strength. Retail (XRT) moved higher and the trend remains in place.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Held support at the $82 level. Did manage to bounce on some rotation in money flow. Higher on lower interest rates.

The trends remain positive but there is a shift in sentiment in the air. We saw sectors respond to worries and some shifts in money flow to end the week. 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:

MONDAY: Mixed trading day… following the money as it moves in reaction to sentiment and volatility. Apple earnings on tap for Tuesday. Vaccine concerns rising globally with new strains in place. Put it all together and we have to manage our current risk against the longer term risk and be patient in how we manage our money. Stay focused.

Weekend Wrap & Outlook… The markets remain positive overall but some renewed worries are keeping trends in check. We will continue to let the risk unfold along with the data. The leadership remains in small caps and technology stocks. Inflation is becoming a word used more of late as commodities move higher. CPI and PPI showed increases over the last two months. Then there are the never-ending worries with the shutdowns and mandates relative to the virus. This is a global issue not just in the US. We continue to watch how it is impacting the global economies. The stimulus package for another $1.9 trillion being proposed by Mr. Biden has its concerns. Some juggling already along party lines. The long-term trends remain higher in the hope of more stimulus. Technology stocks found buyers and moved higher. The retail sector is moving higher despite worries about the shutdowns growing along with less spending. The VIX index closed at 21.9 showing anxiety in the markets near term. The dollar found some support finally holding near the current lows. Crude moved above the $52 level the highest since February 2020. UGA settled but prices at the pump are elevated. We continue to 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 leadership. 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.