Market outlook for November 1st
Not much changed on Thursday as the markets closed slightly lower on the day. The sold early but recovered most of the downside before the close. Earnings remain good, trade agreement still in limbo and economic data remains on the weak side as the Chicago PMI drops to 43.2 from 47.1 last month. The challenge is that eventually, jobs start to move down. That is where the markets will react. Friday is the jobs report for October and it is flip of the coin whether an up or down number will help stocks. Remember the Fed signaled at the FOMC meeting they are done cutting rates for now. Watching how investors respond to the jobs data on Friday along with the ISM manufacturing data for October.
The S&P 500 index closed 9.2 points to 3037 holding near the new highs. Modest response to the Fed announcement of a 25 basis point cut in Fed rates and indicating they were done for now cutting rates. Two of the eleven sectors closed higher on the day with telecom and utilities leading the upside. The downside was led by basic materials and industrials. Trade agreement rumors and earnings remain the driver for the broad market currently. The long-term trend remains sideways and steady with an upside bias.
The NASDAQ index closed 11.6 points at 8292 The index came back from early losses following the FOMC rate cut. Technology equally rallied back from early selling and test of support near term. Semiconductors closed down on the day along with software. Adjusting our stops on positions and letting this unfold. Questions remain relative to growth stocks and large caps despite the bounce at support. QQQ clears resistance and led the index on the day. Watching how this unfolds near term.
Small-Cap Index (IWM) The sector led the move back to the July highs and then led the downside move to the August lows. This week it stalled at the $155 resistance level and never made a move higher to join the broader indexes. There is still apprehension about growth stocks. Taking it one day at a time. Finally made a follow-through move upside. Tested Wednesday as GDP showed slowing business investment.
Transports (IYT) The sector moved to the July highs and back to the August lows only to return to the July highs again. Solid upside moves this week as the sector joined the leadership of the broad markets. The sector moved above the $192.42 mark and looking at a break to new highs potentially next week. Big drop on Wednesday in reaction to GDP. More on Thursday as economic data continues to be weak.
The dollar (UUP) The dollar reacted to the Brexit news as it moves off support and heads higher again. Watching how gold and oil respond to the move. The euro and pound have moved lower on the news. Slumps on the FOMC rate cut.
The Volatility Index (VIX) closed at the week at 12.6 and is moving towards the July lows as investor anxiety washes away. Watching how this plays out in the coming weeks. Solid gains in SVXY for the week and adjusted the stop. Small gain to 13.2 on Thursday. Testing the July lows.
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
MidCap (IJH) The sector moved to the July highs and back to the August lows. The bounce moved back above the $193.35 resistance and watching to see if the index can play catch-up to the balance of the market. Solid move back towards the July highs and test on Wednesday and Thursday.
Biotech (IBB) Tested support at $96 bounced and moved back above the $101 and $105 resistance level. The downtrend is attempting to reverse the gains near term. Looking for upside follow through as the sector shows positive signs. Entry $101.45. Stop $104.50 (adjusted). LABD $32.55. Moved above the $107 resistance and holding.
Semiconductors (SOXX) The sector bounced, cleared $210.92 resistance and back above the July highs. The sector looks solid compared to others on the charts and showing leadership. The parts are where we have added positions versus the whole. NVDA, MU, QRVO, CCMP, SWKS, AMD, and LRCX. New highs and solid gains and modest test on the week.
Software (IGV) The sector tested the lows of the current range again and bounced at support. Not overly convincing activity… the cloud stocks are dragging the sector down… worth scanning and looking for leaders. NTNX, CVLT, CTXS, CDK, and PANW are few. Struggling to find buyers currently as money has rotated from the sector. Digging in the parts versus the whole. Big move higher on Wednesday following data and test on Thursday.
REITs (IYR) The upside trend remains on the long-term chart with a solid break to new highs last week. Patience with our long term positions and short term watching how interest rate market unfolds as the sector tested to end the week. More downside and modest bounce as hold near highs.
Treasury Yield 10 Year Bond (TNX) The yield closed at 1.80% and higher for the week. Money is rotating again this time to risk… Added a short position on bonds and watching how it unfolds. TMV entry $10.40. Stop $10.87 (adjusted). Dumped on Thursday to 1.69% as FOMC action plays on bonds.
Crude oil (USO) Held support at $52.50 and $58.25 is top of the current range. Watching as the data points show plenty of oil and lower demand. That aside the commodity moved higher on the week. We continue to manage our position in crude. UCO entry $16. Stop $16.60 (adjusted). Some selling on weak economic data in China and US. Watching near term.
Gold (GLD) The upside in gold has been driven by speculation of the rate cuts and global weakness overall. The tug-o-war of tariffs, interest rates, and speculation are keeping gold in play. Watching how the bounce at support unfolds near term. Consolidation wedge pattern on the chart. Upside move as FOMC action plays on economic weakness.
Emerging Markets (EEM) Bounced from the bottoming range established in August cleared resistance at $42.25 and cleared the September highs. Positive trend higher as the hope of a US/China trade deal remains the driver. Global optimism following the US upside. Tested on Tuesday. Rallied back on Wednesday only to test on Thursday… Topping?
China (FXI/YANG) weaker economic data hurting the stocks currently as the move higher stalls at the September highs. Watching and listening for now. Weaker economic data… testing the upside move at support.
(The notes above are posted every weekend and updated daily Bold Italics)
DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT
THURSDAY’s Scans for October 31st: Markets recovered from early losses, but struggled throughout the day to deal with weaker economic data. The deeper concern from my view is how and when the weaker data impacts jobs. If jobs start to drop then markets will react. Bonds responded to the FOMC action on Thursday with the yield dropping to 1.69%. Money rotated into bonds on the Fed declaration it was done cutting rates for now. Another key indicator to watch moving forward. Looking at some key indicators in the markets today and what role they will play going forward.
- Treasury Bonds (TLT/TMF) two solid days of upside in the bond as yields drop 20 basis points to 1.69%. Buy signal for bonds?
- Gold (GLD/NUGT) nice upside move in the current trading range. Investors are looking for where money will rotate and this may be one based on the data about the economies around the world.
- Crude Oil (USO/SCO) some downside as economic and supply data worry investors and money rotates away from the commodity.
- Volatility Index (VIX/UVXY) will volatility pick up based on the worries? Watching how this unfolds in the coming days.
- Small Caps (IWM) money moving away from growth stocks again. Watching how this unfolds as well.
WEDNESDAY’s Scans for October 30th: The FOMC decision to cut rates was expected… the cue that they will pause was not. GDP was better than expected thanks to consumer spending. Trade talks changed as Santiago cancels the summit meeting. All was well in the headlines and investors rallied slumping stocks following the FOMC announcement. Software made a solid bounce back from selling. Energy drops on supply data. Overall the markets hold steady and money is on the move again.
- S&P 500 index (SPY) hits another new high on the FOMC decision. Watching how it unfolds near term and raising stops.
- NASDAQ 100 index (QQQ) solid day as large caps take the leadership role yet again for the markets. Positive pattern reversals in the leadership of late worthy of attention. ATVI, ADBE, WYNN, CTRP, and others breaking from consolidation and reversing trends.
- Natural Gas (UNG/UGAZ) solid follow through on the bottom reversal trade opportunity. Adjusting the stop.
- Cyber Security (HACK) bottom reversal and follow through doing well. Adjusting stop on the positions.
- Healthcare (XLV/CURE) accelerating on the break above resistance. Adjusting the stop.
TUESDAY’s Scans for October 29th: S&P 500 takes a pause, NASDAQ gives up some gains, and the FOMC meeting is on deck. After a solid start to the week now we look to see how this unfolds. Earnings have been positive overall. Economic data remains weaker with consumer confidence at 125.9 versus 128 and pending home sales were up 1.5% versus 0.7% expected. Trade talks hit a snag as rumors fly that phase one agreement will not be signed in Santiago, Chile. Overall it was a slower day with a pause into the FOMC meeting.
- Technology (XLK) gives up some gains on the day, but still in good shape on the charts.
- Small Caps (IWM) rejoining the upside and adding to the move on Monday. IJR back at the September highs.
- Gasoline (UGA) clears $31.14 resistance and showing positive moves despite the lower oil prices.
- Some positive trending stocks… BAC, FIT, XNET, T, MSFT, ROKU, TSLA
- Some pattern setups worth watching… CSCO, PFE, ADBE, GME, WFC
MONDAY’s Scans for October 28th: Hope springs eternal with the S&P 500 index hitting new highs and the NASDAQ within five points. The Fed remains in the background of this rally providing plenty of liquidity. The old adage of ‘don’t fight the Fed’ is true over the last three weeks. Semiconductors hit new highs leading the upside move. Money is rotating out of utilities, consumer staples, and REITs. They are migrating to growth in the technology sector as well as financials. Watching and taking what the market offers with our stops in place.
- Semiconductors (SOXX/SOXL) up 6.2% in the last three trading days… adjusting stops and letting it run.
- NASDAQ 100 index (QQQ/TQQQ) solid upside move for the large-cap index. The $66 entry is playing out well for the last two days. Stop to break even on the move.
- Financials (XLF) more upside and adjusting our stops.
- Upside moves worthy of attention… UGAZ, LABU, DPST, BRZU, CURE, YINN, and TMV.
- Downside move of note… XLE, IYR, OIH, WEAT, CORN, GLD, and XLU.
FRIDAY’s Scans for October 25th: Trade talk rumors, positive earnings, and hope pushed stocks slightly higher to end a positive trade week. The S&P 500 and NASDAQ closed up more than one percent… how does this unfold moving forward? Good question as the markets seem content to melt higher on optimism of a trade deal and a Fed that will continue to add stimulus. There are issues and there is hope, but nothing is better than the Fed being engaged in the markets.
- Semiconductors (SOXX/SOXL) followed through with Intel beating earnings estimates and providing a catalyst on the upside and broke to new highs. Technology (XLK) as a result, broke to new highs as well.
- Financials (XLK) clears the July highs and showing some leadership for the broad markets.
- Crude Oil (UCO/USO) heading higher on hope. Taking what the markets offer and watching near term. Adjusted our stops.
- Brazil (EWZ/BRZU) continues to move higher.
- NASDAQ 100 (QQQ) clears resistance at the July highs. Some rotation in leadership for the sector and worth scanning to find opportunities. TSLA, INTC, CHTR, AAL, and NVDA are few we have been benefitting from on the upside move.
(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 bounced at support $55.95 level and moved back above the $58.13 resistance to end the week. Watching how it unfolds.
- XLU – Utilities moved higher and now forming a consolidation pattern near the highs. Support is at the $62.50 mark. Collecting the dividend and letting it play out. Topping pattern in play with some selling on Friday. Rate cut adds some momentum back to the sector.
- IYZ – Telecom held support at $27.62 bounced and cleared the $29.50 resistance only to forfeit again. Watching. Bounced back above the resistance.
- XLP – Consumer Staples remains in the uptrend and in a near term trading range at the current highs. Patience.
- XLI – Industrials moved back to and cleared the $76.80 resistance. Moving towards the July highs. Moved lower on Thursday.
- XLE – Energy broke lower on weaker oil prices and bounce on stronger oil prices… indecision. Cleared $58.19 resistance and showing a double bottom pattern in play. Tested lower as crude move lower.
- XLV – Healthcare held support at the $86.75 level. Bounced and facing some resistance at the September highs. Nice move higher on Monday and Tuesday. Followed through on Wednesday above July highs.
- XLK – Technology broke to new highs to end the week as earnings drive semiconductors higher. Parts and whole providing solid leadership. Leadership with semiconductors holding near the highs.
- XLF – Financials have gotten a boost from solid earnings pushing the sector higher. Cleared $28.24 resistance. Testing the previous highs. Moved to new highs and testing.
- XLY – Consumer Discretionary tested lower but remains within the current trading range. Some selling on Friday.
- IYR – REITs moved to new highs to start the week and ended the week testing the move. The uptrend remains, but interest rates made a bump higher causing some profit-taking. Testing the move to new highs.
There are currently eight sectors are in sideways or consolidation trends. Two sectors are in confirmed uptrends. One sector is in a confirmed downtrend. The result is SPY in a confirmed sideways/consolidation trend. 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.)
Thursday: Another day of early selling as stocks closed slightly lower. The new challenges, the same as the old ones, weaker economic data as Chicago PMI drops again. Watching the jobs report on Friday for more insight on investors and the economy. Markets don’t change overnight which means we have to watch how the momentum builds as well as how the data unfolds. It is one big puzzle that comes together one day at a time… the challenge being to find the lost pieces that complete the puzzle.
Wednesday: Early selling offset by the FOMC decision to cut rates. GDP was better than expected and the outlook for growth in the 1.7-2% range. Overall most of the data were positive for the markets. Business spending slowing is a fly in the soup but overall solid data. Some rotation in cash flow and some worries about trade agreement remain. Watching and managing the risk of the market focused on the details of each event. Adjusted stops on moves Wednesday and adding where the risk is warranted.
Tuesday: Paused for the FOMC meeting. Possible delays in the US/China trade agreement. Mixed economic data. Weak earnings from Exxon. It all adds up to a mixed day for stocks as they await the outcome of the Fed meeting on Wednesday. Risk is elevated with a three-week rise in stocks… watching, managing the risk, and taking what the market gives.
Monday: Solid gains on the day led by semiconductors. The broad indexes are showing positive upside moves backed by the Fed money supply. NASDAQ in position to join the party at new highs. Earnings, trade, and the Fed leading the markets… cautious not to get caught up in the love fest for stocks. Take what the market gives and manage your risk accordingly.
Markets held the move higher and melted higher for the week. The bounce off the lows has now pushed back to the September highs with the S&P 500 index eclipsing those highs. There is enough hope to continue the move on the upside. The trade talks remain the catalyst… earnings added to the hope this week with positive data overall… throw in the backstop of the Fed for liquidity and you have a market that is melting higher. Brexit was the main headline last week as a positive, but the no vote from Parlament put a halt to the optimism. The dollar bounced on the news, but the fight is far from over. Earnings came to the forefront as other news fades. The challenge remains clear conviction from investors. The VIX index fell back near the July lows as investor sentiment shifts. The upside move this week offered some trade opportunities and we have adjusted our stops to manage the risk. The treasury bonds shifted lower with rates moving higher to 1.8%… 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. There are still too many questions unanswered and that invites speculation and volatility but for now hope springs eternal. 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.