Markets take a break

MARKET OUTLOOK FOR MARCH 15, 2019

Investors took a breather as stocks stalled again at the top of the current range. The resistance is still in play and the buyers in control for now. They have to show the desire to push stocks higher. Today is options expiration and we will likely see some volatility intraday as both sides battle it out for direction. It is Friday and we will watch the leaders for clues and direction looking forward.

The S&P 500 index closed down 2.4 points to 2808 stalling at resistance again. The uptrend from the December lows remains following the test. The buyers remain engaged with a solid move higher for the week. Five of the eleven sectors closed in positive territory on the day. Financials and technology were the leading sectors to close on the upside. The downside was led by basic materials and industrials. The long-term trendlines have improved and are approaching the key levels to offer an entry signal if we can jump through the key resistance. We will watch how the current activity unfolds and the impact on the trends longer term. SPXL entry $33.50, stop $42 (adjusted).

The NASDAQ index closed down 12.5 points to close at 7630. The large-cap stocks have been the leader for the move higher this week. The close back above 7505 is positive for the index. QQQ is our indicator near term. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark and holding. TQQQ entry $34.17. Stop $48.16 (adjusted). Solid leadership in this sector and watching how it deals with the $177.58 resistance levels.

Small Cap index (IWM) the next leg of the move higher stalled, tested and broke $152.28 on Friday and bounced back above that level on Monday. The chart is still not very convincing with the buyers not quite as robust and the volume on the low side. Watching how the bouncing ball rolls. We triggered our stop in the sector and looking at what opportunities result. Need some signs of follow through or we return to the downside?

Transports (IYT) hit some resistance at the $192.42 level. The test of the $182.43 mark Friday held and a bounce on Monday helping the cause to reverse the selling. $186.70 is level to clear currently and watching how this sector unfolds. Pressure from the airlines on the 737 MAX issues that we have to separate from the charts. The break lower hit our near term stop as we watch how this unfolds.

The dollar (UUP) is reacting to the data on the economy improving. The first of the week has seen a big drop in the buck with a small bounce on Thursday. Needless to say, the data is adjusting and so is the dollar currently. The big question mark for the buck remains a possible resolution to the trade tariffs with China. The dollar closed at $25.84 and remains in a positive pattern holding support… Watching as this continues to unfold.

The Volatility Index (VIX) closed at 13.5 on Thursday moving lower with the buyers engaged and the anxiety evaporates from last week. Watching how this all unfolds patiently.

Economic data remains in an undefined category of so-so. Inventories for December rose 1.1% versus 0.4% in November… not a good number as it equates to slower sales… a fact that earnings reflected for the fourth quarter. This adds to the weaker retail sales data and existing home sales. GDP for Q4 is 2.6% vs 2.3% expected… party! However, it was 3.5% in Q3… Friday posted a weaker ISM manufacturing number to 54.2%. Personal income fell in January along with consumer sentiment. Core inflation remains tame and well within the Fed range… Weaker data is a warning sign for stocks. Watching how this unfolds moving forward.

The jobs report was weaker not helping the outlook on Friday. The concern was job growth almost stalled with only 20,000 new jobs created. This continues to show a sharp slowdown in the economic picture in the first quarter. Weakest numbers since September 2017.

Retail sales rose 0.2% for January versus -0.1% expected. Much better than expected overall. The December numbers were revised lower making the data look much better than expected.

Wednesday the PPI data showed inflation remains in the approved range for the Fed. Durable goods rose 0.4% in January… well above expectations. Capital goods investment rose 0.8% and construction was up 1.3% in January… both above expectations… positive to see the improvements versus fourth quarter.

(The notes above are posted daily based on the activity of the previous days trading. The BOLD/ITALIC comments are current day changes worth noting.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) The sector broke below support with a 6.3% decline for the week. We hit our stops, locked in a nice gain, and now look to what the future has in store for the sector. Held the $107 support… Started the week with a move higher… followed through on Wednesday clearing $112. Held on Thursday.

Semiconductors (SOXX) Broke support at the $182.38 mark and tested the $175.89 mark to end the week. Plenty of selling with the sector losing 1.7% for the week. Locked in a solid gain on our position and now look to the future for the next opportunity. Solid bounce to start the week and hold key support levels. Held the move higher and hitting against previous resistance.

Software (IGV) Broke $167.88 and bounced back above the same level to create the December lows and start the new trend. $167 level added a trading position. Entry $167.90. Stop $200.45 (adjusted). Cleared $197.48 and moved to the previous highs from September and then new highs. A big downside for the sector for the week as we manage our exit points. Watching how this unfolds. Solid bounce off support to start the week. Continued upside and at the previous resistance.

REITs (IYR) Tanked on uncertainty from the Fed and the economic outlook. Broke $75.21 and bounced… trading opportunity on reversal above $75.21. Entry $75.25. Stop $84 (adjusted). Showing some volatility and uncertainty as interest rates can’t decide on a direction. This is an interest-sensitive sector… watching how the yields move next week. Continued higher on Monday. Cleared resistance and heading higher… adjusting our stop.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.62% as yields fall on weaker economic data. TLT moved back to the top end of the current trading range after testing the $118.59 support levels. Watching the bond near term along with the volatility index. Yields remain near the current lows this week.

Crude oil (USO) worries about the IMF data on the global economy give way to speculation about supplies moving lower on OPEC promise to lower production… again. Sanctions on Venezuela have been playing into the volatility as well. Plenty of issues as the current consolidation remains in play. The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $18.42 (adjusted). Managing our risk and letting this play out with our target $58.25 (crude price) in sight. Breaking higher as economic data improves in US. Watching how it deals with the near term resistance on the move.

Emerging Markets (EEM) Watching what happens as the bounce from the bottoming pattern follows through but is testing on uncertainty about trade and economic growth. Rumors of trade resolutions and talks with China helped the index but needs some reality to help. Watching for the clarity to unfold. Cleared $40.88 and broke higher from a double bottom pattern. Entry $41. Stop $40.50 (adjusted). News from the European Union and the European Central Bank on the state of the economy is not good for the sector. Fell to support and watching how it unfolds. Big reversal with China leading the upside charge. Stalled the last th days.

Gold (GLD) moved lower to start the week and formed a bottom pattern with a gap higher on Friday. Watching how this unfolds with too much speculation in place with global outlook weakening along with the US economic data show weakness as well. A solid move higher to follow through on the Friday bounce. Gapped higher on Wednesday with a weaker dollar. Lower again on Thursday… downside in play for now.

MidCap (IJH) The uptrend from the December lows are testing with a move below the $190.44 support. Growth stocks have been under challenge the last six days and we will watch how it unfolds going forward. Bounced off support and looking for follow through. Back to $190.44 resistance and the sector is lagging large cap stocks.

China (FXI/YINN) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Cleared resistance at $43.50 and reversed to test the same level as worries build on the trade agreement. The eight-month bottoming pattern is offering some hope. Entry $39.80. Stop $42. Gapped lower on the ECB news and worries about global growth. Closed below $43.50 and negated the break higher… Watching. Big bounce Monday and Tuesday from the selling on Friday and looking for the follow through. Last two days stalled.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

THURSDAY’s Scans, March 14th: Day of digesting the move back to resistance. Watching how the Friday quadruple witching expiration settles. I expect some intraday volatility and testing. There is still money flow in the market as stocks are rewarded for good earnings. Some rotation with large-cap leading, small and midcaps are lagging… looking for the catalyst.

  • Little movement overall in the sectors resulting in little changes in the scans.
  • Gold (GLD) volatility related to the dollar and better economic data. the result has been a test lower in the metal and the stocks.
  • Dollar (UUP) volatility about the direction of both the US and global economies. The stall in the China talks about tariffs isn’t helping the global pictures, but better data in the US is helping the domestic outlook.
  • Large-Cap (SPY/QQQ) strength of the move higher this week with solid leadership from all. NVDA, COST, AAPL FITB, BHGE, are examples of the leadership currently.
  • Other sectors of note for the week… IBB, BRZU, XLK, XLF, EURL, UCO, IYR, all have show solid upside opportunity.

Plenty of work to be done and plenty to ponder as this all unfolds.

WEDNESDAY’s Scans, March 13th: Third day on the upside as we now face resistance from the previous levels. The questions will be if we can move through this time or is there another test in store for stocks? Watching as this unfolds the balance of the week. Positive economic data gets credit for the reversal in stocks as January numbers continue to show solid improvement. Healthcare and industrials led on the day with the dollar slipping lower on positive economic data and some global new about Brexit. Taking it one day at a time and managing our risk accrodingly.

  • Biotech (IBB) solid bounce off support and back above the $112 resistance levels. $115 level to clear.
  • Energy (XLE) creeping back towards the key resistance levels as crude breaks higher on the positive economic data. The move above the $57.50 mark is positive for crude and looking for a follow through on the upside. UGA continues positive upside move and adjusting stop to $27.76.
  • Financials (XLF) positive move back above the $26.33 level with plenty of work left to be done.
  • Europe (EURL) positive boost from the BREXIT news. The March 29th deadline may get moved or a possible move to stay? Still too many questions for my liking.
  • Dollar (UUP) declined for the third day as economic data is helping ease the flight to safety and currency hedge. Watching how it unfolds as an indicator for banks, global markets, and bonds.

Solid bounce this week in stocks, but we face the previous resistance levels again and watching how this unfolds.

TUESDAY’s Scans, March 12th: another positive day following the selling on Friday and most of last week. Plenty of activity with stocks testing support and the opportunity to move higher in play. Taking it one day at a time and managing our risk accordingly. Plenty to like as well as be cautious about.

  • China (FXI) big jump off the recent lows as investors have mixed emotions on trade agreement and the economic outlook for China. Letting this unfold.
  • Utilities (XLU) benefactor to lower rates and money rotating towards safety. Solid upside gains the last three days.
  • NASDAQ 100 (QQQ) rallied back to the previous highs already and watching the individual leadership unfold.
  • Gold Miners (GDX) benefitting from the bounce in the metal… Letting this unfold near term.
  • Treasury Bonds (TLT/TMF) upside gaining traction as the money rotates towards safety. Letting it run for now.

Solid two day bounce in progress… watching how this unfolds with the challenges facing the economy and the global markets overall.

MONDAY’s Scans, March 11th: Solid day for stocks and with all the sectors closing on the upside all is well… right? Not so fast. The bounce was just that and we will see how strong it is moving forward. The positive is all our positions gained some breathing room. The bad news is our stops were hit on Friday in several sectors and we will watch to see if they recover enough to reenter any of them. Taking what the market offers and seeing how it unfolds.

FRIDAY’s Scan, March 8th: The jobs report was enough to start the day in negative territory as the US economy continues to show signs of weakness. I am looking for the opportunities in this shift of sentiment and where money is rotating. Money is always moving where it believes it will be treated the best the fastest. We see some emerging opportunities in the current activity.

  • Gasoline (UGA) cleared $25.50 for the first opportunity to add a position. The move from the trading range Friday offered the next. Watching how this continues to unfold.
  • Utiliites (XLU) cleared the $57.12 resistance and keeps the current uptrend alive… letting it play out and looking in the sector for individual leadership.
  • Bonds (TLT, BND) money rotating to safety again as worries rise about the state of economic growth. Trading opportunities in each currently.
  • Dollar (UUP) rising as the currency of choice in a sea of worries about the European Union and other global weakness.
  • Oil & Gas Production (DRIP) solid break higher in the sector despite the struggle for crude to break higher. Plenty of movement in the sector worthy of attention.

Overall the outlook is getting more cloudy and concerns are on the rise. The jobs report was just the latest issue seen in the US economy. We will continue to gather the facts and look where money rotates… we will rotate with it as long as the trend and the facts support the move.

Sector Rotation of S&P 500 Index:

  • XLB – New lows and found support… got the move above the $50.35 mark. Entry $50.50. Stop $54.10. Upside tested at the $54.15 mark again. Bounce as buyers return on Monday. Back to the $55.95 resistance again…
  • XLU – The utility sector found support at $51.11… moved above $52.72. Moved back above the $55.24 level again and hitting the $57.10 resistance. Watching and managing the risk. Entry $53. Stop $55.25. Cleared $57.12 resistance but needs a solid follow through.
    Bounce as buyers return on Monday. Higher again on Tuesday… nice follow through on upside break. Left big doji candle on Thursday…
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $28.25 (adjusted). Cleared the 200 DMA and accelerated higher moving towards the September highs. Big negative breaking below the $29.50 mark. Watching. Bounce as buyers return on Monday. Back to the $29.50 resistance.
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and continued upside trend. $54.92 level of resistance to watch. Managing our risk. Entry $51.90. Stop $53. Bounce as buyers return on Monday. Back to the $54.92 resistance.
  • XLI – Industrials moved to near-term low and bounced. $65 level cleared for trade opportunity. Entry $65. Stop $74.05 (adjusted). Upside leader with a move to $76.80… stalled and testing the uptrend.
    Bounce as buyers return on Monday. Looking for some upside follow through.
  • XLE – Energy stocks struggle on the week and gap lower on Friday around the talks of slowing global economy. Watching. Bounce as buyers return on Monday. Got some help from crude on Wednesday for an upside move.
  • XLV –  Healthcare fell to the 200 DMA and testing support. Hit our stop on positions and watching how this previous leader unfolds. Bounce as buyers return on Monday. Bounce as buyers return on Monday. Solid follow through on Tuesday and Wednesday… Biotech leading the charge.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $68 (adjusted). $71 resistance to clear as the sector tests support. SOXX, IGN, HACK, SOCL, and IGV all part of the puzzle for the upside to continue. Bounced back above the $71 level again. Wednesday attempted to clear the $72.35 resistance.
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.50. Solid earnings boosted the sector and finally breaking above the $26.33 resistance. Need leadership from the sector. The parts struggled on the week with IHI, KBE, KRE, and IAI heading lower. Bounce as buyers return on Monday. Wednesday made move above the $26.33 resistance and needs to follow through.
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $107 (adjusted). Cleared resistance at $109.21, but has tested on the downside this week. Consumer coming into question short term. Bounce as buyers return on Monday. Facing the previous resistance levels again.
  • RWR – REITs broke lower despite lower interest rates… bounced from lows clearing $93.21 resistance… positive upside move. Entry $88. Stop $96.50. Watching and managing the risk. Some profit taking? Interest rate moves bother investors in the sector. Moved back to the top of the current range. Broke higher on Tuesday and followed through on Wednesday… adjusting our stop.

(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:

Markets are testing and facing key support levels. The bounce from the December lows remain in play but will need some help from the buyers if this it to remain. Looking at the charts you can see the key levels of support coming into play… a break of these levels and the trend will shift to negative giving the sellers the upper hand in the current trends and momentum. There are some issues facing investors as the trade agreement has not materialized with China. Fundamental data is weakening. It is weakening globally as seen in the latest round of economic data from Europe and China. The US data for the first quarter is anything but stellar. This was a week of testing and speculating. The jobs report on Friday was not helpful. The bounce back from the early selling offered some hope heading into the new week of trading. We continue to emphasize sound money management. We have look at positions to take profits, adjust stops, and manage the risk of the current environment. The goal is to avoid speculation and follow our disciplined strategy for each position. Taking it one day at a time.

Two of the eleven sectors managed to close the week in positive territory as money rotates towards safety. Utilities and REITs led the upside for the week. Energy and healthcare were the laggards as money looks for a new home. Interest rates ended at 2.62% forfeiting the gains from last week. The ten-year bond moves back to the top end of the range showing money rotation short term. The dollar bounced with talks of a slowing global economy becoming the currency of choice. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers.

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.