Markets tread water awaiting deals

OUTLOOK: February 12th

The broad indexes were flat as many looked for news on a deal to avoid another government shutdown. As I stated on Friday this was the week for “let’s make a deal” relative to the budget. The tentative agreement has to go to the President to be signed, but the politicians were positive the deal would get done. That could offer some upside to the markets this week if the deal is completed. All is well… right? Not so fast there are plenty of looming issues for investors with Brexit talk hitting the headlines. The uncertainty of the impact on both the UK and the EU is a challenge. Definitely, a storyline worth attention as it unfolds. We will continue to watch how the week progresses with so many issues looming on the horizon.

The S&P 500 index closed up 1.9 points to 2709 and testing the uptrend from the bounce at the December lows. The third leg advanced to the 200 DMA as resistance and watching how it unfolds near term. Eight of the eleven sectors closed in positive territory on the day. Telecom and industrials were the leading sectors to close on the upside. The downside was led by healthcare and technology with modest losses on the day. The long-term trendlines have improved, but still, have work to be done to offer an entry signal. We will watch how the current activity unfolds and the impact on the trends longer term. SPXL entry $33.50, stop $39.50 (adjusted). 

The NASDAQ index closed up 9.8 points to close at 7307. The upside follow-through has kept investors in a buying mood of late. The close was at the 7297 levels testing the latest move higher. The index has been the leader for the current move. Technology led the test as semiconductors added to the pressure reversing its upside move. 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 $45.10 (adjusted). Got the move above the $162.48 resistance and we hit our target at the $167.53 mark. $170.93 resistance along with the 200 DMA. Managing our stops and letting it unfold for now.

Small Cap index (IWM) found some buyers as the third leg of the move higher accelerates in the current trend. The sector shifted to a leadership role as it tested and held the $144.65 level of support. A solid move above resistance point of $149.04 along with testing puts the sector in good shape to continue this leg higher. Added a position on a move above the $133.78 mark. Entry $133.90. Stop $147.50 (adjusted). $152.28 next objective. 

Transports (IYT) bounced off support and looks positive with the move above resistance at $182.43. Clearing the $164.73 level offered upside trade opportunity. Entry $165. Stop $177.50 (adjusted). The solid move higher on Monday offers upside continuation with some follow through. Our stops are in place with $186.70 our next target. 

The dollar (UUP) fell on the news as the Fed turns neutral on interest rates as would be expected. However, it has bounced the last eight days to regain the upside momentum and form a double bottom pattern on the chart. The move higher has my attention as it becomes the benefactor of a weaker global outlook becoming a safe haven for currency. The dollar closed on Monday at $25.82 which clears resistance and puts uptrend in play. Watching… 

The Volatility Index (VIX) closed at 15.9 on Monday with anxiety subsiding following concerns about no trade deal with China. Watching how this all unfolds with headlines appearing that are good and bad. Paitence. 

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

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) The sector broke below support and finally bounced. $95.04 was the level to clear and did so with momentum. Entry $96. Stop $106.50 (adjusted). A solid test of the move at $107 resistance and hit the 200 DMA as resistance… small trading range at support and looking for a catalyst. Stop in place. Modest bounce to start the week. 

Semiconductors (SOXX) Broke support at the $153 level… Solid bounce… some follow through. $153.13 cleared and added a trading position on the move… entry $78. stop $103 (adjusted). $105.24 sold half of the position. SOXL – Raised our stop – managing the risk. A target of $182.37 cleared with two solid days of upside moves. Hit the target, tested back to the $175.89 support and the 200 DMA. Letting this unfold.  Modest bounce to start the week.

Software (IGV) Broke $167.88 and bounced back above the same level. The sector was oversold producing a solid bounce… and follow through. $167 level added a trading position. Entry $167.90. Stop $194.45 (adjusted). Raised stop – managing the risk. Cleared $189.29 tested and moved back above that level to end the week. Solid uptrend. Attempted to move higher, but failed to hold the gains. 

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 $82.01 (adjusted). Struggled on the week as the break above $83.48 resistance consolidates some. Modest bounce to start the week.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.63% as yields remain below support and tested lower all week. TLT keeping the uptrend alive off the November lows and clears $121.68 resistance. Watching the balance between growth and Fed concerns. Modest bounce to start the week.

Crude oil (USO) worries about the IMF data on the global economy. Rising supply remains a concern and the move above $52.51 resistance is testing again. OPEC production cuts are still rumored and the US isn’t sitting by as Trump makes threats of sanctions. US production slowed on the week. Sanctions on Venezuela have been playing into the volatility. The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $16.97 (adjusted). Managing our risk and letting this play out. $52.51 resistance cleared and testing. 

Emerging Markets (EEM) Watching what happens as the bounce from the bottoming pattern follows through on the upside and stocks run higher. Rumors of trade resolutions and talks with China helped the index. Watching for the clarity to unfold. Cleared $40.88 and working on a double bottom pattern. Entry $41. Stop $40.50 (adjusted). Reacts to the news of China talks postponed. Held the lows from Thursday on the close Friday still concerns loom.

Gold (GLD) moved above the $122.46 resistance digested it and moved higher. The dollar and geopolitics have been the catalyst for the metal… both up and down. The move higher in the dollar this week brought some testing for the metal. Managing the risk. Entry $116.50. Stop $123.30 (adjusted). The gold miners (GDX) equally respond to gold moving with some volatility. Watching how this unfolds near term with the metals and the miners moving together again… Entry $19.70. Stop $21.50 (adjusted). Reacting to the dollars move near term. 

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

MONDAY’s Scans, February 11th: Modest moves across the sectors as money looks for a home. The upside stalled and the news is picking up with concerns about Brexit and a China trade deal… the proposed government budget is looming as a positive for Tuesday’s open. Watching as the week unfolds with plenty to discuss and watch short term.

  • Telecom (IYZ) breaks from the trading range on the upside and looking for the follow through confirmation… showing some leadership the last few days. Scanning the sector for individual leadership.
  • Small Caps (IWM/TNA) positive move above resistance… looking for the follow through on the upside.
  • China Internet (KWEB) attempting to break higher and clear the bottoming range.
  • Semiconductors (SOXX/SOXL) back to key resistance at the $115.10 mark… need to break higher.
  • Networking (IGN) adding to the upside move through the 200-day moving average and confirming the trend.

Not a great day for stocks, but there were some solid moves offering hope. Watching and letting this unfold on the week.

FRIDAY’s Scans, February 8th: A day of juggling between worries about trade and solid earnings reports. In the end, the markets close flat for the day and flat for the week. Solid day of digesting and consolidating the last let higher for the broad markets. Some rotation in play and some looming issues facing stocks keeps things in check for now. As we stated yesterday… keeping our stops tight and watching how the psyche unfolds with the markets having posted solid gains since the December lows and people are willing to book some profits. We have our stops in place and we will let the market decide where we book our gains versus our emotions.

  • All of the major indexes closed flat on the day and the week… let them decide.
  • Utilities (XLU) solid move above resistance at $55.24 to resume the upside trend. Note that interest rates move to 2.6% helping the sector.
  • Financials (XLF) closed at the support of the current bounce and continue to struggle. Broker-Dealers (IAI) is the weak link as banks (KBE) and insurance (KIE) remains solid.
  • Energy (XLE/ERY) remains weak as crude oil prices struggle. The downside has overlapped into natural gas (GASX) and production stocks (DRIP). Short side signals on both on Thursday and solid follow through on Friday.
  • Networking (IGN) solid upside move Friday to clear the 200 DMA. The uptrend continues to help the technology sector overall.

Week of struggles mentally for investors as they grapple with the gains from the December lows and what looms on the horizon… it now that decisions are made with too much time to think and too many headlines to worry about. Stick to what you know… set your stops… let it unfold… trade without emotions.

Stocks with solid moves for the week… MAT, CLF, SNAP, SKX, SNGA, EXPE, GOLD, and EGAN.

THURSDAY’s Scans, February 7th: A day of worries from comments that Trump and Xi will not meet prior to the March 1st deadline to settle trade disagreements. The key to understanding some news and the rationale behind the impact on stocks is knowing where we are on the charts… stocks are up 15% or more from the lows… in six weeks. That is a year worth of returns in normal situations… thus, profit taking is part of the reason for money moving. It is a natural part of the process. We have tight stops on positions and if they are hit we will lock in gains of 10-20% on positions… why? Because it is prudent money management in volatile times. The long-term charts are still moving sideways and looking for clarity… that means there is short to intermediate term volatility causing that… and that is where we are now… the message… manage your money, not the markets. The market doesn’t give one crap what you think should be happening. It is a collective voting system for investors who vote by selling or buying shares. We have a bias towards selling after a solid move higher and the current fundamental environment. Be proactive in managing your money… know where the exits are before the fire starts… stops are key.

  • All the major indexes tested lower at their respective resistance points. QQQ, DIA, SPY & IWM. All held for now… WATCH the low from Thursday as key to how Friday unfolds. If we close below the closing low from Thursday I expect mover downside next week. Thus, manage your stops and let the market decide not your emotions.
  • Energy (XLE) the downside move prompted by crude oil (USO) prices declining on trade news… but there is also the worries about supply and a strong dollar the last week. All impacting the current direction as the sector tests the recent move higher.
  • Semiconductors (SOXX) gave back the gains from Wednesday and testing the current trend higher.
  • REITs (IYR) upside still benefitting from lower interest rates and rotation to safety.
  • Treasury Bonds (TLT) benefactor of Thursday’s rotation and pushed rates below 2.7% again. Break above $121.80 positive for the bond.

DRIP, GASX, LABD, ERY reversals on the charts show opportunities on the short side trade.

VIX (VXX) reversal is on our watch list.

Watching how this unfolds on Friday.

WEDNESDAY’s Scans, February 6th: A day of rest for most sectors and the broad markets. Semiconductors pushed to the near term target and tested… but, provided key leadership again on the day as the upside resumed for the sector. Worth scanning the sector and trading the leadership near term. The dollar has been moving higher again which is positive from my view. Interest rates remain stalled at the 2.7% level… Remaining patient and looking for the opportunities.

  • Semiconductors (SOXX/SOXL) solid addition on the day as the sector resumes leadership. Some key movers were SWKS, MCHP, MU, SLAB and ON. Plenty of entry signals at the individual stock level.
  • Bonds (BND) is a sector that gets little attention from stock investors, but the chart shows the solid bounce at the low in December. Bonds are almost always a leading indicator for stocks. The gain has been 3% plus the dividends, but its key to watch how they interact with the market. HYG is up as well.
  • Gold (GLD) testing lower as the dollar gains strength.
  • Healthcare (XLV) solid bounce on the day and holding in the uptrend. Looking for some momentum in the sector hear term to resume the leadership role.

Overall quiet day as we manage our positions and keep looking forward.

TUESDAY’s Scans, February 5th: Nice follow through to the move on Monday and adding to the third leg higher. The resistance points are getting bigger as we approach the 200 DMA and the October trading range. We will take this as a precaution and manage our positions accordingly. Earnings continue to drive the activity and economic data remains on the mixed side with lower expectations moving forward. We manage our money not the news or the data… we take what the markets give and avoid the train wrecks.

  • Technology (XLK/TECL) remains the leadership as semi’s (SOXX) and software (IGV) lead the move. HACK, SKYY and IGN contributing as well.
  • Gold (GLD) struggling in the face of the dollar moving higher for the last four days. Still in good shape near term with the gold miners reflecting the same. Managing our stops on both.
  • Industrials (XLI) on a solid five day run through resistance and adding to the uptrend. GE, BA, TDG, and ALLE leading the upside move.
  • Small Caps (IWM) Solid moves higher as the concern over the leverage or debt this sector has taken a backseat for now… still a concern if the sellers start again.
  • China (FXI) continues the upside move despite the news and data suggesting stocks are in for more downside? Watching and letting it unfold.

Overall upside in play… the third leg is approaching some key resistance and will need help to get through these levels. Testing is expected and we will manage our money accordingly.

Update to follow the developments. These scans are looking for trends, reversals, breakouts, and other notes of interest.) 

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 $52.25. Upside continues with a test lower on the week. 
  • XLU – The utility sector found support at $51.11… moved above $52.72. The PG&E bankruptcy news sent the sector lower… but, buyers returned and we are back above the $55.24 level again and managing our risk. Entry $53, Stop $52. Watching how interest rates play out with the sector. Doji candle left on the day… look for direction from the day. 
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $26.90 (adjusted). Narrow trading range with 200 DMA the resistance to clear. Breaking from the trading range. 
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and looking for upside trade opportunity. $51.86 level cleared and a flag pattern in play near the highs… watching. Stop $50.50. 
  • XLI – Industrials moved to near-term low and bounced. $65 level to cleared for trade opportunity Entry $65. Stop $67.80 (adjusted). Upside leader with a nest near the current highs. 200 DMA in play. 
  • XLE – Energy stocks bounced with the market. OPEC talks to cut production is helping the upside move clearing $58.20 and now $63 resistance. Entry $58.30. Stop $61.30. (adjusted). Stalled with crude moving lower and then the stocks have followed. The short side of the sector showing up in DRIP, DGAZ, and GASX. 
  • XLV –  Healthcare fell to near-term lows and bounced. $85.74 level cleared for upside trades. Entry $85.25. Stop $88 (adjusted). Cleared $89 resistance and stalled with stair pattern in play for now… patience.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $65.50 (adjusted). Cleared $63.69 resistance and followed through upside. Semiconductors lead the upside for the sector… earnings setting the tone. All the parts starting to move the sector higher… IGV, HACK, SKYY, SOXX, IGN… 
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.10. Solid earnings boosted the sector and adjusted our stop. Testing lower this week and watching the closing doji candle on Friday. 
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $104 (adjusted). Cleared resistance at $105 and positive short term. $107.05 being tested as small trading range evolves with the uncertainty in the trading week. 
  • RWR – REITs broke lower despite lower interest rates… bounced from lows clearing $93.21 resistance… positive upside move. A solid move higher through resistance on Tuesday. Facing the December highs as resistance. Thursday a benefactor from the rotation to safety… watching and managing the risk. still leading the upside move.

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

FINAL NOTES:

Markets continue the bounce from the December lows with FOMC news helping the upside cause. Earnings and solid fundamental data helping keep the upside in play as well. This was a week of testing as worries over trade deal with China looms.  The government shutdown is good for one more week and no real news. There has been plenty of rumors on the deal, but Trump stated he would not meet with Xi. That will play a role in the coming week of trading. Earnings show 71% of the S&P 500 stocks reporting have been or met estimates. That has been the driver for the last two weeks of trading and the third leg of the current trend. 

Only five of the eleven sectors managed to close the week in positive territory as money rotates modestly. Utilities and technology led the upside for the week. Energy and basic materials led the downside as both struggling on looming speculation about production. Interest rates touch 2.63% on the ten-year bond as money continues to rotate into stocks. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers. As seen in the FOMC meeting the Fed remains the biggest influencer with a shift again on interest rates which have pushed the long end of the yield curve back below 3%. Tariff wars coming to an end would be a huge influence in the outcome looking forward. How this all unfolds is a matter of time and confidence and if a meeting takes place with Trump and Xi ever takes place.

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. 

There are plenty of issues and plenty of speculation short-term. What we need is confidence in the outlook going forward… until that happens, expect more volatility and possible downside. Let it unfold… take the trades or opportunities offered… manage your risk and remember cash is a sector and there are times when it makes the most sense versus forcing something that really isn’t there… patience is a strategy as well. 

“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.