Markets turn around intraday to close higher

Interesting day for stocks as the market started lower and then the buyers stepped in to close in positive territory. The jobs report gave a boost initially but sold as the sellers used the opportunity. Around noon the buyer stepped in and looking at an intraday chard completed a double bottom and pushed higher. All of it was of interest and all of it prompted moves technically for our short side positions. We made adjustments locked in some gains and adjusted stops on the balance. Our focus now turns to next week and how this bounce unfolds… do we see more buying? Do we see the sellers return? All will unfold and we will adjust and take the opportunities presented.

Short news notes of interest…

  • The jobs report was better than expected as restaurants and hospitality start hiring again. 379,000 new jobs added and well above expectations. There is plenty of data in the report however that shows a continuing problem for jobs. The labor force participation rate is 61.4%… down from 63.3% in January… too much unemployment benefits keeping people at home. People unemployed for 27 weeks or more was 41.5% versus 39.5% in January. Long-term unemployment remains a problem… stop paying people to stay home. All of the data is showing weakness remains in the economy.
  • The $1.9 trillion stimulus package is making its way through the Senate. $300 per week Federal unemployment benefits versus the $600 proposed was a plus for the jobs report. There is a modification in the bill to make any student loan forgiveness tax-free. Interestingly the bill doesn’t offer any loan forgiveness… setting things up? Why not?
  • It was reported that Prince Harry and Megan Markle were paid $7 million for the interview with Oprah… thought you needed some lighter news.
  • More reopenings around the country are cheered by individuals… but the CDC isn’t happy. They continue to warn about the virus and the dangers that could potentially happen. Again, individuals cheer the reopening of restaurants, movie theaters, and other forms of entertainment… enough said.
  • Good news for scotch drinkers, the tariffs were lifted this week. It is only temporary… four-month reprieve to help the industry whose sales have declined by 1/3 in the US. The time will be used to come to a more permeate agreement on the dispute that stems from Boeing and Airbus trade. Drink up and stock up while the 25% tariff is dropped.

Sector Rotation and the S&P 500 Index:

The S&P 500 index closed up 73.4 points to 3841. It was up 1.95% on the day. The index closed above the 50 DMA and tested support at the 3710 level before reversing and closing at the sessions high. Money flow was positive and volume was above average on the day. Eleven of the eleven sectors closed in positive territory for the day as buyers couldn’t sit on the side any longer pushing the index higher on the day. The VIX index closed at 24.6 for the day as anxiety subsided. The key will be follow-through to start the new trading week.

Friday: All the sectors rose to end the week after a tough start for the broad index. Energy led the upside along with industrials. Oil services stocks jumped 6.6% on the day. The laggard on the day was consumer-related stocks but even they managed to close in positive territory. Transports moved back to the previous highs as a good sign for the markets. Volatility fell as the turn to the upside midday in stocks kept the sellers at bay. Taking what is offered as we exited some short positions and now watching to see how this renewed optimism plays out.

  • XLB – Basic Materials bounced off the lows with money flow bottoming on the reversal. $70.80 support held and the upside returned. Some selling to start the week rallied on Friday and watching how it moves from here.
  • XLU – Utilities don’t like rising interest rates… thus the downside pressure on the sector near term. SDP in play on the move. Found support to end the week and watching.
  • IYZ – Telecom now shows a double top on the chart with a break below the 50 DMA. Friday bounce offered some hope as we watch to see how it unfolds looking forward.
  • XLP – Consumer Staples moving lower to establish a near-term downtrend. Accelerated selling on the week breaks below the 200 DMA but founds some support to bounce on Friday.
  • XLI – Industrials broke from the trading range and rose to new highs. The test lower held and now we let it play out with stops in place.
  • XLE – Energy surged higher the last month and rose to near term highs. OPEC renewing cuts in production until April keeps the upside in play for now. Watching how this unfolds with stops in place on the elevated gains. Entry $41. Stop $47.75 (adjusted).
  • XLV – Healthcare moved below the 50 DMA with the downtrend from the January highs establishing itself. Biotech is putting pressure on the sector. Watching the bounce on Friday.
  • XLK – Technology remains in an uptrend but tested with some selling on the week. The bounce Friday offered some hope, but we are looking for the follow-through to start the week.
  • XLF – Financials bounced at the support of $28.95 and bounce back to the previous highs creating a ‘V’ bottom on the chart and then broke higher. The upside in play near term with some testing on the week. Entry $29.75. Stop $31.53.
  • XLY – Consumer Discretionary posted a double top… sold below the 50 DMA and broke support at the $158 level. The test of 200 DMA on Friday was negative, but it did manage to bounce… watching.
  • IYR – REITs made a run to new highs and tested back to the $84.45 support. Higher rates don’t help and money flow is declining. Watching how it unfolds near term.

Using the six-month charts as an indicator for the short-term view… Eight sectors are in confirmed uptrends with renewed upside. Three are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for S&P 500 index is an uptrend short term with a reversal bias on the charts short term. We remain defensive and cautious about the broad index.

(The notes above are posted at the end of each week based on the activity of the previous week’s trading. The BOLD/ITALIC comments are the current day changes worthy of note.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

The NASDAQ index closed up 196.6 points to 12,920 as the index was up 1.55% on the day closing below the 50 DMA again. 12,977 support broke as the sellers took control, but watching the bounce to end the week. Money flow has turned negative. Volume remains high on the sell-side but the buy-side volume was positive on Friday. The challenges remain in growth stocks and thus with the index. The NASDAQ 100 index (QQQ) was up 1.51% for the day as money heads to the exits. The $312 support was broken as a short signal near term. Semiconductors (SOXX) closed up 3% following the push to support at $382.60. Technology (XLK) moved up 1.89% and holding breaking the $128.57 level of support. The reverse head and shoulders pattern on the chart breaks lower confirming the downside trend. Watching how this unfolds and managing the risk accordingly.

Semiconductors (SOXX) The sector posted one of the more volatile weeks falling 10.5% in three days and closed the week with a 3% bounce. Watching as the sector isn’t out of the woods yet.

Software (IGV) The sector showed volatility after hitting new highs and reverses to break below the 50 DMA. Fell more than 10% mid-week and bounced slightly on Friday… more downside? Patience.

Biotech (IBB) The sector broke lower from the January highs and has struggled since. The sellers pushed the sector to the 200 DMA. Watching the modest bounce at the lows and how it unfolds to start the week.

Small-Cap Index (IWM) The sector consolidated near the highs and tested the 50 DMA as support. Solid bounce on Friday and looking for the follow-through to start the week. Uptrend still in play.

MidCap (IJH) The sector turned higher tested the 50 DMA and bounced on Friday… positive sign as the leadership remains. Watching how this unfolds to start the week.

Retail (XRT) The retail sector volatility was back as GME was back on the volatility drive. Still moving sideways and watching. Consumer showing signs of weakness near term as inflation heats up.

Emerging Markets (EEM) The sector headed lower on the week led by China selling off. No positions, but the downside is setting up for a move if the data follows through. Held support at $53.60.

Transports (IYT) The sector has been showing positive signs and leadership for the Dow. Tested lower, but held and moved back to the highs to end the week. The uptrend remains in play.

The Dollar (UUP) The dollar tested lower as stimulus and inflation became a real thing for investors. The bounce of late is a safe haven move globally. The bottoming pattern on the chart is in play with a break higher to end the week.

The Volatility Index (VIX) Volatility closed at 24.6 down from last week’s 27.5 levels as anxiety rose on the inflation talk. Watching how this unfolds relative to the outcome and influence on the broad market sector. The week showed accelerate volatility but calmed to end the week.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.55% up from 1.46% last week. Rates are rising on inflation fears… negative for bonds. TBT hit entry at $17.84. Stop $20.04 (adjusted).

Crude oil (USO) Crude moved to $66.04 from $61.45 for the week or up 7.46% for the week. Plenty of speculation remains as supply data raises questions with OPEC committing to continue cuts through April. Taking what is offered and managing the risk. USO Entry $29. Stop $41.89 (adjusted). UCO trade position entry $25.78. Stop $58.28 (adjusted).

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. The break of support at $166.50 is a short entry signal for the metal. GLL entry $36. Stop $37 (adjusted).

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

FRIDAY’s Scans for March 5th: The markets sold early and then the buyers stepped in to push the indexes back to positive territory and back to some key levels of support. We juggled positions on the move as the acceleration on the downside early offered some profit-taking on short side positions. The reversal at the lows of the day was worthy of our attention thus, we lightened our short side trades. Watching for a follow-through move to start the week or else the downside will return. Plenty to ponder over the weekend as we make the necessary adjustments to positions and look for opportunities to deploy some cash.

  • Took 1/2 to 2/3 of short side trades off. Some hit stops on the intraday bounce… SQQQ, SPXS, SOXS, LABD, TECS, WEBS, RXD, TMV. The key is to manage your positions according to the risk that is, not what you believe. Watching how the new week unfolds with the balance of the positions. What remains still closes out at a profit if the upside resumes.
  • Upside positions. XLE, USO, IJH, XLF, and others we are letting play out as they are holding up nicely near term. Stops in place.
  • Opportunities are completely dependent on how the week starts for the broad markets. Watching QQQ, SPY, IWM, SOXX, XLK, XLF, UUP, IEV, TLT, and others for signs of improvement or more downside?
  • Homebuilders (ITB/NAIL) watching for signs of slowing on inflation fears and higher interest rates. The test lower bounced on Friday and we will see how the week starts.
  • Oil Services (IEZ) big jump on Friday as the sector continues to benefit from the higher price of crude. Raise stops to $14.25 on the move and letting it run.

THURSDAY’s Scans for March 4th: Not a great day for stocks. The inflation fears were stoked by Mr. Powell’s comments. Interest rates rose, bonds fell, the dollar rallied, and cash levels rose. Overall the sellers were in control and we benefitted in short side trades. More stops hit. More cash raised. Overall the goal is patience as it all unfolds. The acceleration in anxiety showed in the VIX but it has not reached excess yet, which could lead to more selling. The jobs report due on Friday… not expecting much help heading into the weekend. Don’t let your emotions play games with your money… stay focused and manage with discipline.

  • SQQQ, SPXS, SOXS, LABD, TECS, WEBS, RXD, TMV all benefitted on the day and adjusted stops.
  • REITs (IYR/SRS) downside is playing out in the sector as well with higher interest rates creating selling.
  • Commodities (DBA, DBC, DBP) pausing at current levels with some uncertainty in the air.
  • Crude Oil (USO) OPEC+ decides to keep production levels steady and that puts buyers in control again near term. Speculation is Saudi Arabia will not add to production pushing prices higher. The wildcard is if Russia and others will increase production? What impact does it have moving forward? Follow the trend for now. Hit entry on USO/UCO and hit stops on SCO.
  • Small Caps (IWM/TZA) broke support offered short side trade. Watching s this is the previous leadership breaking down.

WEDNESDAY’s Scans for March 3rd: More selling, more worries, more caution as money moves out of stocks. The near-term trend is now lower and the selling volume is higher. Watching how it unfolds and taking what is offered. There are opportunities on the short-side trades and there is still money pushing into energy, banks, and commodities. Manage the risk and keep the focus on what is working versus speculation about what is not.

  • NASDAQ 100 (SQQQ) hit entry and managing the risk. Short side of index in play near term.
  • S&P 500 Index (SPXS) hit entry and managing the risk. Short side of the index in play near term.
  • Biotech (LABD) adjusted our stop on the entry. Short side of sector in play near term.
  • Healthcare (RXD) hit entry and managing the risk. Short side of the index in play near term.
  • Treasury Bonds (TMV) adjusted our stop on the entry. Short side of sector in play near term.

TUESDAY’s Scans for March 2nd: Sellers were back on the day and but not to the demise of the trend, just a challenge to the process. The growth sectors remain challenged and the ‘recovery’ stocks show some positives. Taking what is there without be speculative about the outlook. There are opportunities on the charts as discussed above and we will continue to manage what is available relative to our strategy.

  • NASDAQ 100 Index (QQQ/SQQQ) as discussed on Friday we still see a negative setup on the charts and willing to add a downside trade near term.
  • Crude Oil (USO) being challenged by the OPEC production rumors. This has crude down the last four days and back below the $60 mark. Manage the short-term risk.
  • Biotech (IBB/LABD) downside move on Tuesday offered a short side trade opportunity as it failed to hold the Monday bounce.
  • Internet (WEBS) showing some opportunities in the downside trade setup. Watching the $23 level for entry.
  • China (FXI/YANG) downside setup for the country ETF. Looking for eh entry breakout $12.35.

MONDAY’s Scans for March 1st: Positive reversal day for the broad markets as indexes and sectors alike found support and bounced at their respective lows. One day is not a trend and thus, we watch to see how this unfolds and what opportunities arise from the moves. Patience is key for now.

  • Technology (XLK) solid bounce from the current lows and back to the January highs. Head shoulders pattern on the chart? Watching and looking for where the opportunities are.
  • Treasury Bonds (TLT) holding support as the yields calm. Watching.
  • Midcaps (IJH) solid gains on the day and the recent leadership is of interest.
  • Energy (XLE/USO/UGA) commodities are holding steady despite some modest selling on the day. Watching the upside resume… possibly.
  • Agriculture Commodities (DBA) solid three-day test at the highs… watching for the resumption of the trend as the profit-taking resides.

(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.)

FINAL NOTES:

Weekend Wrap & Outlook… The market’s sentiment is shifted short term as the volatility index jumped during the week. The upside hope is alive on the bounce Friday, but we will see how that unfolds to start the new week of trading. Economic data is being aided by stimulus money, not growth. The shortages of semiconductor chips and metals are driving inflation concerns in the sector. The inflation talk overall is gaining traction as Fed Chair Powell attempts to make comments to calm the fears… they failed. Production capacity is the challenge. I have talked about this as a potential issue since last summer. Pandemic restrictions and closures continue to show up in the supply of products and raw goods. The result will be higher prices or inflation in the US economy. The impact becomes a balancing act for both consumers and investors. The bond market is the larger concern as money rotates out of bonds on fear of yields rising even further. Remember who the largest bondholders are in the world and watch what happens to their portfolios, credit ratings, and profits… therein lies some opportunities.

With that in mind, the markets closed the week with a broad-based bounce across the major sectors. The cyclicals are leading with growth stocks still showing weakness overall. Commodities have cooled with the exception of crude oil which got a boost from the OPEC announcement that they will hold production cuts through April. The long-term trends remain on the upside despite the week of selling. For the week energy, financials, and industrials led the upside. The VIX index closed at 24.6 and remains elevated on concern about inflation. The dollar found support as a safe haven trade… inflation and stimulus are worthy of attention on this topic. Crude moved higher to $66.04 and putting pressure on the consumer at the pump. This is the highest level since February 2020. UGA moved higher with prices at the pump elevated… hopefully you own the ETF to afford the increase. Watching the current movement in the broad markets as money continues to rotate and some heads to cash.

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.

“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 your trading strategies with a disciplined approach to investing and managing the risk of our money.