OUTLOOK: June 12th
The markets were mixed as transports led the upside with a solid gain on the day to break from consolidation pattern. The broad indexes closed slightly higher as interest rates rise again to weigh on interest sensitive stocks. There were some positives, but the many sectors are getting ready to get ready… great looking setups on the charts, it is a matter of follow through and momentum to take them higher. It was a day of posturing and we will watch how it unfolds… of course taking what the market gives and then managing our risk. No big reactions to the G7 meeting, interest rates move closer to the 3% mark again, gold holds support, dollar holds support, and the media played quite on the day.
The S&P 500 index closed up 2.9 points at 2782 as the index holds the move above the 2740 resistance. Consumer staples, energy, and telecom led the day as they added to the breaks from consolidation patterns. Eight of the eleven sectors closed higher on Monday. A look at the chart shows the break from the flag pattern on above-average volume. The move helps the cause to reestablish the upside trend with a move above the 2743 mark. The next hurdle is the 2800 level. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.
The NASDAQ index closed up 14.4 points to close at 7659. The move above 7505 level (January highs) was positive as the index consolidates near the current highs. The long-term uptrend remains in place as well as the short term move higher from the February lows. The index continues to show leadership in a market of news driven stocks. The large caps (QQQ) is leading the way higher with technology stocks leading within the index. The SOXX tested the move higher equally after breaking above the $187.03 resistance and continues to show leadership. The key remains patience along with a strategic approach to managing money.
Small Cap index hit new highs and is due for a rest as the sector continues to show solid leadership overall. The leadership of this sector has been key to the bounce from the April lows with the move above the $160.50 double top as a clear sign of momentum from the sector. Entry $155. Stop $163.30 (adjusted). Managing positions as trades and letting the market determine if it becomes a long-term trend.
Gold (GLD) Modest bounce off the lows to keep the metal below the 200 DMA and holding the current levels of support. The downtrend is in play along with the short side trade. The gold miners (GDX) are equally volatile based on the metal and we are managing our position as the volatility plays out. Entry$21.92. Stop $21.92 (adjusted). Metals and Mining (XME) moved higher to clear the $37.40 level of resistance and holding for now. The sector is facing some resistance near term as the sector tests the move higher and the uptrend. Entry $37.50. Stop $36. Watching how this unfolds near term. Base metals (DBB) are on the move again with renewed talks of tariffs and politics. $19.35 resistance in play as it tested the move higher.
The dollar (UUP) bounced and cleared resistance at the $23.65 level to go on an uptrend move above the November high. The last week the buck tested the move higher and made a move lower the last three days showing some negatives on the chart… Stops are in place and watching how this unfolds near term. The overall move higher is a positive from my perspective, but there are many who think a weak dollar helps US companies. Simply not true… history validates a strong dollar favors the US despite the short-term setbacks. Took the upside trade near term as the move above $23.75 was the entry point for UUP. Stop $24.55 (adjusted).
Crude oil (USO) Bounced off the current low but remains below the $66.28 level of support. Speculation drove the price higher, and speculation is a double edge sword as profit-taking plays into the move… throw in OPEC and Russia discussing increased production… i.e. supply becomes an issue to consider. The question is will they? The trade will be based on the believability and timeline for the implementation. This would help offset the estimated 1 million barrels a day that would disappear from Iran sanctions… that speculation has driven the price higher, and now we have opposite speculation to offset the losses… the jury is out for deliberation. Added SCO at the $18.25 level, stop $17.80 (adjusted), as the opposite speculation takes over the driver’s seat.
Emerging Markets (EEM) a rising tide raises all boats… maybe the case with the emerging markets as they move back above the $46.62 resistance Wednesday, but failed to hold the move on Thursday and Friday with some selling back in play. Volume spiked on the move Thursday and watching how this unfolds with the sector still in a downtrend. With the dollar, tariffs, trade wars, and interest rates all playing into the volatility of the sector it isn’t promising. We will let the market speak and it continues to say lower in the current trend.
The Volatility Index (VIX) closed at 12.3 Monday reaching the lows in May as optimism plays into the current environment. We saw some anxiety over Italy, tariffs, and uncertainty… and then some hope about economic data. It remains a buyers market for now with little anxiety in the chart… Remember there is plenty on the stove that could boil over at any time… watching how this unfolds.
The last week was mostly positive as news took a rest and buyers put some money to work. Tariffs remain a challenge and with the G7 summit ending a spat of tweets and threats no one knows what this week will hold on the new and headline front. Economic data that supports the growth story drove stocks, but how long will that last as leaders of the world fight about taxes and tariffs on goods. Semiconductors showed a slowing in money flow for the week and tested the move higher. Worth our attention in the coming week. Energy remains a question mark with the decline in crude. Treasury bonds moved lower on higher rates, but that story can’t find direction on worries about geopolitics. The NASDAQ new highs from consolidation patterns and S&P 500 index broke above resistance finally. There is plenty of dynamics working in the markets overall and we will take it one day at a time as the trend remains positive.
No changes to start the week, just more consolidation and setups for the upside move.
(The notes above are posted daily based on the activity of the previous days trading)
KEY INDICATORS/SECTORS &LEADERS TO WATCH:
Biotech (IBB) remains a sector of speculation… The sector has taken on an emotional ride of ups and downs based on the current belief and market volatility. The worries over the President following through on campaign promises has been dogging the stocks. He announced the changes proposed to drug pricing, etc. and they were better than expected and pushed the sector off the current lows. We added a position on the move back above the $107 mark to complete the bottom reversal attempt. $107 entry. $107 stop (adjusted). Nice follow through for the week to close at $109.84. Intraday struggles continue with the small caps, but the large caps XBI continue to push towards the January/March highs… watching how today unfolds. We also own XBI. Entry $91.10, stop $94. Letting them both play out near term.
Semiconductors (SOXX) The sector tested the 10 DMA and the move towards the February highs. Solid leadership with some testing the last two days of the move higher. We own a position… entry $173.50. Stop $187 (adjusted). Managing the risk of the current environment.
Software (IGV) bounced off the near term low and test at $171.11 support. A nice move higher clearing the $185 and testing to end the week. Entry $176. Stop $181.89 (adjusted). Letting it run and managing the stop.
REITs (IYR) The sector made a break from the trading range clearing $76.22 only to reverse and test the move back to $75.21 support and bounce again clearing the resistance at the $79 mark. Rates moving back below the 3% mark get the credit for the rally as we watch how it unfolds on the move higher. Entry $75. Stop $75 (adjusted). 3.8% dividend.
Treasury Yield 10 Year Bond (TNX) moved back to 2.92% this week. The up and down in the yield is pushing bonds up and down (TLT). The lower yields offered some upside to bonds, REITs, utilities, and telecom for the week. Yields dumped lower on the rotation to the dollar. Watching how this plays out at the 2.92% mark. Inched towards the 3% level again as confidence returns to stocks.
Energy stocks (XLE) The stocks tested the move higher and found support after crude declined. The stops were hit and profit banked as OPEC and Russia discuss the increase in production to replace the Iran losses from the sanctions. You have to love speculation to trade crude or energy stocks as the news, hype, and speculation are a key part of the trends. Watching with a downside focus if crude confirms the break of support. Making positive moves despite the weakness in crude.
Natural Gas (UNG) broke from the bottoming pattern after falling more than 19% off the January highs…the next opportunity in the commodity was presented and thus far has paid off. Entry $23.15. stop $23.20 (adjusted). Some upside optimism showing on the chart… I say it is more of follow the leader… watching how this unfolds in light of the decline in crude… adjusted our stops accordingly.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
Daily Scan Results:
MONDAY’s Scans 6/11: More consolidating and digesting of the moves higher. The setups are in place to break higher… all that is missing is the momentum. This has been the case for quite awhile. We continue to take what is there and manage the risk as news remains the driver. Geopolitics remains a cloud over the markets as everyone awaits the outcome of the tariff game. Free trade for all would be great… maybe China, Europe, and Canada will finally agree not to put tariffs on US goods and services. We will see how this unfolds.
- Europe (IEV/EURL) forming a bottoming pattern worth our attention… especially if the tariff wars are resolved. EWI, EWP, EWK, EWD, EWO, EWL, EWG, EWQ, all showing positive moves.
- Healthcare (XLV) finding some footing with the providers (IHF) taking a solid role of leadership on the upside… raise the stop to $173.50.
- Crude Oil (USO/UCO) showing some signs of life with a bottoming pattern in place.
- Transports (IYT) solid break higher clearing resistance on positive volume. This is a positive sign for the broad markets as everything has to be moved by trucks, rails, or planes. Worth scanning the sector for leadership.
- Retail (XRT/XLY) vertical rise in the chart as the sector shows solid earnings and positive outlook. Raise stop to $47.75.
Other positive moves to watch… SLV, IEV, SOCL, TECL, XLP, IYK
Taking it one day at a time.
FRIDAY’s Scans 6/8: Mellow day to end the week with nothing really changing on the charts. We remain in an uptrend and all is well for now. Taking it one day at a time and letting the momentum unfold. The G-7 spats are in the headlines again as they continue to banter over tariffs and taxes. Watching how that unfolds to start the trading week. Not much to report from scans as we look to the new trading week… our primary objective is to manage our positions and see how the trading unfolds.
- Homebuilders (NAIL/XHB) nice break to the upside from bottoming pattern. Looking for follow through.
- Semiconductors (SOXX) test the move higher… watching how that unfolds on the week as we adjust our stops.
- Healthcare (XLV/CURE) nice follow through on upside move and clears the 200 DMA.
- Base Metals (DBB) moving higher on the tariff talks again.
- Consumer Staples (XLP) break from bottoming pattern and looking for follow through this week.
Overall good week for stocks. The news is back and we will watch how the week unfolds. Manage your risk and your money.
THURSDAY’s Scans 6/7: A day of testing the moves to new highs. Interest rates dump lower again? Worries about G-7 rumblings. NASDAQ and tech test the moves higher. Dow continues upside move and some of the laggards bounce… utilities and consumer staples. Overall day of posturing… the futures are pointing lower today and that could add to some of the anxieties, but we will let it unfold and take what the market gives.
- Energy (XLE/ERX) the sector bounced on the day holding the current consolidation pattern. Crude was positive, but not enough to add the upside in stocks? Hope springs eternal with the sector and I am watching how this unfolds near term.
- Emerging Markets (EEM/EDZ) the downside was back as the bounce on Wednesday gives way to worries again. Still not a believer in the sector and willing to let this unfold near term.
- Treasury Bonds (TLT) yields the last two days have been very active in both directions. There is uncertainty in the air concerning trade, tariffs, geopolitics, and other bantering. If things look good sell bonds, if things look bad buy bonds… letting this one sort out the headlines and emotions near term.
- Technology (XLK) some profit taking? Some posturing? Some anxiety about the outlook? Some of it all is my speculation… watching and managing the risk fo the position as this unfolds.
- Crude Oil (USO) small bounce in the commodity to establish a support point. Now we watch to see how it unfolds. I am not convinced the selling is over based on the supply comments surrounding OPEC, Saudi Arabia, and Russia. Stops in place on our short side trade, but still looking for more downside in crude.
Digestion day and we watch how Friday responds… patience and discipline with our positions.
WEDNESDAY’s Scans 6/6: A solid boost to the moves higher with the S&P 500 index and the Dow joining the upside break higher. This extends the second leg of the move from the April low… finally. The overall boost is positive with the NASDAQ and small caps continuing to move higher in their leadership… all is good… right? It is good for now as we let the positions run, add new ones on the respective moves, and manage our risk accordingly. Upside momentum in play… but caution is still underlying as the news can change quickly these days. Move in materials, healthcare, and financials has my attention as they were the lagging piece of the move.
- Financials (XLF/FAS) finally make a move above the $68.50 resistance level and looking for a follow through to add a position. $70 entry if we hold the move.
- Emerging Markets (EEM/EDC) Not convinced this is ready to move higher based on the current environment, but we add it here to keep our eye on how it unfolds. Cleared $113 and watching how today settles in.
- China (FXI/YINN) clears $35.50 resistance on the day and now needs to confirm the upside break from the bottoming range. Definitely a news-driven piece of the market.
- Healthcare (XLV/CURE) followed through on the move higher Tuesday. Entry $46, Stop $43. This is an important sector to aide the upside move for the S&P 500 index.
- Europe (IEV/EURL) $36.24 resistance cleared on the close… looking for follow through and a possible reversal in the downtrend. Plenty to watch in this piece of the market.
All the laggards moved on Wednesday and created a stir for investors. Watching how this move unfolds and how much belief and conviction is behind the move. Taking what the market gives and managing the risk accordingly.
Solid follow through for leaders: IWM, QQQ, SOXX, XLY
Positive moves to XLF, XLV, XLB, XLP, and others as they find their footing.
Other moves of note on Wednesday: DDM, TMV, NAIL, KBE, IAI, KRE, LABU, IHE, MOO…
TUESDAY’s Scans 6/5: Mixed move on the day as the markets digest the upside break higher. No changes… leaders are leading and laggards are lagging. We up our stops on the upside moves and manage the short trades relative to the environment. It was more of day to manage positions, run scans, and look for the opportunities within the opportunity.
- Biotech (IBB/LABU) upside holding the $98.60 level breakout. In position to run higher if the buyers remain engaged in the optimism towards the drug stocks.
- Small Caps (IWM/TNA) solid move higher for the current leader. Adjust your stop to $81 level and let it run.
- Retail (XRT) solid upside gain the last two days to confirm the break from the pennant pattern. Raise stop to $46.75.
- Base Metals (DBB) running again as the tariff talks heat up with Mexico and others. Trading only in the sector as the speculation and news motives are extreme.
- Coal (KOL) clears the $17.12 resistance and continues to the uptrend. Raise stop to $16.70.
Other moves to watch from Tuesday… SOCL, TQQQ, SKYY, HACK, FDN, KWEB, XLY all added to the cause on the upside… XLB in position to break above resistance… IHF in flag pattern… XPH in position to break through resistance.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
Sector Rotation of S&P 500 Index:
One big change of note concerning sectors… The Global Industry Classification Standard is making a change to the Telecommunications Services Sector. It will become the Communications Services Sector which sounds minimal but could have a significant impact going forward. They are adding NFLX, DIS, CSMSA, FB, and GOOGL. The new structure will be enforced by the end of September. This will make it more of a growth sector overall but could dampen some of the volatility the sector has experienced over the last two years.
- XLB – Materials moved above the $58.44 resistance level again and back to the $60 resistance again… and again, they declined to build the current consolidation pattern for the sector. Watching $58.44 support (entry) and $60 resistance. Upside follows through to clear the $60 mark. The move keeps the stair stepping upside in place… Tested at the $61 resistance level on Thursday.
- XLU – Utilities have been under pressure from higher interest rates. They got relief as rates moved back below the 2.8% mark. The bounce in yields hurt the move higher in utilities as they reversed and moved below the May lows and February lows in sight. Rotation out of the sector in play.
- IYZ – Telecom has become more of a trading sector than the buy and hold historically. The volatility has increased and thus swing trading works better. Some buying? Some selling? Finally a move above the $27.63 resistance and looking for a follow through to the move.
- XLP – Consumer Staples broke the February lows, March lows and is in the process of establishing the May lows. The downtrend remains in place, but the sector is attempting to find some upside momentum… nice move above the 50 DMA to end the week. Solid follow through to start the week.
- XLI – Industrials made a move back above the $75.72 level of resistance. Watching for the next opportunity to unfold from here. Defense contractors are rebounding to help the sector. $76.75 next level to clear on the upside.
- XLE – Energy broke lower as selling in the sector built from the announcement from OPEC and Russia to increase production levels in light of the Iran sanctions. Small bounce on the week, but crude is still on the downside… no positions currently. Showing some positive signs to start the week.
- XLV – Bounced off $79.50 support. Some follow through as the sector moved back above the $83.24 resistance. IHI and IHF leading the upside charge for the sector. nice upside follow through with help from each sector.
- XLK – Technology broke higher from the flag pattern of consolidation to push to new highs on the week. Leadership in IGV, SOCL, HACK, and others. Entry $67. Stop $67 (adjusted). Cleared to new highs and small test.
- XLF – the sector has become a hot potato with the interest rates, dollar, and geopolitics. KIE is still the weak link for the sector. Fell off the cliff with the news in the EU and the decline in rates impacting the sector. Bounced off support… moving back towards the $28.24 mark. Needs to get through resistance.
- XLY – Consumer Discretionary moved above the $105 resistance and followed through this week on positive earnings from the sector. Entry $102.50. Stop $106.50 (adjusted). Accelerated the positive uptrend from the April lows. Taking on the leadership role. Solid upside trend in play.
- RWR – REITs have been hampered by the uncertainty around the higher interest rates. Tested lower on interest rate moves above the 3% mark… testing higher on the move below the 2.8% mark. Watching and managing our risk in positions. Continues the move higher with test. $91.20 support now.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
The question remains about direction and volume despite the positive move higher in the NASDAQ and Small Caps to lead the week. I will take the positive gains, but worries remain on many fronts and therein lies the challenge. There is a lack of conviction from either side as the volume remains below average and neither side seems to want control. The data shows ten sectors moving higher and one moving lower for the week. The end result is a positive break to new highs and others clearing key resistance levels. The volatility index remains lethargic at best. Technology, small caps, midcaps, and retail are leading the upside charge. Healthcare and financials added some upside on the week to show some positive indications for the S&P 500 and the Dow. We need to follow through this week if the trend is to take root. The key is to focus on the strategy you want to take during the current market environment. News and speculation will drive the short-term while fundamentals drive the long term. Short term we are in a process of a bounce off support and a break above resistance. We need to follow through on higher volume if anything is to materialize on the upside. The goal remains money management, not market speculation…
ONE DAY at a time is the key for now. Take a longer-term view of your overall portfolio and manage the risk of your short-term trades accordingly.
“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.