More Trade Settlement Rumors Lifts Stocks

OUTLOOK: January 21st Outlook

Nice upside move to end the week as more rumors of a settlement pending with China sparks another rally. With that in mind, the government shut down continues to be a challenge for investors as worries rise about the economic impact looking forward. Some now believe the downside reversal has shifted too quickly creating questions about another downside move. There were even comparisons to the market not have a rise this fast in the first three weeks of trading since 1987… the fear mongers are out again and the issues continue to face the markets both speculation and reality… we, however, are focused on managing our risk by managing our stops and looking at both the technical and fundamental data. Stay focused and most of all, stay true to your strategy. 

The S&P 500 index closed up 34.7 points to 2670 and continuing to advance the bounce from the December lows. The third leg has held and confirmed with the move higher this week. All of the eleven sectors closed in positive territory on Friday. Energy and industrials led the upside with utilities bringing up the rear. The move back above resistance at the 2582 mark was positive for the test with the next four days confirming the upside and helping the third leg of the move. The long-term trendlines are improving, 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 $36.87 (adjusted). 

The NASDAQ index closed up 72.7 points to close at 7157. The index moved above 6909 clearing resistance and cleared the resistance at 7103. The index continues to be the leader for the current move as growth stocks lead. Technology stocks have shown positive upside moves. Watching the current changes. 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 $41.97 (adjusted). Got the move to $162.48 resistance and it confirmed on Friday. Manage our risk and let it run.

Small Cap index (IWM) reversed and found some buyers as the third leg of the move higher accelerates in the current trend. The sector shifted to a leadership role and is showing positive momentum short term. $144.65 resistance cleared and confirmed on Friday. Added a position on a move above the $133.78 mark. Entry $133.90. Stop $143.55 (adjusted)

Transports (IYT) the bounce off support and looks positive with the move above resistance at $172.33. Clearing the $164.73 level offered upside trade opportunity. Entry $165. Stop $172.30 (adjusted). The gap higher on Friday was a positive vote of confidence for the sector with railroads and trucking jumping higher on the day. 

The dollar (UUP) fell on talk of the Fed is done with rate hikes.  The move higher this week is helped by the economic data and hopes of a trade resolution with China. Closed Friday at $25.56 bouncing from the selling last week. New volatility in the dollar resulting from “guess what the Fed will do”… 

The Volatility Index (VIX) closed at 17.8 on Friday with anxiety moving lower on the day and showing some modest concerns. Watching how this unfolds with anxiety levels falling on the charts. SVXY entry $43.05. Stop $46.10 (adjusted). 

(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). Solid move through $107 resistance and cleared the 200 DMA to end 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 $88.27 (adjusted). SOXL – Raised our stop – managing the risk. A target of $167.34 touched on Friday, adjusted stop and letting it run with the upside move. 

Software (IGV) Broke $167.88 and bounced back above the same level. Still not in horrible shape and the sector was oversold producing a solid bounce… and follow through. $167 level added a trading position. Entry $167.90. Stop $182.50 (adjusted). Raised stop – managing the risk. A nice move higher for the week as follow through.

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 $77.54 (adjusted). Big move for the week as the Fed shows signs of no further rate hikes near term… benefits the sector short term.  

Treasury Yield 10 Year Bond (TNX) closed the week at 2.78% as yields remain below support, but has moved up on the week. The bounce off the bottom is in play… the bond responds by moving lower and hitting our stop… The downside trade hit our entry posted at $19. Stop $18.35. If stocks rally continues rates will rise… China resolution with be positive for rates to rise… outlook negative for bonds near term.   

Crude oil (USO) the new bottoming pattern breaks to the upside as OPEC talks cuts. The move above the $48.03 level offers hope and opportunity to add a trading position. UCO entry $15.10. Stop $$15.10 (adjusted). $52.51 resistance cleared on Friday as hope springs on the talks of a resolution to tariffs with China.

Emerging Markets (EEM) Watching what happens as we bounce from the bottoming pattern. Rumors of trade resolutions and talks with China helped the index. Watching for the clarity to unfold. Cleared $40 and working on a double bottom pattern. $40.88 level to clear. Thursday closed at $40.93… with a follow through on Friday. Entry $41. Stop $40. 

Gold (GLD) moved above the $120.45 resistance digested it and moved higher. The dollar and geopolitics have been the catalyst for the metal… both up and down. The move in the dollar lower helped the metal move higher of late. Friday the boost to the dollar on trade settlement sent the metal lower… Managing the risk. Entry $116.50. Stop $120.45 (adjusted). The gold miners (GDX) equally respond to gold moving. Watching how this unfolds near term with the metals and the miners moving together again… Entry $19.70. Stop $20.25 (adjusted). Miners took negative move lower on Friday. 

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

FRIDAY’s Scans, January 18th: Another positive day and week for the broad indexes after testing on Monday and following through with four solid up days. We now face a three day weekend with markets closed on Monday. The move this week was positive for confirming the third leg higher. Watching how this unfolds as the speculation around the China tariffs being settled is the driver and if that fails to unfold the momentum could evaporate… taking it one day at a time for now.

  • Software (IGV) solid acceleration in the upside move and adjusted our stops.
  • Semiconductors (SOXX/SOXL) confirmed the upside move and adjusted our stops. This was a plus as the sector has been lagging all week.
  • Financials (XLK/FAS) positive boost to the upside following positive earnings on the week and adjusted our stop accordingly.
  • Crude Oil (UCO/USO) positive breakthrough resistance. Upside in play on hopes of China trade agreement and cuts from OPEC.
  • Treasury bonds (TLT/TMV) moving lower on interest rates creeping higher. A resolution to trade would push rates higher potentially and watching how both sides unfold with a downside trade on the bond in play.

Some stock moves worth watching and trading… INTC, VIPS, VALE, PBR, MGM, GM, SBUX.

Taking it one day at a time and managing the risk of the positions and the outlook. This is still a news-driven environment short term with a cloudy picture longer term. Focus on your strategy and honor your stops.

THURSDAY’s Scans, January 17th: Some juggling on news, but at the end of the day there were positive moves, but more resistance levels to deal with across the sectors. As seen in the notes above and below there are many sectors at decision points. The volume remains on the light side and the momentum could use a boost to take the markets higher. Plenty of discussion on both side of the argument for up or down… we will watch, managing our risk, and take what the market offers.

  • Materials (XLB) and industrials (XLI) break higher to clear resistance. Not exactly the leadership I am looking for, but an opportunity is an opportunity as both confirm the upside trends.
  • Healthcare (XLV/CURE) remains one of the key leading sectors for the broader indexes. Confirmed the move above the 200 DMA.
  • REITs (IYR/URE) solid upside trend from the December bottom continues to the 200 DMA.
  • China (FXI/YINN) confirms the upside opportunity $19.30 offering an entry point.
  • Brazil (EWZ/BRZU) flag pattern on upside move… helping lead the emerging markets (EEM) higher.

Solid gain on the day, but questions are plentiful about the future outlook for the economy, trade, Fed, and the markets. We continue to take it one day at a time.

WEDNESDAY’s Scans, January 16th: The broad markets started higher and then reversed into the close not holding the gains or follow through from Tuesday… this raised questions from analyst and the talking heads. It could be the start of something or it could be nothing. The reality is what happens going forward. We will manage our risk, adjust our stops, and let the market decide how this unfolds. No big changes on the day, but some sectors remain a concern near term.

  • Semiconductors (SOXX) stalled at key levels and this is a key sector for leading the upside move. Clearing $165 resistance would be positive, but move back below the $159.20 level would be a negative.
  • NASDAQ 100 (QQQ) cleared $162.48 resistance only to return to that level on the close… watching how this unfolds. We started the third leg higher in the reversal and failing to hold the move is a negative sign near term.
  • Financials (XLF) gapped higher on earnings and acting like a leading sector again. Accepting the gains for what they are and adjusting stops. IAI, KRE, KBE gapped higher as well.
  • REITs (IYR) added to the upside moves and looking positive near term.
  • China (FXI/YINN) solid upside move to clear the 50 DMA and add some upside hope to the country ETF.

The question marks only arise from the lack of follow through to the break higher on Tuesday. Technically it raises questions about the conviction of the buyers… but, we have to watch, manage our risk, and move forward with the markets. Assumptions are never a strategy for managing our money they only lead to irrational decision making.

TUESDAY’s Scans, January 15th: Buyers return to push the broad indexes higher and looking for the continued follow through on the upside. The challenge is a divided media about the direction near term. Some believe this is all there will be with another move lower… some believe we will hit new highs… I believe we take what the market offers and manage the risk of the current environment. The continuation move higher after a test lower on Monday is a positive for the upside near term. We will take that… manage our risk accordingly and see how it unfolds.

  • Biotech (IBB) solid bounce higher to lead the upside on the day… holding our position.
  • NASDAQ 100 (QQQ) leading the upside move as the large caps exert themselves again.
  • Semiconductors (SOXX) struggling the last two days relative to the leadership… watching how the sector handles the current resistance at $164ish.
  • REITs (IYR) renewed their upside trek as the yields remain near the 2.7% mark on the ten-year bond.
  • Internet (FDN) solid upside move to clear near term resistance and continue the reversal from the December lows.

Overall positive day… positive sectors leading the upside. The NASDAQ leadership is positive. The challenge remains the outlook for both the US and international economies. Plenty of news and speculation on the topic as we continue to take it one day at a time.

MONDAY’s Scans, January 14th: Not the best of days, but far from the worst. The selling showed some juggling of positions and sectors in the move. The positive boost to financials was a plus from my view as the sector moves to a key resistance level at $24.64. The downside in utilities was negative for the defensive sector and erases the bounce off the December lows. Biotechs tested the solid upside move from last week… and watching how that unfolds. NASDAQ didn’t look good on the day, but we will see how that responds as well. Overall bounce is still in play and we have our stops in place should we retest the December lows.

  • Financials (XLF) positive upside move from earnings even with Citigroup missing the top line revenue numbers. Watching for opportunities within the sector as well as the whole. C, STT, PFG, MS, KEY, and BAC all break to the upside from reversal patterns.
  • Biotech (IBB) tested the breakout level at $107 and watching how that proceeds… we have our stop in place and managing the risk. XLV testing the $86.74 support.
  • Natural Gas (UNG/UGAZ) follows through on the reversal pattern and gaps higher to start the week. Nat Gas jumped 14.1% on the day.
  • Crude Oil (USO) testing the upside move with some selling on Monday. The moves lower have my attention as it relates to the upside trade we took last week. Managing our stops and watching how this unfolds near term… comments from Puttin over the weekend had an impact on the move.
  • China (FXI/YANG) attempting to bounce off support again on rumors the trade agreement is getting closer. The economic data from China showed the impact of the tariffs. Letting this unfold for now.

Overall not the best of days, but we keep our eyes on the future and our stops in place to protect against the news and rumors swirling in the media. One day at a time.

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 gap higher on Friday. 
  • 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 $52.72 level again and managing our risk. Entry $53, Stop $52. 
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $26.90 (adjusted). Nice follow through to close the week with gap to the 200 DMA.  
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and looking for upside trade opportunity. $51.86 next level to clear and gapped above to close higher on the week. 
  • XLI – Industrials to near-term low and bounced. $65 level to cleared for trade opportunity Entry $65. Stop $67.80 (adjusted). Upside leader with two solid days moving higher to end the week.
  • XLE – Energy stocks bounced with the market. OPEC talks to cut production is helping the upside move clearing $58.20 and now $62.20 resistance. Entry $58.30. Stop $61.30. (adjusted). Cleared resistance $60.52 on rumored cuts from OPEC. Solid move higher to end the week. 
  • 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 posting positive upside moves for the week. Adjusted stops.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $63.45 (adjusted). Cleared $63.69 resistance and followed through upside. 
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.10. Solid earnings on week boosted the sector and adjusting our stop. 
  • 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. 
  • RWR – REITs broke lower despite lower interest rates… bounced from lows clearing $88 level and $91.20 on the close Friday… positive upside move. Fed talk keeping rates in check and the buyers engaged. 

(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 solid gains overall. The broad-based buying this week helped confirm the third leg higher for the markets. The economic worries as it relates to the government shutdown remain in play. But, the hopes of a trade settlement with China are keeping the buyers engaged for now. A lack of clarity is the death of any bull market as we saw in the October to December decline. Fed remains at bay… concerns about trade, economy, government jobs, politics, geopolitics all remain in the headlines… thus, this remains a traders market. Ten of the eleven sectors managed to close the week in positive territory as money rotates modestly. Financials, industrials, and energy led the upside for the week. Interest-sensitive sectors fared well despite the move higher in interest rates last week. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers. 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% to 2.78%. 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. There is no reason to panic just follow your strategy… Disciplined entry and exit points allow for you to manage your risk in up or downtrends. Investing and trading is a matter of discipline. It is not magic. It is not being a prophet. It is about following your defined strategy one day at a time. 

There is 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.