More upside and some caution

OUTLOOK: January 10th

Another day of gains for the broad indexes and yet another new high. Getting there today was half the battle as only four sectors closed in the green. The move in interest rates above the 2.5% mark on the ten-year bond caused quite a stir for bond investors as money rotated towards higher ground. The push in rates is seen as negative for the for the economic picture, positive for banks, negative for the bond sector. There are plenty who believe the Fed will stall the economy with too aggressive of a stance towards rate increases, but there are those who believe they will get it just right. Take which ever side you want, but the reality for bonds is more selling and the short side of the bond gaining momentum. Equally impressive has been the move higher in the dollar the last two days. Is this a trend aligned with interest rates? Worth watching both as they will have an impact on the belief factor moving forward. Taking what the market gives one day at a time.

The upside was led by healthcare (XLV) and industrials (XLI) on the day. The move in healthcare confirms the break from the trading range and puts the uptrend back in play. Industrials continue to benefit from the move in commodities of late. There is plenty of optimism being discussed towards stocks… that always worries me as technically the market is overextended on the upside. That doesn’t mean it won’t continue, it just makes me cautious. Taking what the market offers is the key to successful investing… having stops in place takes away the emotion of being wrong. My decision is to proceed with the trend and manage my risk. The downside was led by telecom (IYZ) and energy (XLE) as the indecision in both sectors remains a challenge for the banks. Interest rates are starting to trend higher putting downside pressure on the dollar. For now, the broad indexes are moving to new highs and we look for the next opportunities.

The S&P 500 index closed up 3.5 points at 2751 and closed at new highs. The uptrend remains in control of the index on average volume for the day. The index started higher gave up the gains and closed with a doji candlestick. This leaves an opportunity for a directional change for the broad index… watching how the day unfolds. All the moving averages are pointing higher in a solid uptrend in play. The biggest movers in the index were DHR (gap trading range helping the healthcare sector), GILD (breaking higher clearing $75.45 resistance), ESRX (break higher in the uptrend), LNC (break from trading range continues uptrend), and AGN (bottoming pattern attempting to break upside). The downside came from AYI, MU, UA, FCX, and INCY. Mixed activity on the downside as money rotates towards leadership. The broad index moved higher for the day and pushed to new highs again. The leadership for the last thirty days has come from technology, basic materials, and energy… getting some rotation of late with energy and basic materials leading over the last ten days.

Gold (GLD) tested lower at the $117.38 support and bounced on the Fed hiking interest rates. The metal cleared the $123.05 resistance mark breaking higher and has come to rest at the $125 mark… watching with stops in place on the vertical move short term as pennant pattern breaks lower. The dollar (UUP) worries abound relative to the Fed, taxes, and geopolitics. The downside accelerated and break below the November lows showing more weakness. Modest bounce to watch currently as finding some buyers. The emerging markets (EEM) has gone vertical on the weaker dollar and talk of resurgence globally in the economics. The Volatility Index (VIX) remains near the current lows closing at 10 after some nerves rise on the day. There is plenty on the table relative to dynamics and agendas from traders and investors alike. The key is to remain disciplined within your trading strategy and not let the anxiety of the situation change your mind. Manage your risk and stay focused on the horizon, not the rear-view mirror.

(The notes above are posted daily based on the activity of the previous days trading)

KEY, INDICATORS/SECTORS TO WATCH:

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare. There is no clear resolution to that issue and that has now led to money rotating to where is it has better opportunities and clarity. The downside broke support at the $103.65 level only to recover as the challenges remain with a lack of clarity about Washington more than anything at this point. Bottom reversal started? Made move to resistance at $107 level and broke higher last week. Entry $107, Stop $105.50. Sellers step in to test the break higher on Monday, the buyers were back on Tuesday. Attempting to make move higher, but can’t find enough buyers near term. 

REITs (IYR) The sector tested the $79 level of support and bounced back to resistance and tested, and bounced, cleared the $81 resistance… only to test lower again… We continue to focus on managing our risk and collecting our dividend versus the near-term volatility and uncertainty. This is a growth and dividend holding with a 4.2% dividend from our entry point in April. Entry at $75.75. Stop $76.25 (adjusted). Rates are creating the uncertainty short term… patience. breaks lower testing the current support as yields rise again. 

Treasury yields (TNX) moved to 2.47% last week as the worries return on the weaker dollar. The lack of commitment from the Fed and Washington’s wanting a weaker currency isn’t helping. Watching how this unfolds, but for now, rates remain in a trading range and we remain out of treasury bonds for now. Yields look to move higher again breaking resistance at the 2.5% mark.

Gold (GLD) Gold remains in a long-term uptrend with a broad trading range in play the last five months. The volatility of the trend is speculation and news driving money. The selling speculation on the rumors of the Fed hiking interest rates broke the $120.45 support. On the decision prices moved higher???? Yes, higher. The “worries” about the dollar and the outlook for growth has money rotating on speculation… regardless taking what the market offers. Entry $120.70, Stop $123. flag pattern on the chart the last few days breaks on the downside showing a negative bias. Looking for confirmation.  

Crude Oil (USO) has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue, but speculation about the dollar is impacting the price near term. The last three months the commodity has managed to fight its way back above the $50, $52.50, $57.50, and now $61.60 levels of resistance and confirm an uptrend off the June low. Entry $50.20, Stop $57 (adjusted). The price accelerated on a weaker dollar this week and remains in the uptrend… let it unfold. stalled at $61.60 resistance for now. 

Energy stocks (XLE) Continue to climb off the August lows and the double bottom pattern clearing $63.22 for entry and a stop at $70.50 (adjusted). Investors reacted to the decline in price and found support at the $67 mark. With the bounce in price, the stocks are again responding on the upside… A nice break above $72 as money flow shows faith in price. Broke to new highs currently. This gave the opportunity to add to positions or trade the move with ERX $32.30 entry, $34.50 stop (adjusted). Uptrend remains. started higher and reversed to close lower. 

Volatility Index (VIX) The positive week for stocks keeps volatility in check. The close at 9.2 is a move back near the lows. Watching to see how it unfolds this week as we investors continue to have faith in the upside move. Some anxiety on the day with bump to 10 on the index. 

The S&P 500 index closed the week at new highs and posted a positive return for the week gaining 2.6%. The drivers last week technology and healthcare which bounced back from selling into year-end. All the moving averages are positive and volume was average with the traders returning from the holidays. There is plenty to ponder as we start the new year… not the least of which is the rotation to commodities of late on the weaker dollar along with emerging markets. The question to ask, how low will the dollar fall? The rattling over bitcoin hasn’t helped nor will it going forward. We remain on guard about how the buck will impact the inflation picture as well as commodity prices. Remember rising commodities impact inflation relative to spending and discretionary dollars from consumers. Overall we are still cautious about the direction looking forward. Watching how small caps perform (sluggish) to start the year along with semiconductors (positive upside last week). Patience is required with this market overall as news leads the parade. The data points are not offering enough to help my outlook… ISM manufacturing numbers were higher and positive… ISM services numbers were lower and negative. The balance of data is mixed and that doesn’t boost confidence in growth. We watch as the market and investors settle into the new year.  

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

Daily Scan Results: 

TUESDAY’s Scans 1/9: Another day of upside for the broad indexes, but the challenge remains a lack of clarity with the dollar and interest rates. Yields moved higher along with the dollar on the day causing some angst among investors. Still taking it one day at a time with overbought talk in the headlines… it is important to remember the market can remains irrational longer than you can remain solvent betting against the trend.

  • Natural Gas (UNG/UGAZ) the upside is taking the volatile route of progression on the upside. Watching how this unfolds near term and what opportunities it will create. Up or Down?
  • Biotech (IBB/LABU) upside returns after one day of selling… still need validation on the upside move following the break above the $75.30 mark.
  • Treasury Bonds (TLT/TMV) the short side trade is in play and it will be a challenge to change the direction as rates moved above the 2.5% mark on the ten-year bond… short is short for now. $19 entry point to add to short side trades on the bond.
  • Gold Miners (GDX/DUST) follow through to the reversal on Monday… $24.10 entry point for short trade on follow through.
  • Healthcare (XLV/CURE) confirmed break above the resistance at the $49 mark. adjust stops accordingly and let it run for now. biotech (IBB) and medical devices (IHI) breaking higher.

Plenty to watch and scan as this unfolds.

MONDAY’s Scans 1/8: An interesting day with some weakness to start and finishes on the upside. Technology and the NASDAQ still leading the movement with the Dow, S&P500, and NYSE showing some consolidation in volume, breadth, and movement. Take what is there without over analyzing the situation… stops in place.

  • Interesting reversals of leaders from last week… Biotech (IBB/LABD) and gold miners (GDX/DUST). Watching how this rotation unfolds near term.
  • Semiconductors (SOXX/SOXL) upside leader remains on upside move. Watching as it approaches the previous highs. NVDA, AMAT, ENTG, and TER leading the upside move. Networking (IGN) gapped higher as well from the consolidation pattern adding to the upside in technology.
  • Coal (KOL) we discussed this move several weeks ago with the opportunity clearing the $15.40 resistance… it has gone vertical in the move adding to the commodity run.
  • Oil Services (OIH) adding to the move above $26.17 resistance. The sector remains positive with the move in crude above $61. Another part of the commodity storyline. XLE, IEZ, and XOP.
  • China (YINN/FXI) continues to lead the upside charge for the emerging markets (EEM). The solid upside move continues as money looks for opportunities in the sector. KWEB leader in the move higher.

Overall moves are in line with the bounce off the December test to end the year and the last five trading days have been impressive on the upside. Proceed with caution and stops in place as this all unfolds.

FRIDAY’s Scans 1/5: Positive trading day to end a positive week for stocks. Despite the data points on the economy money and speculation continue to drive the direction. Technology resumed the role of leadership and commodities continue their trek higher. We will follow the golden rule of following the leaders as the new year swings into full trading mode next week. The scans reflect the upside optimism currently with the downside reactions coming from interest-sensitive stocks.

  • The NASDAQ (QQQ/TQQQ) fell to the 20 DMA to end the year and rose to a new high to start the year. Hit entry at $147 with a stop at $140 for the upside trade. Longer term positions we raise our stop to $140 as well.
  • Crude Oil (USO/UCO) upside in play on a weaker dollar. The demand side is higher, but not enough to warrant the higher move. We added to our position at the $21.80 level, stop $$22 (adjusted) and will manage our risk accordingly.
  • Technology (XLK/TECL) upside moves to reverse the near-term direction. Positive move overall and looking for the leadership to remain. SOXX helped the upside move with a positive reversal.
  • Gold Miners (GDX/NUGT) upside trade saw some buying on FOMC… cleared $31 resistance and offered another entry point for the miners. $28.67 stop still in place on other positions ($28.67 entry). Gold (GLD/UGL) is the reason for the rise! Breaking above the $123.05 mark. UGL offered another entry point on the break above resistance $40.50 (stop $40).
  • Semiconductors (SOXX/SOXL) bounced at support $166.10… tested… and showed positive upside to start the year. Entry $175, stop $170. Need the leadership for the NASDAQ and technology to rise further.
  • Commodities are moving… thanks to the dollar. USO, XME, GLD, SLV, BAL, DBB, etc. all showing rotation… and opportunity.

The market is poised for more upside near term as money rotates based on the current outlook. Watching the data points for the economy as well as the global picture. The key is patience and observation are how the belief factor unfolds moving forward.

The upside leadership:

  • Crude Oil (USO/UCO) positive moves to clear near-term high.
  • Gold (GLD/UGL) positive upside moves setting the pace.
  • Homebuilders (ITB/NAIL) upside remains after a test with flag pattern in place. Looking for the resumption of the uptrend in the leader. $43.25 entry point if upside break.
  • Natural Gas (UNG/UGAZ) break upside is worth attention.
  • Brazil (EWZ/BRZU) upside break and positive move on a weaker dollar.

Risk management of positions and a disciplined strategy for any and all trades.

Watching:

  • Homebuilders (ITB/NAIL) upside is back on the upswing and watching how it unfolds relative to the move in interest rates and tax cuts.
  • Latin America (LBJ) – double bottom reversal. $32 level of entry confirmed nicely on upside move.
  • Emerging Markets (EEM/EDC) – clear previous highs of interest. $121 entry, stop $130). The dollar is helping the upside move.
  • Technology (XLK/TECL) upside move clears resistance at the previous high ($119.11) offering an opportunity to add a position. Stop $115.20.
  • Healthcare (XLV/CURE) upside move clears resistance at the previous high ($48.95) offering an opportunity to add a position. Stop $47.50.

Other moves of interest: KOL, BRZU, EURL, KWEB, FAS… for the week… YINN, DGAZ, OIH, TQQQ… plenty of positives leads to cautious outlook as well.

FRIDAY’s Scans 12/29: No big changes as money juggled for the new year. The week was down then ended lower with some rotation to commodities on a weaker dollar. Below is what we are watching to start the new year…

  • The NASDAQ fell to the 20 DMA which is worth watching. $152.10 is support for QQQ currently as let the pressure unfold on stocks.
  • The dollar (UUP) continues the decline breaking below the November lows. This is good for commodities and not so great for stocks short term.
  • Crude Oil (USO/UCO) upside in play on a weaker dollar. The demand side is higher, but not enough to warrant the higher move. We added to our position at the $21.80 level and will manage our risk accordingly.
  • Treasury Bonds (TLT/TMF) bonds rallied this week on lower interest rates. Still in range, but watching how they unfold moving forward with the Fed and the dollar.
  • Natural Gas (UNG/NUGT) upside continues and the vertical move the last three days is impressive. $5.67 entry, Stop at $5.35.
  • Gold Miners (GDX/NUGT) upside trade saw some buying on FOMC… cleared $31 resistance and offered another entry point for the miners. $28.67 stop still in place on other positions. Gold (GLD/UGL) is the reason for the rise! Breaking above the $123.05 mark. UGL offered another entry point on the break above resistance $40.50.
  • Semiconductors (SOXX/SOXS) bounced at support $166.10… no conviction in the buying and a break of support would be a big negative overall.
  • Commodities are moving… thanks to the dollar. JJC, USO, XME, UNG, GLD, SLV, BAL, etc. all showing rotation… and opportunity.

The market is poised for more rotation of money as this unfolds near term. The key is patience and observation are how the belief factor unfolds moving forward.

The upside leadership:

  • Crude Oil (USO/UCO) positive moves to clear near-term high.
  • Gold (GLD/UGL) positive upside moves setting the pace.
  • Homebuilders (ITB/NAIL) upside remains after a test with flag pattern in place. Looking for the resumption of the uptrend in the leader. $43.25 entry point if upside break.
  • Natural Gas (UNG/UGAZ) break upside is worth attention.
  • Brazil (EWZ/BRZU) upside break and positive move on a weaker dollar.

Risk management of positions and a disciplined strategy for any and all trades.

Watching:

  • UVXY – volatility picked up to end the week. $10.50 level to watch.
  • TZA – small caps showing some weakness. $12.50 level to watch.
  • LBJ – double bottom reversal. $32 level of entry needs to confirm.
  • EDC – clear previous highs of interest. $127.50.
  • SQQQ – clears $21.55 could offer upside trade with the index moving lower below the 20 DMA as indicator short-term trade.

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

Sector Rotation: 

  • XLB – Materials continue the wave type pattern of rolling up and rolling down in an uptrend. The upside resumed in August and the positive wave has ensued. Cleared $58 and continues to hold near highs. Entry $54.75, Stop $57.60 (adjusted). Moved to new highs and climbing adding to the upside.
  • XLU – Utilities have been under pressure from the speculation of higher interest rates from the Fed, but they have attracted buyers the news of rates moving higher erased the gains and more. Looking for support and the next opportunity as the fear evaporates and reality settles in. Bounced off support and watching to clear $52.70 with follow through.  Gave back the gains from Monday on higher interest rates. 
  • 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? Retested the lows as the downside took root and broke support at $30.40. The bounce was positive and we added a position on the upside move… $28.55 entry. Stop break even $28.55. Stalled at the $29.50 level of resistance.  
  • XLP – Consumer Staples remains in an uptrend and is stalled in a consolidation pattern. Need to confirm the move above the $57 level. Entry $54.80, Stop $56.25. Trading range remains. 
  • XLI – Industrials moved sideways for two months and then back to the previous highs breaking out to new. The long-term uptrend remains in play. Upside in play and watching the stop at $75.50 (adjusted). Continues to trek higher with vertical move of late.  Continues the vertical move higher. 
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. Entry $65.20 with a stop at $69 (adjusted). Positive bounce and break above the $70.50 resistance. A nice move above $72 as the sector gain on crude advance. 
  • XLV – Healthcare has been a big roller coaster ride with a promise to reform healthcare and then the failure to follow through. The test of support at $81 bounced. Testing again last week as indecision remains a challenge. Biotech large caps (XBI) positive upside helping the sector. Watch the parts as well as the whole here… IHF, IHI, XBI, XPH. Watching the break above $84.25 and follow through higher.
  • XLK – Technology uptrend remains in place with some testing. Entry $48.50. Stop $63.75 (adjusted). Semiconductors (SOXX) are creating the move higher with positive gains towards the previous highs. Watching how the parts unfold near term. SOXX, FDN, HACK, IGN, IGV, and SOCL. Nice upside move for the sector. 
  • XLF – Financials pushed lower on worries. Moved back above the $26.40 level adding upside. Entry $26.40, Stop $27. IAI and KRE also worth trading as they lead the sector higher. Sideways as everyone decides on direction near term. Trying to move higher. 
  • XLY – Consumer Discretionary has been a key leader since the November move higher. Entry $83.50. Stop $98 (adjusted). The clarity about the consumer is a challenge for investors, but the positive earnings and outlook are leading the stocks. The uptrend is in play. Watching how the retail (XRT) continues to add to the move. Raised stop and watching how the sector reacts to the preliminary sales data for December. Upside remains in place. 
  • RWR – REITs reacting to the current uncertainty around the Fed’s hike in interest rates. The longer-term view clearly shows the trading range and the opportunity to collect the dividend while investors continue to make up their collective minds on direction. Tax cut worries added to the downside move and now comes decision time for investors. We added the position last December (entry $91) on the move off the lows and continue to babysit the dividend of 4%. Moved back to the previous lows and not good.
  • Sectors of interest currently… SOXX (upside move), USO (upside move at resistance), IGV (upside move), XRT (upside move), XLF (trading range), IBB (upside attempt). 

Finished the first week of the year with the S&P 500 and NASDAQ indexes at new highs. The current market environment is being driven by sectors and not an overall belief despite the move to new highs for the major indexes. We continue to take what the market offers and nothing more. Some rotation into technology, healthcare, and energy sectors as investors look for the best opportunity near term. Energy pushed to new highs this week on a positive breakout. Six sectors are trending higher, two trending lower, and three moving sideways… about what you would expect in the current environment. We have to remain disciplined in our approach to investing our money. The goal is risk management as the storylines continue to unfold. Last week of trading for the year watch for position jockeying.

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

FINAL NOTES:

Investors are happy with the upside activity as it relates to the current trends. Traders are driving the short term swings and opportunities. The week was filled with optimism about the new year. The focus remains on the impact of the tax cuts and which sectors win… there are political and geopolitical issues in the headlines, but the worry factor has not escalated enough to warrant any downside. I expect more of the same as we towards a full week of trading and business back to normal. Our goal is to take the opportunities that meet our strategies and allow us to manage our money with the least amount of risk. The rationale for the current trading environment is more speculation than fact. As we start a new year there will be plenty of statistics and data put forth to help decision making about the outlook. As seen with the economic reports it remains mixed and allows speculation to remain in control. Earnings and retail sales for December will all be reviewed in light of expectations in 2018 as we move forward. Since the market trades looking forward and evaluates based on past data investors have been buying in advance of the reality and hoping the data will confirm the belief. That is why we manage positions with stops daily. There is still plenty of work to be done in order for the rumors becoming truth. The outlook for the economy is partly cloudy at best, the dollar is not helping as commodities will impact the consumer spending if gas prices continue to rise. Patience is the key for now. There are plenty of short-term trading opportunities and the long-term remains in an uptrend overall. We will proceed with caution and patience taking what comes our way and fits our strategy for investing both short and long-term.

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.