More upside but not overwhelming momentum

The NASDAQ started higher as Microsoft and Tesla led the upside for the index. But, as the day progressed the index faded to a modest gain. The S&P 500 started flat and rose to close with modest gains. Overall it was a day of positive upside, but lack momentum as investors jockey money to where they believe it will be treated the best. Utilities led the day along with REITs which puts it all in perspective… no overwhelming movement. Energy led the downside as the sector gave up some of the momentum from Tuesday. Existing home sales surged 20.7% in June. Despite the rise, the annual rate of existing-home sales is still 18% lower than in February. The inventory remains constrained (down -18% in June) as the virus drives people to upgrade homes. 35% of buyers are first-time homeowners. The weekly mortgage applications index rose 4.1% following last week’s rise of 5.1%… people are buying homes. ITB jumped 3.95% on the day in response to the demand. Overall positive day as we continue to manage the risk.

In The News:

Short news notes of interest… 1) Retail showed upside as Best Buy posted positive sales commentary as they have been a benefactor in the space. Opposite of that news UBS downgraded Macy’s and Kohl’s to sell rating from neutral… tale of two cities in the sector. 2) HCA and NVR both produced double-digit gains on earnings data. That gave a boost to the healthcare sector overall. 3) The dollar remains under pressure as the downside continues against the basket of foreign currencies. Gold has benefitted along with other commodities. 4) The US government agreed to buy $2 billion in a test vaccine from Phizer… there stock rose 5%, but the drug will not be available until the fall of 2021… interesting. 5) Firearm sales rose 95% year/year and ammunition sales rose 139% year/year. 6) After-hours Microsoft beat earnings and revenue numbers for the quarter. Watching how that impacts trading on Thursday.

The S&P 500 index closed up 18.7 points to 3276. It was up 0.57% on the day as the index showed a mixed day for stocks along with some rotation. The index moved into positive territory for the year offering some hope. The stimulus package replaces the virus in the headlines for the second day. Nine of the eleven sectors closed in positive territory… despite the leaders taking a break. Utilities and REITs were the leaders of the day after lagging of late. Financials and energy were the weakest sectors on the day. The VIX index moved to 24.3 as anxiety continues to fade from the markets with investor confidence rising. Watching how the data points all add up looking forward.

The NASDAQ index closed up 25.7 points at 10,706. The index closed up 0.24% for the day. The overall movement on the day was lackluster as the technology sector coasted along. Technology and large-cap stocks were higher on the day after testing the new highs from Monday. The NASDAQ 100 index (QQQ) was up 0.35% for the day and as the mega caps moved positive as well. The topping pattern broke higher on the chart and tested. Still looking for an upside follow-through near term. The $255 level is the stop as we adjust and watch how this unfolds. Semiconductors (SOXX) closed up 0.33% for the day holding near the high. Technology (XLK) was up 0.8% for the day at the new high. Watching how this unfolds moving forward as some believe the top is in… Remember markets don’t care what people think.

Small-Cap Index (IWM) The sector broke from the consolidation pattern with $144.65 resistance the level to clear. The question is will it move higher as it stalled the last three days. Looking for upside follow through. Laggard declined to start the week. Gained 1.4% on Tuesday to renew the push higher started last week.

Transports (IYT) The sector moved above the $167.50 resistance as airlines and trucking move up nicely to help. June high is the next level to watch. Entry $167. Stop $171.62. Tested last weeks move higher.

The Dollar (UUP) The dollar remains in a consolidation pattern and is testing the downside of the range. The buck continues to struggle on the outlook of more stimulus and Fed involvement in the financial markets. Struggled as the euro moved higher relative to the stimulus announcement from the EU. Crashed lower on Tuesday to follow the downside started in June. Not pretty as short side in play (UDN).

The Volatility Index (VIX) Buyers showed up most of the week and the index fell to 25.6 and testing the June lows. Watching for clarity here as investor optimism is winning for now. Continued to decline on Wednesday… watching. We added a position in VXX. Entry $32.80. Stop $32.30.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector remains challenged as growth stocks still not in favor, but it did manage to break from the consolidation pattern. Needs to follow through to the June highs.

Biotech (IBB) The sector broke higher from the consolidation pattern and hit a new high for the week. Holing our position and managing the risk. Entry $128.50. Stop $139.90 (adjusted). Moved higher with small cap stocks… new highs. Tested the last two days.

Semiconductors (SOXX) The sector remains in an uptrend but challenged by some volatility of late as money rotates. Money flow remains in a downtrend. Taking what is offered and managing the risk. $272 stop. Holding near the highs.

Software (IGV) The sector established a bottom at $185 and bounced. Stop at $280 (adjusted). Entry $205.10. Some testing with the markets moving higher and challenging support. Closed at a new high. Tested the new highs.

REITs (IYR) The sector collapsed as talk of defaults in the commercial debt market spooked investors. The Federal Reserve has stepped in to stem the downside. The current pattern shows consolidation with a downside bias… watching how it unfolds. Up day on Wednesday… still consolidating.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.62% down slightly from 0.63% last week. TLT has been a benefactor of the fear trade emerging again. Bonds made a key move higher and watching as they consolidate. Entry $161. Stop $163.55 (adjusted).

Crude oil (USO) Crude moved to $40.57 on the week regaining the losses from Thursday. The data is showing a reduction in production based on the cuts from OPEC+. The EIA raised the forecast for the consumption of the balance of 2020 helping the commodity. I continue to like the long-term outlook with entry at $13.81 and a two-year target of $45. In addition, there are trading opportunities in and around the commodity. UGA. Crude climbed $1 per barrel on the hope of the stimulus in Europe. Watching the upside move. Cleared $42 level.

Gold (GLD) The metal tested lower to $158.94 support and bounced giving a trade opportunity in the trading… added at $158.90. Stop at $169.10 (adjusted). Broke from a consolidation pattern at the top. Moved to new high near term. Gapped higher on Tuesday and Wednesday to renew the uptrend. Adjusted stop.

Emerging Markets (EEM) Broke from the consolidation pattern as money flowed into the Asian markets lifting the index. Now testing the move higher. The BRIC index fund also showed a break higher. Taking what is offered short term as it unfolds. Moved higher on the day. Added to the upside Tuesday on the EU stimulus package.

China (FXI/YANG) Gapped higher and tested since. The news from China has some to do with the testing, but the gap was too much too soon for the country ETF. Watching and letting this unfold. Added to bounce off the low. Higher on Tuesday to follow through on the bounce. Tested the move on Wednesday.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

WEDNESDAY’s Scans for July 22nd: The rotation in sectors continues as money looks for alternatives to technology stocks. The recovery stocks made moves but nothing to write home about. It was a positive day overall and some movement due to earnings and existing home sales. Taking what is offered and managing the risk looking forward.

  • Gold (GLD) turned vertical as the dollar remains weak. Adjusted the stop on the move. Silver (SLV) was up 9% on the day.
  • Homebuilders (ITB/NAIL) solid boost from the existing home sales on the upside. People are buying homes as the thought of coronavirus being here to stay pushes people to ownership.
  • Healthcare (XLV) moved higher on vaccine news and earnings.
  • Treasury Bonds (TLT) Moving back towards the April highs. Holding for now.
  • Europe (IEV) moved back to the June highs… stimulus is a great drug for stocks to move higher. Dig into the parts and leaders for opportunities.

TUESDAY’s Scans for July 21st: The leader’s rest and the recovery stocks post modest gains on the day. The movers were energy stocks as they jump on the move in crude prices. Natural gas (FCG) and oil services (OIH) joined the upside as well. Gold jumped higher as well with the stimulus in Europe and the dollar taking a dump lower. Silver (SLV) followed the upside in gold jumping higher as well. Financials bounced after struggling following earnings announcements. Retail (XRT) broke higher from the trading range. All was upbeat despite the leaders lagging on the day. Letting this all unfold.

  • Energy (XLE) positive day for the sector to add to the bounce from the recent lows. Watching how this unfolds with the parts all posting a positive day… FCG, OIH, XES, UGA, USO, XOP.
  • Precious Metals (DBP) gapped higher as gold (GLD) and silver (SLV) lead the upside.
  • Gold Minders (GDX) moved higher in the uptrend as well. Silver miners (SIL) were moving higher as well.
  • Retail (XRT) moved higher and is challenging the January highs. A Positive trend in play for the sector.
  • Financials (XLF) moved higher on the day as banks make a move off support… plenty of work left to do in the sector.

MONDAY’s Scans for July 20th: The mega-caps return to lead the upside as other sectors struggle. Narrow rise for the markets but that is where the money flow remains. Watching how this unfolds moving forward as the volatility declines, money flows into the leaders and the balance of the market watches. There is plenty to consider with the new promise of the EU to offer stimulus and the hope of a vaccine by the end of the year. We are playing follow the leaders and not much left to say about it… manage your risk and let this all unfold.

  • Technology (XLK) rose to new highs as the leadership remains in the narrow parts of the market.
  • Semiconductors (SOXX) rose to new highs maintaining the leadership role. Adjusted our stops.
  • Biotech (IBB) rose to new highs. Adjusted our stops.
  • Volatility Index (SVXY/VXX) Adjusted our stop on the short side trade as the index continues to show less volatility with investors taking a more confident role.
  • Natural Gas (KOLD/UNG) short side trade continues to work… adjusted our stop and watching.

FRIDAY’s Scans for July 17th: Some rotation in the sector on the day as money moves from mega-cap to defensive stocks on the day. Is this the coming trend? Time will tell, but I wouldn’t bet on the move. We will watch how the coming week unfolds and what surprises it may have in store. Utilities, telecom, healthcare, and REITs were the leaders on the day. The weakness in financials returned along with energy. It was a day for jockeying positions and looking forward. We adjusted our stops and went boating. What else is there to do in this environment.

  • Utilities (XLU) moving higher in the trading range as we let this unfold. The target for the move is $63.
  • REITs (IYR) bounced at support and watching for follow-through and potential trade opportunities.
  • VIX (VXX/SVXY) short side trade in the volatility index is still in play. Watching for a break above resistance at the $34.85 mark.
  • Cyber Security (HACK) back to the top of the current range. Looking for a break higher and willing to add to our position. The underlying parts are worth scanning as well.
  • Gold (GLD) stalled at the highs and watching how it unfolds. I like the upside prospect of the metal long term as the global economic situation plays into the upside outlook. Willing to add to positions if the chart breaks higher.

THURSDAY’s Scans for July 16th: Mixed day for stocks as the technology sector weighed on the broad indexes. Some topping patterns showing up in the scans and there is some room for near term concerns, but the overall trend remains positive. There is the political buzz of shutting down again and that is not going to help the markets in the least… and likely not the spread of the virus. The greatest part of the uncertainty is the immense amount of opinions and solutions. I have learned one valuable key… time. It solves all matters and when calm, level heads work together solutions emerge. All the name-calling and blaming won’t solve one thing… time will.

  • Technology (XLK) topping pattern as the sector sees some profit-taking and selling in parts. Software (IGV) has been the weakest link thus far.
  • REITs (IYR) testing the bottom of the current consolidation pattern. SRS on the radar.
  • China (FXI) gapped lower and looking at the downside trade with YANG.
  • Homebuilders (NAIL/XHB) solid move back to the June highs. Watching with data out on Friday for new home starts.
  • Treasury Bonds (TLT) uptrends remain in play as money is quietly rotating to bonds/safety.

(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.)

Sector Rotation of S&P 500 Index:

  • XLB – Basic Materials solid break above the $45.87 resistance offering upside trade opportunity. Tested the $54.15 support levels and bounced. Solid bounce above the June highs.
  • XLU – Utilities found support again at the $55.24 mark and bounced. Trading higher in the current range and moving back towards the previous highs.
  • IYZ – Telecom found support again at the $27 level and bounced. Moved off support and heading back towards the previous highs.
  • XLP – Consumer Staples moved lower again testing support at the $57.17 mark and bounced back to the previous highs. This week broke higher and showing near term leadership.
  • XLI – Industrials moved sideways and managed to break above resistance at the $71.43 level. Watching how this unfolds near term.
  • XLE – Energy broke the trendline moving lower and found support as the downtrend remains in play. Testing the bounce and letting this play out with short side bias. Solid upside moves on Tuesday to add to the bounce from the lows.
  • XLV – Healthcare broke above the $104 resistance. Watching as it posted a solid follow through on Friday. Upside back in play for now. Pushing higher on the hope of vaccine and earnings.
  • XLK – Technology cleared $82.37 resistance and offered upside trade. Remains the leadership for the broader index currently with a solid uptrend on the chart. The testing this week has us on watch… testing support and stops in place. Moved to new highs and tested.
  • XLF – Financials broke below the $23.50 support moved sideways and back above $23.50 on banks (KBE) rising on earnings. The challenges remain for the sector overall and watching how this unfolds. Bounced at support.
  • XLY – Consumer Discretionary broke from the trading range and established a solid uptrend. Stalled and is trading in a consolidation pattern. Watching the outcome. Moved to new highs.
  • IYR – REITs struggle to find money flow. The move below $77.90 was negative but bounced at support and holding for now. Descending triangle pattern in play. Holding support.

The trends are being challenged by news and investor activity. Plenty of consolidation patterns building the last few weeks and watching how they unfold going forward. We have positions based on our defined strategies and managing the risk accordingly. Using the six-month charts as an indicator for the short term view… Four sectors are in confirmed uptrends as the consolidation phase continues. Six are consolidation patterns showing indecision from investors, and one is in a downtrend. The result for SPY is in a move to sideways trend short term with upside the bias for the week. The leadership is seeing some rotation as money flow shifts directions.

(The notes above are posted Weekly based on the activity of the previous weeks trading. The BOLD/ITALIC comments are current day changes worth noting.)

FINAL NOTES:

Wednesday: Positive moves for the markets overall, but still some jockeying for positions as the leader’s rest, recovery stocks rise modestly, and money flow heads to metals and commodities. Taking what we see in movers such as homebuilders, gold, silver, euro, Europe, and other areas benefitting from money rotation. Plenty of news driving along with earnings for now. Manage the risk and take what the market gives.

Tuesday: The leadership took the day off after a positive start to the day it faded into negative territory. The recovery stocks did post a positive day led by energy and financials. Watching how this unfolds on Wednesday and looking for the two parts to move higher together. The worries remain, but the stimulus from the EU helped across the board. The talk in Congress of a new bill from the US is in motion to help stimulate the economy. The challenge from my perspective is it will be more spending focused by giving money to the people versus the small businesses that were forced to shut down. Watching what unfolds and who are the winners.

Monday: Positive results but some parts were ugly. The mega-caps lead the indexes higher and the NASDAQ to a new high again. The balance of the markets remains stuck in place. Money flow is to towards the leaders as they resume their role after some topping last week. The EU promise of stimulus helped, the hope of a vaccine helped, and the willingness of investors to continue to put money to work helped. Everything is good… right? Time will tell. We will manage the risk that is and look forward day by day.

Weekend Wrap & Outlook… The coronavirus leads the headlines for the fifth week with the record rise in new cases in eight states. That puts caution in the markets and money begins to rotate looking for opportunity. The broad indexes posted a positive week as the investor psyche remains upbeat overall. The NASDAQ’s was the weak link for the week closing down 1.5% at 10,503 on the week. The Fed and the Treasury continue to mouth support for further stimulus and helping get the economy back on its feet. The hope of a strong recovery in the second half is dwindling on comments from the Fed as they warn of slower recovery. The jobs data was steady as more jobs are being found. The reopening process is being challenged by the spike higher in coronavirus cases. Disney moved forward to reopen the Florida theme parks. California closed again causing some grief to businesses as each state and city makes decisions independently. The VIX index moved down to 25.8 showing some optimism from investors. We continue to find opportunities near term to put money to work even in some sectors that have been lagging. Our job remains to manage the risk accordingly. Ten sectors posted gains for the week and one closed in the red. Technology saw money flow shift to negative as money was on the move again. Gold remains near the current highs with some testing to end the week. Crude oil remains near the highs and closed above the $40 a barrel level. The focus is starting to turn to the spread of the virus versus vaccine development. Something to watch as the markets remain in an overall uptrend since the March lows. 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.

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.

“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.