NASDAQ breaks to new highs

OUTLOOK: October 6th

The NASDAQ leads the day moving to a new high joined by small and mid-cap sectors. As stocks continue their march the volatility index moves to a new low showing the optimism of investors. The economic data has been okay for September and the jobs report is out today with expectations of the hurricanes impacting the data. With all the major indexes now at new highs, the most popular questions are about a correction or test of the move off the September lows. As usual, it is always the opposite of what is going on in the markets. We will continue to take what the market offers and adjust our stops according to the risk of the current environment.

Nine sectors closed Thursday on the upside with financials (XLF), technology (XLK) and basic materials (XLB) leading the upside move. The move in technology puts the sector at new highs and semiconductors (SOXX) cleared higher as well. Banks (KBE,KRE) continue to benefit from the rhetoric of the Fed hiking interest rates. The negative sectors were telecom (IYZ) and utilities (XLU). The buyers remain in control of the trend as the broad markets showed some pause for the cause, but the trends remain in a positive upslope. The S&P 500 index closed up 14.3 points at 2552 as the upside adds to new highs. The biggest movers in the index were NFLX (Gap to new high form cup and handle pattern), STZ (gap higher from consolidation pattern), BIIB (gap to previous high from test lower), LB (top of consolidation pattern in uptrend off the August low), and XRAY (testing move off the August low). The downside leadership came from NAVI, CELG, HRB, HOG, and VIAB. Mixed activity on the downside led by the news. Gold (GLD) breaks below the $123.05 support and testing the next level at $120.45 as interest rates hike rumors takes its toll on the metal. The dollar (UUP) jumps higher on the Fed comments and follows through on the break from the bottoming range. Held the move above the $24.08 level. The emerging markets (EEM) tested support $44.28 and moved back to the previous highs.  The Volatility Index (VIX) closed at 9.1 as the worries evaporate on optimism and buyer activity. The key is to remain disciplined within your trading strategy and not let the anxiety of the situation change your overall strategy. Manage your risk and stay focused on the horizon, not the rear-view mirror.

The scans on Friday continues to show confidence from the buyers as they lead the broad indexes to new highs with the NASDAQ leading the upside move. Financials returned to their leadership role with banks (KBE) leading the upside. Technology (XLK) broke to new highs with security (HACK) leading the sector. The consumer discretionary (XLY) is showing positive upside as the retail (XRT) stocks find buyers. Netflix (NFLX) has been a key component of the upside move. Crude oil (USO) found buyers at support and moved back above the $50 level. QQQ cleared the $146.50 level of resistance to reach new highs led by NFLX, NCLH, BIIB, and XRAY. Oil services (OIH) bounced from the test lower. AMLP (REITS) is close to breaking above resistance at $11.40 to add to the bottom reversal in August. Interest rates continue to tick higher putting downside pressure on treasury bonds (TLT). Small caps (IWM) continue to lead with new highs and the dollar is attempting to break higher again. Overall the buyers remain in control and the outlook is for more of the same with a tone of caution with the indexes hitting new highs.

The buyers have engaged in putting money to work despite the challenges ahead. The belief in tax cuts, healthcare reform, peace with North Korea and the tooth fairy are keeping money flowing into growth stocks. There are plenty of mixed signals and with the Fed now engaged in liquidating their balance sheet there is pressure on bonds and the interest-sensitive sectors. Patience remains the key for now, but that is not something many traders like. We started the week with some positive upside move and managed to hold the upside for another week. The volatility has evaporated on the optimism short term. We all want to believe we can see forward, but the reality is we can only see today. Thus, we must do what our strategy tells us to do today, and tomorrow will take care of itself. Hard lessons to learn as our analytical brain wants us to believe we have the solution and can predict the future. Keep your stops in place and your eyes focused on the horizon taking what the market gives.

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. Nice upside move and follow through, but the sector has stalled near the highs and is a position to break lower based on the Friday close. Entry $318. Stop $325 (adjusted). Flag pattern in place from the vertical move higher. Watching as some upside to keep the flag pattern alive. Large caps (XBI) breaking higher to lead the sector. Solid upside follows through an opportunity to add to positions. Tested the move and moved higher on Wednesday and Thursday. 

REITs (IYR) The sector tested the $76 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). Found support from selling this week and watching how it unfolds. Nice bounce off support. 

Treasury yields (TNX) moved back to 2.32% last week as money continues to move towards growth and away from the Fed hike rumors. Just when you thought it was safe to go back into the water… the Fed changes its collective minds. The short side of bonds is in play at TMV gaps above $18.70 entry level. Watching how this unfolds near term. Stalled at the 2.35% mark for now. Momentum is for higher yields and lower bond prices (TBT). 

Gold (GLD) Gold remains in a long-term uptrend with a broad trading range in play the last five months. The volatility within the trend is speculation and news driving money. The selling was more of the speculation, just as the buying is on speculation around the dollar and the Fed. The price of gold moves lower as the dollar gains strength and the Fed speculation of hiking interest rates. Broke the $123.05 support and the sellers are taking control. $121.75 short entry on a downside move. Gap lower on Monday. Held near support again on Thursday and watching how this unfolds at the $120.45 support. 

Crude Oil has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue. The last three weeks the commodity has managed to fight its way back above the $50 level of resistance. Entry $50.20, Stop $49. Watching how this unfolds at the current levels as it remains stalled. The solid break higher in the price of crude stalled this week. Adjust your stops accordingly and let this unfold. Tested the $50 support and bounced back above $50 level on Thursday… watching how it unfolds. Gulf hurricane is raising speculation.  

Energy stocks (XLE) have fallen since the December highs as the OPEC deal to cut production has not resulted in any real measurable cut that would impact prices. The double bottom pattern clears $63.22 for entry and stop $65 (adjusted). The move above $67 completes the ‘V’ bottom pattern and puts the sector in a position to move higher. The positive momentum for the stocks comes from crude moving above the $50 level. Breakout complete and upside resumes trend higher with some testing. Watching the drop in gasoline prices on the week. Gasoline bounced (UGA) on the hurricane moving towarsd the Gulf of Mexico. Watching for trade opportunities in the speculation.  

Volatility Index (VIX) This week remains at the bottom of the VIX index on the chart as investors are content to have faith in the current outlook. Back to the lows closing at 9.5 on the week. Short side trade of the index remains in play. Moving lower as buyers return to the scene. Still creeping lower at 9.1 as buyers remain engaged. 

The positive follow-through move for the week helps build some upside confidence again as investors continue to bounce on both sides of the market. The move to new highs for the S&P 500 (SPY) and the NASDAQ (QQQ) following suit this week. Energy (XLE) showed some improvement as crude holds near the $50 level. Financials (XLF) showed some upside with a new high on Friday. Semiconductors (SOXX) moved back to the previous highs with solid buying on the week… watching how the current buying unfolds to start the week. Agribusiness (MOO) produced an upside break to confirm the uptrend and flag pattern. Emerging markets (EEM) found some footing after the dollar produced some selling in the sector. Global is alive and with Europe (IEV) resuming upside move. There are more questions than answers for this market and we will continue taking it one day at a time. Stay focused and disciplined in all trades or positions. Speculation remains the primary driver in the current market environment. The key remains patience and as the tug-o-war for position continues.

Broad indexes leading higher… leadership in financials and technology driving. Watching as some rotation in commodities and interest-sensitive sectors remain. Plenty of rumblings the last few days about a test of the move in the current trend off the September lows. Proceed with caution, but let the upside play out versus predicting the top. 

Daily Scan Results:

THURSDAY’s Scan 10/5: Positive day for large-cap stocks as the NASDAQ hits new highs joining the other major indexes. Taking the move for what it is and adjusting our stops according to the risk. Positive day for the current leaders…

  • Financials (XLF/FAS) Nice push to new highs again as the banks lead the charge. GS, C, SCHW, STT, and BAC leading the upside charge showing good diversification across the sector.
  • Technology (XLK/TECL) new highs for the sector finally. The upside push came from the leaders with large caps showing some muscles once again. PYPL, RHT, ADP, GOOG, and MSFT leading the move on the day.
  • China (FXI/YINN) back to lead the emerging markets again. EEM back to previous highs and YINN gapping to new highs. BABA, BIDU, SOHU,  HTHT leading the move.
  • Crude Oil (USO/UCO) bounced to move back above $50 and looking for next leg higher. Hurricane in the Gulf could help the speculation side grow. UGA rose off support as well.
  • Base Metals (DBB) continues to head higher showing positive momentum on the break from the flag pattern. Copper and steel both showing positive momentum. XME is a benefactor as well.

New highs… questions about correction? Manage your positions by managing the risk of the current environment. Raise your stops on short-term positions and manage your expectations on longer-term positions.

WEDNESDAY’s Scans 10/4: Positive day overall with some rotation back towards the laggards. Utilities, telecom, REITs and consumer discretionary led the upside on the day as money rotates again. The leaders take a break with tech, financials and energy leading the downside. Still taking what the market has to offer and managing the risk.

  • Homebuilders (XHB/NAIL) vertical acceleration continues for the sector as money flow bets on the need for housing following the hurricane disaster. Tax cuts are helping as well with investors believing in the story for now. Stops raised to $56.
  • Aluminum (JJC) breaking from the consolidation range and moving higher. Opportunity to add new position or add to existing positions.
  • Crude Oil (USO/SCO) short side of the crude trade cleared $36 on the chart. The price of crude has been under pressure this week as the analyst believe OPEC is increasing production again. Closing at $49.98 puts our eye on the downside follow through.
  • Gold Miners (GDX/NUGT) cleared $33.21 resistance and looking for a solid follow through upside. $34 entry is the rally or bounce follows through. GLD holding above the $120.45 mark.
  • Coal (KOL) moving upside as the bounce follows through. $14.87 level to clear upside for interest.
  • Semiconductors (SOXX/SOXL) moved back to the current high and looking for thru upside follow through short term.

Sectors moves worthy of attention… IYR, IBB, HACK, IYK, XLY, LBJ, EWZ, SPLV, and MOO.

TUESDAY’s Scans 10/3: Positive follow through to Monday and the leadership remains in play short term. Telecom gapped higher to lead the broad index and REITs, healthcare, and utilities struggled on the downside. More progress for stock as commodities also made move higher following some selling of late. Patience and discipline remain the keys moving forward.

  • Brazil (EWZ/BRZU) posted a solid upside gain on Tuesday to complete the reversal on the current test of support. The upside resumed and watching how this unfolds near term. $47.20 entry point for upside trade.
  • China (FX(/YINN) hit the $29.50 entry level on Monday and posted a solid follow through Tuesday. the gap to a new highs is a positive for the country ETF.
  • Emerging Markets (EEM/EDC) solid upside gain on commodities shifting directions Tuesday. The $107.35 resistance level was cleared on the gap higher and watching how this unfolds near term.
  • Gold Miners (GDX/NUGT) posted positive upside move and looking for the follow through on the bounce. Plenty of issues still facing investors as it relates to the commodities. Watching $33.20 resistance and how this all unfolds.
  • Homebuilders (XHB/NAIL) continued upside in the sector despite the rise in interest rates. Vertical move as we manage our risk with our stops raised to $55.70.

Watching… IYZ, DGAZ, KWEB, SOCL, SIL, EURL, DBB, KOL, and SOXL.

MONDAY’s Scans 10/2: The upside follow through continued to start the week with plenty of positives in the growth sectors. Some testing in commodities and interest sensitive assets. Overall markets are hitting new highs and continue to show positive momentum from investors.

  • Commodities struggle to start the week: natural gas (DGAZ) jumps higher with $26.25 entry watch. Crude oil (SCO) downside move puts the short side trade on notice at $35.75 entry. Gold (GLL) bounced and gapped above the $71.50 entry level to add to the short side trade.
  • Biotech (IBB/LABU) upside follow through on gap higher. Momentum returns with money flow in the sector gaining momentum. Watching how it unfolds and managing our stops.
  • Small Caps (IWM/TNA) upside gap higher and positive vertical move. Raise stops ($147) and let it unfold.
  • Healthcare (XLV/CURE) gap higher after test of support and looking for the upside to resume. patience needed for the volatility of the sector.
  • Pharm (XPH/IHE) gapped higher helping the biotech sector.
  • Semiconductors (SOXX/SOXL) broke to new highs following test lower. The upside is helping the technology sector (XLK/TECL) move higher as well.

Others to watch… FAS, SVXY, MVV, XME, DDM, IJR, and ITA.

FRIDAY’s Scans 9/29: Markets add to the upside momentum for the week and close at new highs on both the S&P 500 and NASDAQ index. Technology led the day and the interest-sensitive sector remain under pressure on the Fed rumors. Take what the market gives and manage your risk… sometimes asking why leads to paralysis of decision-making.

  • Brazil (BRZU/EWZ) our old friend finds support and bounced. Watching how this unfolds on Monday. $47.16 level to clear to offer trade opportunity within the uptrend test.
  • China (FXI/YINN) The buyers returned after a test of the $27.50 support. The dollar has been in play this week with the emerging markets and now watching how they respond on Monday. $29.50 level to watch upside.
  • Emerging Markets (EDC/EEM) test of support on a stronger dollar and tough talk from the Fed about interest rates. Test of support at the $101.75 level and bounced to end the week. Watching for the upside to resume and $107.45 level to clear for entry.
  • Homebuilders (XHB/NAIL) vertical move has ensued and buyers are speculating on the boom from hurricane aftermath and higher interest rates pushing buyers into the new home market. Adjust your stops ($53) and let it run.
  • Europe (IEV/EURL) back to the previous highs after test of support at $35. Uptrend remains in play and managing our risk of the trade in the sector. Opportunity At $36.80 if upside breaks higher.

Semiconductors (SOXL) back to previous highs to resume the uptrend.
Gold Miners (GDX/DUST) trade opportunity on the short side at $26 breakout.
Biotech (LABU) upside breakout follow through on trade from flag pattern.
Silver (SLV/ZSL) short side trade resumes upside.
NASDAQ 100 (QQQ/TQQQ) upside trade on break above resistance at $116.60.
Technology (XLK/TECL) break from trading range near term… trade at $90.
Watching: EWZ, CURE, SVXY, GREK, EWG, KOL and FAS

 

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. The current topping could be the next test wave setting up in the trend. Watching how it unfolds this week. Entry $54.75, Stop $54.75 (adjusted). Break to new high Monday. Follow through all week in positive uptrend. 
  • XLU – Utilities are under pressure from the speculation of higher interest rates from the Fed. Breaks support and looking for a shift in momentum, but it has not appeared with rotation back towards growth stocks. Watching how this unfolds to start the week. Short trade alive and well on the break of the next support. Entry $53.50 for short trade and watching how it unfolds. SDP at $25.50 entry. Holding support with modest bounce. 
  • 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 bounced off support. Moved back below the $30.95 mark to end the week and looking for something positive to take root. For now pass on any positions. Spike higher on Tuesday as clears $30.95 for entry and watching how it unfolds going forward. Nice follow through on Wednesday with the upside still in play. Test on Thursday and watching how this unfolds with stop at $30.70. 
  • XLP – Consumer Staples moved lower on economic worries and higher interest rates. The test of the $54.50 support and the August low at $54 are cause for concern. There little in terms of buyers and the bias remains on the downside. Break and confirmation lower offers short side opportunity. Moved back to the $54.06 level of support. bear flag pattern and holding. 
  • XLI – Industrials moved sideways for two months and then back to the previous highs breaking out as money flow increases. The long-term uptrend remains in play and the move to a new high showing strength with some topping last week. Entry $69, stop $$69. Breakout to new high Monday. Follow through all week with positive upside momentum. 
  • XLE – Energy is a house of cards with volatility in the commodity and news surrounding the production and supply data. Some of the uncertainty has come out of the sector with crude moving back above the $50 mark. Entry $65.20 with a stop at $66. Watching as this unfolds short term with the move above $67 holding to end the week. Watching how it unfolds this week. Watching the resistance of the 200 DMA overhead. Will this break higher along with crude? watching how the Gulf storm impacts the sector. 
  • 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 held this week and bounced to end the week. Watching how this unfolds and any opportunities that result. XBI broke from the flag pattern upside and offered opportunity. IHF equally bounced off support and looking positive again as well. Gap higher off support with follow through. Biotech driving higher along with Pharm this week… watching.  
  • XLK – Technology tested near the current highs as the uptrend remains in place. Entry $48.50. Stop $56 (adjusted). Semiconductors tested support along with other subsectors. 50 DMA held as support and moved back to the previous highs. SOXX leading in the bounce off support. Break to new high Monday and nice follow through on Thursday to lead the uptrend. 
  • XLF – Financials pushed lower on worries about interest rates, the Fed, and N. Korea. The retest of support at the $23.82 level was a concern for the short-term uptrend. The move back above the $24.65 mark offered the entry at $24.75, stop $24.50. Nice upside momentum returned on speculation of rates moving higher. The upside has remained in play along with the rumors and the buyers willing to put money to work. Let it climb and manage the risk of the trade. Leadership on upside and solid move higher for the week. 
  • XLY – Consumer Discretionary moved lower to support at the $88.50 level with retail earnings pushing stocks lower. Entry $83.50. Stop $88.50 (adjusted). The sideways movement remains in the sector as clarity is a challenge for investors as it relates to the consumer. XRT showing signs of positive upside with a reverse head and shoulder pattern breaking above $41.45.  Hit entry point at $41.50. Stop $40. Positive upside clearing the $90.70 resistance level on XLY. Entry opportunity for the upside trade. Nice follow through on the upside. 
  • RWR – REITs reacting to the current uncertainty around the Fed potential increase of 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. We added the position in December on the move off the lows and continue to babysit the dividend of 4%. Big triangle pattern still in play. Moved lower on the interest rate rumors with the Fed. Another bounce off support to keep the trading range alive.  Held support and bounced. Not expecting much here other than to trade in the current range. 

The positive move is back… investors like what they hear and see enough to put money to work and let the upside play out accordingly. Patience in taking what the market offers and nothing more. The move on last week came on rumors relative to tax cuts and renewed belief the Fed would hike rates prior to the end of the year. This is all good for now, but the rumor needs to validate moving forward or the move higher will unravel. Taking each trade and opportunity for what it is currently a trading opportunity in a news-driven environment. Patience and a defined strategy are a must in this environment. Practicing patience as this plays out with our stops in place.

Markets continue the week with positive move on the upside and watching how this unfolds moving forward. The growth sectors are leading and the commodities are testing. Patience remains the key along with disciplined risk management. All major indexes are now at new highs with the NASDAQ joining the party on Thursday. 

FINAL NOTES:

Investors are happy with the upside activity. Traders are driving the short term swing opportunities. 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 the rumored belief the Fed will hike interest rates soon. The other is a political belief there will be tax cuts on the horizon and a bill to reform healthcare. Sinc the market trades looking forward and evaluates based on past data investors are buying in advance of the reality and using the data to confirm the belief. Now comes the challenge, the rumors becoming truth. The outlook for the economy is cloudy at best, the past data is not helping as it remains mixed with some good some bad. The positive results last week from the buyers keep the upside in play. Commodities look positive, Europe remains positive, energy, financials, industrials and technology are leading the upside move. Watching how the interest-sensitive sectors unfold moving forward as the rumors and speculations continue to emerge in areas like yields, crude oil, politics, healthcare and others. Patience is the key for now. This remains a market driven by news more than facts. There are plenty of short-term trading opportunities, but the long-term remains less confident but has produced equal opportunities for those willing to be patient. Both are outlined above in the scans and sector notes. 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 for your overall portfolio and manage the risk of your short-term trades accordingly. See you next week.

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese