The growth stocks bounce with the semiconductors leading the move. Some good news for the NASDAQ as the index finds some buyers to bounce off support. There are still plenty of questions left by the index but at least it is still in the game, so to speak. It was the end of the month, end of the quarter, and Thursday we head into a three-day weekend as the markets are closed on Good Friday. Volume on Wednesday was below average on the move not giving me much to hang my hat on, but we will take what is offered and manage the risk that is. The NASDAQ closed up 1.5%, The Russell 2000 close up 0.3%, and the SOXX was up 1.4%. Watching how it all unfolds with patience.
Short news notes of interest…
- Drug and healthcare stocks showing some activity as the vaccine news continues to post positive results. JNJ, PFE, UNH, CYH, HUM… others showing solid patterns and setups looking forward.
- A $2.3 trillion infrastructure plan was rolled out by Mr. Biden on Wednesday with massive spending proposed. Wall Street stated they see it being $4 trillion by the time it is done… Congress has to add plenty of fat to it for unrelated spending in their respective states. Looking at the ETFs and areas that will benefit from the spending like PHO.
- PAVE ETF sees a bump in activity from the Biden infrastructure proposal. TSLA rose on tax credit for electric cars. TAN, WCLD, IFRA, TOLZ are others worth tracking.
- Imagine that the EU would put bureaucracy in the way of vaccine efforts… PFE stated that the Belgian government asked to be alerted prior to all packages of the vaccine exported is the latest news… governments were to complain about slow rollouts, but many continue to stand in the way of distribution… just another case of challenges facing the resolution to the virus.
- Ark Investment Management announced its latest fund Space Exploration and Innovation (ARKX). The final frontier is now an investment opportunity. The challenge is knowing how this whole sector will unfold… but, here is the opportunity to track and watch it going forward.
Sector Rotation and the S&P 500 Index:
The S&P 500 index closed up 14.3 points to 3972. It was up 0.36% on the day. The index attempted to move through resistance at the 3984 levels but failed to hold the move into the close. Money flow was higher and volume was below average as the uncertainty remains. Eight of the eleven sectors closed in positive territory as the market remains on pause. The VIX index closed at 19.4 almost unchanged on the day. The index remains challenged near term and watching. We remain patient and allow this to unfold near term. Long-term trends remain on the upside.
Wednesday: started higher and posted some solid gains, but in the last hour of trading managed to give most of it back. Technology and energy were the leading sectors bouncing and holding support. Telecom led the downside but remains comfortably in the current range.
- XLB – Basic Materials remains in an uptrend and closes the week at new highs after testing the 30 DMA. Adjusted our stops and watching.
- XLU – Utilities found support at $61.75… watching how this unfolds. Rising interest rates don’t help the sector. Remains in a trading range. Broke from the trading range and tested the break.
- IYZ – Telecom now shows a triple top on the chart and Friday closed above the top of the range… needs to follow through to complete the breakout move.
- XLP – Consumer Staples found support at the 200 DMA and has moved higher since… Friday closed at a new high. Added to the upside moves and raising stops. Tested the move higher.
- XLI – Industrials broke from the trading range and rose to new highs. The test lower held and now we let it play out with stops in place.
- XLE – Energy surged higher the last month and rose to near term highs. The fall in crude prices pushed stocks lower finding support at $48. Added on Friday and watching how it plays out.
- XLV – Healthcare moved below the 50 DMA with the downtrend from the January highs establishing itself. Bounced at support and struggled to move back above the 50 DMA. Friday it broke higher offering entry for XLV $115.50. We own IHF ($246.50) as the leader in the sector. XBI has been the weak link for the sector. Broke higher and followed through to the upside. A small test on Tuesday.
- XLK – Technology remains in an uptrend but is definitely testing near term. Money flow is lower and sentiment remains negative. Rising interest rates hurting the sector overall. But it did manage to bounce 2.5% on Friday. Lacks direction.
- XLF – Financials bounced at the support of $28.95 and bounce back to the previous highs creating a ‘V’ bottom on the chart and then proceeded higher. The upside in play near term with some testing on the week.
- XLY – Consumer Discretionary ‘V’ bottom in play after bouncing near the 200 DMA. Needs to hold above the $167 level or the 50 DMA. Watching what unfolds near term.
- IYR – REITs made a run to new highs as hopes of reopening the country will benefit the retail space available along with a return to offices. It may be blind hope, but the sector rose to new highs nonetheless and is now testing the move… watching.
Using the six-month charts as an indicator for the short-term view… Nine sectors are in confirmed uptrends with some sideways activity the last six weeks. Two are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for S&P 500 index is an uptrend short term with a reversal bias on the charts short term. We remain defensive and cautious about the broad index.
(The notes above are posted at the end of each week based on the activity of the previous week’s trading. The BOLD/ITALIC comments are the current day changes worthy of note.)
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
The NASDAQ index closed up 201.8 points to 13,246 as the index was up 1.54% on the day and closed above the 12,977 support. The index remains challenged by growth being out of favor near term. Money flow was higher but remains in a downtrend. The growth stocks continue to struggle. The NASDAQ 100 index (QQQ) was up 1.51% bouncing on the day. The $312 support is in play with the close above that level. Semiconductors (SOXX) closed up 1.41% and held above the 50 DMA. Technology (XLK) moved up 1% and remains in the consolidation pattern with a downside bias. There is plenty to watch and that will take some patience.
Semiconductors (SOXX) The sector remains volatile and the head and shoulder pattern has our attention. Watching as the sector isn’t out of the woods yet. It remains an indicator for the broader index and it will give clues overall about direction moving forward. Friday’s gains helped ease the downside bias some. Added a position in SOXL. Entry $34. Stop $35. Challenged on Monday off 1.5% and higher on Wednesday…
Software (IGV) The sector showed volatility again after testing the current lows. The up and down week shows the uncertainty in the sector. If the upside is to return to the broad index we will need semiconductors to lead… patience as it unfolds. Retesting the lows and bounced on Wednesday.
Biotech (IBB) The sector broke lower from the January highs and has struggled since. The sellers pushed the sector to the 200 DMA and bounced… not overly convincing in the action. Watching for opportunities. Testing lows and bounced on Wednesday.
Small-Cap Index (IWM) The sector broke the 50 DMA with three solid days of selling… bounced at $208 support and closed at the 50 DMA… now we see how it responds. Big negative on Monday… watching for short side trade. The modest bounce back on Tuesday and Wednesday helped for now.
MidCap (IJH) The sector tested the 50 DMA bounced off support and watching how it responds to the selling last week. Big negative on Monday… watching for short side trade. Tuesday and Wednesday bounced helped for now.
Retail (XRT/RTH) The retail sector volatility was back as GME was back on the volatility drive. But, the balance of the sector has moved higher and shown some positives on the reversal. Closed at new highs. Tested and held near the highs.
Emerging Markets (EEM) The sector tested lower, breaking support with some buyers on Friday. The bounce on Friday has my attention and we will see how it works through the negative sentiment. Tested.
Transports (IYT) The sector has been showing positive signs and leadership for the Dow. Tested lower, but held and moved back to new highs to end the week. The uptrend remains in play. Raised stops. Pushed higher on Tuesday and Wednesday.
The Dollar (UUP) The dollar has bounced of late as a safe haven move globally. The bottoming pattern validated the upside move on the chart with the dollar up 4.3% since January. The rise is due to the rise in treasury yields helping the dollar. The Fed is going to let the capital retention requirement expire on March 31st put on banks during the pandemic. That will have a positive impact on both. Resumed upside and gapped higher on Tuesday.
The Volatility Index (VIX) Volatility closed at 18.8 down from the intraday highs of 23.5. Watching how this unfolds relative to the buying on Friday and the previous negatives for investor psyche. Closed at 19.4 on Wednesday.
Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.66% down from 176% last week. Rates are rising on inflation fears… negative for bonds. The bonds (TLT) have declined nearly 15% since the highs in January. Raise your stops and protect the gains on the short positions. TBT entry $17.84. Stop $21.04 (adjusted). Rose to 1.74%.
Crude oil (USO) Crude moved to $60.99 from $61.42 last week. Despite the rise on Friday, the commodity had a volatile week of trading. Fear of renewed closing in France and Germany due to the virus rocked the price for investors. The blockage in the Suez Canal didn’t help matters and is creating more speculation for the commodity… no positions currently. Up 1% Monday and down 1.6% on Tuesday. Down 2.3% on Wednesday. The supply data showed a decline of 900,000, many were expecting an increase in supply. API reported 3.9 million barrel increase… crude fell on Wednesday on news. The OPEC+ meeting is Thursday.
Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. The break of support at $166.50 finds support at the $157.29 mark and a small bounce… watching. The bottom reversal remains in play… Entry $162.45. Stop $160 (stop hit). Rolled over again on a stronger dollar and tested previous lows.
(The notes above are posted every weekend and updated daily in Bold Print)
DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT
WEDNESDAY: Scans for March 31st: End of the month, end of the quarter, will money flow rise? Good question as we face a three-day weekend. We will see if there is a follow-up to the rise in the NASDAQ on Wednesday. Semiconductors, cloud software, biotech, and other growth sector posted a solid day, but remain challenged by the current environment of the market. There is still a lack of clarity and direction in the markets near term. We will remain patient and take what is offered.
- Semiconductors (SOXX/SOXL) the sector added to the upside bounce from last week and we adjusted our stop on the position added last Friday. Stop is not $38 locking in a nice gain if the bounce reverses near term.
- Drugs/Healthcare (LABU, IBB, XPH, XLV) found support finally and attempting a bottom reversal trade opportunity. Manage the risk and trade accordingly.
- China (FXI/YINN) attempting a bottom reversal pattern. Hit entry point on Wednesday and managing the risk of the trade.
- Crude Oil (USO/SCO) downside bias in play as the supply data shows some build up last week. Not a trend. The OPEC+ meeting is Thursday… looking for short side trade based on the data… Patience.
- Cloud Computing (SKYY) nice bounce and bottom reversal short term… looking for the opportunity if it follows through. PTON, ZM, NOW, CDNS showing some development.
TUESDAY: Scans for March 30th: More of the same as leadership is lacking… money is jumping around, but the lower volume shows a lack of interest on investors’ part. Willing to wait and see how this unfolds. There was some downside in commodities on the day as the dollar gapped higher. There is still an issue related to the virus hurting the outlook with renewed fear tactics from CDC and Mr. Fauci is back taking credit for the vaccines. Plenty of news and little relative to direction. Taking it slow and catching up on my golf.
- Gold (GLD) Gapped lower on the dollar gapping higher. Watching the commodity as the pressure remains on the downside.
- Crude Oil (USO/SCO) Moved lower as the Suez Canal reopened and supply concerns rise. The is the OPEC+ meeting this week as well. Watching for the opportunity with my bias on the downside.
- NASDAQ 100 Index (QQQ) Testing support… looking at the downside trade if it breaks lower. Not a lot of hope in the upside as tech and large-cap growth stocks remain out of favor.
- Housing (ITB) Solid data from the FHFA Housing Price Index as prices increased 1%… can this sustain as interest rate continue to rise, hitting their fourteen-month high.
- Transportation (IYT) the backup in shipping and moving goods remains a long-term challenge currently. Thus, the sustainability of the sector remains positive. Railroads are leading, but trucking is doing well along with airlines.
MONDAY: Scans for March 29th: The song continues to be the same… uncertainty creating intraday volatility all based on news. The higher oil prices acting as a tax at the pump, higher commodity prices impacting the cost of food, inflation rising, workers not working due to unemployment benefits… and more. Taking it one day at a time as the chop makes entries and exits near term a challenge and the risk factors are rising. Patience is the key for now.
- Utilities (XLU) broke higher from the current consolidation showing positive money flow and defensive posture for investors.
- Consumer Staples (XLP) rotation defined. Gone verticle the last two trading days in a sector that moves like a snail.
- Healthcare (XLV) broke higher and followed through on the move. Positives from PFE, GILD, and others.
- Treasury Bonds (TLT/TBT) yield jump again moving to 1.72% after a rest last week. Watching the short side trade volatility of late.
- Oil Services (OIH) Fell 2.8% and continues to struggle despite the rise in crude oil. Watching the 50 DMA as support near term.
FRIDAY: Scans for March 26th: The buyers came back to push stocks higher to end the week. Some are stating this is due to the rebalancing for the end of the quarter. Whatever the reason money flow was higher overall and investors were looking for opportunities. Whether they found them will be a matter of time to see. Watching taking what is offered with our eye on the near-term moves.
- Semiconductors (SOXX/SOXL) The sector followed through on the intraday bounce Thursday offering an entry in the sector for a bounce trade. Entry $34.
- Basic Materials (XLB) broke to new highs as the cyclical stocks rise again.
- Transports (IYT) broke to new highs again and remains strong in the trend.
- Homebuilders (ITB/XHB) broke to new highs again and renewing the positive trend in the sector.
- Small Caps (IWM) followed through on the intraday reversal on Thursday offering an upside trade opportunity.
THURSDAY: Scans for March 25th: Indexes started the day lower and tested key support levels and bounced to close in positive territory for the day. The bottom test intraday was a positive sign on the close. Now we see if the buyers are willing to return and push the indexes higher. Clarity remains an issue for investors and news is the driver for now. Taking what is offered and letting it all unfold… patiently.
- Small Caps (IWM) test to support and find buyers. The move off support intraday and closing higher gives some hope that the near-term selling is done… watching how it unfolds.
- Technology (XLK) tested lower, bounced, closed negative, and watching for some clarity on direction. The consolidation pattern remains in play with a downside bias.
- NASDAQ 100 (QQQ) like technology tested lower, bounced, closed negative, and watching for some clarity on direction. The consolidation pattern remains in play with a downside bias.
- Homebuilders (ITB/NAIL) nice upside on the day to previous highs. Still in a consolidation pattern at the highs.
- Crude Oil (USO/SCO) Downside is testing the 200 DMA for the commodity. The recent selling reflects the move higher needing to consolidate and digest the move. Now comes the challenge for direction moving forward and it remains a supply and demand issue.
(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.)
Wednesday: the NASDAQ finds some buyers to help the cause. Patience remains the game as clarity and direction remain a big question mark. The long weekend poses an issue for adding positions with the end of the quarter, and the end of the month bringing new money supply… watching the day and taking what is given based on a defined strategy for managing the risk that is.
Tuesday: the lack of direction and clarity remains an issue for stocks. We are willing to wait and let this all unfold. Fighting against a directionless market is my idea of stupid. Stay focused, manage your risk, and look for opportunities to unfold.
Monday: Challenge remains day to day as news is the driver. Not what you want as it creates intraday volatility that is unrealistic overall, but believable for the day. Watching how this all unfolds and letting the markets and investors develop some clarity. Cash is not a bad thing as it keeps us out of harms way while everything defines itself. Patience is the key.
Weekend Wrap & Outlook… The market shifts sentiment again as buyers and sellers fight for direction. The NASDAQ remains challenged as growth remains out of favor for now. The upside hope is alive and well with cyclical and recovery stocks leading with some rotation to value and dividend stocks. Economic data is leaning towards growth aided by the stimulus. There are plenty of issues facing the US and global economies as inflation rises and central banks step in globally. Food and energy prices are rising and it is likely that energy prices are driving food prices higher due to the logistics of moving it around the country. Shipping is leading as there is a backlog of products sitting on docs around the world. Pandemic restrictions and closures continue to show up in the supply of products and raw goods. The move by France to shutdown 19 regions didn’t help the cause and Germany followed suit closing for the Easter holiday. Energy has been volatile on the news. Throw in the blockage in the Suez Canal and more disruption to energy and goods is on the way. The impact becomes a balancing act for both consumers and investors. The bond market is a larger concern as money rotates out of bonds on fear of yields rising even further, evidenced by the 1.66% yield on the ten-year bond. Remember who the largest bondholders are in the world and watch what happens to their portfolios, credit ratings, and profits… therein lies some opportunities.
With that in mind, the markets closed the week with a broad-based move to the upside. The cyclicals are leading and growth stocks are lagging. Value /dividend stocks are in favor over growth and thus they are acting more like growth stocks. Commodities have cooled as money exits for greener pastures of current moves. The long-term trends remain on the upside but I remain cautious about the current environment. For the week consumer staples and REITs led the upside. The VIX index closed at 18.8 and off the highs of the week. The dollar was elevated again as a safe haven option. Crude volatile as news for and against the price were present. Watching the current movement in the broad markets as money continues to rotate and some heads to cash.
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.
“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 develops 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 your trading strategies with a disciplined approach to investing and managing the risk of our money.