Nerves calm markets rise

Stocks enjoyed a solid day of gains following last week’s worries about interest rates rising. With the ten-year bond holding stead and testing the 1.4% level on the day traders and investors alike shifted their collective sentiment to positive. The VIX fell back to 23.3 and into the previous range showing the shift of anxiety. The Dow and S&P 500 index both climbed 2% on the day and technology stocks rallied 3.2%. A positive day for all as we start the new month of trading. Now comes the million-dollar question… can the indexes follow through on the upside move. There is still plenty of concerns and questions relating to the overall market direction, economic growth, and inflation. Taking what is offered and keeping our eye on the trend and data points.

Short news notes of interest…

  • FDA approval of their vaccine was positive news for the markets as the one-shot vaccine will allow for faster distribution and vaccination of the mass public. That overall had a calming effect on investors. How long it lasts will be something to watch along with the effectiveness of the vaccine globally and collectively. JNJ was up slightly on the day.
  • Retail (XRT) sales data from some big box stores help the sector on the upside. Target (TGT) top estimates with a 21% rise in sales. Kohls (KSS) equally posted better than expected sales and earnings. Big Lots (BIG) was a positive earnings story as well.
  • Zoom (ZM) jumped 9.6% on solid earnings data. The stock held the 200 DMA and bounced, but it still has plenty of work to do on the chart to recover the previous uptrend. Tesla (TSLA) equally is testing the downside at $654 support. It is down 18.6% from the recent highs. Still of interest to many investors… worth watching how it does with support.
  • Despite all the challenging news surrounding Boeing (BA) the stock has managed to bounce from the January lows and establish a near-term upside trend. 737 Max and other key planes are making headway and leading the stock higher.
  • What happened to the rally in pot stocks? POTX has fallen nearly 40% in the last two weeks? The money will always find another home if there are any challenges surrounding the sector. This is still an interesting sector as Virginia approved recreational use over the weekend… surprise! Not really the tax receipts to states from this process have been seen as a savior to budgets. Watching for the bottom reversal and resumption of the upside.

Sector Rotation and the S&P 500 Index:

The S&P 500 index closed up 90.6 points to 3901. It was up 2.38% on the day. The index closed well above the 50 DMA and recovered some ground lost last week. Money flow was positive but volume was average. Eleven of the eleven sectors closed in positive territory for the day showing the positive reversal on Monday. The VIX index closed at 23.3 for the day and back in the previous range. The party over direction is not over and we continue to remain cautious.

Monday: New day new month new attitude… At least for the day. Plenty of issues remains, but we will take what is offered and maintain our focus on the current risk levels. Technology and financials led the day both with a solid bounce back from the selling last week. Now we have to follow through on the upside move or we will retest support yet again. One day on the upside does not change things, but it does give some breathing room for investors to decide about the future outlook for the economy and stocks.

  • XLB – Basic Materials bounced off the lows with money flow bottoming on the reversal. $70.80 support held and the upside has returned. Some selling to end the week hitting our stops on positions. Nice bounce to start the week.
  • XLU – Utilities don’t like rising interest rates… thus the downside pressure on the sector near term. Texas is putting pressure on the sector as the need for upgrades becomes more apparent. SDP in play on the move. Nice bounce to start the week.
  • IYZ – Telecom now shows a double top on the chart with a break below the 50 DMA on the close Friday. All negative, watching for the downside opportunities is this follows through. Nice bounce to start the week.
  • XLP – Consumer Staples moving lower to establish a near-term downtrend. Accelerated selling on the week breaks below the 200 DMA as a big negative for the sector. Back above the 200 DMA.
  • XLI – Industrials broke from the trading range and pushing to new highs. The test lower to end the week is on our watch list looking forward. Stops in place. Back to the previous highs.
  • XLE – Energy surged higher the last month and is testing those moves the last few days. Watching how this unfolds with stops in place on the elevated gains. Entry $41. Stop $44.75 (adjusted). Nice bounce to start the week.
  • XLV – Healthcare moved below the 50 DMA currently as the downtrend from the January highs establishes itself. Biotech is lagging overall putting pressure on the sector.
  • XLK – Technology remains in an uptrend but tested the upside and has struggled along with other growth sectors of late. Letting this unfold for now. We have hit stops on many of our positions. Solid upside move on Monday.
  • XLF – Financials bounced at the support of $28.95 and bounce back to the previous highs creating a ‘V’ bottom on the chart and a break higher. The upside in play near term with some testing the last two days. Entry $29.75. Stop $31.53. Nice bounce to start the week.
  • XLY – Consumer Discretionary posted a double top… sold below the 50 DMA as negative had testing support at the $158 level.
  • IYR – REITs made a run to new highs and is testing the move. Higher rates don’t help and money flow is declining on a rising share price… that is a discrepancy that will balance out… watching with stops in place. Laggard of the day but still positive.

Using the six-month charts as an indicator for the short-term view… Eight sectors are in confirmed uptrends with renewed upside. Three 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 building on the charts short term. Taking a defensive and cautious bias on 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 396.4 points to 13,588 as The index was up 3.01% on the day closing back above the 50 DMA again. 12,977 support held and the bounce brings some hope/life back to the index. Volume was suspect well below the average. There is still work to be done relative to the buyers and the index… proceeding with caution. The NASDAQ 100 index (QQQ) was up 3% for the day as money flow turned upward slowly on the day. Broke the $315 support levels and tested $312.80 before the bounce on Monday. The large caps have been lagging and remain a concern as rotation affects the sector. Semiconductors (SOXX) closed up 3.19% to add to the solid gains on Friday. Showed solid leadership, but still not convinced on volume. Technology (XLK) moved up 3.22% holding above the $128.57 level of support. Watching how this unfolds and managing the risk accordingly.

Semiconductors (SOXX) The sector remains in an uptrend hit stops for the week as volatility rose along with uncertainty in the broad indexes. Watching patiently for the next opportunity in the sector near term. Added 3.2% upside to the Friday gains… watching and taking what is offered. ON and MU made solid moves.

Software (IGV) The sector showed volatility after hitting new highs and reverses to break below the 50 DMA. It remains on our watch list as we let the noise unfold. Equally solid upside Monday with 3% gain. ALTR, CDNS, and CVLT looked positive.

Biotech (IBB) The sector broke lower from the January highs and has struggled since. The sellers are present as the outlook lacks clarity relative to vaccines and government controls. $154.60 support to watch. LABD setting up as a trade opportunity. Starting bottom reversal?

Small-Cap Index (IWM) The sector consolidates near the new highs. The uptrend remains in play with some testing at the highs. Watching how it unfolds moving forward. We hit stops on our positions. Positive upside on Monday.

MidCap (IJH) The sector turned higher along with small caps. Solid move and holding near the highs. Solid upside on Monday.

Retail (XRT) The retail sector volatility was back as GME was back on the volatility drive. Still moving sideways and watching. Solid gains Monday.

Emerging Markets (EEM) The sector headed lower on the week led by China selling off. No positions, but the downside is setting up for a move if the data follows through. Bottom reversal attempt?

Transports (IYT) The sector has struggled but seeing some upside recovery and interest in stocks. Hit new highs and letting the parts show the leadership. Airlines, shipping, trucking, and ports are all struggling with the logistics side of the equation of late. Pushed back to the previous highs.

The Dollar (UUP) The dollar tested lower as stimulus and inflation become a real thing for investors. The bounce of late is a safe haven move globally. The bottoming pattern on the chart is in play as we patiently watch how this unfolds near term. Holding the gains from Friday and watching as the global calm builds on vaccines.

The Volatility Index (VIX) Volatility closed at 27.5 up from last week’s 22 levels as anxiety rose on the inflation talk. Watching how this unfolds relative to the outcome and influence on the broad market sector. Moved down to 23.3 and back in the previous range. Watching.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.46% up from 1.34% last week. Rates are rising on inflation fears… negative for bonds. TBT hit entry at $17.84. Stop $19.45 (adjusted). 1.44% and calming.

Crude oil (USO) Crude moved to $61.45 from $59.15 for the week or up 3.89% for the week. Plenty of speculation remains as supply data raises questions. Taking what is offered and managing the risk. USO Entry $29. Stop $39.29 (adjusted). UCO trade position entry $25.78. Stop $50.40 (adjusted). Commodity fell nearly 2% to start the week and watching.

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. The break of support at $166.50 is a short entry signal for the metal. GLL entry $36. Stop $35.50 (adjusted). Tried to bounce but failed to hold the gains.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

MONDAY’s Scans for March 1st: Positive reversal day for the broad markets as indexes and sectors alike found support and bounced at their respective lows. One day is not a trend and thus, we watch to see how this unfolds and what opportunities arise from the moves. Patience is key for now.

  • Technology (XLK) solid bounce from the current lows and back to the January highs. Head shoulders pattern on the chart? Watching and looking for where the opportunities are.
  • Treasury Bonds (TLT) holding support as the yields calm. Watching.
  • Midcaps (IJH) solid gains on the day and the recent leadership is of interest.
  • Energy (XLE/USO/UGA) commodities are holding steady despite some modest selling on the day. Watching the upside resume… possibly.
  • Agriculture Commodities (DBA) solid three-day test at the highs… watching for the resumption of the trend as the profit-taking resides.

FRIDAY’s Scans for February 26th: Mixed day as the early upside start gave way to more selling into the weekend. Only two sectors closed in positive territory as the large-cap growth stocks held on to close on the upside but not convincingly. There could be a test on the downside in play… we just need to let it unfold and take what is offered.

  • Gold (GLL/GLD) broke to the downside offering a short side trade. Watching how it unfolds along with the stocks (DUST).
  • NASDAQ 100 (QQQ/SQQQ) short side trade added 1/2 position and watching how the new week unfolds looking forward.
  • Treasury Bonds (TLT) rates finally held at 1.46% on the ten-year bond. Watching the new volatility and managing the risk of our positions.
  • Energy (XLE) new volatility in the sector as the worries over global growth grows. Manage the risk in both crude oil and the stocks.
  • Rotation or distribution? Some say money is rotating… which it was, but now there is some distribution, meaning, money is moving into cash or equivalents. This is a key point to watch next week as it will give an indication of who is in control currently relative to the direction.

THURSDAY’s Scans for February 25th: Selling was the song of the day… this put short side trades on the table if we follow through on the downside move. The stops have been hit in some sectors earlier in the week freeing up cash. Other stops remain in place as we watch to see how this unfolds. Today’s scans are focused on the downside opportunities if they follow through.

  • NASDAQ 100 index (QQQ/SQQQ) Broke the first level of support and watching the $312.80 level… a follow-through on the downside move would offer an opportunity. $14.17 entry. $14 stop.
  • Semiconductors (SOXX/SOXS) $405 level to hold. If we follow through on the downside looking at short side trade.
  • Volatility Index (VXX/UVXY) watching the jump in the index and it could offer upside trade. Watching.
  • Biotech (IBB/LABD) There has been selling this week in the sector. Watching for follow through and short side opportunity.
  • Internet (WEBS) the downside in the technology sector is presently alive and well. We drilled down to the internet stocks as they are under pressure from governments and sellers.

WEDNESDAY’s Scans for February 24th: More of the same with tests of the 50 DMA from the NASDAQ and the Dow pushes to new highs. The Fed is committed to keeping money flowing for the economic growth outlook. There is money pushing into cyclicals and out of growth… how long will that last? Semiconductors staged a nice bounce at support and the NASDAQ held the 50 DMA. The winners remain energy and financials with solid gains again on the day.

  • Semiconductors (SOXX) buyers put effort into rebound with the sector up more than 3% and holding the trend. Tech is still holding tough despite some recent selling.
  • Regional Banks (KRE) still showing upside leadership and letting it run as we adjust our stops.
  • Midcap (IJH) moved to new highs to take on some leadership.
  • Crude Oil (USO) moved above $63 and climbing… speculation in the commodity continues to rise as we let it run and manage the risk in the stocks as well.
  • Treasury Bonds (TLT/TBT) downside still in play as money exits bonds.

TUESDAY’s Scans for February 23rd: intraday volatility takes investors for a ride… a big downside to start the day and then and climb back to positive on the close. Inflation fears and the Federal Reserve policy were at the root of the issue on the day, but the battle has only just begun. We have to manage the risk of the rotation and the outlook for what will benefit the emerging economic picture. Inflation is definitely part of the equation and cyclicals will benefit. Growth stocks will struggle and thus, the current rotation. Taking what we are given and managing the risk.

  • Biotech (IBB/BIS) downside accelerated early on concerns within the stimulus package and more. Short-side setup with the move… watching how it plays out Wednesday.
  • Semiconductors (SOXX/SOXS) watching how the selling unfolds and what is offered relative to the trend.
  • Retail (XRT) sold and watching how the downside unfolds or if unfolds.
  • Financials (XLF/FAS) upside playing out well with higher rates in place. Raised the stop and let it run.
  • Energy (XLE) breaking higher and adjusting the stops… plenty of individual opportunities in the sector.

(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.)

FINAL NOTES:

Monday: Solid start to the week as stocks find buyers and post a positive bounce. Volume was on the weaker side offering some concerns. Interest rates calmed relative to the upside run. Commodities testing on the concerns as well. Overall the markets got a reprieve and some breathing room for now. We still need to see how the economic picture unfolds and the vaccine distribution proceeds. Confidence and sentiment are a fickle animal as we can attest between Friday and Monday’s respective trading days. Patience is key.

Weekend Wrap & Outlook… The market’s sentiment is shifting near term as the volatility index jumped for the week. The upside hope is alive and well with stimulus as a driving factor, but the reality of inflation puts investors on edge for the week. Economic data is being aided by stimulus money, not growth. The shortages of semiconductor chips and metals are driving inflation concerns. Production capacity is the challenge. I have talked about this as a potential issue since last summer. Pandemic restrictions and closures are now showing up in the supply of products and raw goods. The result will be higher prices or inflation in the US economy. The Fed is currently good with that stating it will balance out the low inflation of the last four or five years. This all becomes a balancing act for both consumers and investors. The bond market is the larger concern as money rotates out of bonds on fear. 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 lower across the major sectors. The cyclicals gave up some gains to end the week and growth stocks stepped back with money flow declining. Commodities remain a hot topic as well with the rising prices adding to the inflation talks. The long-term trends remain on the upside despite the week of selling. For the week one sector closed in positive territory as some profit-taking appeared in the markets. The VIX index closed at 27.5 and higher on the anxiety around inflation. The dollar found support as a safe haven trade… inflation and stimulus are still putting downside pressure on the buck. Crude moved higher to $61.45 after moving near $65 recently. This is the highest level since February 2020. UGA moved higher with prices at the pump elevated… hopefully you own the ETF to afford the increase. Watching the current movement in the broad markets as money continues to rotate and now head 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 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 your trading strategies with a disciplined approach to investing and managing the risk of our money.