New President same markets

Day one of the new president is in the books and all is well on Wall Street. Big tech was up with NASDAQ 100 leading the upside. Semiconductors didn’t fare as well and that is of interest near term. Earning from NFLX were a catalyst along with optimism about stimulus. The technical data shows the markets as overbought… but, that can remain longer than normal based on the sentiment in place for investors currently. Let it all unfold and manage the risk. If markets appear overbought, tighten your stops and let it run. If there is value and it is moving add it to your portfolio and manage the risk. Don’t allow the talking heads or your emotions determine the discipline you implement in managing your money.

Short news notes of interest…

  • Peaceful transition of powers and now the fun begins. Ten executive order to be signed… wiping out covid… Paris climate accord… Fauci and WHO have a plan… some much to do!
  • Amazon has offered to help Biden’s plans to quickly distribute vaccines. They offered their IT and distribution resources to help the cause.
  • Big tech surged as NFLX earnings lift the index and others followed suit. QQQ was up 2.4% leading the major indexes higher. Watching how this follows through moving forward. MSFT, AAPL, AMZN, GOOG, NVDA all heading higher.
  • Leisure and Travel (PEJ) continue to rebound in light of the vaccine distributions and hope of some normality to travel ahead. CCL, AAL, UAL, SAVE, and LUV looking positive of late.
  • Apple (AAPL) all the talk on Wednesday from the financial media… what changed? Not much it remains nearly a $2 trillion company. Technically the support at $127 held and gained 3.2% on Wednesday offering an entry to add to or establish a position in the stock… but, what about the outlook? Nothing has changed it is still Apple which has both lovers and haters of the stock.

The S&P 500 index closed up 52.9 points to 3851. It was up 1.39% on the day. The index is holding well above the 3550 support as the markets remain on an upward trajectory with the index closing at new highs. The REITs and technology sectors led the upside on the day as investors start the week optimistic. Ten of the eleven sectors closed in positive territory as stocks showed buyers engaging. The downside came from financials as earnings impact the sector. Money flow was higher on the day as investors continue to be active in response to the news. The VIX index closed at 21.5 moving lower on the buying. Watching the investor sentiment and how it proceeds.

The NASDAQ index closed up 260 points to 13,457. The index was up 1.97% on the day as large-cap stocks lead the day. The NASDAQ 100 index (QQQ) was up 2.31% for the day as money flow into the sector jumped on the day. Watching how earnings impact the large-cap sector moving forward. Semiconductors (SOXX) closed down 0.36% following a new high on Tuesday. Technology (XLK) moved up 1.98% as the consolidation pattern breaks to new highs offering an opportunity to add to positions. Watching how this unfolds as the market shifts gears again.

Small-Cap Index (IWM) The sector moved up 1.4% for the week as it remains in a leadership role and pushing higher. The uptrend remains in play as we manage our position. Entry $155. Adjusted stop to $205.50. Added 1.6% on the upside as buyers continue to put money to work. Watching the doji candle on the close Wednesday.

Transports (IYT) The sector tested support and bounced back to break above the $226 resistance and test that level again to close the week. Stop $222. Watching support. Added 1.6% on Wednesday to push back to the previous highs. Watching the railroads here for leadership… CSX, NSC, KSU… tested and looking for the uptrend to continue.

The Dollar (UUP) The dollar found some support at the $24 level… how long will this hold up? Watching the politics surrounding the buck. Fell on a positive day… trading the opposite of retail stocks… watching.

The Volatility Index (VIX) Volatility settled early this week and closed higher at 24.3 as the economic data and politics inject some anxiety. Watching how this unfolds along with the news. Fell on buying in broad markets to 21.5.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector remains in a solid uptrend near term hitting new highs with some testing on Friday. Watching the current trend and managing the stops. Stop $236 (adjusted). Hit new highs and tested modestly. Bounced back from Friday’s selling.

Retail (XRT) The retail sector showing a spike higher for the week until the retail sales data was released on Friday. This has been a key leader for the markets and watching how this unfolds near term based on the slowing in sales the last two months. Stop $68.15 (adjusted). Moved higher and watching the pennant pattern.

Biotech (IBB) The sector tested support at $152.50 held and bounced back to new highs to end the week. Stop $155.50.Watching how this unfold moving forward. Added to new highs on Tuesday.

Semiconductors (SOXX) The sector remains in an uptrend and broke higher from the consolidation phase. The $367.50 level of support is a long way off… Managing the risk and letting this unfold. The uptrend remains in play. Stop $398 (adjusted). New highs on Wednesday.

Software (IGV) The sector tested lower this week and held above support at the $340 level. Watching how it plays out near term. Broke higher from the consolidation pattern offering entry or adding opportunity in the sector.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.09% down from 1.1% last week. Rates are holding above the 1% level currently and watching as some volatility in the bond picks up. As we have stated short trades on the bond remain in place. TMV stop $58.88. Yields lower on stimulus talk.

Crude oil (USO) Crude moved to $52.38 from $52.25 for the week or up 0.3%. Plenty of speculation to influence prices and watching how this unfolds. As we stated nearly seven months ago… the greatest opportunity was in crude. Taking what is offered and managing the risk. Stop $34. UCO trade position entry $25.78. Stop $39.25 (adjusted). Inching higher on stimulus.

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. Watching as we test $171 support levels. Gapped higher from the consolidation at the low? Opportunity on the upside? Watching Thursday.

Emerging Markets (EEM) The sector moved back to new highs. Entry $44.50. Stop $54.25 (adjusted). China (FXI) was the leader on a break higher as well. and we adjusted our stop on those positions. The break higher is positive for positions, but managing the new risk. Gapped higher last two days and adjusted stop.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

WEDNESDAY’s Scans for January 20th: Inaguration day happens with little fanfare and a lot of talking heads predicting what is going to happen. We will take the upside moves and adjust our stops and keep looking forward. There is plenty on the table in Washington and how that impacts the markets will take time. The first plan I have for the new administration is to watch, listen, and manage my risk accordingly. For now it is full speed ahead to the stimulus world.

  • REITs (IYR/DRN) Gapped higher from the consolidation pattern… offering an opportunity. Watching how this unfolds.
  • Technology (XLK/TECL) solid upside move led by the large caps. The exception was SOXX and watching how that unfolds as well. Adjusted stops on positions.
  • China (FXI/YINN) continued the gap higher on optimism about the new administration and Alibaba. KWEB took off as well and moved the stop.
  • Homebuilders (ITB/NAIL) Ran higher following up on yesterday’s move… you can thank the stimulus talks.
  • Emerging Markets (EEM/EDC) gapped higher the last two days on optimism about the vaccines and the US stimulus.

TUESDAY’s Scans for January 19th: The markets headed higher for the day as talk of nearly $2 trillion of new stimulus is proposed by Yellen to Congress. Spend now and pay later… after all, it has worked so well with the current debt models. Not our job to make policy for the Treasury or the Fed, but we will need to manage our money in response to the aftermath of their actions. It may be a year or longer from now, but we will have to manage our money and risk accordingly.

  • Energy (XLE) climbs 2% on the stimulus discussions and how that will impact the sector. Crude hit $53 per barrel.
  • China (FXI) gapped higher as Jack Ma was seen in public for the first time since October. The relief rally in China and Alibaba.
  • Semiconductors (SOXX/SOXL) moved to new highs and adjusted our stop.
  • Biotech (IBB/LABU) moved to new highs and adjusted our stop.
  • Homebuilders (ITB/NAIL) back to the top of the trading range… does it break higher? Interest rates could how the answer near term.

MONDAY January 18th: Holiday for Martin Luther King Day.

FRIDAY’s Scans for January 15th: more downside for stocks as the reality of the data creeps into the thinking process. There was plenty of data reported on Friday and most of it was not great. The slowdown in growth is becoming a reality as stimulus wanes and renewed lockdowns and restrictions grow relative to the virus. Earnings season has started with the banks reporting JPM and PNC posted solid data while C and WFC missed on revenue numbers. Financials were down 1.6% on the day, not helping matters. Watching the rotation and inflation data as it shows money favoring inflation biased sectors like commodities. Manage the risk that is and watch where the money is rotating.

  • REITs (IYR) money flow rose on Friday as some money was looking for safer havens.
  • Utilities (XLU) benefactor to safety rotation and as strong dollar keeping interest rates in check for the last few days. A sector to watch if the fight to safety builds steam. In a consolidation pattern near the current lows.
  • Natural Gas (UNG) double bottom pattern. Watching how this unfolds as the commodity approaches resistance.
  • Retail (XRT/XLY) sales for December showed a second month of declines. The challenge is how segmented the data is with big box and online holding most of the sales… the small business and specialty getting hit. Adjusted our stops and watching how this unfolds.
  • Banks (KRE/KBE) the banks moved lower on earnings… watching as they are expected to be the strength of the sector moving forward in the current economic climate.

THURSDAY’s Scans for January 14th: Some downside on the day as the money remains in motion. leadership coming from chips (SOXX), industrials (XLI), retail (XRT), cloud (SKYY), travel and leisure (PEJ), small caps (IWM), and cannabis (POTX). Taking what is offered as the upside remains in play, but the indicators show they are extended… irrational? Maybe, but fighting the trend is never a good idea. Watching which catalyst is the key now that stimulus is on the table.

  • Emerging Markets (EEM) vertical move on break higher. Adjusted stops.
  • Retail (XRT) vertical move higher… adjusted stops.
  • Energy (XLE) 17% rise in eight trading days… adjusted stops again.
  • Semiconductors (SOXX) up 9.8% in seven days… adjusted stops again.
  • Global Cannabis (POTX) up 55% in nine days… adjusted stops again.

(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:

Wednesday: The rally higher continued as the new administration takes place. Plenty of political pandering on the first day with executive orders to signs and money to spend. Looking forward to what unfolds and the impact it has on the global economies. Communication stocks moved higher to lead the day. REITs and technology stocks equally enjoyed the upside move. Ten of the eleven sectors closed in the green. The sole downside was from the financial sector as they continue to struggle with earnings data. I still like the sector and see the consolidation as an opportunity moving forward.

  • XLB – Basic Materials break to a new high and clear the highs of the trading range and tested on Friday. Letting it unfold near term.
  • XLU – Utilities hold support on the test lower and find some buyers. Watching interest rates and the dollar currently.
  • IYZ – Telecom moved above $30.95 resistance and held. The support at $29.67 held and we bounced back to break higher. Stop at $30.50. New highs.
  • XLP – Consumer Staples moving lower to sideways as test support. Struggled on the day.
  • XLI – Industrials gapped higher on breakout and continuation of the uptrend ($82). Watching sideways movement near term.
  • XLE – Energy gapped higher on speculation of growth relative to the vaccine. Moved above $42 resistance. Moved higher and tested on Friday… Raised stop to $40.50. Positive upside holding near the highs.
  • XLV – Healthcare found buyers and broke above resistance to push to new highs and stall in a consolidation pattern. Watching how that plays out. Adjusted stop to $113. New highs.
  • XLK – Technology remains in an uptrend with a consolidation pattern for the last three weeks. It is struggling on news and analyst downgrades keeping it in check. Gapped to new highs.
  • XLF – Financials continued higher and broke to new highs as banks jump on the move in interest rates. The first level of support is $28.24. Adjusted stops. Watching earnings data as Friday didn’t help the cause. Testing the move high.
  • XLY – Consumer Discretionary bounced to new highs as the consumer continues to show strength. Retail sales data on Friday was disappointing… watching how investors respond to the data in the coming week. New highs.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Struggling to hold support at the $82 level. Did manage to bounce on some rotation in money flow. Back to the top of the current range.

The trends remain positive but there is a shift in sentiment in the air. We saw sectors respond to worries and some shifts in money flow to end the week. Proceeding with caution. Using the six-month charts as an indicator for the short term view… Eight sectors are in confirmed uptrends with some near term testing. Three are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for SPY is in a move to a sideways trend short term with an upside bias currently. The leadership is rotating as money flow shifts directions.

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

FINAL NOTES:

Wednesday: New administration… new hopes, dreams, and taxes. Another positive day for stocks as we adjusted our stops to manage the risk. Plenty of positive moves in sectors and some closing at new highs. The challenge facing investors now is the valuations or overbought situation in the indexes. I don’t want to overstate this issue, but it’s one we need to be aware of and manage accordingly. Let the upside run and manage the exit points if they turn south. Stay focused and most of all stay disciplined.

Tuesday: Positive start to the week as investors were willing to put money to work with the mindset there is 1.9 trillion dollars of free money on the way from Congress. That said, stocks rallied. The earnings data thus far has been good with plenty of data to be released in the next two weeks. Taking what is offered and managing the risk that is.

Weekend Wrap & Outlook… The markets remain positive overall but some cracks in the data are keeping trends in check. Some of the early optimism to start the year is waning and economic data shows slowing for the second month. This brings concern near term for the uptrend, but it is too early and speculative to call for a downside move in stocks. The key is to let the risk unfold along with the data. The leadership remains in small caps and energy stocks. Inflation is becoming a word used more of late as commodities move higher. CPI and PPI showed increases over the last two months. Then there are the never-ending worries with the shutdowns and mandates relative to the virus. This is a global issue not just in the US. We continue to watch how it is impacting the global economies. The last two months’ data is showing pressure from the closings and expenses related to the virus. The stimulus package just passed had plenty of fat for everyone… now there is another $1.9 trillion being proposed by Mr. Biden. Even more fat for the states and municipalities. That could be the undoing of the markets in time. The long-term trends remain higher in the hope of more stimulus. Technology stocks continue to struggle. The retail sector is moving higher despite worries about the shutdowns growing along with less spending. The VIX index closed at 24.3 showing elevated anxiety in the markets near term. The dollar found some support finally holding near the current lows. Crude moved above the $52 level the highest since February 2020. UGA is running higher as gasoline prices jump. We continue to own the ETF so we can afford the hike at the pump:). Watching the current movement in the broad markets as money continues to rotate and traders look for some safety of late. 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.