No fireworks for the market as they close lower

OUTLOOK: July 5th

Stocks opened strong but failed to hold the gains as they end up negative on the day. At the close, the major indexes managed to give up the gain from Monday and put themselves back in harm’s way of breaking key support levels. Granted it was an extremely low volume day, but the damage was done and we look to Thursday to see how this will unfold. The broad indexes have managed little the first half of the year up 1.4% YTD and hovering right at the 2700 level. We can blame it on many issues, but at the end of the day, it is fundamentals that matter. First quarter earnings grew at better than 25% and second quarter estimates are at 20%… however, the forecast is for slowing in the second half of the year. Throw in the trade worries and you can see why the indexes are stuck. The markets trade looking forward and currently that visibility is cloudy… that leaves investors on the sidelines and optimism low. As we celebrate independence day we will enjoy some food, some beverages, and a lot of fireworks… then back to watching the lack of fireworks in the markets as investors continue to look for the clarity needed to push stocks higher.

The S&P 500 index closed down 13.4 points at 2713 as the index holds the 2707 support. This is the key test for the current uptrend. REITs and energy lead the day as six of the eleven sectors closed higher with intraday activity still volatile and direction uncertain. It was a day where stocks moved higher at the open only to retest support at the end of the day. The leaders from Monday, Small caps, technology, large caps, software, and biotech returned to the downside forfeiting gains. A look at the chart shows the break of the topping formation and the break of support at 2740. Letting this unfold as we move forwards and using patience and discipline in our approach. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.

The NASDAQ index closed 65.1 points to close at 7502. The move back below the 7505 mark was a negative for the index. Technology, software, and biotech helped lead the index lower giving up the gains from Monday. The long-term uptrend remains in place and the tug-o-war with the sellers remains a challenge overall. The large caps (QQQ) equally moved back below the $170.93. The SOXX broke support at $182.38 mark… Monday the sector managed to hold above the 50 DMA only to reverse on Tuesday. Watching how this unfolds near term… some weakness in previous leaders is the challenge. The key remains patience along with a strategic approach to managing money.

Small Cap index tested $162.50 support to start the week and then moved back above the $164.43 level and held the gains on Tuesday. The current activity is showing rotation from the growth sector to safety. The leadership of this sector had been key to the bounce from the April lows. Watching for the next opportunity to arise.

Gold (GLD) dumped lower again to start the week, but bounced on Tuesday amid the angst over stocks and global markets. The downtrend has accelerated the last two weeks. The strong dollar isn’t helping matters and worries over global geopolitics have only added to the downside momentum. The downtrend is in play along with the short side trade and the break of $120.45 support adjust our stop to $74.98 on GLL. Entry $71. The gold miners (GDX) produced a solid bounce on Monday holding the support at $21.92. Metals and Mining (XME) produced a modest upside Friday but remains in downtrend near the 50 DMA. Base metals (DBB) continues to dump lower on tariffs worries confirming the short side trade.

The dollar (UUP) closed back at the $25 mark. The clearing of resistance at the $23.65 level started an uptrend above the November highs for the current trend. Stops are in place and watching how this unfolds near term. Plenty of reasons to believe the dollar has peaked short term… watching how this unfolds with global growth. The overall move higher is a positive from my perspective, but there are many who think a weak dollar helps US companies. Simply not true… history validates a strong dollar favors the US despite the short-term setbacks. Took the upside trade near term as the move above $23.75 was the entry point for UUP. Stop $24.85 (adjusted).

Crude oil (USO) has enjoyed the upside momentum following the news of the production increase from OPEC. The increase was obviously less than many expected and rallied investor interest. The last six days oil moved above the May highs at $74.15. Speculation trading at its best again in play. Remember all of this is about the sanctions on Iraq… OPEC controlling the supply… Russia as a wildcard… and don’t forget the US can influence production as well. We added a new position at $68. Stop $72. (UCO $29.10 entry. stop $32.98) Adjust the stop on the vertical rise.

Emerging Markets (EEM) The cliff dive for the last two weeks was a big negative for the sector. The modest bounce of late shows some signs of hope. Bear flag pattern building near the lows and could offer some clues moving forward. Tariff worries? Stronger dollar? Weaker commodities? You choose, but each has some influence on the sector. Emerging markets could not hold the move back above the $46.62 resistance and the Fed may have put selling back in play looking at the chart following the FOMC meeting. Watching how this unfolds with the accelerated selling in the downtrend. We will let the market speak how this unfolds next week. EDZ entry $42.40. stop $52.90. (Sold 1/2 of position at $54.50. Hit Stop on balance.)

The Volatility Index (VIX) closed at 16.1 Tuesday as the anxiety levels move lower. Tariffs are still an emotional challenge near term for investors as they attempt to understand the possible outcomes. Short term the market is driven by emotions… trade accordingly by managing your risk. There is plenty on the stove that could boil over at any time… watching how this unfolds.

The last week was mostly negative talk about the tariff deadlines and other geopolitics. The focus has become what could or should happen if the sky falls and the sun doesn’t rise. All we can do is manage our risk according to the charts and not speculate on what if… the greatest challenge for us all is not let our emotions get involved in a process that requires a disciplined strategy and action. Semiconductors showed a drop in money flow last week and the chart followed moving lower this week as the sector broke support at the $182 level pulling the NASDAQ lower. Small caps are showing weakness in its leadership pushing lower. The leaders are showing money rotating out towards safety with bonds on the rise again. Energy and crude oil continue to get a boost from the OPEC news on increased production. Utilities and REITs have been the benefactor of the flight to bonds. There is plenty of dynamics working in the markets overall and we will take it one day at a time as the trend remains positive. The big question facing us currently… will traders use the current angst of China and other issues to sell stocks lower. Technically the market has shown signs of being overbought. The selling was modest in comparison, but enough to get the attention of investors. There is some short-term repositioning in play and we will look at the opportunities, exit positions that warrant it, and take what the market gives. Short-term news, emotions, and greed are driving money… manage your risk and look on the horizon for answers to the trends.

(The notes above are posted daily based on the activity of the previous days trading)

KEY INDICATORS/SECTORS &LEADERS TO WATCH: 

Biotech (IBB) Uptrend was challenged on the move above $112 as sector sold to $107 support. The solid bounce on Friday was followed through on Monday keeping the upside move from the May lows in play… letting this unfold as we stopped out of our position last week. Test of $109 would be entry point… or move above $111. Held Monday gains and watching. 

Semiconductors (SOXX) The sector moved lower breaking the support at the $182.38 mark. This offered the short side trade at the $11 mark for SOXS last week with a stop at $10.55. This is a low-risk play for the selling in the sector and willing to see how it unfolds. The buying on Monday keeps support at the 50 DMA in play. Watching how this one unfolds. Testing the current support levels and not looking good. 

Software (IGV) The sector tested to the $178.87 mark of support. Nice bounce on Monday to clear $183.27 resistance. This has been a key leader for the move higher. Looking to buy the position back if the upside resumes. Watching for upside confirmation and entry at $185. A break of the $178.87 support would be of interest on the downside. 

REITs (IYR) The sector made a break from the trading range clearing $76.22. Rates moving below the 3% mark get the credit for the rally as we let this unfold on the move higher. Entry $75. Stop $78.50 (adjusted). 3.8% dividend. Flight to safety? Watching and letting this run for now.

Treasury Yield 10 Year Bond (TNX) moved back to 2.84% as money rotates to safety. TLT has been a benefactor in the rotation moving above the $121.68 resistance. The lower yields created upside to bonds, REITs, utilities, and telecom for the week. One word… Patience as this plays out. Testing support with money still moving towards safety. 

Energy stocks (XLE) The stocks tested the move higher and found support after crude declined. You have to love speculation to trade crude or energy stocks as the news, hype, and speculation are a key part of the trends. Crude has rallied to a new high and put hope back in the stocks. $77 level to clear near term. A negative move lower to start the trading week. 

Natural Gas (UNG) broke from the bottoming pattern after falling more than 19% off the January highs…the next opportunity in the commodity was presented and thus far has paid off. Entry $23.15. stop $23.35 (adjusted). Some upside optimism showing on the chart… but chart continues to move sideways to up as it has stalled in momentum. Big dump lower to start the week as the commodity sells off… again. Small bounce on Tuesday. 

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

Daily Scan Results:

TUESDAY’s Scans 7/2: Forfeit the gains from Monday. Watching as the churning continues and no real trend defined other than sideways. Taking it one day at a time… no real scan on the trade shortened day and we will look to Thursday for more realistic moves in the charts and opportunities. 

  • Bottoming – BRZU, LBJ, SOXS, NUGT, TECS, EWW, FAZ, SIL
  • Trending – URE, TMF, SKF, CORN, GLL, DBP, XLU

Happy 4th of July!

MONDAY’s Scans 6/30: Positive start to the week as the buyers return. Some positive leadership from technology and the NASDAQ overall… small caps rise again… biotech bounce nicely off support… and overall positive day for the broad markets. There was low volume as expected during the holiday week. We will let this unfold and take what the market offers. 

  • China (FXI/YANG) downside back in the country ETF. Letting it unfold… 
  • Energy (XLE/ERY) some selling on the day as crude picks up some volatility.
  • Biotech (IBB/LABU) upside back in play for the key sector.
  • Gold (GLL) the downside leading the metal lower again.
  • Emerging Markets (EEM/EDZ) downside back in play.
  • Technology (XLK/TECL) nice upside bounce and watching how it develops.
  • NASDAQ 100 (QQQ/TQQQ) solid upside move for the leading index.

Plenty of positive moves on Monday… but, we need to see follow through and some conviction from the buy-side. Patience as the holiday week unfolds.

FRIDAY’s Scans 6/29: Month and quarter come to an end… this brings earnings and economic data to the forefront starting next week. We will look at how that impacts the geopolitics influence on stocks… I don’t expect much fanfare from the economic data as the tariffs will take center stage. Not much happened to change things on Friday and the scans show little in confirming the downside or very little in producing a bounce off support. We end the week holding support and plenty of question marks heading in the holiday-shortened week of trading. This is a good time to evaluate and adjust stops or look at where the best opportunities lie going forward. One day at a time is all we can do.

  • Gold Miners (GDX/NUGT) produced a solid bounce off support with the modest upside move in gold (GLD). Worth watching, for now, to see how it unfolds.
  • Emerging Markets (EEM) bounced off the lows Thursday and followed through on Friday… is the worst over? I wouldn’t count on it, but we will watch to see how it unfolds in the coming week.
  • China (FXI/YINN) the modest bounce of the lows shows some signs of hope. Watching our stops and managing the risk of the short side trade. We hit our stop on some trades in the sector.
  • Biotech (IBB/LABU) bounced off support and followed through on Friday. Not willing to beat the drum for the upside, but it has my attention.
  • Crude Oil (USO/UCO) upside has gone verticle. Manage the position and look at taking some profit on the move.

There are some solid moves to take note of Friday, but they will need to follow through next week. We will keep our watch list in place and see how the week unfolds. Not looking for a lot of movement with the holiday. It will be a low volume week and the movement could be swayed by the lack of volume and traders. Take it for what it is and manage risk and opportunities with caution.

THURSDAY’s Scans 6/28: Some low volume buying on the day as they indexes produce a bounce. The outlook remains uncertain and thus volatility remains in play. Watching how the last trading day of the quarter unfolds. Some buying would be expected the question is volume and conviction. Not expecting much and not the kind of day to create new positions… that said, we will follow our discipline on what we add or exit relative to our holdings.

  • Technology (XLK/TECL) bounced… needs to follow through. TTWO, VZ, INTU, TWTR, ADS led the day… watching how this plays today.
  • Mexico (EWW) bottom reversal follow through and positive gains… $46.20 entry.
  • NASDAQ 100 (QQQ/TQQQ) upside bounce at support… needs to follow through. SHPG, MELI, TTWO, ATVI, CTRP leading and watching how the day unfolds.
  • Crude Oil – going vertical? Watching and adjusting the stop.
  • REITs (IYR/URE) upside leadership on rotation to safety. Watch and adjust your stops accordingly.
  • VIX Index (UVXY) sold half at $13.50. Stop $11.50.

Thursday bounce does not negate the downside moves. Watching and managing our stops accordingly, but the market still has plenty to prove short term if the upside is to resume. We have hit our stops on positions, we have added some short positions, and we continue to manage the risk in light of the increased volatility and take what the market gives.

WEDNESDAY’s Scans 6/27: Selling rules the day or least the news driving selling ruled the day. The scans are exactly what you would expect following a day like that… short side setups everywhere as support levels give way and the anxiety levels rise. Some of the selling is purely methodical as money wants to exit where the valuations have peaked. Other selling is pure speculation with short activity rising to meet the anxiety. Either way, money is moving and that is where my interest lies. Where is it going? Is it tradeable relative to risk? We have added some positions and we are watching plenty of others. I am not one to chase anything, I am only interested in the risk being relative to the reward and living to play another day. Stay patient and take what the market gives that fits your style of investing. 

  • Semiconductors (SOXX/SOXS) the one sector that has jumped out at me the last two weeks. The relative weakness in the sector has been obvious… the short side trade had not until it gapped lower on Monday. We took a position on the downside Wednesday and will manage the risk of the trade as it unfolds. 
  • Biotech (IBB/LABD) equally the downside accelerated on Wednesday, but the weakness hasn’t been as strong. $25.90 was entry offered… we passed based on our strategy, but the trade did pan out on the day. $28.58 is the next level of interest or a retest of the $24.50 mark. We will watch how this unfolds near term.
  • VIX Index (VXX/UVXY) the upside trade has worked for now. Willing to take half the position off at $13 or better today and the stop moved to $11.25. 
  • China (FXI/YANG) Raised stop to $60 as the selling accelerates again. Willing to exit half of the position if news arises to contradict the driving factor… tariffs. 
  • Emerging Markets (EEM/EDZ) the short side continues to accelerate with each news bite that indicates a stronger dollar or trade wars. Stop moved to $51.20.

Markets are challenged by lack of direction and we are in the middle of a media storm playing with the emotions of investors. The uncertainty behind the tariffs, the business restrictions, the dollar, crude prices, and just about any other reason being tossed around, is keeping money moving towards safer havens. Stay focused and most of all define the strategy before you put money at risk.

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

Sector Rotation of S&P 500 Index:

One big change of note concerning sectors… The Global Industry Classification Standard is making a change to the Telecommunications Services Sector. It will become the Communications Services Sector which sounds minimal but could have a significant impact going forward. They are adding NFLX, DIS, CSMSA, FB, and GOOGL. The new structure will be enforced by the end of September. This will make it more of a growth sector overall but could dampen some of the volatility the sector has experienced over the last two years.

  • XLB – Materials moved below the $58.44 support and broke the uptrend again. Watching how it unfolds with the cloud of worries over tariffs in play.  
  • XLU – Utilities had been under pressure from higher interest rates. They got relief as rates moved back below the 2.9% mark. A positive week with a move back above the $51.11 mark and follow through… entry $49.55. stop $51 (adjusted). Watching how it unfolds this week. Leadership remains with interest rates near lows currently. 
  • 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? $27.63 is where the sector is stuck… letting this unfold near term.
  • XLP – Consumer Staples finally found support and has been in a gradual uptrend from the May lows. The ability to gain some momentum is shown in the nice move above the 50 DMA. Entry $50.50. Stop $50. Upside remains in play.
  • XLI – Industrials made a move back to $71.43 currently for support. Looking for some type of reversal or break lower. Patience.
  • XLE – Energy stocks have been volatile as they deal with the question of production impacting the price of crude. The announcement was less than expected to produce a rally in oil and some upside off the lows in stocks… looking at how this one unfolds. Some selling on the day… watching. 
  • XLV – Bounced off $79.50 support. Some follow through as the sector moved back above the $83.24 resistance and now using that level as support. Watching how this one unfolds. 
  • XLK – Holding support at the $68.75 mark. Downside pressure coming from the semiconductors. Letting this play out near term before we add any positions. This is a key sector for the NASDAQ. Nice bounce to start the week. 
  • XLF – broke support at $26.90… bounced to that level on the close Friday… watching how this unfolds. Holding support. 
  • XLY – Consumer remains a leader, but that is being challenged with the tariff worries pushing the sector to $109 support level. Letting this unfold with some clarity and then we will decide how to trade. 
  • RWR – REITs have been in a clear uptrend since February lows. Granted it has come with some volatility and speculation, but the upside is in place. Entry $87. Stop $91.20. 3.8% dividend. Safety net for money as it rotates. Watching as the move higher plays out… raising stop and looking to take some money off the table if the tide shifts in rates. 

(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)

FINAL NOTES:

The question remains about direction and volume despite the current selling. We booked positive gains on positions last week with the drop through stops and targets hit. The data shows only three sectors moving higher and eight moving lower for the week. The end result is a move to the second level of support and big questions on the direction and the current trendlines. The next week will be interesting as we end the quarter towards earnings season. We end the month and start economic reports next week. Face a holiday week that is known for some of the lowest volumes of the year. I am expecting more volatility as a result of these issues, but if the tariffs and geopolitics explode more question marks and volatility will result. Technology, small caps, midcaps, and retail rolled over on their leadership efforts. Bonds, utilities, REITs and other defensive sectors led the week as money rotated to safety. Energy bounce on the crude oil moved to new highs on speculation about supply and demand. Financials continue to show struggles under the weight of the uncertainty in the financial markets. We need stocks to hold their own in the face of news and worries in order to keep the second leg of the bounce in place along with the uptrend. We will keep our focus on our strategy in the current market environment. We hit plenty of stops on the news and speculation last week as the short-term outlook gets cloudy at best. The long-term uptrends remain in place and we will manage our longer-term holdings in light of that trendline. The goal remains money management, not market speculation…

ONE DAY at a time is the key for now. Take a longer-term view of your overall portfolio and manage the risk of your short-term trades accordingly.

“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.