Outlook for Week of September 19th

By September 18, 2016Jims Notes

MARKET OUTLOOK: (updated) September 20th

Another day of indecision ahead of the FOMC meeting that starts tomorrow. The early gains of nearly 1% were erased as the conviction eroded quickly on the day. The test will come over the next two weeks as the Fed decides what they will do with interest rates. In light of that I would expect more of the same today from investors.

The movers on the day were utilities (XLU), crude oil (USO) and midcap (MDY). Midcap and utilities attempted to complete a bottom reversal on the recent test lower and both are worth watching. REITs (IYR) also benefited on the day with a positive upside bump. The belief is leaning towards no action from the Fed and we will find out soon enough.

Biotech (IBB) downside pressure found some relief and bounced back above the $287 level and closed up nicely on the week pivoting off the previous low at $277. Watching to see if the upside regains any momentum or if this was just another bounce off support? Started higher, but like other sectors failed to hold the gains. Watching patiently.

REITs (IYR) have been lagging in response to interest rate worries along with some talk from analyst downgrading the sector on valuations. The break of support at the $82 level has tested the support at $78.75 and watching for a decision on the move. Yield relief in other sectors did not find its way to the REITs… watching to see how they unfold looking forward. Pivot higher off the base low and now looking for follow through relative to the Fed action. Entry opportunity at $80.50 if Fed holds off on rate hike.

Treasury yields broke from the trading range on worries about the Fed hiking rates. They cleared resistance at the 1.62% level and accelerated to the 1.7% mark to close the week. The thirty-year bond moved to 2.45% and equally broke from the range on the move. The short trade with TBT hit the entry at $32 on the move but has not made much progress since. The next FOMC meeting is now a topic of conversation relative action by the Fed. The downtrend is still clearly in play for the micro trend. TBT at $32 entry ($32.37 entry) Watching how this unfolds with the speculation at hand. Stop at $32.20. No changes in the rates on Monday and watching the FOMC meeting.

Gold (GLD) made a move below the support at $125.25 level again on Friday with the speculation in the sector remaining. The move is impacting the psyche of the metal near term and watching the downside opportunity if this continues below $125. The gold miners (GDX) are testing support at $25.25. The jury is still deliberating on the directional decision, but a break of this level could get ugly. No significant change on the day and remains at the $125.25 mark.

Crude Oil moved to $43.86 Monday and as the rally attempted faded from the highs of the day. Supply data last week showed more building in supply moving the price lower. Watching this week to see how it unfolds relative to the follow-up and the support at $43.40 broken on the close Friday. Supply speculation and the OPEC meeting remain a driver for the sector near term. Energy stocks fell 3.2% in response for the week breaking support at the $67.75 mark. Watching how this unfolds in response going forward.

Volatility index hit 20.55 last week showing anxiety over the FOMC decision. The anxiety towards news and speculation shows the need to be patient and manage the risk. I remain neutral for now on the anxiety levels in the market, but trading is keeping it interesting. Hit 15.5 on Monday without much change.

The consensus on Monday was optimism about the price of crude rising, but that faded as the day progressed and investors turned their collective focus back to the FOMC meeting which begins today and erased the gains to close on the downside for the major indexes. We have to remain patient for now as the direction is decided short term by news and events. FOMC meeting Tuesday and Wednesday with the OPEC meeting next week. Proceed with caution.