Slowing jobs growth spurs stimulus bets

The major indexes put in another new high to end the week as the jobs report shows the slowest growth in six months. That put the stimulus rumors of late at the forefront of speculation. Thus, the old adage, the bad news is good news… maybe. There is an undercurrent of confidence in the markets currently that 2021 will see a strong recovery from the coronavirus as vaccines are distributed and money put to work for growth in the US and globally. Semiconductors remain in a leadership role with the sector gaining 2.8% on Friday finishing a great week for the sector. Energy jumped 5.4% as crude was higher and small caps continued their move gaining 2.3%. Overall positive week for the markets as investors continue to put money to work as well as some rotation. Manage the risk and let this play out near term.

Short news notes of interest…

  • Nonfarm payrolls increased by 245,000 jobs versus 645,000 expected. The unemployment rate was 6.7% versus 6.9% in October. Earnings rose 0.3% versus 0.1% in October. This will be interesting going forward… as everyone dramatizes the data.
  • The US trade deficit grew to 63.1 billion in October from 62.1 billion in September or an increase of 1.1%. The data shows a pickup overall in trade globally which in turn is positive for business.
  • Pelosi and McConnell remain in talks to strike a deal for the stimulus package. This is the little boy who cried wolf story all over again and again. Even Biden stated he endorsed the deal as a good start. Maybe this time there will be a deal and we can move forward.
  • The dollar fell to a 30-month low as talk of stimulus resurfaced in Washington. The move lower for the dollar is not good from my perspective and something to watch as we move forward. Oil (USO) is priced in dollars… puts pressure on fuel prices (UGA). Gold (GLD) has moved higher the last few days as well as a hedge against the dollar and inflation.
  • Factory orders for manufactured goods increased by 1% in October. There was an 0.8% increase in new orders for non-defense goods.

The S&P 500 index closed up 32.4 points to 3666. It was up 0.88% on the day. The index held 3550 support from last week closing at new highs. Large-cap stocks remain in a leadership role. The basic materials and energy sectors led the upside on the day. Ten of the eleven sectors closed in positive territory as investors continue to find ways to put money to work. The downside was led by utilities. Money flow was positive all week. The VIX index closed at 20.7 as anxiety remains near the current lows. Watching the momentum changes and how it proceeds.

The NASDAQ index closed up 87 points at 12,464. The index was up 0.7% on the day as the index held above the 10 DMA on a positive week. Semiconductors have been the leader for the index near term. Tech overall continues to show signs of fatigue closing higher overall for the week. The NASDAQ 100 index (QQQ) was up 0.41% for the day. The index broke from the trading range holding at new highs. Semiconductors (SOXX) closed up 2.8% for the day hitting another new high. Technology (XLK) moved up 1% and holding well above the $118 support. Watching how this unfolds as the market shifts gears again.

Small-Cap Index (IWM) The sector moved up 2.1% for the week as it remains in a leadership role and continues the uptrend closing at new highs. Volatility in the sector remains a challenge as we added a position on the bounce from the $151 support. Adjusted stop to $180.

Transports (IYT) The sector tested support at $193.50 and continues in a solid uptrend near term. Stop $217.95.

The Dollar (UUP) The dollar turned continued lower this week talk of stimulus has pushed the buck lower. The move below the September lows is a negative short term and something to watch the ripple effects of to goods and energy.

The Volatility Index (VIX) Volatility is dropping against the backdrop of the vaccine announcement. The move below 21.6 is of interest from my perspective and end the surge started in March. Managing our position in SVXY, entry $38. Stop $40.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector posted a solid 1.95% gain to add to last week’s gains. Watching the current trend and managing the stops.

Retail (XRT) The retail sector bounced back from the test of support and is at new highs. Posted solid gains on the week as the data points to record online sales. Adjusted stops and letting it run.

Biotech (IBB) The sector broke higher from the trading range with a solid week overall. XBI has broken to new highs as the large-cap biotech leads the way. Taking the opportunities that are offered in the large-cap stocks and managing the risk.

Semiconductors (SOXX) The sector remains in an uptrend and continued higher for the week gaining 6.3%. The $303 level of support held and the bounce offered an opportunity to add positions. Managing the risk and letting this unfold.

Software (IGV) The sector added to the upside move and closed at the new highs on Friday. Looking for upside breakout and continuation of the trend. The parts are better than the whole.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.96% up from 0.84% last week. Rates flirted with the 1% level as inflation and stimulus talk started up again. Watching how it unfolds.

Crude oil (USO) Crude moved to $46.25 from $45.52 for the week or up 1.6%. Plenty of speculation to drive prices and watching how this unfolds. Taking what is offered and managing the risk.

Gold (GLD) The commodity broke higher for the week as the bottom reversal followed through. That hit our stops on the short side trade and offered an upside entry point. The weaker dollar is the driver currently. Entry $170. Stop 200 DMA.

Emerging Markets (EEM) The sector broke to near term highs. Entry $44.50. Stop $48.50 (adjusted). China (FXI) was the leader on a break higher as well. and we adjusted our stop on those positions as well. Weaker dollar is the driver near term along with speculation in China.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

FRIDAY’s Scans for December 4th: Solid upside to end the week as stimulus speculation escalates on the slowing jobs report for November. We will see how this unfolds with both sides still not very convincing there will be a solution. Earnings remain solid, data is good, and investor confidence is on the rise. All is well on Wall Street… which concerns me. We continue to measure risk, adjust our stops, and avoid the speculation and chatter. Seasonal time for the markets to move higher and we will take what is offered.

  • Semiconductors (SOXX/SOXL) posted a solid week to close at new highs and the driver for the technology sector overall.
  • Energy (XLE/ERX) tested support and moved back to the previous highs showing more rotation of money into the sector. XOP closed up 8% on Friday as money rotates.
  • Financials (XLF/FAS) finished the week with a solid gain and pushing to near term highs as well.
  • Small Caps (IWM/TZA) closed at new highs again resuming the leadership after a modest test.
  • Treasury Bonds (TLT/TMV) downside remains in place for bonds as interest rates move back near the 1% mark on the 30-year bond. This is due to the dollar and inflation concerns.

THURSDAY’s Scans for December 3rd: More mixed news and more mixed results for stocks. Patience is the key during the consolidation of the move higher. There is stimulus talk in the air again… letting that unfold. The bigger concern near term is the dollar diving in value. This will have a ripple effect in both positives and negative near term. The Pfizer news of only half the vaccine is able to ship didn’t help on that front. Letting the news unfold and watching how the markets respond short term. Overall the markets are set to end the week on a positive note with little volatility in play currently.

  • Natural Gas (UNG/KOLD) the downside remains in play with the move lower in gas prices. KOLD jumped 16% on the day and we adjusted our stops accordingly.
  • Energy Infrastructure (AMLP) the master limited partnership is leading the upside for the energy sector since the reversal from the lows in September. Adjusted our stop.
  • Global Jets (JETS) nice uptrend in play as the recovery help from the vaccine news pushing the ETF higher.
  • Brazil (EWZ/BRZU) gapped higher, adjusted stop, and letting it run higher for now.
  • Biotech (IBB/LABU) confirmed the upside move and letting this run. Adjusted our stop.

WEDNESDAY’s Scans for December 2nd: Modest upside following a lower start to the day. The outlook remains the same as investors moving money and looking for opportunities on the horizon. Watching gold and oil versus the dollar. Jobs report due out Friday. Bond yield rising back near 1%. Retail sales data for the holidays. Some opportunities will come from the current data dump.

  • Retail (XRT) some topping on the chart, but the outlook remains solid for now… watching the earnings data as the sector reports soon.
  • Energy (XLE) up 3.2% on the day… trying to move higher and watching how the price of crude responds to data on supply and the dollar.
  • Natural Gas (UNG/KOLD) short side continues to play out near term.
  • Russia (RUSL) continues uptrend.
  • Defense (DFEN) moving higher with flag pattern in place.

TUESDAY’s Scans for December 1st: Optimism springs eternal as the large-cap technology stocks spring higher. The S&P 500 followed suit with solid upside in financials and technology. Both indexes hit new highs yet again as the challenges remain as Washington stimulus rumors renew. Some solid moves in sectors as we discussed above, but there is also some rotation and worries about the dollar, inflation, and growth. Nothing new about any of it, but we continue to measure the balance between reality and belief. Let the chart unfold relative to reality and keep your beliefs from pushing your emotional buttons.

  • Technology (XLK) solid move higher, but the sector remains in a well-defined trading range. The parts are doing better than the whole with Semiconductors (SOXX) leading the upside.
  • Gold (GLD) solid 2.1% gain on the day as the talk of inflation surfaced again along with a big downside move in the dollar. The first step in a bottom reversal near term.
  • Brazil (EWZ/BRZU) solid upside trend from the October lows and broke above the July highs… looking for more upside and leadership in the emerging market.
  • Treasury Bonds (TLT) yields spiked on the dollar decline and stimulus talks. Watching the downside implications to the bonds.
  • NASDAQ 100 index (QQQ) pushed to new highs and watching the breakout for confirmation of more upside on the horizon. Patience with the sector as it remains challenged by talks of valuations.

MONDAY’s Scan for November 30th: Some juggling of money on the last day of the month. Watching how the new month unfolds with energy dipping more than 5% on the day and small caps dropping 1.8% as well. Some profit-taking? OR is this money moving to safety as some feel the markets are overpriced? Either way, the upside remains in play for now and the outlook is for Santa to continue the rally to year-end. Taking what is offered and managing our stops in the process.

  • Energy (XLE) added downside on the OPEC disagreement on production cuts for the next quarter.
  • Semiconductors (SOXX) another new high as they continue to lead the upside for the technology sector.
  • Cannabis (POTX) breaking higher again with a 6% gain. Watching as the volatility in the sector continues to be high:)
  • Biotech (IBB) gaining momentum on the vaccine advance for approval and distribution. XBI large-cap ETF at new highs.
  • Cloud (WCLD) hitting new highs to help elevate the technology 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.)

Sector Rotation of S&P 500 Index:

  • XLB – Basic Materials break to a new high as clears the highs of the trading range. Holding the trend for now.
  • XLU – Utilities trying to hold support on the test lower. Watching how it plays out near term.
  • IYZ – Telecom moved above resistance at the $29.67 level and holding. Watching how this unfolds with our stop at $29. Positive upside move.
  • XLP – Consumer Staples double bottom and break higher. Offered upside trade opportunities and watching as the sector test and moves sideways.
  • XLI – Industrials gapped higher on breakout and continuation of the uptrend. Watching sideways movement near term.
  • XLE – Energy gapped higher on speculation of growth relative to the vaccine. Moved above 200 DMA resistance. Tested the break and is now back at the previous highs. Raised stop to $36.
  • XLV – Healthcare continues to struggle relative to the upside. Biotech broke higher and watching how that plays out. Vaccine news attempting to elevate the sector overall. XBI/IBB move higher.
  • XLK – Technology is in a trading range and looking for upside momentum. Semiconductors broke higher and leading the sector.
  • XLF – Financials continued higher and getting support news from interest rates, dollar, and economic outlook. Watching the near-term outcome. Adjusted stops.
  • XLY – Consumer Discretionary bounced back to the previous highs as the consumer continues to show strength. Breaking from the trading range and in uptrend for now.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Tested support at $76.22 and bounced to the top of the with a break above $84.45… testing currently.

The trends shifted higher again based on investor activity. We saw sectors bounce off key support levels and followed through to resume uptrends. Proceeding with caution. Using the six-month charts as an indicator for the short term view… Six sectors are in confirmed uptrends as two breaks higher. Five 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 weeks trading. The BOLD/ITALIC comments are current day changes worth noting.)

FINAL NOTES:

Weekend Wrap & Outlook… The markets moved higher for the week as positive sentiment remains with investors. As with any market, there will be dissenting voices and there have been plenty as analysts and talking heads believe stocks are too high. That may prove to be true, but we will keep our stops in place and let the markets decide what is too high. The virus remains center stage with the rise in cases and fear rising of more shutdowns. We will want to see how that unfolds moving forward. The economic data remains on the positive side as we continue to see improvement in the numbers. The jobs report showed slowing in new jobs which in turn started speculation again of a stimulus package prior to year-end. The media has been riding that horse for a while… until it happens it is speculation. This fear factor is one thing that can disrupt the short term if it becomes believable enough relative to the virus. The long-term trends remain and the near-term run higher is positive as some sectors break higher and others are following close behind. How all of this plays out will be of keen interest to investors and traders alike. Technology stocks continue to struggle near term, but the semiconductors closed at new highs for the week. The retail sector is at new highs as well with the rumors of positive holiday sales online. The VIX index moved to 20.7 as anxiety remains calm relative to previous near term levels. The dollar moved below support and down as stimulus talk hits the headlines. The S&P 500 was up 1.6% for the week and nine of the eleven sectors posting gains for the week. The market leadership currently is from small caps, energy, and semiconductors. Crude moved above the $46 level and raises some concerns relative to cost and the consumer. Watching the current movement in the broad markets as money continues to rotate and traders look for the new shiny object. 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.