Positive day but still not convinced

OUTLOOK: January 2nd

The markets closed the year on a positive note but I am still not convinced we are heading higher. The holidays are messing with the volume and when everyone returns to work today it will give us a clearer picture of what is happening. A closed government isn’t helping matters… at least where the market is concerned. The major indexes moved higher and all was good for the year-end. The new year is here and we face the same problems we left behind. 2018 goes down as the worst year since 2008 during the peak of the financial crisis. There is the hope of a deal with China and trade, at least that is what President Trump stated. Crude finished lower for the year as plus to consumers. No change in the Fed Chair Mr. Powell he is still talking rate hikes. Last, but not least, Britain will exit the European Union this year and that will bring some interesting challenges and changes for trade agreements. Overall we tiptoe into the new year with hopes of better days in the markets. 

On a personal note… I am traveling for the next week taking some R&R! I will update the notes when the opportunity and the internet are available. Remember… Investing is all about a disciplined and strategic approach to managing risk which in turn manages your money. Happy New Year!

The S&P 500 index closed up 21.1 points at 2506 and holding on to the bounce from the downside. All eleven sectors closed in positive territory for the day. Consumer discretionary and basic materials led the upside with the healthcare sector posting a positive move as well. The third leg lower in the current trend is still underway and we have to manage the outcome near term. The long-term trendlines are broken as we moved below the October lows and set up another downside leg to the current trend. We will watch how the current activity unfolds and the impact on the trends longer term. 2525 level to clear to get my interest near term. 

The NASDAQ index closed up 50.7 points to close at 6635. The index moved below the 6793 support and finally bounced. The sellers have had their way on the downside moves with above-average volume. The bounce last week is good for the markets and brings some life to the index. QQQ is our indicator near term. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark and holding. TQQQ entry $34.17. Stop $34 (adjusted). This is a trade only as we let the bounce unfold. 

Small Cap index moved lower to testing the August 2017 lows. The sector remains a laggard and not looking good on the charts. The bounce helped the near term and is worth watching. Looking for a move above the $133.78 mark. 

Transports (IYT) moved down to near-term lows and found support at the $155 mark. The sector established a new low for the year… watching how it unfolds and how the bounce proceeds. $164.73 level to clear and hold near-term. 

The dollar (UUP) Fell on worries about trade issues not getting resolved. Closed Monday at $25.45 breaking support at the $25.53 level again. The fear of the global weakness, inverted yield curve, and the tariffs are weighing in and the dollar is coming into question. 

The Volatility Index (VIX) closed at 25.4 on Monday with anxiety moving lower on the day and falling as the buyers show up. Watching how this unfolds with anxiety levels up on the charts. 

(The notes above are posted daily based on the activity of the previous days trading. The red comments are current day changes worth noting.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) The sector broke below $101 and finally bouned. $95.04 is the key level to clear near term. Made the move looking to hold it and confirm the upside bounce.

Semiconductors (SOXX) Broke support at the $153 level… Solid bounce… some follow through. $153.13 level to hold. Added trading position on the move… entry $78. stop $78 (adjusted). SOXL Raised stop – managing the risk. 

Software (IGV) Broke $167.88 and bounced back above the same level. Still not in horrible shape and the sector is oversold. Solid bounce… some follow through. $167 level to hold. Added a trading position. Entry $167.90. Stop $170.50 (adjusted). Raised stop – managing the risk. 

REITs (IYR) Tanked on uncertainty from the Fed and the economic outlook. Broke $75.21 and bounced… looking for a trading opportunity near term. $75.21 level to clear on upside move. 

Treasury Yield 10 Year Bond (TNX) closed the week at 2.73% as yields once again move below support and the long bond rallies. TLT entry $115.25. Stop $119.50 (Adjusted). Big move lower on rates to end the year… rotation into the bond is of interest. 

Crude oil (USO) remains in a well-defined downtrend breaking the bottoming pattern with a move lower. We have a new bottoming pattern building and watching how that unfolds. The current downside from the October 3rd high is about the speculation of higher demand not panning out in the supply data. The commodity closed at $45.41 on Monday. $43.06 is the key support level for crude near term. Sold short side position… but, watching how this unfolds. 

Emerging Markets (EEM) Watching what happens as we are back in the bottoming pattern. Rumors of trade resolutions and talks with China helped the index but the economic data last week reversed the course. There are too many questions and rumors currently and letting it unfold. Moved towards the bottom of the current range and bounced… $37.88 level to hold. Outside bar on the chart is a negative sign for the sector. 

Gold (GLD) moved above the $115.86 resistance digested it and moved higher. The dollar and geopolitics have been the catalyst for the metal… both up and down. The move in the dollar lower helped the metal move higher last week. The inverted yield curve is drawing some interest to the metal short term on the upside. Closed above the $120.45 resistance. Entry $116.50. Stop $118.95 (adjusted). The gold miners (GDX) equally respond to gold moving. Watching how this unfolds near term with the metals and the miners moving together again… Entry $19.70. Stop $20.25 (adjusted). Reverse head-and-shoulder pattern in play… need to clear $20.50 again to hold the upside trend. Metal inched higher as a positive sign and the miners followed on the upside. 

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

MONDAY’s Scans 12/31: End of the year trading is not my bag of tricks. Too much speculation and posturing of mutual funds, pension plans, and 401ks… we will see how the new year unfolds and take what the market offers. HAPPY NEW YEAR!

FRIDAY’s Scans 12/28: More volatility on the day with intraday moving higher, testing lower and bounced only to close lower on the day. This is what makes me cautious about the current bounce. No conviction in the trade and too much speculation driving the process. There are trading opportunities on the charts, but the risk levels are high. Taking this slowly into the new year. I expect Monday to be more of the same with the end of the year posturing. Watching, waiting, and letting each trade develop based on a predefined strategy not emotions. No real changes in the scans for the weekend and I continue to watch the same as defined in this weekends update.

THURSDAY’s Scans 12/27: Volatility is the keyword to define the trading. While we were looking for some follow through we got some speculation to go with a higher close. Some trades offered and taken above. Some still trying and we will watch today. History tells us this is a bear market, it is showing bear market activity, and our goal is to not get sucked into a bear trap. Proceeding with caution and letting it all unfold. Cash remains a sector and we posted some solid gains on the downside… thus, letting things unfold is fine with me for now.

  • Semiconductors (SOXX/SOXL) added upside trade.
  • NASDAQ 100 (QQQ/TQQQ) added upside trade.
  • Software (IGV) added upside trade.
  • Watching the bonds as the yields dropped again… patience
  • Financials (XLF/FAS) solid move upside and watching.

plenty of fun for all… taking it slow and one day at a time.

WEDNESDAY’s Scans 12/26: Solid bounce higher… as stated above need to follow through on many of the accelerated moves intraday. There is so much work to be done if the reversal is to hold and move higher. Hit stops on our short side positions and laddered of many based on the intraday momentum from the buyers. Letting this unfold. Areas to watch…

  • Semiconductors (SOXX) needs to hold above $153.13 mark. we will evaluate as it unfolds.
  • Software (IGV) needs to hold above the $167.88 mark. Evaluate and trade accordingly.
  • Technology (XLK) needs to follow through on the upside or at least show parts worthy of trading.
  • Treasury Bonds (TLT/TBT) short side trade if the yields move above the 2.8% mark with momentum.
  • NASDAQ 100 (QQQ) needs to move above the $152.51 mark. Watching how it unfolds.

Patience and diligence. You have to be willing to trade at the level of risk you can tolerate. Letting it all unfold one day at a time.

Update to follow the developments. These scans are looking for trends, reversals, breakouts, and other notes of interest.) 

Sector Rotation of S&P 500 Index:

Some positive moves to start the week in the sectors. Need to hold the moves on Wednesday to start taking positions. Letting this unfold with the holidays past and the new year started. 

  • XLB – New lows and found support… and looking for a move above the $50.35 mark. 
  • XLU – The utility sector found support at $51.11… moved above $52.72 and looking at the entry point for upside trade. 
  • IYZ – Telecom found new lows and bounced…  $26.25 level to clear for possible upside trade.  
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and looking for upside trade opportunity. 
  • XLI – Industrials to near-term low and bounced. $65 level to clear on the upside move. 
  • XLE – Energy stocks fell with the market and crude prices. Small bounce and let this unfold. 
  • XLV –  Healthcare fell to near-term lows and bounced. $85.74 level to clear for any upside trades. 
  • XLK – Technology moved to near-term lows and bounced. $63.70 level to clear for an opportunity. 
  • XLF – Financials moved to recent lows and bounced. $23.76 initial level to clear for trade. 
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level to clear for an opportunity. 
  • RWR – REITs broke lower despite lower interest rates… bounced from lows and $88 level to clear. 

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

FINAL NOTES:

Markets get a bounce after breaking the October lows as the broad-based selling accelerated on the Fed, China, and Budget impasse. Throw in some economic worries and you get the picture. Lack of clarity is the death of any bull market. As seen above investor think they want to buy the bottom, but really aren’t sure. Some give credit to the pension plans and 401k’s rotating money for year-end for the rally. We will just wait and see… but, we did take some new trades near term. Six of the eleven sectors managed to close the week in positive territory as money rotates modestly. Interest-sensitive sectors fared the worst despite the drop in interest rates again last week. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers. We have discussed the tariffs, interest rates, geopolitics, the Fed, earnings, the economic picture, and many other issues over the last few months and they continue to stimulate speculation. The Fed remains the biggest influencer with a shift again on interest rates which have pushed the long end of the yield curve back below 3% to 2.73%. How this all unfolds is a matter of time and confidence. There is no reason to panic just follow your strategy… Disciplined entry and exit points allow for you to manage your risk in up or downtrends. Investing and trading is a matter of discipline. It is not magic. It is not being a prophet. It is about following your defined strategy one day at a time. 

There is plenty of issues and plenty of speculation short-term. What we need is confidence in the outlook going forward… until that happens, expect more volatility and possible downside. Let it unfold… take the trades or opportunities offered… manage your risk and remember cash is a sector and there are times when it makes the most sense versus forcing something that really isn’t there… patience is a strategy as well. 

“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.