Positive day for markets ease worries

OUTLOOK: April 11th

It was a day of relief as markets moved higher and held the move it could not hold on Monday. More talks around the tariffs and trade deficits with China to keep the headlines busy… Some say progress is being made but we are discussing something that has been wrong for years and it isn’t going to get fixed overnight. In fact, it could be an ongoing discussion for years. The PPI data was interesting as the rise in cost for producing products rose 2.7%… CPI is due out today and if that increase is reflected in the data look for some type of response from investors and the Fed. The sanctions against Russia continue to have an impact, but RSX managed to bounce off the lows on Monday. Plenty going on in the global markets as the US continues to juggle the news and banter about the volume and breadth of the moves day to day. Patience remains the theme as this all unfolds.

The S&P 500 index closed up 43.7 points at 2656 holding above the 200 DMA and creeping back towards the 2675 level. The chart is testing the long-term trendlines off the January/February 2016 low. The current pattern could still unfold on the upside by clearing 2575, but the downtrend could be reestablished as well by breaking 2575, flip a coin in the news-driven environment. The whipsaw action has been a challenge for establishing positions. With the trade negotiations ongoing expect more volatility. The downside remains below 2765 for the short side interest and SPXS hit the entry level at $28.20… added a position at $28.50 as a hedge. It has been an up and down ride as we adjusted the stop at $28.50. Managed the position with our stop market on the close… it had to be at $28.50 in the last five minutes of trading. We still own the position and watching how it unfolds today with the same process in place.

The NASDAQ index moved back to the 7103 level of resistance and closed at 7094. A move above this level on volume would be a positive for the current consolidation to move higher. The up trending channel off the Feb 9 low broke the bottom channel line confirming the near-term direction as down and with the current activity sets up a potential double bottom pattern. The last three weeks have shown big swings as the buyers and sellers fight for direction. The China issues remain in the headlines and plenty of dynamics in place as the White House makes moves that rattle investor confidence. Patience is required along with a strategic approach to managing money. SQQQ entry $17.85, stop $17.65 (adjusted). The emotions are in play and we continue to watch how it unfolds.

Small Cap index was weaker on the bounce off Feb 9 low, but finally produced a move above the $154.90 resistance. The bounce reversed and the downside moved back to support of $150.11. Watching how the opportunity unfolds near term… positive move above $152.53 on Tuesday.

Gold (GLD) moved back above the $126.02 mark after a test lower last week. The trading range is in place as we climbed higher in the range the last three days. The metal is a trade on news nothing more. The gold miners (GDX) made the move back above the $21.92 mark from the bottoming pattern in play. Base metals (DBB) moved lower in the downtrend and gapped below the 200 DMA. The bounce Thursday and Friday showed some life in the metals and Monday cleared $18.36 entry level for a trade. Entry $18.36, Stop $18.75 (adjusted). Tuesday added another gap higher to $19 as the sanctions against Russia push aluminum prices higher.

The dollar (UUP) continued to move lower with pressure from the global picture weighing on the buck. The move is helping commodities near term as we continue to trade in the current range.

Treasury Bond yields moved to 2.83% Thursday on optimism and to 2.77% on Friday on the selling and remain at that level to start the week. The hope and fear emotions continue to push the yields around along with bond prices. The bond is nothing more than a conduit with the uncertainty in play for stocks. Interesting battle of money rotating on worries relative to trade wars. The short side trade hits stop on move higher in TLT. If the bounce works look for bond yields to bounce and bonds to decline as money will rotate back to stocks. Patience is needed for now.

Crude oil (USO) moved back above the $61.60 mark Friday… bounced to $63.42 on Monday… and $65.51 on Tuesday as uncertainty remains around the inventories, production, and the dollar. The news is driving and oil remains in a broader trading range. The dollar relationship remains in play influencing the price of crude along with worries of ramping up production in the US on the price move above $60. News about overproduction hit the wires on Friday and we see what happened. Too much talk and not enough data to support the current moves.

Emerging Markets (EEM) dumped lower breaking $47.90 support and testing the short side. It did manage a bounce the last few days to move to $48 again. The dollar, tariffs, trade wars, and interest rates are all playing into the volatility of the sector. We will let the market speak and we will decide what trend to trade.

The Volatility Index (VIX) closed at 20.4 as investors continue to worry about the tariff wars. We sold all of our positions last week as the buyers came to the aide of stocks. The move Tuesday will keep me in tune with what is taking place, but for now, we see how it unfolds on Wednesday. FOMC meeting, tariffs, antitrust lawsuits, Mr. Trump, etc. all adding to the investor anxiety. We banked a nice gain on the trade the last ten days and look to see how it unfolds going forward .

There is plenty on the table relative to dynamics and agendas from the government, economic data, traders and investors alike, but the emotions injected into the market now raises questions about direction and momentum. The ABCD pattern broke to the downside and retest of the February low last week followed by more volatility and testing this week. The key is patience and taking what the market offers versus our emotions. Simply put there is plenty to ponder about what will and will not impact the markets both short and long-term… My goal is to manage money, not markets. Manage my risk based the current environment coupled with my strategy for each position. The key is to stay focused on the horizon, not the rear-view mirror. 

Tuesday managed to hold the gains forfeited on Monday as money continues to look for where it will be treated the best. Uncertainty is present and neither the buyers or the sellers are exerting effort to control the direction. 

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

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare. The sector has taken on an emotional ride of ups and downs based on the current belief and market trends. The downside is in play again as we break the $105.30 support and the February lows being tested on Friday. A short signal on the break of the $104 level. LABD entry $39.30. Stop $37.40 (Stop Hit).  Bounce off the lows… and follow through on the bounce from Monday. Watching the bounce opportunity as we hit the stop on our short position.  

Semiconductors (SOXX) bounced off the low at the $166 level and established a new high. It has retreated on the selling sending the sector lower… It did manage a bounce early in the week then retreated again on Friday. Selling confirms the short side trade entry at $12.30, stop $11.80.  The bounce held on Tuesday, but watching how it plays out looking forward. 

Software (IGV) hit new highs and closed below the $171.11 support on the test lower. Watching how this sector holds up near term… Some downside selling Monday added to the downside pressure. No positions currently and the short side is being watched. Moved back to $171.11 level? watching to see if it can gain any upside momentum. 

REITs (IYR) The sector remains in a trading range as it continues to build a base. Interest rates have been the challenge overall… looking for the opportunity to add a position and collect the dividend long term. Moved back above $75 and holding. 

Treasury Yield 10 Year Bond (TNX) moved to 2.77% this week as money is jumping around looking for the best opportunity. The rolling top activity moved below the 2.79 support and watching how this impacts the bond sector. Waiting for some clarity on the bond near term. 

Energy stocks (XLE) The sector tested the $67 level of support again and remains in the bottoming range. Entry at $68.85 is of interest if the upside validates the move. The short side is a big question as oil continues to test the uptrend moving back to $61.60 level on Friday. Watching patiently for direction. Cleared $68.82 on the upside to break from the current trading range. The move in crude the last two days gave cause for the buying. Looking to hold the move and establish a position if the move confirms. 

Natural Gas (UNG) forming a bottoming pattern currently after falling more than 19% off the January highs… watch for the next opportunity in the commodity. The downside continues breaking below the next support retesting the lows and keeping the downside in play. $21.50 level of support held and small bounce. Needs to clear $22.69 for upside to convince. 

The NASDAQ tested the 6909 support again in a volatile week. The S&P 500 index tested the 200 DMA again and closed at 2604. The bias is negative and volatility is alive and well. Leadership is testing the downside move as financials and technology lead the downside moves. Short trade entries hit and testing with the volatility daily. News on tariffs are still in the picture and providing volatility. The President is attacking Amazon just to add to the excitement. VIX index remains above 20. Money is rotating with some headed to the safety of bonds and some to cash. There is no shortage of speculation and news. The key is to keep your focus on your trading strategy and not the emotions of the day to day swings in the market. The downside bias remains and a break of the February 9th lows will only serve to accelerate that bias.

No real change to start the week as earnings begin… need some conviction to show up in the volume… the buyers were positive on Tuesday, but still not the level volume and breadth that will lead to a rally on the upside. Patience as this unfolds. 

(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 Scan 4/10: Some positive takeaways from the upside move with volume higher and breadth better. The challenge remains conviction about the move and too many issues flying around in the media. Taking it for what it is and keeping our powder dry for the next opportunity. Russia remains in the headlines, crude gaps highs, inflation talks are back, trade deficits continue drive talks with China, and the White House remains resolute on trade. Outside of that earnings are on the table again. The news is driving and that keeps it interesting day-to-day.

  • Energy (XLE/ERX) breaks the upside resistance of the trading range to clear $68.82 and we look for the follow through to above average volume move.
  • Telecom (IYZ) moved to resistance at $27.63 on a positive gain. Watching for follow through.
  • Technology (XLK/TECL) nice upside gain on the day. Needs to clear $66.15 resistance to offer any upside opportunities. NVDA, STX, MU, AMD, KLAC led the upside move.
  • Basic Materials (XLB) attempted to move above the 200 DMA resistance in the bottoming pattern. Watching how it unfolds going forward. FCX, EMN, DWDP, LYB, VMC led the upside on the day.
  • Healthcare (XLV/CURE) bottom pattern attempts to break above resistance at the $81.81 mark. IBB and IHE are helping the upside attempt in the sector.

Leaders… commodities DBA, DBC, DBB all moving higher on rumors and sanctions. Biotech (IBB) followed through on the bounce off lows. Technology, semiconductors, energy, financials, and consumer all had positive days, but there is still plenty of work to do.

Patterns… seeing some possibilities to break from consolidation patterns. Need to see some upside follow-through today if they are to evolve. Patience as today will give some insight.

Charts to Watch… XLE, IBB, SOXX, FXI, USO, XLK, QQQ, GREK, KWEB, IEV, MOO

MONDAY’s Scan4/9: No big changes on the day with the move higher early being erased by the selling later. The modest bounce helped ease some of the anxiety from the selling on Friday, but still leaves plenty of question marks and less clarity. The scans were interesting as Russia (RSX) and biotech (IBB) offered moves to watch.

  • Russia (RSX/RUSS) big downside move as US sanctions hit aluminum and other materials. The downside trade has been building momentum, but this was not expected… now we see how it unfolds.
  • Aluminum (JJU) soared as prices rose on the sanctions were enforced by the US. They started moving off the lows last Thursday and Friday with the spike higher on Monday.
  • Biotech (IBB/LABU) bounced off the lows from Friday but failed to hold all the gains from earlier in the day. Still worth watching how this unfolds off the low.
  • Crude Oil (USO/UCO) bounced with the lower dollar, but also the issues in Russia had some impact along with the Chinese tariffs. No decision on a direction yet as the commodity remains in the trading range.
  • Europe (IEV/EURL) made move above resistance at $36.24. Watching to see if the ETF can break from the bottoming consolidation pattern. $36.80 is level to clear on the upside for an opportunity.

Leaders… definitely seeing some upside in commodities JJU, WEAT, JJG. Biotech (IBB) bounced off the lows. Financials (XLF) holding in the bottoming range and software (IGV) bounced back to resistance. Plenty of work left to be done.

Patterns… bottoming is still the key… need some momentum to break higher if that is the direction we are going… but, equally we need momentum on the downside if that is the direction.

Charts to Watch… RSX, IBB, IEV, USO, EFA, SCJ, DBB, EWQ, SOYB, JJU, WEAT, MOO, CORN

FRIDAY’s Scan 4/6: The downside returned as the President has to one-up China on talking about tariffs. We will let this unfold into the new week and see how the buyers and sellers decide on the direction. The scans return to the downside efforts prior to the three-day bounce last week. Testing again at key support levels will test the resolve of both sides. Patience is the key.

  • Biotech (IBB/LABD) reversed lower to test the support and the short side trade is back in play clearing the $40.21 resistance. Looking to add to the trade on the short side with confirm.
  • Semiconductors (SOXX/SOXS) negative trading day to end the week puts the short side back in position to gain momentum. The move above $13.52 is the entry point with a confirm of the move. TECS also makes move as the sector struggles.
  • NASDAQ 100 (QQQ/SQQQ) the downside is still lurking on the move back towards $20. A move above this level would offer some short-term opportunities int he short side of the trade.
  • China (FXI/YANG) the downside is where the challenge lies for the country ETF. Tariffs are not a win for the country any more than the US. Watching how the downside opportunity unfolds.
  • Emerging Markets (EEM/EDZ) downside is alive and well with all the rumbling about the tariffs. The winners and the losers are being juggled by investors trying to get in front of the inevitable.

Leaders… still looking for the catalyst in either direction currently. Tough week for all and willing to give it room to unfold.

Patterns… bottoming ranges, double bottoms, and consolidation… all need a catalyst good or bad… willing to wait for now.

Charts to Watch… XLF, FXI, IBB, XLE, SCO, SOXX, QQQ, SPY, DIA, USO, WEAT, TLT

THURSDAY’s Scan 4/5: Modest bounce for the third day of gains in stocks. The challenge remains volume from my view as it traded with below average volume for the third day. Upside needs to get through the next level of resistance if the bounce is to gain any momentum. The overnight comments from Trump have that as one big question market and the jobs reports are due out before the opening bell… remain cautious and managing the short-term risk/reward for now… cash is still a sector to hold money while this all unfolds.

  • See added notes in red to Wednesday from Thursday trading.
  • Energy (XLE/ERX) can the upside move follow through and break through the top end of the trading range? It will need some help and volume. IEZ added solid bounce as well. Failed to advance the upside… watching.
  • Latin America (LBJ) nice reversal move as news of trade wars benefitting the regions hit the headlines and help. Looking for follow through and belief before adding any positions. Moved lower on the news Friday. 
  • Semiconductors (SOXX/SOXS) the bounce failed to hold on Thursday and watching how it unfolds relative to the short trade above. $13.52 is level to clear on short side ETF. Cleared $13.52 and looking for follow through. 
  • Europe (EURL/IEV) bounced in the bottoming range. Watching how Europe unfolds in all the rattling as well.
  • Small Cap (IWM) bounced off support and holding… letting this unfold as well for upside trade if it clears resistance with some volume. Retest the $150.11 level of support. 

Leaders… continues to add some upside. Two worry spots were SOXX and IBB. Watching as this plays out near term.

Patterns… bottoming remains in place… the break above the first levels of resistance in XLF, QQQ, IWM and others is offering some hope in the upside returning… the overnight tariff comments aren’t going to help in early trading.

Charts to Watch… LBJ, IWM, CORN, ITB, XLE, IEZ, IYM, XME, TBT, ITA

WEDNESDAY’s Scan 4/4: The buyers held their ground despite the proposals by China to add tariffs… it got help from the White House stating there were still ongoing negotiations… of course there are. We continue to take it one day at a time and look for the opportunities as they are presented. No addition to short positions as the buyers stepped in… we did lock in some gains early as the buyers showed interest. There is no reality just disciplined approach to managing the risk presented currently. The buyers will need to put more volume behind their efforts if the bounce is to have any hope on the upside follow through. Patience is key for now.

  • See added notes in red below on Tuesday for the outcome today on Wednesday.
  • Homebuilders (ITB/NAIL) big bounce off the lows on Wednesday… still in bottoming range.
  • Biotech (IBB/LABU) big bounce off the lows Wednesday… Needs to clear $77.05 and confirm.  
  • NASDAQ 100 (QQQ) solid bounce off the lows. Double bottom? Cleared the 200 DMA on the upside. c
  • Healthcare (XLV/CURE) bear flag pattern in play… watching how that unfolds with the downside bias in place.  
  • Financials (XLF/FAS) bottoming pattern remains in play as hold above the 200 DMA.

Leaders… they returned to form, but still plenty of questions. IBB, QQQ, XLK, XLF, SOXX, XRT

Patterns… bottoming patterns everywhere… XLV, ITB, QQQ, SPY, XRT, EWW, IYR, XLY…

Charts to Watch… ITB, IYR, XLU, TMV, SCJ, FAN, FAS

(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 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 February low and the 200 DMA… downside in play and looking for support to hold near the $56 mark again. Solid gain with a bottom reversal in play. 
  • XLU – Utilities have been under pressure from the speculation of higher interest rates from the Fed and a weaker dollar. I have been looking for support and the next opportunity as the fear evaporates and reality settles in. $48.55 entry. Stop $47.50. This does pay a 3% dividend and willing to stick with the slow-moving sector for now.
  • 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? The downside accelerates with stocks selling on Friday. Short side remains in play. bottom reversal? Watching the $27.63 level. 
  • XLP – Consumer Staples broke the February lows and finally found support near $51. Bottom reversal pattern in play and watching how this unfolds with $53.15 resistance to clear. Patience as we start the week of trading. 
  • XLI – Industrials moved to support at the 200 DMA and bounced modestly… returned to test and the downside is still the trend.  
  • XLE – Energy sold to bottom of the range at $67 and remains in a bottoming trading range. No traction and erased the bounce from Thursday. $68.82 is level to clear on the upside. Cleared $68.82 upside to break from the trading range. Looking for confirmation of the move and trade opportunity. 
  • XLV – Healthcare has been up and down following the Feb 9th low. ABCD pattern broke to the downside offers short side trade. Watching how it unfolds along with the broad markets as it bounced off $79.50 support.  Cleared $81.81… watching for trade opportunity. 
  • XLK – Technology tested $64 support, bounced, and made positive progress, but gave it back on Friday’s selling. Large-cap tech challenging the downside with SOXX and IGV breaking support. Watching how the week starts. Positive move in bottoming pattern.
  • XLF – ABCD pattern breaks with downside bias… tested the February 9th low and held. Letting this unfold and then we will take what the market offers. Bottoming pattern.
  • XLY – Consumer Discretionary sold to support at $99.40. Bounced on Thursday and reversed on Friday. Watching how it unfolds near term. 
  • RWR – REITs reacting to the current uncertainty around the hike in interest rates. Bounced off the $82.75 support and moved above $85.65 resistance. Tested on the selling Friday and letting this unfold near-term

News about the trade wars and tariffs with China continues to be the sticking point for the broad markets.Three-day bounce is erased on Friday as the President continues to banter with the Chinese. The reality is still to be determined and in the meantime, we look for the best opportunities as they unfold.  No time for speculation on the realization of earnings and more data on the way this week.  

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

FINAL NOTES:

The ABCD pattern broke with a downside bias and caught support, bounced, sold again. The question remains about direction and volume. There is a lack of conviction from either side as the volume remains below average. The leaders are still in place and could easily make the move on the upside with enough conviction from the buyers.  All eleven sectors on the week moved lower. The S&P 500 index closed lower on the week overall. The bounce off support failed leaving the direction in question and volatility is alive and well with the VIX index at 21.4. The key is to focus on the strategy you want to take during the current market environment. News and speculation drive the short term while fundamentals drive the long term. I trade both and have specific strategies for both. Short term we are in a process of testing the February 9th lows. A break of that level would signal a big negative technically for the broad indexes. Leadership is rolling over and the sentiment has shifted near term. We will start the week with earnings data for the first quarter… The goal remains money management, not market speculation… our downside bias has been confirmed and we will take what the market offers and manage the risk.

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.