Positive week for stocks… still questions

OUTLOOK: Week of April 17th

The market could not make the move above resistance heading into the weekend. After starting on the upside the indexes spend the day moving sideways and then in the last hour gave up and closed lower on the day. They did manage a positive week for a change, but the charts show the lack of interest by both the buyers and the sellers as we remain in limbo awaiting the news daily or some tweet from the White House. The strike on Syria isn’t the greatest thing geopolitically for the markets and we will be watching how that unfolds this week. Overall the markets are in decent shape… drifted higher on the week, lower volume was an issue along with the breadth of the move, and we need to break through the current resistance levels if the bounce off the lows is to continue.

The S&P 500 index closed down 7.6 points at 2656 holding above the 200 DMA and failing to clear resistance at the 2675 mark. The chart is holding the long-term trendlines off the January/February 2016 low. The current pattern could still unfold on the upside by clearing 2675, 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, Russia, and Syria ongoing expect more volatility. Watching how it unfolds and what are opportunities are presented.

The NASDAQ index moved back to the 7103 level of resistance and closed at 7106 to end the week. The move above this level is a positive for the current consolidation to move higher. The last three weeks have shown big swings as the buyers and sellers fight for direction. Too many international 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.

Small Cap index is leading the bounce off the current lows with some solid moves toward resistance at the $154.90 mark. Low volume isn’t helping the cause, but the leadership is a positive. Watching how the opportunity unfolds near term… Willing to add a position if we can establish the upside move at $154.90.

Gold (GLD) moved back above the $126.02 mark after a test lower last week and spiked higher on the Russia interaction on Wednesday. With some calm in the media storm, the metal moved back to $126.62 and closed at $127.45 for the week. The gold miners (GDX) made the move back above the $21.92 mark from the bottoming pattern in play. The break above this level offered a trade opportunity and followed through on Wednesday. Entry $22.25, Stop $$21.90. Despite the volatility in the metal the stocks are holding up well. Base metals (DBB) reversed off the downtrend on sanctions against Russia… the metals cleared $18.36 entry level for a trade. Entry $18.36, Stop $18.75 (Hit Stop)… Only to sell lower as nerves calmed. Selling or profit taking hit the sector on Thursday. I used a tight stop as the move was all news related… took a small gain and looking for the next opportunity.

The dollar (UUP) bounced some on Thursday after the move lower with pressure from the global picture weighing on the buck. The move helped commodities near term and now we watch to see how this unfolds… the news isn’t over just quiet on the day.

Treasury Bond yields moved to 2.82% Friday on optimism after testing lower last week. The move hurt the bond as they lost ground on the move. The utilities and REITs also reacted to the move on Thursday. Watching to see how this plays out with the yield remaining in a trading range. 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. Patience is needed for now.

Crude oil (USO) moved back above the $61.60 mark… bounced to $63.42 on Monday… and $67.39 on Friday as uncertainty remains around the inventories, production, global discord, and the dollar. The news is driving and oil hit a new near-term high. 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 last week but was countered this week by Russia and Syria issues. 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 move to $48 again but failed to hold the move on Friday. 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 17.4 as investors worry calm, but the tariff wars and international discord remain in the background. The downside move in volatility last week offered some short side opportunities, but not enough to warrant the risk. FOMC meeting, tariffs, antitrust lawsuits, Mr. Trump, Russia, Syria, etc. all adding to the investor anxiety. Watching how the week unfolds.

This week was a hot mess with Russia and the White House bantering over Syria and missiles. The inability to follow through up or down is the current challenge. The advance towards the beginning of earnings is on deck and we look for some positive response overall. Too many things in the mixing bowl to decipher and it is keeping everyone content to watch and trade the opportunities short term with not much being said or focused on the long-term outlook. Uncertainty is present and neither the buyers or the sellers are exerting effort to control the direction. 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 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. 

(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. Bounced off the lows… and the follow through on the bounce last week takes us back to resistance at the $107 mark.   

Semiconductors (SOXX) bounced off the support at $172.60. It has retreated on the selling sending the sector lower… but, managed a bounce last week back to the $181.60 mark. Didn’t hold the move higher on Friday and we will look for a follow through an entry at the $181.60 mark this week.

Software (IGV) bounced off the near term low and test at $165. Cleared $171.11 entry trade on Thursday. Stop $167.62. Tested the move on Friday and watching this week for upside follow through.

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 2.82% this week as money is jumping around looking for the best opportunity. The rolling top activity moved below the 2.79 support and bounced… watching how this impacts the bond sector. 

Energy stocks (XLE) Cleared $68.82 on the upside to break from the current trading range. The move in crude the last three days gave cause for the buying. Looking to hold the move and establish a position if the move confirms. Entry $70, Stop $67.70. Held the move on Thursday and followed through on Friday. 

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. Bounced on Friday to the $22.69 mark of resistance and interested if we can clear this level. 

All of the indexes posted positive moves on the week, but remain lethargic at best. Looking for some type of upside follow through with earnings starting. There is plenty of geopolitical news to deal with and it continues to keep things in check. I don’t want to speculate and spend a lot of time discussing the ramifications of what if’s… so far the market is handling most issues, but I remain cautious about how much exposure I want to stocks overall. One day at a time remains my theme.

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

Daily Scan Results:

FRIDAY’s Scan 11/14: the broad markets failed to hold the modest gains from early in the day and by the close sold into negative territory. Nothing to be alarmed about and if we can make it through the weekend maybe we have a continuation of the upside move. Watching, measuring, and contemplating each opportunity as they unfold. Commodities and some selling lead the scans to end the week.

  • Gold Miners (GDX/NUGT) upside remains positive in the stocks despite the price juggling in the metal. Entry $26 is holding and stop is $25.50. Watching how this unfolds near term.
  • Russia (RSX/RUSS) the pressure from sanctions weighed on the market and after a small bounce, the selling returned again on Friday… watching how this unfolds as the oversold conditions will offer upside opportunity…
  • China (FXI/YANG) same deal here… bounce saw some selling on Friday. Watching the big trading range in the country ETF as the uncertainty calms and some direction is restored.
  • Energy (XLE/ERX) upside continues to play out as crude hits near-term high. Leadership for the sector is not generally what you want, but willing to take the move as a near-term trade. $29.05 entry this week and stop at $29 currently. Watching how this one unfolds… giving it some room to run for now.
  • Emerging Markets (EEM/EDZ) downside risk remains in play despite holding near support. The international issues will have to clear up to allow some upside room in the sector.

Leaders… XLE, GDX, IGV, IGN, SOXX, IBB, USO, OIH

Patterns… still dealing with consolidation patterns with some breakouts in XLE, OIH, IEO, GDX, EWW, IEV, HYG

Charts to Watch… TLT, GDX, UCO, FAN, IBB, IHE, MU, FFIV, RHAT

THURSDAY’s Scan 11/13: positive upside on the day with some selling in the last hour. Looking to clear the 50 DMA next to add some interest to the current move off the lows. Patience remains a key element in the current environment with too much news and not enough buyers. The scans once again produce the obvious moves on the day and some things to watch…

  • Leaders – Financials (XLF), technology (XLK), industrials (XLI), small caps (IWM) and basic materials (XLB) all moved to resistance and a push through would offer some opportunities in the sector or the leading stocks.
  • Laggards – Treasury bonds (TLT/TBT), REITs (IYR), utilities (XLU), consumer staples (XLP) all moved with interest rates on the downside. Looking at possible short side trades as this unfolds.
  • Limpers – S&P 500 index (SPY), NASDAQ (QQQ), Dow (DIA) all pushed to resistance and looking for the move through these levels as well as the 50 DMA to confirm the upside bounce off the current lows.
  • Thursday Charts of Interest: SOXL moved above $152.73 and needs to follow through on the upside. LABU moved to the $84.18 resistance and needs to climb through the resistance. TECL cleared $117.37 resistance and looking for follow through. TQQQ moved above $144.90 and looking for follow through. TMV setting up the double bottom as interest rates creep higher. CURE looking for a break from the bottoming pattern. TNA cleared $69.41 for positive bottom reversal follow through. Plenty of patterns in play as the consolidation continues and the leadership is thin.
  • ETFs to Watch: HACK, IEZ, KRE, EURL, IAI, IGN, IHF, SKYY, EWI, FDN, IWC

WEDNESDAY’s Scan 4/11: Some positive, some negative… not much changed. Commodities are moving in response to the banter in the international politics. Stocks remain worried and holding support. Bonds are flat. Interest rates are lower. The dollar is moving down. I am watching and waiting for the direction to unfold. Good time to play golf.

  • Energy (XLK/ERX) held gap higher and added to the upside as crude moved above $66. Took a position in the stocks and we will manage with a tight stop to see how much upside there is in the sector. The upside trade is crude is working as well… both are news driven and need to be managed accordingly. UCO, OIH, UGA, FCG also opportunities.
  • Gold Miners (GDX/NUGT) break above resistance offered upside trade same as energy… news driven and needs to be managed aggressively. Tight stops and watching how it unfolds near term. SLVP also upside move.
  • Brazil (EWZ/BRZU) bounced for the second day off the current lows and watching for an opportunity short term. Crude is moving, commodities overall are moving, and that helps the country ETF.
  • Biotech (IBB/LABU) held the upside move as it clears $77.04 resistance. Trade opportunity in the bounce and follow through. $98.60 target.
  • Treasury Bonds (TLT/TMF) upside back as interest declined slightly… interesting to watch how this unfolds with money still rotating to safety. Upside trade opportunity is back and watching.

Letting this unfold one day at a time and taking what the market offers without bias… Niether side can decide who will win the battle for direction.

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

 

(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 back to the $58.44 resistance and watching as it followed through on the bounce off the current lows.
  • 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? Bounced off support and back to resistance at the $27.63 mark and watching for an opportunity.
  • 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. Cleared $68.82 (entry) upside to break from the trading range. Got the confirmation and watching $72.04 resistance next. Stop $69.50. 
  • XLV – 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. Large-cap tech helping the upside with SOXX and IGV making positive moves. Watching how the week starts. 
  • XLF – the sector has become a hot potato with the interest rates moving, dollar struggling, and geopolitics in the news daily. Watching support at $26.90.
  • XLY – Consumer Discretionary sold to support at $99.40. Bounced and 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. Letting this unfold near-term.

The news is the driver… Syria attack is a concern heading into the trading week… earnings start… and we lack any conviction on either side. Taking it one day at a time with plenty of cash on hand to protect our money as this unfolds. This remains a trading environment driven by news versus reality. 

(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. 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.  Ten of the eleven sectors moved higher for the week showing some positive signs. The S&P 500 index closed higher on the week as well. The bounce off support followed through on lower volume, but we will take the peace in direction for now. 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 a bounce off support and a need to break through the first level of resistance. A break of that level would signal an upside opportunity. 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.