OUTLOOK: Week of August 6th
Investors keep finding something to like as buyers show positive momentum towards the jobs report. The rate of unemployment fell to 3.9% and 159k new jobs were added. It was enough to push stocks higher to end the week. The positive momentum on the week helped raise stocks more than one percent across the indexes. Wages remain subdued in growth at only 2.7% for the year. This is keeping wage inflation under control… which is a fear of a tight job market. Apple is now worth more than $1 trillion which is a nice big number, but more significantly it accounts for 4% of the S&P 500 index… that is significant. It wasn’t all good news on Friday as China continues to rumble about tariffs adding $60 billion in goods from the US. The White House responded that they were open to negotiations with China… always a positive move:) Plenty of activity to watch and scan as we move to the next week of trading.
The S&P 500 index closed up 13.1 points at 2840 as the index bounced at support to hold the move above the February highs. The trend remains on the upside and the chart technically remains in a trading range near the highs. The volume remains on the weaker side even with some buying the last two days. Consumer staples and REITs led the upside as ten of the eleven sectors closed in positive territory on Friday. Energy led on the downside as money flow shows some rotation again on the day. The index rose 1.35% for the week ending in postive territory and near the previous highs. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.
The NASDAQ index closed up 9.3 points to close at 7812. The move to new highs was erased as the index tested support and bounced since to recover nicely and remain in a positive trend. Thanks to Apple the index held the 50 DMA and bounced back towards the previous highs. Semiconductors (SOXX) have been positive but they have struggled to move above the $187 resistance closing at that mark on Friday. The long-term uptrend remains in place and the tug-o-war with the sellers is not likely over. The key remains patience along with a strategic approach to managing money. Stops in place and watching how the day unfolds.
Small Cap index moved back to support at $164.43 and holding with a modest bounce. The sector remains in a consolidation topping pattern and $170 highs are the level to clear. The leadership of this sector has been key to the bounce from the April lows. A turn lower would be a negative for the broad markets overall. Neutral to the sector currently.
Transports (IYT) moved above $192.40 level and running into some resistance at the $200.53 mark. This will be a key level for the index to clear in an effort to regain the previous uptrend. The sector remains in a positive upside move from the June lows. Some positive moves in the airlines are keeping the upside in play. Watching the bottoming formation on the chart. Trucking bounced on Thursday to help the upside. Held the move and offered an entry point. Entry $192.50. Stop $192.50 (adjusted).
Gold (GLD) broke support at the $115.86 as the metal struggles to find buyers. The additional downside on Thursday below support confirms the downtrend is still in play along with the short side trade. Friday offered a bounce attempt but failed to hold any significant gains. The gold miners (GDX) moved lower as well breaking support at $21.92 and equally supporting the short side trade. Positive day Friday and watching if it follow through to start the new week of trading. Metals and Mining (XME) moving back below the 200 DMA after hitting resistance at the $37.40 mark. Tariff talk from China reverses the bounce. Base metals (DBB) dumped lower on tariffs worries arise on the comments from China.
The dollar (UUP) closed above the $25 mark as the up and downs continue. The resistance at the $25.17 level remains in place and a challenge for the buck. The bounce back to the previous highs is of interest as China continues to take verbal jabs at the US. They have devalued the yuan with some quantitative easing adding to the dollar. The Fed comments on raising rates helped as well. There has been some selling showing on the chart with a topping pattern. Watching how this unfolds along with global politics. The overall move higher is positive from my perspective, but there are many who think a weak dollar helps US companies. Simply not true… history validates a strong dollar favors the US despite the short-term setbacks.
Crude oil (USO) is consolidating after selling lower the last two weeks… the worries remain around the supply data causing the current angst. Those worries were somewhat confirmed on the supply data Wednesday. The commodity closed at $68.49 on Friday with a bounce off support. When traders believe supply is short prices rise… when there is too much supply prices drop… supply data the last three weeks has not favored crude prices… simply put. Remember all of this is about the sanctions on Iraq… OPEC controlling the supply… Russia as a wildcard… and don’t forget the US can influence production as well. We banked our gains for the upside trade and watching how the current selling unfolds.
Emerging Markets (EEM) The bottoming consolidation in the sector broke higher with a follow through, but then China started the negative talks in the media and the upside reversed back below the $44.09 support. The move on Friday ended the week at $44.21… still plenty of questions. Entry $44.50. Stop $43.50.
The Volatility Index (VIX) closed at 11.6 on Friday as the anxiety levels subside along with the bounce in tech stocks. Geopolitics helped with talks about tariffs easing in Europe. The renewed bantering with China added some interesting thoughts to the topic not being settled yet. Short term the market is driven by emotions… trade accordingly by managing your risk. There is plenty on the stove that could boil over at any time… watching how this unfolds.
This week the NASDAQ set the tone as the index sold lower to test the 7600 level of support and then bounce to clear the previous 7800 resistance. Worries over earnings were the catalyst and good news from Apple helped right the cart. Is the worst over? Not likely as there are more earnings to come as the banter about valuations be overvalued continue… we will watch the chart trend and fundamental data to determine our stance and holdings. The S&P 500 ended the week higher as money migrated to REITs, healthcare, and consumer staples. Economic data was positive with the jobs report showing more growth in July. Interest rates moved higher as talks about raising interest rates again. Earnings have been a challenge for large caps. With the exception of Apple and Amazon, things have not been all roses. The positive move overall for the week negates some of the negative sentiment we started the week with… there are still plenty of issues on the table with China striking at more tariffs against the US. Small caps showed weakness but remain near their current highs. All we can do is manage our risk according to the charts and not speculate on what if… the greatest challenge for us all is not letting our emotions get involved in a process that requires a disciplined strategy and action. Energy and crude oil remain challenged by the supply data and we continue to watch as that story unfolds. Utilities and REITs are watching interest rates as both moved higher for the week. There is plenty of dynamics working in the markets overall and we will take it one day at a time as the trend remains positive. There is some short-term repositioning in play and we will look at the opportunities, exit positions that warrant it, and take what the market gives. Manage your risk and look on the horizon for answers to the trends.
(The notes above are posted daily based on the activity of the previous days trading)
KEY INDICATORS/SECTORS &LEADERS TO WATCH:
Biotech (IBB) The break lower from the flag pattern was negative and hit our stop. The sector tested support at $114 and bounce back keeping the uptrend in play. Watched the $116.50 level Thursday on a test of the move and added the position again at $116.75. Stop $114. Tested the move to close the week on Friday. Consolidation at the highs for now.
Semiconductors (SOXX) The sector moved lower breaking the support at the $182.38 mark and testing the 50 DMA. The bounce off support was positive as we moved back above $182.38 level… testing resistance at the $187 mark now. I like the positive sentiment shift as we need some leadership from the sector. Entry $182.50. Stop $182.50.
Software (IGV) The sector tested support, bounced, remains in an uptrend, needs to clear the $191 mark. Watching how this unfolds to start the week.
REITs (IYR) The sector made a break from the trading range clearing $76.22. Rates moving below the 3% mark got the credit for the rally. With interest rates suddenly moving back to the 3% mark raised questions about the move. Rates tested lower on the week and the sector rallied back above the June highs. Entry $75. Stop $79.30 (adjusted). 3.8% dividend.
Treasury Yield 10 Year Bond (TNX) moved to 2.95% on the week after moving above 3% on the FOMC meeting. TMV hit entry and watching how things unfold for bonds. Entry $19.40. Stop $19.40.
Energy stocks (XLE) The stocks tested the move higher and moved into a consolidation pattern. You have to love speculation to trade crude or energy stocks as the news, hype, and speculation are a key part of the trends. Supply worries are back and this is keeping the stocks in check for now. Letting the next opportunity unfold.
(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 Scans 8/3: Some positives on the day as jobs report offsets the worries about China adding another $60 billion in tariffs. The continued challenges from news pushed volume lower on the week and money is moving faster to where it is treated favorably by the news. Utilities broke through resistance adding to the upside move. REITs broke higher on lower interest rates again. Energy continues to struggle with crude basing on weaker supply data. Key remains looking for short-term momentum. This is clearly a traders market short term.
- Consumer Staples (XLP) broke above the 200 DMA and leading in a positive uptrend. We will adjust our stop and continue to manage the risk of the sector. KMB, CLX, TAP, KHC, and SJM helped lead the sector highs this week.
- REITs (RWR/DRN) showing positive upside move as rates subside and make move to new highs. Trends remain positive for the sector overall as SRG, FCEA, MAC, KIM, and FRT lead the sector higher.
- Utilities (XLU/UPW) breaks above $52.72 resistance and clears the top of the current trading range. Postive for the trend and the position currently held. Raise stops and manage the risk accordingly.
- Brazil (EWZ/BRZU) the break above $26 tested and Friday showed a positive momentum move higher to maintain the uptrend from the June lows. Emerging markets have been challenged by the dollar and tariffs. Managing our risk of this position.
- Healthcare (XLV/CURE) remains in a positive uptrend with a positive addition on Friday. Uptrend remains… adjusted stops… IHE, IHI, IHF, IBB all continue to show positive trends for the sector.
Other sectors on the watch list to make moves or are making positive moves… FAS, EWW, TECL, DDM, SSO, TQQQ, SPLV, CORN, SKYY, IYT, SOXX, and KIE.
THURSDAY’s Scans 8/2: Another day of holding server for the markets as the technology stocks bounce along with Apple on the day to help the broad indexes bounce. This is a game of news with China continuing to fight the trade wars in the media. The US has stated what it would do and has followed through… no one wins a trade war, but China stands to lose more than the US. Doesn’t make it a win… it just validates the strength of the US economy and the need to settle this issue now for the good of all. Money continues to juggle looking for strength and opportunity. It is a moving target that chasing will only make you dizzy. Discipline entry and exit points and managing risk are key.
- Technology (XLK/TECL) added to the upside bounce. Continuing to watch the key players here. SOXX, IGV, SOCL, IGN, HACK…
- Healthcare (XLV/CURE) still leading the upside move. IBB, IHE, IHF, IHI all moving in positive trends.
- Consumer Staples (XLP) steady move higher in uptrend from the May lows.
- Natural Gas (UNG/UGAZ) solid bounce to add to the trend reversal the last two weeks.
- NASDAQ 100 (QQQ/TQQQ) solid bounce as well off support. Uptrend remains in play and looking for the opportunities in the leadership.
Last trading day of the week. Tough to want to take positions on Friday, but we will watch how the day unfolds and the pre-market reaction to the jobs report. The dollar, crude oil, interest rates all still playing a role currently in the overall psychology of the markets.
WEDNESDAY’s Scans 8/1: New trading month meet the Fed! The comments from the Fed following the FOMC meeting set the tone and will likely overflow into the trading on Thursday. Not expecting a good day to start. The comments from China relative Apples earnings and growth in China sales adds to the tariff worries. Bottom line there is always something in the headlines… the goal is to filter through the noise and look for the opportunities up or down. The uptrend remains in place and watching how the leaders react… technology, financials, healthcare and basic materials all need some renewed zeal if this is going higher. Stops in place and eyes on the prize, not the financial networks.
- Technology (XLK/TECL) bounced for the second day and watching how the earnings continue to unfold. Semiconductors (SOXX), software (IGV) and social media (SOCL) are keys to the move following through.
- Healthcare (XLV/CURE) small bump higher to follow through from Tuesday… watching biotech (IBB), providers (IHF), drugs (IHE), and medical devices (IHI).
- Financials (XLF) bounced to resistance and failed to break higher. Banks (KBE) aren’t helping the cause. Brokers (IAI) sold off and trying to bounce. Insurance (KIE) has been leading the upside with solid earnings.
- China (FXI/YANG) the comment on Apple and trade sent the country stocks lower. Watching how this unfolds with the short side back in play on the move.
- Energy (XLE/ERY) the upside reversed on the supply data. Watching as the stocks remain in a trading range. Crude (USO) is fading to support. Gasoline (UGA) fell on Wednesday after a rise to the Jund highs. Short side trade may evolve here.
As you can see there is plenty of activity and emotions at work. We have to find the momentum and movement of money and follow the trends… up or down.
TUESDAY’s Scan 7/31: Modest bounce following the selling on Monday. Still not definitive action from either side. No follow through on the sell-off in large-cap tech stocks. After-hours earnings from Apple will help, but not sure how much. The key, for now, is to let this unfold and take the opportunities presented. Rumors of China starting the trade talks again offered some relief, but not enough to change the overall worries present on earnings news. Positive moves in industrials, REITs, healthcare, and basic materials on the day.
- Industrials (XLI) running higher on the trade talk news and the sector is in position to break above the resistance at the $76.70 level and the May/June highs.
- Healthcare (XLV) resumed the uptrend with a solid move higher. Biotech (IBB) resumed the move upside as well. This has been one of the leaders in the current trend higher for the broad markets.
- Small Caps (IWM/TNA) solid bounce off support and watching how this sector unfolds as one of the previous leaders. Short side set up on the chart if the momentum shifts.
- Aerospace and Defense (ITA) moved to the top end of the range and resistance. Looking for a move above the $207 level.
- China (FXI/YINN) $27.50 is level to clear. The bottoming pattern remains in play and the rumors of renewed trade talks could be a catalyst for the move higher. Watching.
There are plenty of issues facing stocks. The selling in large-cap tech on earnings is keeping the balance of the market in check. Watching how the trade talks with the EU and China unfolds and what that does for the materials and industrial sectors.
(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 by 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 above the $58.44 level and continues to consolidate on worries about tariffs, etc. Watching how it unfolds.
- XLU – Utilities got relief as rates moved back below the 3% mark for the week and cleared the resistance at $52.72 and looking good currently. Uptrend remains in play… entry $49.55. stop $51.80 (adjusted).
- IYZ – Telecom moved back above the $27.63 resistance and is looking for momentum in the sector. Entry $27.80. Stop $27.50.
- XLP – Consumer Staples finally found support and has been in a gradual uptrend from the May lows. The ability to gain some momentum is shown in the nice move above both the 50 and 200 DMA . Entry $50.50. Stop $51.80. Going with the trend and being patient.
- XLI – Industrials made a move back to $71.43 holding support and a bottom reversal pattern cleared the $74.20 resistance and $75.72 mark is being tested. Holding steady for now. Entry $72.50. Stop $74.10 (adjusted).
- XLE – Energy stocks have been volatile as they deal with the question of production impacting the price of crude. Too much speculation as the sector remains in the current pattern. Patiently awaiting a break in direction.
- XLV – Bounced off $83.24 support. Upside follows through as the sector moved back above the $86.74 resistance and gained momentum from drug stocks. Solid week for the sector as we let trend run and manage our risk. Entry $83.25. Stop $86.50 (adjusted).
- XLK – Earnings missed… stocks drop. Earnings beat… stocks rise. Bounced off support and attempting to regain the upside momentum short term. $72.50 cleared and moving back towards the previous highs. Entry $72. Stop $70.50.
- XLF – Tested support at $26.90… rallied on earnings and bounce in interest rates. Watching resistance at the $28.24 mark. Insurance is leading the sector higher. Entry $27.50. Stop $27.50.
- XLY – Consumer remains a leader after testing support and bouncing back near the June highs. Letting this unfold as the sector remains in a trading range currently. Consolidation pattern in play at the highs.
- RWR – REITs have been in a clear uptrend since the February lows. Granted it has come with some volatility and speculation, but the upside is in place. Positive bounce after testing lower. Entry $93.40. Stop $91.50. 3.8% dividend.
Earnings, tariffs, Fed, and economic data help the upside as investors put money to work… albeit on lower volume. The earnings season has been positive thus far with some obvious exceptions stealing the headlines. We ended the month of July positive, started August with question marks, but overall the indexes posted positive gains for the week. Jobs report helped offset the tariff bantering with China on Friday. We have to focus on our own strategy and ignore the news. We have booked positive gains on positions and added others as we continue to trade what the market gives. All of the economic data remains on track for growth. There is always something to worry about, but at the end of the day it is about the trend and we continue to see a positive uptrend for stocks as seen in the bounce this week. The S&P 500 index showed seven of the eleven sectors moving higher for the week. The volume remains on the low side. The results for the week were positive for the index and the NASDAQ managed to find some buyers to bounce off support from last weeks selling. REITs, healthcare, and consumer staples offered leadership efforts on the week. Bonds rallied after getting hit by the FOMC news of higher rates on the horizon. Utilities move through resistance to keep the upside trend moving. Energy is consolidating along with crude oil as speculation about supply and demand keep the commodity and the stocks in check. We need stocks to hold their own in the face worries in order to keep the uptrend moving. We will keep our focus on our strategy in the current market environment. We continue to manage all positions as trades until we gain some clarity on the longer term views. The long-term uptrends remain in place and we will manage our longer-term holdings in light of that trendline. 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.