Quarter ends with a positive day

Let the party begin… it will go down in history as one of the best quarters ever for stocks. Albeit it followed one of the worst quarters ever for stocks. The good news is the first half of 2020 is over and we get a fresh new start in the second half. Yes, I am trying to be optimistic about the future as the last six months have not been what I or many others expected for the year. The NASDAQ is the lone major index in positive territory ending the period up 12.1%. The S&P 500 index is down 4%, and the Dow is down 9.6%. The upside finish on Friday saw positive volume and money flow into the leaders with some of the “recovery stocks” higher as well. Banks, transports, materials, homebuilders, and machinery were all higher. The first two days of the week are positive and we will see how the start of July goes then next two days. Mr. Fauci continues his fear-mongering on television stating a 100k new cases per day is possible. The divide across party lines on the virus is growing, but the hope is some conclusions will come in the advance for new cases. The fear factor is accomplishing what the shutdown couldn’t… keeping people at home. Restaurants, malls, and other retail outlets have seen numbers decline significantly over the last ten days. Watching how this impacts the current optimism in stocks. Taking what is there and letting this all unfold.

In The News:

Short news notes of interest… 1) Uber is in talks to acquire Postmates for $2.6 billion. This is another boost for the food delivery companies that have benefitted from the stay-home mindset during the coronavirus. 2) Boeing rose 14.4% as they start the first phase of certification testing the 737 max on Monday… on Tuesday it fell 5.8% as two airlines canceled orders due to the renewed slowdown in travel. 3) Wells Fargo reduced their dividend and was down slightly on the day… this could be a sign of things to come in the banking sector. 4) Gold posted the highest close since 2011. $1800.50 per ounce and is up 12.98% for the quarter… we adjusted or stops on this holding. 5) Case-Shiller home prices rise 4.7% year-over-year. Showing strength in the housing sector remains. 6) Consumer confidence index jumped to 98.1 for June following an 85.9 mark in May. Solid move for the consumer.

The S&P 500 index closed up 47 points to 3100. It was up 1.5% on the day as the index continued the bounce from last week’s selling. The worries about the coronavirus surge and stock valuations were put to the side again as all eleven sectors closed in positive territory. The energy sector led the upside after lagging last week. Financials, healthcare, and technology also found buyers on the day to boost the sectors. The VIX index moved to 30.4 falling as the buyers show up. The view for second-half is starting to fill the headlines as the second quarter comes to a close.

The NASDAQ index closed up 184.6 points at 10,584. The index closed up 1.8% for the day. The index climbed above the 10,000 level again after bouncing at support Monday. Technology and large-cap stocks continue to shape the day-to-day activity for the index. The NASDAQ 100 index (QQQ) was up 1.9% for the day and back near the previous highs. The $233.41 level is the stop as we now watch how this unfolds. Semiconductors (SOXX) closed up 2.5% for the day after bouncing from support on Monday. Technology (XLK) was up 1.7% for the day and held the 20 DMA support Monday. Watching how this unfolds moving forward.

Small-Cap Index (IWM) The sector had posted solid gains and had taken on a leadership role only to give that up and test lower. It held support at the $132.55 level and moved into a consolidation pattern on the chart. Watching for clarity. Some activity on the upside to start the week with a positive follow through on Tuesday.

Transports (IYT) The sector jumped 16.6% on optimism and rotation. The sector fell 12.5% since… Fast money moving and watching how this unfolds relative to the trend. The sector is at key support in the current trend with a topping pattern on the chart. Airlines lead the upside Monday, and positive follow through on Tuesday.

The Dollar (UUP) The dollar broke lower from the consolidation pattern and was in a downtrend short term. There was a modest bounce this week in the dollar. Watching the bounce and the outlook near term. Hitting resistance.

The Volatility Index (VIX) Anxiety returned to markets this week as the last three days show a significant increase in the intraday volatility. We closed at 34.7 thanks to the weaker economic outlook from the analyst. Moved to 30.4 on Tuesday adding to the downside… watching support.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector tested off the high and is moving down to sideways of late. The challenges facing growth is the rationale… watching how it unfolds with no holdings currently. Bounced to start the week.

Biotech (IBB) The sector has been in a consolidation pattern that broke higher… and is now testing the move. Watching how the new week unfolds. Holding near the highs.

Semiconductors (SOXX) The sector tested the $255 support and held. The uptrend is still in place and the anxiety level a little higher… The money flow is flat. Taking what is offered and raising our stop to $255. Testing the move higher in a flag pattern. Bounced on Monday and added to the upside on Tuesday.

Software (IGV) The sector established a bottom at $185 and bounced. Stop at $270 (adjusted). Entry $205.10. Some testing with the markets moving lower, but the trend remains positive. Bounced on Tuesday holding the uptrend.

REITs (IYR) The sector collapsed as talk of defaults in the commercial debt market spooked investors. The Federal Reserve has stepped in to stem the downside. The current pattern shows consolidation with a downside bias… watching how it unfolds. At key support on Friday. Held support with upside move.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.63% down slightly from 0..69% last week. TLT has been a benefactor of the fear trade emerging again. Bonds made a key move higher and watching how this unfolds in the coming week. Entry $161. Stop $161 (adjusted).

Crude oil (USO) Crude moved to a high of $40.77 on the week and then closing at $38.49 for the week. The data is showing a reduction in production and consumption as this unfolds relative to the data. I like the long-term holding with entry at $13.81 and a two-year target of $45. Trading opportunities as well in the commodity. Added 3.1% to start the week. Gave up 1.1% on Tuesday.

Gold (GLD) The metal tested lower to $158.94 support and broke lower for a day… we were looking for a bounce and trade opportunity in the trading range and it unfolded… added at $158.90. Stop at $162.98 (adjusted). Closed the week at the highs. Manage the risk. Adding to the upside hitting highest close since 2011. Positive upside adjusted stop.

Emerging Markets (EEM) Broke from the trading range and above the April highs. Tested, bounced, and now in the trading range at the near term highs. Watching and letting this unfold.

China (FXI/YANG) Moving higher on the recovery phase starting for the global economies. Despite all the banter with the US/China trade, the country ETF is making moves higher with some testing on the week. Erased the break higher and holding in the previous range. Lower on the restriction for Hong Kong.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

TUESDAY’s Scans for June 30th: End of the quarter gets a boost on the final day. Energy, technology, healthcare, materials, and financials lead the upside move. Investors now look to the second half of the year with optimism driving the way. Will this be a positive six months? What will drive stocks higher? There is plenty of conflicting news in the headlines and there is still the reality factor of the shutdown along with other key economic issues facing investors. As always, we will take what the markets offer and manage the risk accordingly.

  • Energy (XLE) buyers stepped in but there is still plenty that needs to happen to reverse the trend near term. $39 is the level to watch.
  • Small Caps (IWM) nice bounce following the selling last week. Watching for some recovery in the growth sector.
  • Semiconductors (SOXX) posted solid day keeping the flag pattern of consolidation alive and well.
  • Financials (XLF) held at support. Nothing special, but finding some buyers. This will be the sector to watch near term as it will be the first to report earnings. Banks (KBE) bounced as well leading the sector.
  • Gold (GLD) solid move to highest mark since 2011. Gold miners (GDX) moved higher as well. Adjusted the stops on our positions.

MONDAY’s Scans for June 29th: The markets jumped higher as investors see the glass as half full. The challenges facing the markets relative to a surge in the virus were ignored for the most part as investors look to buy the dip versus weigh out the outlook for the second half. Watching how this all unfolds and taking what is offered. The industrials rallied back from selling lower and the NASDAQ lagged on the day as small and midcaps pushed off support.

  • Industrials (XLI) tested and bounced off the 50 DMA. Watching how this sector unfolds as it has lagged over the last three weeks. Indicator for the future outlook.
  • Crude Oil (USO) bounced 3% as the data starts to catch up to the cuts in production. Watching how this unfolds globally as the markets all begin to open again to consumers returning. UGA was up 4% on the day as well.
  • Small Caps (IWM) solid day to lead the indexes, but there is plenty of work to be done for growth stocks to return to the upside trend.
  • Natural Gas (UNG) jumps 9.8% after excessive selling. Watching how this unfolds.
  • Aerospace and Defense (ITA) bounced 5.7% as Boeing starts certification of the 737 max. Interested looking forward in the sector.

FRIDAY’s Scans for June 27th: The Fed returned to the headlines taking away share purchases and capping dividend payments for banks… that sent the sector lower and the balance of the market joined in with the spike in coronavirus cases. There is plenty to ponder relative to the outlook, but the key factor now is clarity. Without the belief of a second-half recovery the second quarter recovery may be in for a bumpy ride the balance of the year. Taking it one day at a time as the data unfolds along with the money flow.

  • Financials (XLF) easy come easy go. The Fed changes rocks the sector to a 6% decline, breaks support, and puts the sector in jeopardy of more downside. Watching FAZ opportunity.
  • Gold (GLD) upside remains in place with some stall in the move… the dollar gets credit for that… but, the fear factor looming offers upside opportunity… managing our stops and letting this unfold.
  • REITs (IYR) at key support… breaks downside becomes an opportunity… SRS = double bottom pattern.
  • S&P 500 Index (SPY) double top pattern on the chart… breaks key support the downside could unfold.
  • Treasury Bonds (TLT/TMF) upside back in play as stocks losing ground. Broke above resistance to close the week and watching how the fear trade and money flow shifts.

THURSDAY’s Scans for June 26th: The news from the Fed and banking regulators helped ease some stress as financials lead the markets on the upside Thursday. No questions were answered relative to the outlook for the economy only more added. The issues around unemployment are getting cloudier as large companies delay openings and full employment due to the spread of the coronavirus. Taking it one day at a time for now and letting the trend unfold near term. More consolidation currently.

  • Financials (XLF) got a boost from the Federal Reserve stress test results. The also got confirmation the Fed would provide any needed liquidity helping the sector rise 2.6% on the day… watching.
  • Energy (XLE) bounced back some from the selling on Wednesday as the fuel demand rose in the US. Watching how this unfolds in the face of the increased cases and slower opening of the economy.
  • Natural Gas (UNG/DGAZ) short side spikes higher again and we adjusted the stop… This is a new low for the commodity.
  • Volatility Index (VXX) the intraday moves are picking up. Watching if the anxiety overall starts to rise again.
  • The S&P 500 sectors now total ten of eleven sectors in consolidation patterns. This is a sign of uncertainty from investors. There has been a rotation among sectors, but the key will be how this consolidation unfolds. Watching for direction simply put.

WEDNESDAY’s Scan for June 25th: The sellers showed up as the news about the virus finally broke the upside string. The challenges the economy faces due to slower openings and keeping people inside is a reality. We will see how this impacts the current trends and take the necessary steps to protect the recent gains on the upside.

  • Energy (XLE) broke support and the 50 DMA. The renewed weakness in the sector is raising questions about the outlook near term. Short side opportunity if it confirms the break lower.
  • Small Caps (IWM/TZA) downside move worth watching. A break lower will offer short side trade opportunities.
  • Volatility Index (VXX) Moved higher after testing support this week. Watching how this unfolds and if the anxiety levels rise in stocks.
  • Biotech (IBB) tested the upside move and managing our stops.
  • Treasury Bonds (TLT) bounced and back to resistance… will money flow rise as investors seek safety… watching.

(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 solid break above the $45.87 resistance offering upside trade opportunity. Now testing the $54.15 support levels and exit point if we move lower. Nice bounce.
  • XLU – Utilities reversed the move higher and moving lower testing the $55.24 support levels. Watching for the opportunity. Held support.
  • IYZ – Telecom moved to the April highs and then breaks the $27.63 support. Threatens the uptrend line from the March lows… no positions. Held Support.
  • XLP – Consumer Staples moved lower again testing support at the $57.17 mark and remains in a sideways trend. Break of support offers downside opportunity.
  • XLI – Industrials broke higher from the consolidation pattern. Tested support and broke support at the $67.50 mark. What happens from here? Downside? Nice Bounce.
  • XLE – Energy established an uptrend from the March lows… accelerated on crude prices, but has now broken the trendline and struggling to hold key support levels. The downside is in play for now.
  • XLV – Healthcare moved above $88.50 level and offered upside opportunity. The sideways trend remains in play with the sector closing at the bottom of the range. A break lower offers downside opportunity. Nice bounce.
  • XLK – Technology cleared $82.37 resistance and offered upside trade. Remains the leadership for the broader index currently and broke higher from the topping pattern and adjusting the stop. SOCL under pressure on the week. SOXX and IGN weighing down the sector. Holding near the highs.
  • XLF – Financials broke lower this week as the Fed intervenes in ways seen as costly… no share purchases and capped dividend payments for the third quarter. Watching the downside risk in the sector. Nice bounce.
  • XLY – Consumer Discretionary broke from the trading range and established a solid uptrend. Approaching the February highs and stalled and is trading in a consolidation pattern. Watching the outcome. Nice bounce.
  • IYR – REITs struggle to find money flow. The move below $77.90 was negative this week. The uptrend line is in play… a break lower offers downside trade. Watching how this unfolds. Bounced.

The trends are being challenged by news and investor activity. Some consolidation patterns building this week and watching how they unfolds going forward. We have positions based on our defined strategies and managing the risk accordingly as we take some exits this week. Using the six-month charts as an indicator for the short term view… Five sectors are in confirmed uptrends (down from eight last week). Six are consolidation patterns (up three from last week), and none are in downtrends (several on the cusp of breaking lower). The result for SPY is in a move to sideways trend short term with a consolidation bias for the week. The leadership is seeing some rotation 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:

Tuesday: Markets continued to bounce back with a solid follow through on Tuesday. The end of the quarter provided some interest, but it is the start of the next phase that will interest me. There is plenty on the horizon that could derail the markets, but equally, there is an opportunity for the upside to continue if the numbers continue to improve. Taking it one day at a time as the news and reality continue to unfold for stocks.

Monday: Bounce day for the markets overall. Still, plenty of work to do to resume the uptrends. Held key levels of support and showing some signs from the buyers… is it the quarter-end or are people really ready to put money to work? Taking the good with the bad and letting the direction unfold as the emotions continue to rise over the coronavirus surge in cases. Plenty of things to chatter about, but the key is to focus on the reality of the news and data, not the emotions.

Weekend Wrap & Outlook… The coronavirus leads the headlines for the second week with the record rise in new cases in six states. That puts caution in the markets and money begins to rotate. The broad indexes posted a negative week which is now two of the last three weeks. Add to speculation the Fed restricting banks on Friday to cap dividend payments and stop share purchases. It is keeping a cloud over the market along with some increased volatility in the last three days. China-US trade tensions are back on the table as China threatens the US if they intervene in Hong Kong or Taiwan. The NASDAQ’s pushed back towards the record highs giving up the gains to end the week. There are so many questions left unanswered for the simple reason it will take time to know… thus, all the questions start to cut into money flow as it shifts towards safety. The treasury bonds rose on the week and break above resistance points. With the reopening process being challenged by the spike higher in coronavirus cases markets begin to test and in some sectors reverse trends. The VIX index moved back to 34.7 after testing the support levels earlier in the week and intraday volatility spiking. Some downside opportunities are setting up based on the current charts and money flow. We will monitor these throughout the week. We took some money off the table and raised cash as money rotates out of stocks. Our job remains to manage the risk accordingly. All eleven sectors posted losses for the week as they show strain from the current environment. Gold continued to bounce moving back to the top of the trading range. Crude oil moving sideways as it struggles with the $40 a barrel level. The focus is starting to turn to the future outlook for growth and how long it will take to see a recovery. Many analysts are now saying the fourth quarter… I say that is a bit optimistic. 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. Remember fear and speculation create opportunities. Watch the trend, know which side the Fed is on (they keep telling you almost 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. Manage your risk accordingly and let this unfold… one day at a time.

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.