Resistance holds and stocks fade

OUTLOOK: February 8th 

Stocks moved to resistance on Wednesday and fade on Thursday testing the latest move higher. What changed? There were comments about trade with China a long way from finding some kind of resolution… that was enough for money to move to safer ground. The reality is money is looking for safer ground because the indexes have moved up more than 15% from their respective lows and profit taking is part of the process for good money management. I am not saying there is another correction on the horizon, I am simply stating that rotation and profit are part of the process. We have our stops in place and will see how today unfolds. 

The S&P 500 index closed down 25.5 points to 2706 and testing the uptrend from the bounce at the December lows. The third leg advanced to the 200 DMA as resistance and watching how it unfolds near term. Two of the eleven sectors closed in positive territory on the day. Utilities and REITs were the leading sectors to close on the upside. The downside was led by energy and basic materials as money rotates. The long-term trendlines have improved, but still, have work to be done to offer an entry signal. We will watch how the current activity unfolds and the impact on the trends longer term. SPXL entry $33.50, stop $39.50 (adjusted). 

The NASDAQ index closed down 86.9 points to close at 7288. The upside follow-through has kept investors in a buying mood of late. The close was back below the 7297 mark testing the latest move higher. The index has been the leader for the current move. Technology led the test as semiconductors added to the pressure reversing from Wednesday’s upside move. 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 $45.10 (adjusted). Got the move above the $162.48 resistance and we hit our next target at the $167.53 mark. $170.93 resistance along with the 200 DMA. Managing your stops and let it run for now.

Small Cap index (IWM) found some buyers as the third leg of the move higher accelerates in the current trend. The sector shifted to a leadership role as it tested and held the $144.65 level of support. A solid move above resistance point of $149.04 and puts the sector in good shape to continue this leg higher. Added a position on a move above the $133.78 mark. Entry $133.90. Stop $147.50 (adjusted). $152.28 next objective. 

Transports (IYT) bounced off support and looks positive with the move above resistance at $182.43. Clearing the $164.73 level offered upside trade opportunity. Entry $165. Stop $177.50 (adjusted). The testing at the highs and watching how this unfolds. Our stops are in place. 

The dollar (UUP) fell on the news as the Fed turns neutral on interest rates.  It bounced the last six days to regain some upside and form a double bottom pattern on the chart. The move higher has my attention and the driver, for now, is the outlook for the economy and trade. The dollar closed on Thursday at $25.69 which clears resistance. Watching… 

The Volatility Index (VIX) closed at 16.3 on Thursday with anxiety rising on concerns about a trade deal with China. touched 17.4 early in the day and watching how this unfolds with news in the headlines again. 

(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 support and finally bounced. $95.04 was the level to clear and did so with momentum. Entry $96. Stop $106.50 (adjusted). A solid test of the move at $107 resistance and hit the 200 DMA as resistance… small trading range at support and looking for a catalyst. Stop in place. Stalled at resistance $110. Thursday tested the $107 support. Stop in place. 

Semiconductors (SOXX) Broke support at the $153 level… Solid bounce… some follow through. $153.13 cleared and added a trading position on the move… entry $78. stop $103 (adjusted). $105.24 sold half of the position. SOXL – Raised our stop – managing the risk. A target of $167.34 cleared with two solid days of upside moves. Working through resistance levels methodically… $175.89 and 200 DMA in play. A gap higher on Wednesday hit the target of $182.38 and tested… solid 2.7% gain on the day as the leadership resumes in the sector. Thursday tested support at the $176 level… break is exit point. 

Software (IGV) Broke $167.88 and bounced back above the same level. The sector was oversold producing a solid bounce… and follow through. $167 level added a trading position. Entry $167.90. Stop $194.45 (adjusted). Raised stop – managing the risk. Cleared $189.29 to keep upside trend in play. Gapped higher after clearing resistance and looking strong as a leader. Stop adjusted. Tested on Wednsday and still remains a key leader. Thursday tested lower and watching with our stop in place. 

REITs (IYR) Tanked on uncertainty from the Fed and the economic outlook. Broke $75.21 and bounced… trading opportunity on reversal above $75.21. Entry $75.25. Stop $82.01 (adjusted). Big move for the week as the Fed talks of no further rate hikes near term… benefits the sector short term. Upside resumed after a test on Friday. Cleared $83.48 resistance. Added to the move higher on Thursday as interest sensitive stocks benefit from rotation. 

Treasury Yield 10 Year Bond (TNX) closed the week at 2.69% as yields remain below support and tested lower all week. Friday saw a modest bounce in rates finally as the bond has rallied. TLT keeping the uptrend alive off the November lows. Watching the balance between growth and Fed concerns. 2.7% Tuesday with some give back on the nice upside bump in yields. Bonds holding current levels. Thursday’s anxiety pushed the yield to 2.62% as money rotates to safety and bonds rallied. TLT clears $121.68 resistance. 

Crude oil (USO) worries about the IMF data on the global economy. Rising supply remains a concern and the move above $52.51 resistance starting to make some progress. OPEC production cuts are still rumored. US production slowed on the week. Sanctions on Venezuela have helped the upside resume. The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $16.97 (adjusted). Managing our risk and letting this play out. $52.51 resistance cleared and testing. Testing the move higher again. Thursday moved down 2.5% the news about trade and supply worries. 

Emerging Markets (EEM) Watching what happens as the bounce from the bottoming pattern follows through on the upside and stocks run higher. Rumors of trade resolutions and talks with China helped the index. Watching for the clarity to unfold. Cleared $40.88 and working on a double bottom pattern. Entry $41. Stop $40.50 (adjusted). Reacts to the news of China talks postponed. Needs to hold the lows from Thursday on the close today.

Gold (GLD) moved above the $122.46 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 on Friday. Managing the risk. Entry $116.50. Stop $123.30 (adjusted). The gold miners (GDX) equally respond to gold moving with a solid gain. Watching how this unfolds near term with the metals and the miners moving together again… Entry $19.70. Stop $21.50 (adjusted). Declined Monday with the dollar moving higher… watching how unfolds near term. Small gain on Tuesday. Declined with the dollar advancing and worries about any resolution with China. Wednesday added downside and nearing our stop… watching how this unfolds in light of the strong dollar. Honor the stop on the close. Modest bounce on Thursday… 

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

THURSDAY’s Scans, February 7th: A day of worries from comments that Trump and Xi will not meet prior to the March 1st deadline to settle trade disagreements. The key to understanding some news and the rationale behind the impact on stocks is knowing where we are on the charts… stocks are up 15% or more from the lows… in six weeks. That is a year worth of returns in normal situations… thus, profit taking is part of the reason for money moving. It is a natural part of the process. We have tight stops on positions and if they are hit we will lock in gains of 10-20% on positions… why? Because it is prudent money management in volatile times. The long-term charts are still moving sideways and looking for clarity… that means there is short to intermediate term volatility causing that… and that is where we are now… the message… manage your money, not the markets. The market doesn’t give one crap what you think should be happening. It is a collective voting system for investors who vote by selling or buying shares. We have a bias towards selling after a solid move higher and the current fundamental environment. Be proactive in managing your money… know where the exits are before the fire starts… stops are key.

  • All the major indexes tested lower at their respective resistance points. QQQ, DIA, SPY & IWM. All held for now… WATCH the low from Thursday as key to how Friday unfolds. If we close below the closing low from Thursday I expect mover downside next week. Thus, manage your stops and let the market decide not your emotions.
  • Energy (XLE) the downside move prompted by crude oil (USO) prices declining on trade news… but there is also the worries about supply and a strong dollar the last week. All impacting the current direction as the sector tests the recent move higher.
  • Semiconductors (SOXX) gave back the gains from Wednesday and testing the current trend higher.
  • REITs (IYR) upside still benefitting from lower interest rates and rotation to safety.
  • Treasury Bonds (TLT) benefactor of Thursday’s rotation and pushed rates below 2.7% again. Break above $121.80 positive for the bond.

DRIP, GASX, LABD, ERY reversals on the charts show opportunities on the short side trade.

VIX (VXX) reversal is on our watch list.

Watching how this unfolds on Friday.

WEDNESDAY’s Scans, February 6th: A day of rest for most sectors and the broad markets. Semiconductors pushed to the near term target and tested… but, provided key leadership again on the day as the upside resumed for the sector. Worth scanning the sector and trading the leadership near term. The dollar has been moving higher again which is positive from my view. Interest rates remain stalled at the 2.7% level… Remaining patient and looking for the opportunities.

  • Semiconductors (SOXX/SOXL) solid addition on the day as the sector resumes leadership. Some key movers were SWKS, MCHP, MU, SLAB and ON. Plenty of entry signals at the individual stock level.
  • Bonds (BND) is a sector that gets little attention from stock investors, but the chart shows the solid bounce at the low in December. Bonds are almost always a leading indicator for stocks. The gain has been 3% plus the dividends, but its key to watch how they interact with the market. HYG is up as well.
  • Gold (GLD) testing lower as the dollar gains strength.
  • Healthcare (XLV) solid bounce on the day and holding in the uptrend. Looking for some momentum in the sector hear term to resume the leadership role.

Overall quiet day as we manage our positions and keep looking forward.

TUESDAY’s Scans, February 5th: Nice follow through to the move on Monday and adding to the third leg higher. The resistance points are getting bigger as we approach the 200 DMA and the October trading range. We will take this as a precaution and manage our positions accordingly. Earnings continue to drive the activity and economic data remains on the mixed side with lower expectations moving forward. We manage our money not the news or the data… we take what the markets give and avoid the train wrecks.

  • Technology (XLK/TECL) remains the leadership as semi’s (SOXX) and software (IGV) lead the move. HACK, SKYY and IGN contributing as well.
  • Gold (GLD) struggling in the face of the dollar moving higher for the last four days. Still in good shape near term with the gold miners reflecting the same. Managing our stops on both.
  • Industrials (XLI) on a solid five day run through resistance and adding to the uptrend. GE, BA, TDG, and ALLE leading the upside move.
  • Small Caps (IWM) Solid moves higher as the concern over the leverage or debt this sector has taken a backseat for now… still a concern if the sellers start again.
  • China (FXI) continues the upside move despite the news and data suggesting stocks are in for more downside? Watching and letting it unfold.

Overall upside in play… the third leg is approaching some key resistance and will need help to get through these levels. Testing is expected and we will manage our money accordingly.

MONDAY’s Scans, February 4th: Solid start to the week as money flow continues into stocks. Software, technology, and REITs continue to lead the upside charge. Volatility is steadily declining as news and worries move to the backburner. It is always worthy of our time to dig into the leading sectors and own stocks that are leading. I don’t post a lot of those here as the notes would be miles long. INTU and NVDA are examples of leaders in the software and semiconductor sectors… keep following the leaders and respect the trend until it breaks.

  • Software (IGV) gapped higher following the break through resistance last week. Solid leadership for tech.
  • REITs (IYR) resumed leadership on the upside trek after a test on Friday.
  • Small Caps (IYR/TNA) broke through resistance and added to the uptrend.
  • Defense (ITA) the sector remains in a solid uptrend as well.
  • Cloud Computing (SKYY) breaking higher from resistance and showing leadership.

Good day for stocks as we take the gains, adjust our stops, and look to tomorrow.

FRIDAY’s Scans, February 1st: New month slow start… there was some juggling of sectors as money always looks for where it will be treated the best the fastest. Little change on the day with some digesting of the gains. Gold remains upside benefactor to a weaker dollar, energy posted a solid gain in catch up to crude moving higher, China tariff talks trying to move forward, and jobs report was solid. Overall solid day as we move to economic data for January and more earnings next week.

  • Energy (XLE/ERX) solid break through resistance and opportunity to add a position on the move. Parts may play out better than the whole.
  • Crude Oil (USO/UCO) adding some upside movement as some clarity shows in the data.
  • Semiconductors (SOXX/SOXL) made the next move through resistance to maintain some leadership in the technology sector.
  • China (FXI/YANG) downside reaction to no deal from the trade talks… but, there is a planned meeting with Trump and XI.
  • Cyber Security (HACK) solid upside the last two days adding some leadership to the technology sector.

Overall positive day and end to the week. Taking what the market offers with our eyes on the horizon. Stops adjusted… plans set for the coming week.

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:

  • XLB – New lows and found support… got the move above the $50.35 mark. Entry $50.50. Stop $52.25. Upside continues with an up and down week.  Trying to break through resistance. Thursday tested lower showing negative signs.
  • XLU – The utility sector found support at $51.11… moved above $52.72. The PG&E bankruptcy news sent the sector lower… but, buyers returned and we are back above the $52.72 level again and managing our risk. Entry $53, Stop $52. Watching how interest rates play out with the sector. Sold move on Tuesday.
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $26.90 (adjusted). Nice follow through to close the week with a move back to the 200 DMA.  Stalled in a trading range. Thursday moved higher on rotation. 
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and looking for upside trade opportunity. $51.86 next level cleared and the 200 DMA… watching. Stop $50.50. Holding the gap higher from last week. 
  • XLI – Industrials to near-term low and bounced. $65 level to cleared for trade opportunity Entry $65. Stop $67.80 (adjusted). Upside leader with a solid move to end the week.  A solid move above resistance at $71.43. Nice five day run higher. 
  • XLE – Energy stocks bounced with the market. OPEC talks to cut production is helping the upside move clearing $58.20 and now $63 resistance. Entry $58.30. Stop $61.30. (adjusted). Got upside move in crude to help the cause this week on the upside move. In uptrend… stalled with oil the last four days. Thursday big move lower on trade and oil data… watching how it moves Friday. 
  • XLV –  Healthcare fell to near-term lows and bounced. $85.74 level cleared for upside trades. Entry $85.25. Stop $88 (adjusted). Cleared $89 resistance and stalled with flag pattern and resumed higher for the week. Looking for help. 
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $63.45 (adjusted). Cleared $63.69 resistance and followed through upside. Semiconductors lead the upside for the sector… earnings setting the tone. Solid help from IGV and HACK on the week. All the parts starting to move the sector higher… IGV, HACK, SKYY, SOXX, IGN… Nice gap higher on Tuesday. Followed through on Wednesday with the help of semiconductors. Thursday tested lower with some rotation in play. 
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.10. Solid earnings boosted the sector and adjusted our stop. Modest test of the upside move.  Insurance stocks moving to help overall KIE. Stalled and looking for help. 
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $104 (adjusted). Cleared resistance at $105 and positive short term. $107.05 cleared and tested. Solid leadership on Tuesday. 
  • RWR – REITs broke lower despite lower interest rates… bounced from lows clearing $93.21 resistance… positive upside move. Fed talk keeping rates in check and the buyers engaged. Move in rates on Friday worth our attention. Back on the upside to start the week. A solid move higher through resistance on Tuesday. Facing the December highs as resistance. Thursday a benefactor from the rotation to safety… watching and managing the risk. 

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

FINAL NOTES:

Markets continue the bounce from the December lows with FOMC news helping the upside cause. The solid move higher and tone for the week kept the third leg of the move remains in play and we have adjusted our stops accordingly. The government shutdown is good for two more weeks and no real news. The hope of a trade agreement with China remains a beckon of light on the distant shore. Emerging markets, however, are trading like it is a done deal as EEM breaks from the trading range. Semiconductors (SOXX) are leading the upside move for the NASDAQ along with technology overall. 

All eleven sectors managed to close the week in positive territory as money rotates modestly. Energy, consumer staples and REITs led the upside for the week. Interest rates touch 2.63% on the ten-year bond on the Fed’s move to leave rates unchanged at the FOMC meeting. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers. As seen in the FOMC meeting 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%. Tariff wars coming to an end would be a huge influence in the outcome looking forward. How this all unfolds is a matter of time and confidence and it a meeting takes place with Trump and XI.

Disciplined entry and exit points allow for 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. 

There are 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.