Market outlook for September 3rd
It was another week of give and take with the indexes remaining in their respective trading ranges. Most closed the week at the high end of the range after failing to follow through on early move Friday. The volatility index looks unsettled closing at 19 to end the week. The long weekend will give some time to reflect… me it is time to watch a storm threaten the east coast of Florida. It is more painful than watching the talking heads on CNBC. We remain in our cautious and patient mode as we let the market churn and the decisions be made relative to the outcome and direction.
The S&P 500 index closed up 1.8 points to 2926 as the index remains at the 2923 resistance levels. The emphasis remains on interest rates and the Fed. The index moves to the top end of the current trading range. Six of the eleven sectors closed higher on the day led by basic materials and industrials. The downside was led by consumer discretionary. Plenty of questions remain relative to how this unfolds with the up and down movement. Patiently waiting on the outcome of the current range. The long-term trend remains in question with the move lower breaking the trendline from the December lows.
The NASDAQ index closed up 10.5 points at 7962. The follow-through to the bounce off support near 7725 was a positive and remains in the current trading range. Technology (XLK) stocks continue to lead the index and moved back to the resistance at the $80 level. QQQ shows some strength in the large-cap stocks after holding support at the $180.73 level. The index remains in the current range of $180.73 and $189.47. Watching how this unfolds moving forward.
Small-Cap Index (IWM) The sector is leading the downside effort but managed to bounce at the $144.65 support. The sector is reinforcing the lack of conviction from the buy-side. Watching for short side set up again.
Transports (IYT) The sector sold back to the lows and bounced off support. The $182.43 level is back in play and watching how this unfolds.
The dollar (UUP) The dollar tanked on all the talk about tariffs and bounced on the hope of some resolution. Closed at $26.87 (new high). Watching how it unfold this week.
The Volatility Index (VIX) closed at 19 as the tariff banter with China and the US remains in the headlines. Upside pressure as anxiety remains. Watching how this unfolds.
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
MidCap (IJH) The sector tested the $182.55 support again. Bounced and remains in the trading range. Downside pressure on the sector.
Biotech (IBB) The sector tested support near the $102 level again. The sector has been content to trade int he $102-107 range for several weeks. Watching how it unfolds.
Semiconductors (SOXX) The sector shed 4.4% in reaction to the tariffs. Bounced again and remains in the trading range.
Software (IGV) The sector remains in the range established with the upside bias still in play. Patience.
REITs (IYR) The upside trend remains on the long-term chart. Patience with our long term positions and short term watching how interest rate market unfolds. Holding near the highs.
Treasury Yield 10 Year Bond (TNX) fell to the 1.51% level on all the worries. Money rotated to safety and our TLT trade remains in play on the fear. Stop $142.70. Still watching the Fed talk and once again the trade war.
Crude oil (USO) Tried to bounce on rumors of supply drawdowns and remains in the current range. Watching support at $52.50 and resistance at $58.25.
Gold (GLD) The upside in gold has been driven on speculation of the rate cut and global weakness overall. Jumped higher on worries about trade and breaking from the consolidation. The stop is now at $141.10.
Emerging Markets (EEM) Broke lower in the trading range as tariff threats add to the worries about an economic slowdown. China helped by announcing they would not retaliate on tariffs for now… stay tuned.
China (FXI/YANG) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Watching the bounce play out as Mr. Trump makes his intentions clear… as does China.
(The notes above are posted every weekend and updated daily Bold Italics)
DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT
FRIDAY’s Scans for August 30th: The biggest mover on the day was the volatility index. Watching how that unfolds following a long weekend. The broad markets gave up their gains from the open as money looks for where it will be treated the best. No big changes heading into the weekend and we will watch to see what happens as we begin a new month with plenty of economic data.
- All the August economic news out with jobs report ending the week. Volatility Index (VIX/UVXY) $32.50 level to watch for upside trade.
- Coal (KOL) bottom reversal trade opportunity clear $10.90 and followed through on Friday.
- Brazil (EWZ/BRZU) interesting bottom reversal in play. $25.75 level to clear for the opportunity.
- Emerging Markets (EEM/EDC) in position to break higher from the bottoming range. Trade only for now.
- Mexico (EWW) bottom reversal follow through. Nice trade opportunity short term.
THURSDAY’s Scans for August 29th: follow-through day for the broad indexes as they added to the upside. The catalyst was the Chinese stating they would take a calm approach to the new tariffs from the US and resume talks. In addition, the Chinese sent more troops to Hong Kong some see the tariff comments as a cover for the later… big issues facing them in the outcome of Hong Kong protests. Plenty of issues facing the markets, but they were all put on the back burner on Thursday. We remain in the trading range and volume remains on the low side. Taking it one opportunity at a time and protecting our capital.
- S&P 500 index (SPY) upside move to the top of the range. $204.04 is resistance level to clear.
- NASDAQ 100 (QQQ) upside move to the of the current range. $188.51 level to clear if the upside is to gain momentum.
- Consumer Discretionary (XLY) cleared resistance at the $119.40 level and shows leadership from retail.
- Natural Gas (UNG/UGAZ) churning to the upside slowly and building the bottom reversal pattern. Raised stop to $13.74.
- Cloud (SKYY) positive move as the bottom reversal attempting to follow through.
WEDNESDAY’s Scans for August 28th: a positive day following the negative open. Buyer step in albeit on lower volume. The selling volume is higher than the buying volume showing distribution overall from stocks. The good news is the markets have not broken down… thus, we watch patiently how this will unfold.
- China (FXI) offers an olive branch putting any new tariffs on hold. Watching how the ETF responds along with the emerging markets (EEM).
- Retail (XRT/XLY) earnings set the upside tone for the sector and looking for the leaders for opportunities. COST, DLTR, BOOT, WMT, etc.
- Crude Oil (USO/UGA/UCO) upside bounce on supply data. Cleared $17.50 resistance with upside move. Next resistance is the $18 mark.
- Earnings helping stocks as HPQ posts better than expected numbers. NTNX, OKTA also beat… adding to the positive data from retail.
- Homebuilders (ITB/NAIL) upside remains steady as lower rates prevail.
TUESDAY’s Scans for August 27th: early gap gave up the gains and left investors looking for answers. Small caps leading lower along with transports. Gold inched higher on nerves and declining interest rates. Stocks remain in consolidation mode within the current trading range. We remain cautious as this unfolds. Taking the opportunities presented and limiting the risk exposure short term.
- Small Caps (IWM/TZA) short side trade remains in place as the lack of interest in growth stocks remains a theme. Adjusted our stop on the move on Tuesday.
- Transports (IYT) negative momentum in the sector remains as we manage our short side trade on the sector.
- Treasury Bonds (TLT) remain the benefactor of declining interest rates. Adjusted our stops. Yield inversion widens and is feeding the recession fears.
- Financials (XLF) Testing the lows again… downside risk risking in the sector.
- NEWS: insider selling is on the rise. Big surprise. The reports stated as much as $600M per day was being liquidated. Another indicator that is not positive for stocks.
MONDAY’s Scan for August 26th: bounced off the support levels again following the selloff. The change in tone from Trump sent stocks higher… but for how long? The bounce was positive, but the conviction in the technical data was not. Watching how Tuesday and the balance of the week unfold. The scans reflect the bounce off of support, but they also remain in the trading range. The buy-side volume was low for the day.
- NASDAQ 100 index (QQQ) solid bounce on the chart.
- Semiconductors (SOXX) bounce was not convincing.
- Retail (XRT) parts are looking good from earnings. Watching how they respond to Friday’s selling.
- Software (IGV) looked good as it didn’t fall as much on Friday.
- Treasury Bonds (TLT) held steady with no real move in rates.
(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 broke support at the $55.95 level and reversed to end the week.
- XLU – Utilities broke from the trading range and continued higher. Collecting the dividend and letting it play out.
- IYZ – Telecom held support at $27.62. Watching for a bounce.
- XLP – Consumer Staples held support and the uptrend line. Watching how this unfolds near term. Holding near the current highs.
- XLI – Industrials moved back to support in the current trading range and then bounced back to the top of the range.
- XLE – Energy broke support at $58.19. The short side is still in play. ERY. Oil caught in the crossfire with China and US.
- XLV – Healthcare held support… small bounce followed by modest gain… plenty of work to do.
- XLK – Technology moves lower on comments about tariffs. Small bounce followed through at the top fo the current range.
- XLF – Financials under pressure moved below the 200 DMA and $26.33 support. Small bounce followed with additional gains… plenty of work left.
- XLY – Consumer Discretionary moving higher on earnings from the retail sector earnings… need to move above resistance if this is going anywhere.
- IYR – REITs held $88 support and cleared the $90.80 resistance. Watching and letting it unfold. Remains near the high.
There are currently four sectors in confirmed short term uptrend. Four sectors in consolidation or sideways trends. Two in a confirmed downtrend. The result is SPY in a confirmed sideways trend. This is a big adjustment based on the current market environment. Remember the parts make up the whole.
(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.)
Markets found enough buyers to keep them in a five-week trading range. This is currently a market controlled by headlines as each day holds movement related to the speculation of what might happen. Trade with China and the US remains at the top of the list. Interest rates and Fed banter remains high as well. Throw in Brexit and other global issues and you get the picture. This week we get economic data as we look to see the temperature of the US growth or contraction. Jobs report on Friday as well. The question remains, will the downside continue? Trade is a major issue… but, economic growth is the real issue at the end of the day. Markets fell on the worry of a recession not tariffs directly. Focus on facts like economic data, earnings, and global data reports all out this week. Watch how the hurricane impacts the southeast. Homebuilders remain a benefactor of the lower rates. We remain focused on what is working and what is failing. Therein lies the opportunities. The return to the top end of the current range is on my watch list as well moving into the new trading week. 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.