Sellers return on news

Market outlook for August 13th

Welcome back to the sellers! There were plenty of worries to help the unrest in the markets. Hong Kong canceled all flights with the protesters present. Bond yields are continuing to fall with the thirty-year bond now at 2.11%. To put that in perspective the three-month bond is at 1.98%… inversion of the yield curves are an issue long term. The downside move opened the door again to downside trades. Midcap (IJH) fell 1.5% and retested the lows from last week. The VIX index moved back above 20 showing the rekindled anxiety in stocks. It remains a news-driven market. Volatility is rising again and following Monday’s downside, has invited the sellers back to the table.

The S&P 500 index closed down 35.5 points to 2883 and back below the 2923 support. The focus on trade, bonds, Fed, and economics remains in the headlines and the banter continues. None of the eleven sectors closed higher on the day. The downside was led by energy and financials. We renew our look at the short side trades. The long-term trend comes back into question with the move lower breaking the trendline from the December lows.

The NASDAQ index closed down 95.7 points at 7863 and failed to hold the 8000 level. The market needs semiconductors to remain positive if the upside is to regain any traction. Technology (XLK) stocks fell below the $77.90 support and remain under pressure from the sell-side. QQQ retreated and looking for support at the $180.73 level. A renewed look at the short side trades on the move lower and watching for the next opportunity.

Small-Cap Index (IWM) The downside resumed on Monday with a move below $149.71. Added a short side trade with TZA. Entry $50.25. Stop $49.40.

Transports (IYT) The sector sold back to last weeks lows. $180 the level to hold or short side takes a major step relative to the belief in the economic picture.

The dollar (UUP) The dollar moved higher but retreated on the tariff comments. Retreated further on China’s yuan move Monday. Held steady on Tuesday and watching how this unfolds going forward. Closed at $26.44. Watching the Yen (FXY/YCL) as it is the current benefactor of the tariff talks.

The Volatility Index (VIX) closed at 21.09 offering trade on UXVY again at $33.55. Stop $34.63. Watching how this one unfolds.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector moved to the $190.44 support/resistance and reversed lower on Monday… offering a short side trade. MIDZ entry $56.35. Stop $56. Growth stocks are being sold again.

Biotech (IBB) The sector remains at support near the $104 level and looking for a catalyst up or down.

Semiconductors (SOXX) The bear flag pattern at the current low is of interest. Statistically, it will continue the downside move. This offers us an opportunity, but it is negative for the broad markets. Entry SOXS $50.83. Stop $48.26.

Software (IGV) sector bounced last week and is heading lower Monday. The retest of the low is negative and we will watch how this unfolds.

REITs (IYR) The upside trend remains on the long-term chart. The test of support at $87.50 bounced. Patience with our long term positions and short term watching how interest rate market unfolds.

Treasury Yield 10 Year Bond (TNX) fell to the 1.7% level on all the worries. Money rotated to safety and our TLT trade went vertical. Stop $138. Monday closed at 1.63% inverted yield curve has to worry the Fed? Watching and adjusting our stop on TLT.

Crude oil (USO) Fell lower on the speculation around global slowing economically. Bounced Friday on European news of drawdowns in supply. 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 economic data. Stop now at $139.93. Upside resumes on Monday.

Emerging Markets (EEM) Broke lower from the trading range as tariff threats add to the worries about an economic slowdown. Banked our gains on the short side trade. Watching for the opportunity. Downside back in play on Monday with a retest of last weeks lows.

China (FXI/YANG) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Watching the move lower play out as Mr. Trump makes his intentions clear… as does China. Broke support at $42 and the downside remains in play. YANG Entry $49.75. Stop $59.66. Hong Kong issues back in headlines pushed ETF lower.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

MONDAY’s Scans for August 12th: Downside is back in vogue. The pressure from interest rates and China leading the way on the day. This opens the downside trades again and we added those above in various sectors. Remember downside reactions move on average three times faster than the upside… meaning we have to manage our risk equally to the environment.

  • China (FXI/YANG) accelerated lower on the Hong Kong news Monday adding to our short side trade.
  • Volatility Index (VIX/UVXY) spiked higher on the selling and headlines.
  • Treasury Bonds (TLT/TMF) resumed upside move on the flight to safety.
  • Small and Mid-Cap (IWM, IJH) accelerated lower offering short side entries.
  • Watching on the downside for trade opportunities: XLE, XLF, IYZ, BZQ, DIA, QQQ, SOXX, EEM, EFZ

THURSDAY & FRIDAY’s Scand for August 9th: Solid gains on Thursday were negated on Friday… This is the market environment currently as uncertainty is fueled by speculations. The fundamental data is lost in the speculation of what might or could happen. Our job is to find opportunities in volatility. We locked in gains on short side trades as the bounce materialized on Wednesday. Friday showed we may not be done yet, but there will have to be another catalyst point. Upside positions in gold, short trades in China and others are still playing out well. The scans are a mess with the Friday decline and deferring to Monday’s to see what happens. Exercise some patience and manage your risk accordingly.

WEDNESDAY’s Scans for August 7th: No big changes in the charts as they test lower and bounce back. The leadership is based on speculation and rotation not facts. Gold made big move higher, crude moved lower, and the speculation headlines remain in charge.

  • Gasoline (UGA) dipped lower to test support as crude move to the June lows. Short side trade is in play and looking at this key level of support.
  • Homebuilders (NAIL/ITB) made solid upside move with interest rates hitting near their lows of 2016.
  • Gold (GLV/GLD) remains in upside trend. Adjusted stop on position.
  • Manage the risk on downside trades if the upside finds

TUESDAY’s Scans for August 6th: It was a bounce that changed nothing. The headlines are full of speculation and what-ifs… There are some good setups for trading the bounce and then there are some good setups for trading the downside. For example, KO is in a position to trade higher, while AXP could trade lower. We have to watch and let this unfold. Taking a shot in the dark is not always a good thing without the aide of night vision goggles. Watching how Wednesday unfolds.

(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 held support at the $55.95 level and hit resistance at $58.13. Downside renewed Monday.
  • XLU – Utilities remain in the trading range of $59-61.23. Collecting the dividend and letting it play out.
  • IYZ – Telecom holding near support at $28.62. Watching. Downside renewed Monday.
  • XLP – Consumer Staples held $57.75 support bounced and watching.
  • XLI – Industrials held 200 DMA support and bounced… 75.572 level to clear for now. Downside renewed Monday.
  • XLE – Energy held $74.17 support and $75.72 resistance to clear. Downside renewed Monday.
  • XLV – Healthcare held $89 support and $91.67 resistance to clear.
  • XLK – Technology held $75 support and $78.90 resistance to clear. Downside Test on Monday.
  • XLF – Financials under pressure held the 200 DMA and $27.42 level to clear near term. Downside renewed Monday.
  • XLY – Consumer Discretionary held $113.80 support and $118.80 resistance to clear. Downside renewed Monday.
  • IYR – REITs held $88 support and cleared the $90.80 resistance on Friday… Watching and letting it unfold.

There is currently one sector in confirmed short term uptrend. Eight 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.)

FINAL NOTES:

Monday was not good news for the buyers. The downside renewed with a rise in volatility a spike in downside sentiment. The volume was below average if we want to find some good in the bad. Key sectors are testing and we have to watch, act, and manage our money accordingly. Opened some new short side trades and watching how the week unfolds.

Markets gapped lower to start the week and found support… bounced and watching how this is going to play out. This is currently a market controlled by headlines as each day holds movement related to the speculation of what might happen. My question is will the downside continue? Trade is a major issue… but, economic growth is the real issue at the end of the day. Focus on facts like economic data, earnings, and global data reports. The ISM manufacturing data for July fell to 51.2% and the ISM services data dropped to 53.7% showing weakness in the economy. July added 164,000 jobs and was in line with expectations. PPI fell for the first in over two years… My question, what is the Fed looking at? Why are they not more engaged? Trump is right on this front. Remember within all of this data lies the opportunities we are all looking for. Crude oil speculation remains in the news as price moved below $53 level and bounced on the European supply data. And let us not forget the inverted yield curve for bonds as yields moved lower in response to the Fed actions at the FOMC. They closed at 1.73% in response to fear and flight to safety. We remain focused on what is working and what is failing. Therein lies the opportunities. The balance of the market will eventually figure out a direction.

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.