Selling comes from uncertainty surrounding stimulus?

With the Presidential election just weeks away investors are worried about any stimulus prior to February. That sent the markets lower to start the week and the S&P 500 index declined 1.5%. The other issue facing investors is the rise in virus counts in the US. They are expected to rise as the change of seasons is upon us along with the flu season. The fact we still don’t have clarity looking forward is an ongoing challenge for investors. The longer-term picture equally becomes cloudy as the threat of another shutdown or worse is still in play. We have to remain patient as this all unfolds near term and we continue to take what the market offers and some of that currently is on the downside. Stay focused and disciplined.

Short news notes of interest…

  • Stimulus and politics are rushing to make something happen. It is only 15 days to the election and the need to get something done is being bantered around in Washington… that is keeping the market in limbo as seen on Monday as Pelosi once again rejects the offer from the White House.
  • Retail stores are announcing they will close for Thanksgiving to contain the numbers of shoppers… traffic is expected to be down at least 25%. This is of interest since it is the biggest shopping day of the year… how will it impact earnings and sales?
  • CVS is hiring 15,000 new employees ahead of the flu season. They are expecting a rise in cases and the need for medicine and increased demand for flu shots.
  • Worries about the second round of a virus surge has OPEC being proactive to curb production and be aware of the supply/demand issues facing the commodity.
  • Biden’s tax plan could cost residence of New York, California, and New Jersey with a 60% hit on the income of more than $400,000. That is not going to help the economic picture in those states… if could also cause some relocation of businesses and residents.

The S&P 500 index closed down 56.8 points to 3426. It was down 1.63% on the day. The index moved higher early but managed to give up the gains throughout the day closing in negative territory. The action was negative throughout the day with utilities the only sector without one percent or more losses on the day. Energy led the downside giving up 2.1% on the day and retesting the October 1st low. Eleven of the eleven sectors closed in negative territory as investors continue to evaluate risk and some money flow is moving towards safety. The VIX index closed at 29.1 as investor anxiety moved higher and remains elevated. UVXY shows the break higher for the day.

The NASDAQ index closed down 192.6 points at 11,478. The index was down 1.65% on the day as the index struggled on stimulus worries. The index had rallied 11.8% from the lows on 9/23… and thus some selling… Monday added to the Friday anxiety and leaves investors looking for some buyers. The NASDAQ 100 index (QQQ) was down 1.63% for the day. Large caps moved through the $282 resistance level and testing the last five days. Semiconductors (SOXX) closed down 0.5% for the day and held above the September highs. Technology (XLK) was down 1.83% and adding to the downside on the day. Watching how this unfolds as the market attempts to find clarity near term.

Small-Cap Index (IWM) The sector bounced at the $144.65 support and managed to hold the move higher… it followed through and this week struggled at the resistance of $162.50. Watching how this unfold in the coming week. Entry $151. Stop $155.52. Letting it unfold near term. A 1.2% decline to start the week and test $160.40 support.

Transports (IYT) The sector topped at $205 and confirmed the upside but struggled on Friday with earnings data. We will see how it changes or if it changes the momentum. Managing the risk. Entry $167. Stop $205.63 (adjusted). The sector fell by 1.1% to start the week.

The Dollar (UUP) The dollar broke lower and shows a downside trajectory from the 9/25 high. We can blame plenty of data points, but the key thing to understand is we are supporting a weak dollar policy currently and that isn’t helping the cause. Tested lower again on Monday.

The Volatility Index (VIX) Volatility remains a question mark as anxiety rises for the week. The uncertainty remains a challenge for investors and the consistent rotation of concerns weekly is keeping the anxiety level elevated. Watching and letting this unfold around facts versus speculation. Spiked to 29.1 as the anxiety continues to rise. UVXY showed an upside move.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector completed a bottom reversal and cleared the August highs. Taking on a leadership role near term as the sector follows small caps higher. Watching the topping pattern on the chart at the highs. The sector joined small caps on the downside to start the week.

Retail (XRT) The retail data released for September was positive and the sector continues to show solid growth. The bounce at the support of $48.35 has eclipsed the August highs and the fundamentals confirmed the trend. Entry $51. Stop $52.68 (adjusted). Shows some near term weakness.

Biotech (IBB) The sector gapped lower on Thursday, hit our stops, and watching how it responds. The Phizer news helped early but managed to give up the bounce on Friday… watching and letting the direction be established. Fell 1.6% to add to the downside weakness of late.

Semiconductors (SOXX) The sector remains in an uptrend and posted a solid move above resistance at $305. The sector is leading the technology space showing some topping on the week. Entry $304. Stop $320.20 (adjusted). Watching how this unfolds. Downside, but manageable.

Software (IGV) The sector has been a key part of the leadership since the March lows. Some testing at the highs and watching how it unfolds. Entry $308. Stop $322.76 (adjusted). Testing.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.74% down from 0.77% last week. Yields stumbled as stimulus talks failed. Watching as the uptrend from the August lows remains in play. Short side trade offered in bonds with TLT falling. Watching the trendline for some decision points. Back to 0.76% and watching.

Crude oil (USO) Crude moved to $$40.85 up from $40.64 for the week. Plenty of speculation to drive prices and watching how this unfolds.No position currently in the commodity.

Gold (GLD) The metal broke lower from the descending triangle pattern to continue the negative decline from the spike higher in July. Support at $174 held and is trying to establish a move higher. Watching how this unfolds near term. Flat on Monday.

Emerging Markets (EEM) The sector held support at the $42.50 mark and reversed to move back above the $45.50 resistance as the dollar dips lower on stimulus news. Entry $44.50. Stop $43.50. Holding near the highs with some testing the last four days. Need to hold the $45.40 level of support. No changes on Monday.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

MONDAY’s Scans for October 19th: Markets are questioning the outlook relative to stimulus and the virus… leads to selling and testing of support at some key levels near term. We see the impact of uncertainty as it builds and the question marks send money looking for the next opportunities… and for some, that is on the downside. Not convinced of anything at this point, just willing to take what is offered and keep our cash supply ready.

  • Energy (XLE) not a pretty picture again as questions arise about production and consumption as Europe starts to respond to the rise in virus cases. The ripple of that is being felt in the US as well. ERY back on my watchlist.
  • REITs (IYR) back below support at the $81 level and watching for a retest of the lows. Banked a small gain on our position as we hit stops. SRS shows opportunity short term.
  • Technology (XLK) drops back to retest the $118 support. Watching how the parts and the whole respond to the current round of worries.
  • NASDAQ 100 (QQQ/SQQQ) watching the selling in the broad sector. A bottom reversal in play on the short side ETF.
  • Agriculture (DBA) still on the rise as the parts continue to find buyers and the weaker dollar is helping. MOO testing the current highs as well.

FRIDAY’s Scans for October 16th: Markets start higher and fade to even on the day… there are still issues facing investors and sentiment has shifted to neutral from buyers. This is not an indicator of direction, but it does impact money flow. Watching how the new week starts with earning in full swing. The transports showed weakness in earnings and retail sales remain positive with solid growth. Data/reality versus speculation/belief in play as the market rests at key resistance points. Below we look at opportunities from the week that was…

  • Natural Gas (UNG) found some buyers and established a new low and bounced. A double bottom pattern on the chart and watching for a trading opportunity in the commodity.
  • China (FXI/YINN) the chart has a ‘V’ bottom pattern that gapped higher tested and gapped higher again. No positions added on the gaps but watching how this unfolds near term.
  • Gold (GLL/GLD) Uptrending chart on the short side… The metal has shown some signs of reversing but failed on each attempt. Watching for a break above the $32.20 level for the short side to continue or a move below $31 for the trend to reverse.
  • Online Retail (IBUY) Solid move above $90 and the uptrend has been renewed. Add the positive retail data with a rising trend in growth and you could see the sector continue to rise. Adjusting stops and letting this run.
  • Broker-Dealers (IAI) the financial sector subsector shows some growth in earnings and pushed back to resistance at the $65.40 level. Looking for follow through on the ‘V’ bottom pattern and break higher.

THURSDAY’s Scans for October 15th: The gap lower to start the day was driven by news, worries, and some reality about the economic picture near term. The news about the virus spread in Europe is a concern, shutdowns the reaction, and will impact trade, and it is a high probability the virus will surge again in the US. Thus, we as investors and traders need to manage what we know, anticipate what is coming, and adjust our stops accordingly. As seen with IBB on Thursday… stops work… selling the position may not be what we want, but they work. They take the emotions out of the decision process… and yes, if IBB rebounds we can always buy it back. We continue to evaluate the process and what is happening currently.

  • Small Caps (IWM) solid bounce off the intraday lows and showed some leadership again for the broad markets. Looking for a follow-through Friday.
  • Homebuilders (XHB/NAIL) solid bounce off the intraday lows to close higher. Still solid uptrend for the sector.
  • Natural Gas (UNG/BOIL) in position to break higher… could offer some upside near term. Some speculation on demand rising as we move towards winter.
  • Wheat (WEAT/DBA) agriculture is rising again as the inflation data shows some movement upside.
  • Energy (XLE) still showing plenty of bottoming patterns in the sector and with an upside move will come opportunities.

WEDNESDAY’s Scans for October 14th: Another day of testing the upside moves. The test is coming prior to reaching the September highs for most sectors… that is of interest. Thus far the moves have been modest as money seems to be content to see how this unfolds. Speculation is more of a mumble currently. Watching for the outcome near term and managing the risk that is. Financials are showing weakness on earnings and energy is trying to define a current low. Stay focused on the goal at hand and not the emotions of what might happen.

  • Financials (XLF) testing back near the 50 DMA and support. Watching how the balance of earnings in the sector unfolds along with the parts.
  • Gold (GLD) moved to the top of the current range. Gold miners (GDX) trading in a consolidation pattern as well and in a position to break higher Worth our attention for the opportunity.
  • Crude Oil (USO) in pattern to break higher as well. Looking for some upside momentum if China continues to show improvements.
  • Solar (TAN) has a flag pattern… could test the vertical move higher near term and offer entry opportunity… on my watch list.
  • Transports (IYT) the parts are looking good as they set up for another run higher. Watching the scans of the sector as patterns develop. NSC, CSX, KEX, and others.

TUESDAY’s Scans for October 13th: Markets were slightly lower on worries about the virus spread and what no stimulus will do near term. Earnings started and were positive, but the outlook and reality took a step forward in the minds of some… thus, we watch how this unfolds near term and take what is offered. Uncertainty remains in the markets relative to so many issues and when they become a little clearer or additional speculation is added money moves… wasn’t enough of a move to change the near term move higher.

  • Financials (XLF) took on the brunt of the selling as comments in earnings statements unsettled investors. The sector fell 1.9% on the day and raised concerns near term.
  • Biotech (IBB) remains a positive influence near term on the upside. Taking what is offered and raising our stop.
  • Treasury Bonds (TLT) bounced higher off support as rates fell. The news on stimulus not happening near term pushed money back into bonds.
  • Clean Energy (PBW) showing some topping on the solid run higher. Watching and managing the risk.
  • Volatility Index (VIX/VXX) rose on the day relative to the news. Still at the bottom end of the range, but watching how this unfolds near term.

(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 tested the trends. Added a bottom reversal and moved back to the previous highs. Letting this play out near term. Testing at the current highs.
  • XLU – Utilities bounced from the selling and back above the $61.75 resistance and heading higher. Entry $58.50. Stop $61. Testing near the highs.
  • IYZ – Telecom broke the $27.60 support created a bottom reversal and cleared the $27.60 level again on the upside. Entry $27.60. Stop $27.20. Testing and breaking $27.60 support.
  • XLP – Consumer Staples tested lower, reversed, and heading back to the previous highs. Positive for the overall market with the recovery stocks improving. Testing the trend.
  • XLI – Industrials moved sideways and testing the move higher. Friday broke above the previous highs and resumed the uptrend. Hit new highs and adding to upside.
  • XLE – Energy gapped lower as a continuation of the trend set from the June highs. Added to the downside and adjusted stops. Managing the risk. The bottom reversal is of interest and watching to see if it follows through. Retesting the bottom support.
  • XLV – Healthcare tested the $101 support level and held… bottom reversal breaks higher $106.88 break. Entry $106.88. Stop $101. Solid move towards the previous highs. Testing at the $106.90 support is key near term. Broke support.
  • XLK – Technology found support at the $110 level and bounced… Watching the bottom reversal attempt currently in play as it clears the $118 level. SOXX leading the move and where we put our money. Solid move towards the previous highs. Testing $118 level.
  • XLF – Financials are challenged by the outlook for defaults and commercial real estate. $23.50 support held. Looking for regional banks to take a leadership role if the upside is to recover. Entry $24.50. Stop $23.50. Testing $24.50 support.
  • XLY – Consumer Discretionary tested the trend, tested below the 50 DMA, and support at the $140 level and bounced. Solid move back to the previous highs.Testing.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Tested support at $76.22 and bounced to offer an upside trade opportunity. Entry $80. Stop $81 (Stop Hit). Broke support at the $81 level and offering a short side look.

The trends are shifting again based on investor activity. We have added positions, added new stops, and watching the developing trends and patterns currently. Using the six-month charts as an indicator for the short term view… Six sectors are in confirmed uptrends as the testing phase continues. Four are in consolidation patterns showing indecision from investors, and one is in a downtrend. The result for SPY is in a move to sideways trend short term with a downside bias currently. The leadership is rotating 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:

Monday: The sellers showed up as the challenges rise relative to stimulus and the virus. There is plenty to speculate on, but the goal is to manage money, not the events and the emotions relative to the markets. There are some shifts in momentum and thus the downside is being watched. Some sectors are merely testing and looking for the upside to resume. OPEC was in action on Monday as well, promising to take action on production levels as the worries rise about the virus spreading again. Watching and being patient on the outcome near term.

Weekend Wrap & Outlook… The markets spend the last four days testing the moves from the previous lows. The challenges have been reality versus speculation. The speculation was stimulus… the reality is politics over helping the country. Small caps took on a leadership role for the week breaking higher and leading the broader-based moved for the recovery stocks. Technology stocks were challenged as money flow slowed and some rotation took place. The economic data has shifted to September reports and we are seeing some slowing in the recovery but still overall positive. The retail sales data on Friday showed positive growth from the consumer and a positive outlook currently. The politics over the stimulus package is in the headlines again and both sides make the event a political statement for the election versus how to help today. The uncertainty factor about any stimulus package is weighing on the sentiment. The VIX index moved to 27.4 as the anxiety levels moved higher from earlier in the week. The dollar is attempting to bounce near term, but our outlook is for it to continue the downside trek as the weak dollar policies remain. In turn that helped the metals, commodities, and emerging markets rise. Four of the eleven sectors posted gains for the week as worries about the economic picture and stimulus grow. Industrials and utilities led the upside for the week showing some move to safety and recovery stocks gaining. REITs and energy were the weakest sectors for the week as the sellers showed up. Crude oil moved higher and closed at $40.85 a barrel up slightly on the week. Watching the current movement in the broad markets as money continues to search for the best opportunities and cash gets put to work. 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. Watch the trend, know which side the Fed is on 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.

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.