Slow session with low volume ends negative

Market outlook for October 15th

Stocks faded on low volume as China requests more talks before agreeing to anything in writing. The Empire PMI posted a reading of 4.0 showing slow expansion, but ahead of the 2.0 posting in September. At the end of the day not much changed with the indexes posting slight losses. The bigger question of the day is how tolerant investors will be without some type of trade deal with China moving forward.

The S&P 500 index closed down 4.1 points to 2966 limping through the day of trading. The markets are dealing with trade and what will take place in the negotiations with China and the US. Bump in the road on Monday with no deal in writing. Two of the eleven sectors closed higher on the day with financials and REITs leading the move. The downside was led by utilities and basic materials. Plenty of questions remain relative to how this unfolds near term. The long-term trend remains sideways and steady.

The NASDAQ index closed down 8.3 points at 8048. The index held the move higher from Friday. Technology is still providing some leadership for the broad index as semiconductors show some strength. Questions remain relative to growth stocks and large caps despite the bounce at support. QQQ held the move from Friday as well with the large-cap index clearing the $189-190 resistance. Opportunities on upside setting up again.

Small-Cap Index (IWM) The sector led the move back to the July highs and then led the downside move to the August lows. Lack of belief in the outlook for economic growth remains a cloud over the sector. Tested the $146 support levels and bounced… but, remains weaker than other sectors. $152 level to clear to show progress.

Transports (IYT) The sector, like small caps, moved to the July highs and back to the August lows. The bounce off support is positive as watch to see how this unfolds. Plane deliveries and tariffs have been a headwind to the sector and we expect more challenges going forward. Friday showed some positives with a move back above the $182.43 level. Watching how the new week unfolds.

The dollar (UUP) The dollar reacted to the trade news, Brexit showing positive signs, and positive geopolitical news in Europe. $26.82 support and watching going forward. Found some positives in the news and bounced at support Monday.

The Volatility Index (VIX) closed at 15.5 as the anxiety relief came in the form of positive trade talks and global hope overall… Watching how this plays out in the coming weeks. Moved to 14.5 on Monday despite the weakness in stocks.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector moved to the July highs and back to the August lows. The bounce to end the week was a plus, but failed to hold above the $191 level. Watching.

Biotech (IBB) Tested support at $96 bounced and moved back to the $101 resistance level. The downtrend remains in play. Looking for some upside follow through if the sector is to turn positive again.

Semiconductors (SOXX) The sector bounced, cleared $210.92 resistance and moving back toward the July highs. The last two weeks have tested the move and broke support at $210.92 and bounced. The sector look solid compared to other on the charts and showing some leadership.

Software (IGV) The sector bounced back in the previous trading range and showing some signs of hope from the buyers. Watching how this unfolds near term.

REITs (IYR) The upside trend remains on the long-term chart with some a trading range near the highs. Patience with our long term positions and short term watching how interest rate market unfolds. Remains in the trading range.

Treasury Yield 10 Year Bond (TNX) The yield closed at 1.75% up 24 basis points for the week. Money is rotating again this time to risk… Hit stop on TLT and took a short position on bonds for now. TMV entry $10.40. Stop $10.19.

Crude oil (USO) Held support at $52.50 and $58.25 is top of the current range. Tested $52.50 level of support and managed to bounce on some positive news to end the week. Throw in an oil tanker attack and you get a bounce to end the week. Added position in UCO entry $16. Stop $15.50.

Gold (GLD) The upside in gold has been driven on speculation of the rate cuts and global weakness overall. The tug-o-war of tariffs, interest rate, and speculation are keeping gold in play. Watching how the trade talks and geopolitics unfold near. Positive development on that front will push gold lower. Patience. Small bounce in gold on the delayed deal with China.

Emerging Markets (EEM) Bounced from the bottoming range established in August hit resistance at $42.25 and tested the support at the $40.25 level again… bounce this week on the trade news. Back near the previous highs and watching how the news unfolds with China.

China (FXI/YANG) the country ETF is a good benchmark for what is taking place with the current news and tariffs. The move lower found some support at the $39.50 mark. The bounce this week from positive talks helped push it back to the $41.50 resistance. Small fade on the comments of needing more talks before confirming a deal.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

MONDAY’s Scans for October 14th: Boring day for stocks as they started slightly higher and closed slightly lower on low volume. No big changes in the scan of the sectors and stocks remain near the Friday close.

  • Natural Gas (UGAZ) attempting to establish a bottom reversal.
  • Homebuilders (ITB/NAIL) showing at topping pattern worth watching.
  • Gold Miners (GDX/NUGT) sitting on support? Watching how the metal reacts to China overall.
  • Wheat (WEAT) uptrend established in the commodity.
  • Soybean (SOYB) uptrend established in the commodity.

FRIDAY’s Scans for October 11th: Solid day for stocks even with them closing well off the intraday highs. Solid volume on Friday and looking towards next week. It was all news driven relative to trade with China. Throw in some positive news on Brexit on the day and stock pushed higher. Rotation from safety to stocks is in motion, but still cautious about the moves as the volume is on the lighter side. Taking it for what it is… a news driven bounce that still has to validate itself by being true. Take what the market gives, but manage your risk in the process… don’t believe everything you hear.

  • Semiconductors (SOXX0 solid upside from the sector to lead technology and the NASDAQ higher. $215.33 entry-level hit.
  • Crude Oil (USO/UCO) bounced on global hope on a trade deal. The tanker attack helped the cause. Added a position to play upside move.
  • Treasury Bonds (TLT) Interest rates are moving higher again on optimism and money rotating towards risk assets. Sold our long positions and added a short side trade on the transition in sentiment near term.
  • NASDAQ 100 index (QQQ) offered some upside hope on the move Friday. Watching for entry opportunity if we follow through upside. WYNN, AMD, MU are a few to watch near term.
  • Europe (EURL) watching the news of Brexit… positive gap higher on Friday and it this unfolds opportunities will present themselves.

THURSDAY’s Scan for October 10th: nice follow through to the bounce from Wednesday… tough to want to trade the move as it is news driven and the news has yet to be validated. “Trade talks going well.” is not exactly confirmation of something happening. I know I am skeptical, but after all, have any of trade talks amounted to anything other than a reason for both sides to add more obstacles to the economic picture? Watching and listening to what unfolds and is actionable.

  • Emerging Markets (EEM) moved higher on the rumors… watching as they will gain if the news is true.
  • Gold (GLD) watching as the metal will move lower if the news is true.
  • Crude Oil (USO) watching as the commodity will move higher is the rumor is true.
  • Treasury Bonds (TLT) watching as they will move lower if the rumor is true on trade.
  • Dollar (UUP) watching as it will move lower if the rumor is true on trade.

WEDNESDAY’s Scans for October 9th: The buyers made a showing, but the challenges remain for stocks… LEADERSHIP. The bounce was a plus and lack of follow through from the sellers shows the same lack of conviction as the buyers. Plenty of focus on selling and weakness, but the buyers are not going away quietly. Tomorrow may answer some questions on trade, economics, and hope… patiently waiting for answers.

TUESDAY’s Scans for October 8th: Sellers take back control and raise plenty of questions relative to the markets near term direction and conviction. It would be easy to jump back on the short side bandwagon, but there has to be some sign of conviction and follow through from either side… the buyers…. the sellers… whoever is going to take control is a flip of the coin for now.

  • Watching: QQQ, SOXX, DIA, SPY, IWM, TLT… where is the leadership? Short side or the long side?
  • Weakness in IWM, QQQ, MDY, IYT… all bad sign near term. Looking for strength on either side.

MONDAY’s Scan for October 7th: Nothing happening in the broad markets as the indexes close basically unchanged. We will watch how this unfolds in the coming days as we look for some upside follow through to the bounce at support. That has not materialized on Monday… patience.

(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. Watching how it unfolds. Bounced at support.
  • XLU – Utilities moved higher and now forming a consolidation pattern near the highs. Support is at the $62.50 mark. Collecting the dividend and letting it play out. Topping pattern in play.
  • IYZ – Telecom held support at $27.62 bounced and watching how this unfolds.
  • XLP – Consumer Staples remains in the uptrend line. Watching how this unfolds near term. The trading range at the current highs.
  • XLI – Industrials moved back to support in the trading range and bounced. Bounced at support
  • XLE – Energy broke lower on weaker oil prices and testing the lows. Watching and managing the risk of the short side trades. Bounced at support.
  • XLV – Healthcare held support at the $86.75 level. Watching as it moves back into the trading range. Bounced at support.
  • XLK – Technology tested lower bounced and holding steady. SOXX showing positive signs on the chart. Moved back to the September high.
  • XLF – Financials have been under pressure with lower interest rates and global weakness. Trade resolution and Brexit helping. Bounced at support.
  • XLY – Consumer Discretionary tested lower but remains within the current trading range. Bounced at support.
  • IYR – REITs held the $88 support and cleared the 90.80 resistance. Holding near the highs for now.

There are currently seven sectors are in sideways or consolidation trends. Three sectors are in confirmed uptrends. One sector is in a confirmed downtrend. The result is SPY in a confirmed sideways/consolidation trend. We have to remain patient and let this all unfold. 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: Slow day for stocks as they stall following the Friday break higher. The goal, for now, is to not read too much into the activity or the news. China stating it needs more talks to finalize a deal is not the best sign for the bounce, but we will let that unfold. The bigger picture remains earnings and economic data. Taking it one day at a time.

Markets found enough buyers to hold key support after some early week selling. The bounce off the lows was a positive as the buyers showed some interest in stocks. The trade talks took center stage and the news of an agreement coming soon pushed stocks back towards previous highs. That is all good, but at this point, it is all sound bites, not reality. Buy on the rumor… may be in effect for now. The economic data remains on the weaker side of positive. The tariff wars are looking for a resolution. Earnings are lost in the background for now and looking for that to heat up in the coming weeks. I continue to manage the risk of the current environment. We traded the downside move and posted some solid gains hitting our stops on the bounce. The upside move this week offered some trade opportunities as defined above. Some trades added with the bounce, but being cautious as I am not a big believer in the upside move. The treasury bonds shifted lower with rates moving higher to 1.74%… hit our stops on positions and took the downside position on money rotating to stocks. The risk remains high for upside opportunities as the underlying data remains weak. The market remains 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. Throw in Brexit, oil tanker bombing and other global issues and you get the picture. There are still too many questions unanswered and that invites speculation and volatility. 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.