Slow start to the trading week

OUTLOOK: Week of September 5th

Not the exact start many where looking for the trading week. Despite the highest ISM manufacturing (61.3) data since 2004. The strong report helped for a couple of hours, but stocks struggled and failed to hold any gains on the day. Interest rates clipped higher on the data as many assume it will give the Fed the needed motivation to hike interest rates again at the next FOMC meeting. Some topping in the S&P 500 chart with a doji candle left on the trading day. AMZN trekked higher to keep the upside alive. The SOX index made a nice move above resistance and financials bounced off support. Not a great day for stocks overall but the trend remains in place along with some modest test. Stay the course and keep your stops in place.

The S&P 500 index closed down 4.8 points at 2896 as the index holds near the highs and maintains the uptrend from the April lows. The volume remains below average. Consumer discretionary, financials and utilities closed on the upside as three of the eleven sectors closed in positive territory. REITs, healthcare and basic materials led the downside on the day. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.

The NASDAQ index closed down 18.3 points to close at 8091. The index bounced at the 50 DMA with the short-term uptrend in place and closed near the new high. The consolidation pattern broke from the ascending triangle on above-average volume showing a solid move for the index. Large caps are leading the index with some help from technology stocks. Practice patience along with a strategic approach to managing money. Stops in place and watching how this unfolds. QQQ stop to $182.40 for short-term trades.

Small Cap index broke from the consolidation pattern and continues the uptrend with a modest test on Tuesday. The leadership of this sector has been key to the bounce from the April lows. This a positive for the broad markets as it shows some money flow back towards growth stocks. The index remains in a positive uptrend.

Transports (IYT) moved back above the $200.53 mark, tested the move, and headed higher again, and of course, is testing again. The sector regained the uptrend and has been consolidating near the current highs. Watching the double top currently. The positive moves in the shipping and logistics stocks are keeping the upside in play. Entry $192.50. Stop $202.50 (adjusted).

Gold (GLD) the last five days is testing the bounce from support at the $110 level. The dollar and geopolitics have been the catalyst for the downside. They have equally been the catalyst on the upside as the dollar moved lower and gold posted a solid gain in the reversal. Entry $114. Stop $111. The tariff news last week pushed the metal lower again. The bounce in the dollar on Tuesday helped the downside again. Watching. The gold miners (GDX) bounced off the lows as well, but have since retreated and Tuesday dove lower to break the previous lows. Metals and Mining (XME) resumes the downside move. Base metals (DBB) gapped lower on Tuesday to renew the downside move. Watching all as they are clearly oversold. These sectors are news driven and high-risk trades.

The dollar (UUP) closed above the key support $25.17 mark. The bounce comes following the move lower in the last two weeks. The move gave some relief to emerging markets and precious metals and watching how the bounce impacts those sectors near term. Bounce comes on the heels of talks about interest rates again following the ISM data. The overall the move higher is positive from my perspective, but there are many who think a weak dollar helps US companies. Simply not true… history validates a strong dollar favors the US despite the short-term setbacks.

Crude oil (USO) Crude has now bounced off the support at $64.22 as supply data is showing more demand the last few weeks. The speculation about demand rising or production decreasing is driving the commodity higher. The commodity closed at $69.87 with wild intraday activity in the commodity. The follow through on the bottom reversal offered an opportunity for entry at $66.50. Stop $67.25 (adjusted).

Emerging Markets (EEM) the renewed talks with China, the dollar easing, and some optimism, had the sector moving off the lows. Tariffs talks are kryptonite to this sector as seen last week. The strong dollar on Tuesday added to the downside move as interest rates rose on stronger economic data. All the juggling in key sectors is keeping me out for now. Too many worries and uncertainty as this unfolds near term.

The Volatility Index (VIX) closed at 13.1 on Tuesday as the anxiety levels move on economic news. They also showed some relief on the North America possible tariff agreement. The stronger dollar on Tuesday moved interest rates. The background noise and worries can come back into play… now we watch to see what happens today. Short term the market is driven by emotions… trade accordingly by managing your risk. There is plenty on the stove that could boil over at any time… watching how this unfolds.

The week was was dull for the markets despite the move to new highs. The talk of an agreement with Mexico on tariffs was news… the indecision with Canada was expected… China continues to believe it should have special treatment… all is well in tariff land. Investors remain engaged with the markets and pushed the three of the major indexes to new highs. Where do we go from here? Time will tell along with the charts. Our job is not to prognosticate, but to manage the risk of our money based on our strategy and discipline both short and long-term. The NASDAQ higher in the uptrend to a new high. Semiconductors started the week with a push through resistance at $187 and the spent the rest of the week… resting. The S&P 500 ended the week at a new high with eight of the eleven sectors closing higher for the week. Healthcare, consumer discretionary, and technology were the leaders for the week as the index remains at the current highs. Economic data remains positive along with earnings and retail. Energy and crude oil bounced on a change in the supply data offering some opportunities in the sector. Utilities and REITs are watching interest rates as both test their current uptrends. The Fed remains determined to hike rates despite the soft patch we are experiencing in the current economic advancement. That is a concern looking forward. There is plenty of dynamics working in the markets overall and we will take it one day at a time as the trend remains positive. All we can do is manage our risk according to the charts and not speculate on what if… the greatest challenge for us all is not letting our emotions get involved in a process that requires a disciplined strategy and action.  Manage your risk and look on the horizon for answers to the trends.

(The notes above are posted daily based on the activity of the previous days trading)

KEY INDICATORS/SECTORS &LEADERS TO WATCH: 

Biotech (IBB) The sector broke from the consolidation pattern moved to a new 52 week high. The uptrend resumes along with the strength of the sector. Entry $116.75. Stop $118 (adjusted). Managing the risk and letting the upside run.  Big intraday activity Tuesday… watching. 

Semiconductors (SOXX) Solid move above the $187 level to help the upside and the broader index. Looking at the longer-term weekly chart you can see the attempt to break from the triangle pattern with the 52 WMA as support. Tested at resistance near $191. Need the upside to resume for the broader markets. Positive upside on the day.

Software (IGV) The sector tested support, bounced, remains in an uptrend, and posted a new high. The long-term uptrend remains in play along with the near-term volatility. Watching how this unfolds to start the week. Entry $193.78. Stop $194.  

REITs (IYR) The sector has been in a trading range and is testing the break higher. Entry $75. Stop $79.30 (adjusted). 3.8% dividend. Lower interest rates helping as well as the rotation to the defensive sectors… letting it play out with our stops in place. Double top pattern in play? 

Treasury Yield 10 Year Bond (TNX) moved to 2.85% and holding support. Some buying of bonds on the collective worries. TLT has moved from support at the $118.60 mark and sits near the $121.68 resistance. They faced some selling as yields bounced modestly. Solid move higher in yields as bonds head lower. 

Energy stocks (XLE) The stocks bounced off support at $72 and back to the previous trading range. The bounce in crude was helped by the supply data and the stocks have followed the bounce. Watching how the crude move unfolds this week. Supply data is out again on Thursday. Creeping higher with crude oil some near-term resistance in place.  

Housing (ITB) The housing market continues to slow as evidenced by the housing start data moving lower. Starts were up 0.9% versus the 8.3% expected. Permits up 1.5% after two months of declines. Why the sluggishness? Interest rates are pushing 5% and tariffs on products are impacting the cost of construction. Simply put it is a matter of affordability for consumers. The sector is attempting to hold support near the $37 level and is down more than 19% for the year. 

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

Daily Scan Results:

TUESDAY’s Scans 9/4: Consolidation day for the broad markets as some sectors move higher and others digest the moves. Some profit taking and repositioning in the charts as well. Not enough to shift anything currently, but enough to get my attention and watch how it unfolds. 

  • Treasury Bonds (TLT/TBT) Bonds moved lower on higher yields as the ten-year bond hit 2.9%. The move came by way of the ISM data jumping higher. This opens the door for the Fed to hike rates on stronger economic outlook. Watching the short side trade in the bond if this continues. 
  • Natural Gas (UNG/DGAZ) the downside of natural gas continues to be a concern near term. Resistance at the $24.50 level is in place and the move lower on Tuesday only adds to the downside speculation. 
  • Gold Miners (GDX/DUST) they moved lower on the talks about higher interest rates and a stronger dollar impacting the price of the metal. Downside trade is back. 
  • Emerging Markets (EEM/EDZ) equally, the challenge of the dollar in play against the emerging markets. Downside gap lower and watching how it unfolds. 
  • Semiconductors (SOXX/SOXL) nice bounce higher to clear the next level of resistance… barely. I am watching how this unfolds with the leadership of the sector key to the move higher in the NASDAQ. 

Plenty of activity on Tuesday with the strong economic data coming from the ISM manufacturing sector. Today is the services data… watching the number and the response in the dollar and interest rates… they will tell us what traders believe as it relates to future Fed action on rates. The bond is in the middle of it as well falling on the rise in rates. All information we will watch and digest according to the charts. 

FRIDAY’s Scans 8/31: Sluggish day to end the week. The bantering between China and the White House continued along with comments from Canada about tariffs. Nothing new on that front. Investors watch and hope for a resolution to provide the next catalyst higher. The scans show little relative to change as the uptrend remains in play and the no rotation to speak of currently. We are willing to wait and see. Keep our stops in place. Make some minor adjustments. Take profits where they are offered. 

  • NASDAQ 100 (QQQ/TQQQ) solid week on the upside move. Adjusted stops to $182.50 on trade positions. The upside from software (IGV), semiconductors (SOXX), and networking (IGN) stocks have helped. AAPL and AMZN equally adding upside to the move.
  • Healthcare (XLV/CURE) upside remains in place for the sector as money flow continues. Large-cap biotech (XBI) and small cap (IBB) are adding to the upside. Providers (IHF) and medical devices (IHI) are heading higher as well.
  • Financials (XLF) remain a weak link as they test support at the $28.24 level again. No momentum and no real buyers in the sector near term.
  • Retail (XRT) leadership remains with mild test near the highs.

Solid week for stocks as they push to new highs. Some warranted taking profits as they turn vertical on the chart. We like to take some profits off the table and let the balance run with our stops in place. Managing risk is a daily effort. How you enter positions, how to manage positions, to taking money out of positions is the key to successful money management and peace of mind.

THURSDAY’s Scan 8/30: Consolidation day? profit taking day? Call it what you like… the tariff talk from the White House set the tone for the day… a news-driven day is my term and we will leave it at that. The PCE deflator hit the magic 2% mark… that is limit the Fed wants to keep it below. Maybe the fear of higher rates also impacted the markets today? Again, news-driven day… watching how we end the week on Friday.

  • China (FXI/YANG) The tariff talks sent the country ETF lower. This is a concern and one reason it is tough to want to trade this country. It is all speculation and no rationale as to what the outcome will be… for now the tariffs are here to stay… maybe.
  • Emerging Markets (EEM) they respond to the tariff talk on the downside. Same as China for now.
  • Volatility Index (VXX) the bump higher comes from the worries about the tariff talks stalling. The anxiety is something to watch today.
  • Biotech (IBB) continues to set the upside leadership.
  • Crude Oil (USO/UCO) upside trade playing out as the supply data continues to show more demand. I would say we are seeing less availability from sanctions on Iran. Either way, it is moving crude higher and we adjusted the stop on the move.

WEDNESDAY’s Scan 8/29: Positive day overall for the broad markets as the leaders continue to see positive money flow and the momentum remains positive. Volume remains at the anemic levels and all seems to be well as the headlines remain quiet. NASDAQ has moved straight up and could test before moving higher… watching how that unfolds. Healthcare, biotech, and providers leading the way with a solid uptrend. Taking what the markets offer and managing the risk.

  • Consumer (XLY), technology (XLK), and healthcare (XLV) leading the upside with solid trends.
  • Financials (XLF), materials (XBI), and energy (XLE) are the laggards of late.
  • NASDAQ 100 (QQQ) solid break above resistance and positive momentum from the large-cap stocks.
  • Emerging markets (EEM) at a key level of resistance to reverse the downtrend. The bottoming pattern needs some help from the tariff news to push through… thus far, that has not come forth other than the news of Mexico being willing to forge a new agreement.
  • Crude Oil (USO/UCO) at a key level of resistance after testing lower. The catalyst is the supply data the last two weeks showing a drawdown in supply. This reflects demand rising and in turn, increases speculation on direction… trade with caution and manage the risk of the speculation move. Two weeks of data do not make a confirmable trend in supply.

Plenty of good on the charts… all the more reason to be cautious as the fundamental data needs to confirm. End of the month and plenty of data to be released starting Friday. We will take what the market gives and watch how it all unfolds.

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

Sector Rotation of S&P 500 Index:

One big change of note concerning sectors… The Global Industry Classification Standard is making a change to the Telecommunications Services Sector. It will become the Communications Services Sector which sounds minimal but could have a significant impact going forward. They are adding NFLX, DIS, CSMSA, FB, and GOOGL. The new structure will be enforced by the end of September. This will make it more of a growth sector overall but could dampen some of the volatility the sector has experienced over the last two years.

  • XLB – Materials moved back above the $58.44 level and continues to consolidate on worries about tariffs, etc. Watching how it unfolds with the $60 resistance. 
  • XLU – Utilities got relief as rates moved lower and cleared the resistance at $52.72 and accelerated on money rotation. Uptrend remains in play… entry $49.55. stop $52.50 (adjusted). Tested the move higher and watching as this unfolds. 
  • IYZ – Telecom moved above the $28.62 resistance with some momentum in the sector to the next resistance at $29.51. Entry $27.80. Stop $29.15 (adjusted). Nice bounce higher to keep upside trend in place.
  • XLP – Consumer Staples has been in a gradual uptrend from the May lows, but they have faced resistance at the $54.92 mark. The test lower the last two weeks is raising some questions about the uptrend. Entry $50.50. Stop $53.25. Stops in place and let this unfold. 
  • XLI – Industrials made a move above the 75.72 mark again and cleared the highs of the range at $76.80. Entry $72.50. Stop $75.70 (adjusted). Need some momentum as it tests the break higher. 
  • XLE – The stocks bounced off support at $72 and back to the previous trading range. The bounce in crude was helped by the supply data and the stocks have followed the bounce. Watching how the crude move unfolds this week. Supply data is out Thursday. 
  • XLV –  In June the sector bounced off $83.24 support. Then moved above the $86.74 resistance in July. Stalled at the $90.50 level and accelerated higher. Solid uptrend for the sector as we let trend run and manage our risk. Entry $83.25. Stop $90.50 (adjusted).  Some profit taking?
  • XLK – Technology remains a sector of volatility despite the renewed uptrend the last week. Entry $72. Stop $73.80. Letting this unfold and managing the risk and volatility.  Nice upside move.
  • XLF – Sector bounced off the lows in July. Worked back above the $28.24 resistance. Tested the move back to the 200 DMA, bounced, and watching how this unfolds near term. Insurance is leading the sector higher. Entry $27.50. Stop $26.50. Nice bounce off support. 
  • XLY – Consumer remains a leader despite all the rumblings and worries. The sector broke from the rising triangle pattern adding to the upside trend. 50 DMA is the level to hold for the upside to continue. New highs on the solid move. 
  • RWR – REITs have been in a clear uptrend since the February lows. Granted it has come with some volatility and speculation, but the upside is in place nonetheless. The lower rates and money rotation towards safety and defensive positions helped move the sector to a new high for the year. Entry $93.40. Stop $95. 3.8% dividend.  Downside on interest rates moving higher. 

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

FINAL NOTES:

New, tariffs, Fed, geopolitics, Turkey, Italy, White House, and economic data all remain in the headlines and in the minds of investors. They influence the day-to-day activity, but the real driver remains fundamentals. The economic growth, earnings growth, and positive sales growth are the keys. We have to focus on our own strategy and ignore the news. We have booked positive gains on positions. We have added others as we continue to take what the market gives. All of the economic data remains on track for growth, be it slow growth, but growth nonetheless. There is always something to worry about, but at the end of the day it is about the trend and we continue to see a positive uptrend for stocks despite the low volume. The S&P 500 index produced eight of the eleven sectors moving higher for the week. The volume remains on the low side. The NASDAQ managed to find some buyers as the semiconductors pushed through the next level of resistance. Both indexes closed higher for the week. healthcare, consumer discretionary, and technology offered leadership efforts for the week. Bonds reacted to rates move up to 2.85%. Utilities moved sideways but keep the upside trend moving. Crude moved higher on supply data. The dollar is resting near support. We need to find some conviction in stocks and money flow needs to rise if the trek higher is to continue. We will keep our focus on our strategy in the current market environment. We continue to manage all positions as trades until we gain some clarity on the longer term views. The long-term uptrends remain in place and we will manage our longer-term holdings in light of that trendline. The goal remains money management, not market speculation…

ONE DAY at a time is the key for now. Take a longer-term view of your overall portfolio and manage the risk of your short-term trades accordingly.

“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.