OUTLOOK: September 13th
A day of give and take… the semiconductors fell along with financials not helping the broad indexes. Downgrades in semis didn’t help the outlook for the day, but stocks did manage to recover some of the early downside moves. The positives on the day came from consumer staples and telecom. The PPI data was a plus with the core falling 0.1%… maybe the Fed will take not that inflation was tame at the producer level. Growth in Europe is slowing as EU forecast decline. Asia is continuing to see stock prices tumble as emerging markets continue to struggle. Overall not the best day, but then it could have been worse… manage your risk accordingly.
The S&P 500 index closed up 1.1 points at 2888 as the index holds the 20 DMA and tests a key level of support near the 2865 mark and holds. The volume was average and remains on the weak side. Consumer staples and telecom lead the upside as seven of the eleven sectors closed in positive territory. Financials and technology led the downside for the day. Financials continue to struggle breaking key support 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 18.2 points to close at 7954. The index bounced off the support near 7900 Tuesday. Large caps have been leading the index and we continue to look for some clues on direction near term. Practice patience along with a strategic approach to managing money. Stops in place and watching how this unfolds. QQQ held support near the $180.25 level and watching the 50 DMA as a key level to hold. TSLA, WDC, and NFLX bounced off support, WBA and TMUS broke higher from some consolidation patterns looking positive for the index.
Small Cap index is forming another consolidation pattern at the current highs. The leadership of this sector has been key to the bounce from the April lows. The uptrend remains in place and the sector has held despite the lack of upside conviction. The index remains in a positive uptrend.
Transports (IYT) moved back above the $200.53 mark, tested the move, and broke higher from the current consolidation pattern. Hurricane possibly making landfall is helping drive the sector. CAR, FDX, R, and UNP were leaders on the day. Overall it has been the positive moves in the shipping, trucking and logistics stocks keeping the upside in play. Entry $192.50. Stop $202.50 (adjusted).
The dollar (UUP) closed below the key support $25.17 mark after some weakness the last few weeks. The dollar bounced on the heels of talks about interest rates rising again following the ISM data and jobs report. It continues to struggle at the current level to find direction. 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.
Gold (GLD) continues to build a base following the bounce at support near the $110 level. The dollar and geopolitics have been the catalyst for the metal… both up and down. Entry $114. Stop $111. The tariffs, dollar, and geopolitics are playing havoc… letting it settle and find some direction. The gold miners (GDX) bounced off the lows Wednesday with a solid 3% gain. They are oversold and looking for an opportunity in the bounce and reversal. Metals and Mining (XME) building a base or bottom with a solid move higher on Wednesday. Base metals (DBB) gapped lower to renew the downside move, but found some buyers on Wednesday. Watching all as they deal with the speculative influences. These sectors are news driven and high-risk trades.
Crude oil (USO) Crude bounced off the support at $64.22 tested resistance at the $70 level and faded. The speculation about demand rising or production decreasing has been driving the commodity higher. The commodity closed at $70.37 up 1.6% on the day and reversed the downside from the last four days and back to resistance. 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. The strong dollar, stalled tariff talks, and strong economic data reversed the bounce to retest the recent lows. All the juggling 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 Wednesday as the anxiety levels move lower again. Selling in large-cap and tech pushed anxiety higher, but the bounce the last two days has helped ease the anxiety. The background noise and worries can come back into play… now we watch to see what happens. 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 a test for the recent new highs and investor resolve. The strong economic data from ISM and jobs put the speculation talk about interest rates and the Fed back on the table. The end result was some selling the last four days. Tariff talks have stalled again and the rumor mills are stirring the anxiety of investors. 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 moved lower with selling in the large caps and technology. The S&P 500 ended the week lower with three of the eleven sectors closing higher for the week. Utilities, consumer staples, and industrials were the leaders for the week as money rotated towards safety. Economic data remains positive and the funny part is some now think it is too good. Energy and crude oil moved lower on worries about a stall in the supply data. Utilities and REITs are watching interest rates as both test their current uptrends. The Fed remains determined to hike rates and the current data is giving the rationale to do so. 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.
Monday: Added hurricane worries to the list of influencers currently for stocks. HD, LOW, LPX, TREX, WMT, GNRC are some of the benefactors along with the trucking stocks (IYT) (JBHT). Watching how the impact plays out relative to the news and what influence this has on the overall issues facing the markets.
Tuesday: Crude oil, large-cap technology, and consumer discretionary were the leaders as some calm returned to the index on solid volume. ATVI, URI, TTWO, CTL and CXO were leaders on the day.
Wednesday: Mixed day for the markets overall. Selling in semiconductors a negative, rotation to the defensive stocks showed up again. Financials lagging is not helping matters either. Overall… not much changed on the day.
(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. Then the downside resumed as worries about interest rates impact the broad indexes. Entry $116.75. Stop $118 (Stop hit).
Semiconductors (SOXX) Moved back below the $187 level on worries… downgrades on Wednesday moved lower. Watching as the sector is key to the overall market strength in the NASDAQ.
Software (IGV) The sector tested support, bounced, remains in an uptrend, and is leading. 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. Bounce continues to lead.
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. Fed talk on interest rates is keeping the sector in check for now. Watching as interest rates approach 3% levels again.
Treasury Yield 10 Year Bond (TNX) moved to 2.94% on the interest rate and Fed rumors. This is an anxiety move… watching how this unfolds and the short side of bonds… TBT. 2.96% rise in the ten-year bond causing some worries and showing belief the Fed will hike rates at the FOMC meeting.
Energy stocks (XLE) The stocks bounced off support at $72 and reversed back to test the same level… the move up and down is all predicated on the belief behind the supply data… speculation is not a good basis for trading or investing money. Bounce at support with the 4% rise in crude oil.
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. Small bounce on Wednesday.
No big changes to start the week.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
Daily Scan Results:
WEDNESDAY’s Scans 9/12: Mixed day for sectors and sluggish for the overall markets. Selling in semiconductors was a negative, rotation to the defensive stocks (XLP, IYZ) showed up again. Financials lagging as the interest rate banter continues. Crude up more than 4% the last two days. Overall… not much changed on the day.
- Semiconductors (SOXX) downside move didn’t help the bounce and remains in the overall trading range. Tested the 200 DMA and held? Patience as it unfolds.
- Crude Oil (USO/UCO) moved back to resistance at the $70 mark. $33 level to clear for upside trade opportunity. Nothing has changed only the sentiment and speculation on supply.
- Financials (XLF) closed below the $28.24 mark again and continues to struggle. Watching closely how this one unfolds.
- Gold (GLD) and Gold Miners (GDX) bounced on some relief in the metal. Watching to see if it holds the upside bounce.
- Bounce in FXI, GDX, EEM, EFA, USO, IEV, IEO and others showing some life to those sectors beaten down by the sellers. Always watching for bottom reversals in key sectors.
Not much changed and more rotation to defensive sectors. Watching, managing risk, and letting the trends unfold.
TUESDAY’s Scans 9/11: Large caps resume leadership with technology stocks leading the pack. The bump in interest rates back near the 3% mark has my attention as the belief meter rises for the Fed to move rates higher. The obvious result is a weakness in bonds on the move. Overall positive day for stocks as we continue to roll with the trend.
- Treasury Bonds (TLT/TMV) following through nicely after clearing the $19.60 resistance and entry point for short side trade. Now dealing with the $20.15 mark. Need rates to clear 3% if the upside in the short trade is to work… raise stops to break even.
- Crude Oil (USO/UCO) upside still trying to follow through. Up more than 2% on Tuesday with the explosion in Saudi Arabia… rumors are not a good reason for movement, but we will take it for now… watching and managing the risk. UGA moved back to the top end of the current trading range.
- NASDAQ 100 (QQQ/TQQQ) bounced off support and watching how it unfolds. Trade opportunity if clears resistance at $68.20.
- Technology (XLK) posted nice bounce off support. ATVI, TTWO, CTL, AAPL, NTAP were leaders on the day.
- Retail (XRT) continues to show solid leadership. CASY, CTRN, SBH, W, and CVNA leading.
More upside on Tuesday but we remain in a consolidation pattern after holding support. Watching how the week unfolds and what the leadership does going forward.
MONDAY’s Scans 9/10: No big moves on the day. Some juggling relative to the storms. Some movement in the defensive stocks. But overall, nothing changed. Watching and waiting as this unfolds.
- Industrials (XLI) continue to move higher after clearing the $76.80 level. Digging into the sector offers some positive stock opportunities. CHRW, JBHT, IR are a few in positive uptrends.
- Gold Miners (GDX) remain in a downtrend. Short side trade in DUST continues to perform well. Raise stops on the move higher.
- China (FXI) continues to struggle with the tariffs and their economic picture. Downside trade (YANG) looks good and raising the stop on the move.
- Emerging Markets (EEM) struggle to find any positive footing as dollar, tariffs, and currency issues weigh on the sector. Downside trade (EDZ) doing well and raised stop.
- Natural Gas (UNG/UGAZ) moved higher on the storm-related news. The previous weakness in the commodity shows on the chart and may well offer an opportunity short term. $59 level to watch.
Overall slow day for stocks and the storylines shifted to the hurricanes in the Atlantic. The issues facing investors currently is belief and conviction… They are looking for the next believable trend to follow that will impact the markets as a whole or specific sectors. Patience is the key.
FRIDAY’s Scans 9/7: Not a great day for stocks as the indexes again test the trend. Leaders continue to test in an orderly fashion and interest rates moved higher on the Fed talks. Welcome to the market merry-go-round. We continue to watch, manage the risk of positions, and look for the opportunity in the uncertainty. Patience is the name of the game for now.
- Technology (XLK) and Energy (XLE) are the two weakest links on the week. Both are testing key support levels and both have speculation at the root of the moves lower this week.
- Short side trades in natural gas (UNG) and gold miners (GDX) have worked well as both continue in downtrends.
- Emerging Markets (EEM) remain in a downtrend as money continues to leave the sector. Strong dollar, weak commodities, weak currency issues, and too much speculation is keeping the downtrend in play.
- Large caps (SPX, QQQ) some selling as money looks elsewhere… FB, NFLX, GOOG, are a few examples of the trend shifts. SOXX were lower again… all things to watch as the new week unfolds.
- Interest rates 2.94%… big jump on the speculation Friday. Bonds (TLT) fell in response and the ripple effect of higher rates is a double-edged sword. Think… US debt payments. Think… mortgages. Think saving account interest… you get the point it rewards savers and impacts the largest part of our economy debt spending.
Plenty to watch and weigh out as the days unfold. The greatest challenge is not speculating ourselves into doing things that are irrational and illogical. Stay focused and keep your head clear and focused.
(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. Holding support.
- 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. Nice bounce off support back at the highs.
- 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. Nice bounce on Wednesday
- 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 raised some questions about the uptrend. Entry $50.50. Stop $53.25. Stops in place and let this unfold. Bounced at the 200 DMA. Closed above resistance… again?
- XLI – Industrials made a move above the 75.72 level 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. Working 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. Then selling returned this week and retested the $72 support level. Positive bounce with crude on Wednesday.
- 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). Moving sideways this week.
- 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. Moved lower on some distribution. 50 DMA key support for the trend. Retreat with semis selling.
- 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. Back below support and watching.
- 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. Small retreat from the highs.
- 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. Some testing as rates moved higher on Friday.
No changes of note in the major sectors.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
News, tariffs, Fed, geopolitics, White House banter, 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 at the end of the day is fundamentals. The economic growth, earnings growth, and positive sales growth are the keys. The challenge is the speculation around the Federal Reserve hiking rates because things are too good and inflation will be the result. We have to focus on our own strategy and ignore the news/speculation game. We have booked positive gains on positions. We hold short positions on sectors that are in downtrends. We continue to find investable strategies and opportunities. All of the economic data remains on track for growth. 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 a test this week with only three of the eleven sectors moving higher for the week. The volume remains on the low side. The NASDAQ managed to find some sellers as well with large caps and technology stocks moving lower as the index tests key levels of support. Bonds reacted to rates move up to 2.94%. Utilities moved sideways but keep the upside trend moving. Crude moved lower on supply speculation. 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.