Buyers celebrate FOMC notes

MARKET OUTLOOK FOR MARCH 22, 2019

Upside resumed after a slow day on Wednesday. Technology stocks led the upside for the NASDAQ and large caps continue to show solid leadership overall as the buyers remain engaged in advancing the markets. A dovish Fed that is now hinting at possible stimulus gets credit for the advance, but the reality is there is nothing in the way. All the pressing worries are being dealt with. The only issue simmering is China and a tariff agreement. The deadline is now three weeks old and no resolve. All systems go… until they aren’t. Taking what the market gives one day at a time.

The S&P 500 index closed up 30.6 points to 2854 and peaking above the 2815 resistance level. The uptrend from the December lows remains following the test. The buyers remain engaged with a solid move higher on Thursday. Ten of the eleven sectors closed in positive territory on the day. Technology and REITs were the leading sectors to close on the upside. The downside was led by financials which have forfeited all of their gains the last two days. The long-term trendlines have improved and are approaching the key levels to offer an entry signal if we can jump through the key resistance. We will watch how the current activity unfolds and the impact on the trends longer term. SPXL entry $33.50, stop $42 (adjusted).

The NASDAQ index closed up 110 points to close at 7838. The large-cap stocks (QQQ) have been the leader for the move higher this week. The close back above 7505 was the positive start to the current move. Semiconductors posted a solid move to help lead the index higher overall. QQQ is our indicator near term. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark and holding. TQQQ entry $34.17. Stop $48.16 (adjusted). Solid leadership in this sector and watching how it deals with the move above the $180.28 resistance levels. Simply looking for more follow through.

Small Cap index (IWM) the next leg of the move higher stalled but managed to move above resistance at the $154.90 level again. The chart is still not very convincing with the buyers not quite as robust and the volume on the low side. Watching how the bouncing ball rolls. We are looking at what opportunities result near term. Need some signs of follow in the growth stocks.

Transports (IYT) hit some resistance at the $192.42 level. The test of the $182.43 mark held for the second time and bounced. $186.70 is level cleared currently and watching how this sector unfolds. Pressure from the airlines has not helped the situation for the sector overall. The break lower hit our near term stop as we watch how this unfolds.

The dollar (UUP) The reaction to the Fed on Wednesday pushed the buck to support at the $25.50 level. A dovish Fed willing to offer stimulus is not favored by the dollar… watching as it bounced back on some clarifying remarks on Thursday. The big question mark for the buck remains a possible resolution to the trade tariffs with China. The dollar closed at $25.75 and remains in a positive pattern holding support… Watching as this continues to unfold.

The Volatility Index (VIX) closed at 13.6 on Thursday moving slightly higher with the buyers engaged and the anxiety low. This is the lowest level since October when the selling commenced. Watching how this all unfolds patiently.

Economic data remains in an undefined category of so-so. Inventories for December rose 1.1% versus 0.4% in November… not a good number as it equates to slower sales… a fact that earnings reflected for the fourth quarter. This adds to the weaker retail sales data and existing home sales. GDP for Q4 is 2.6% vs 2.3% expected… party! However, it was 3.5% in Q3… Friday posted a weaker ISM manufacturing number to 54.2%. Personal income fell in January along with consumer sentiment. Core inflation remains tame and well within the Fed range… Weaker data is a warning sign for stocks. Watching how this unfolds moving forward.

The jobs report was weaker not helping the outlook on Friday. The concern was job growth almost stalled with only 20,000 new jobs created. This continues to show a sharp slowdown in the economic picture in the first quarter. Weakest numbers since September 2017.

Retail sales rose 0.2% for January versus -0.1% expected. Much better than expected overall. The December numbers were revised lower making the data look much better than expected.

Wednesday the PPI data showed inflation remains in the approved range for the Fed. Durable goods rose 0.4% in January… well above expectations. Capital goods investment rose 0.8% and construction was up 1.3% in January… both above expectations… positive to see the improvements versus fourth quarter.

Wednesday FOMC day… Fed shows it is willing to play nice and even offered some comments stimulus. Economy downgrade of interest with a 2.1% GDP estimate versus 2.4%. Balance sheet reduction will be done by September. Still mentioned possible rate hikes if economy heats up more than expected. The Fed is in passive mode for now.

(The notes above are posted daily based on the activity of the previous days trading. The BOLD/ITALIC comments are current day changes worth noting.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) The selling gave way to buying and the sector bounce back to the key resistance level of $115.03. Watching how it unfolds and what opportunities present themselves. The selling on Thursday shows the weakness in the small caps sector.

Semiconductors (SOXX) Nice recover for the week from the sector bouncing off the support at $175.89 and climbing above the $187.40 resistance. Watching how this unfolds moving forward. Reentry $182.50. Stop $182.50. The big upside move confirmed the break above the $187.41 mark. Solid leadership from the sector.

Software (IGV) Broke $167.88 and bounced back above the same level to create the December lows and start the new trend. $167 level added a trading position. Entry $167.90. Stop $200.45 (adjusted). Cleared $197.48 and moved to the previous highs from September as we attempt to break higher. Topping pattern in play and need a move above the $210 level. Solid move for sector clearing the $210 level.

REITs (IYR) Tanked on uncertainty from the Fed and the economic outlook. Broke $75.21 and bounced… trading opportunity on reversal above $75.21. Entry $75.25. Stop $84 (adjusted). Managed to break above the trading range in a positive week of trading. Adjusted stop and letting it unfold. Some downside in the sector… reversed and moved higher on Thursday on FOMC news.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.59% as yields fall on weaker economic data. TLT moved back to the top end of the current trading range after testing the $118.59 support levels. Watching the bond near term along with the volatility index. Yields remain near the current lows this week. Yields are moving lower on Fed news. Watching how bonds respond to this activity.

Crude oil (USO) worries about the IMF data on the global economy give way to speculation about supplies moving lower on OPEC promise to lower production… again. Plenty of issues as the current consolidation remains in play. The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $20.07 (adjusted). Managing our risk and letting this play out with our target $58.25 (crude price) hit this week… Continued higher for the week and approaching the $60 mark.

Emerging Markets (EEM) Watching as the bounce from the bottoming pattern moves sideways in a range of uncertainty about trade and economic growth. Rumors of trade resolutions and talks with China helped the index but needs some reality to follow through. Watching for the clarity to unfold. Cleared $40.88 and broke higher from a double bottom pattern. Entry $41. Stop $40.50 (adjusted). News from the European Union and the European Central Bank on the state of the economy is not good for the sector. Fell to support and watching how it unfolds. Gapped higher back to the top of the current range… watching.

Gold (GLD) spiked lower and is now in a bear flag pattern. Watching how the metal responds to a weaker dollar and improving economic picture in the US markets. Indecision as it relates to the Fed and the dollar reaction. Watching how this bounce unfolds. $124.54 level to clear.

MidCap (IJH) The uptrend from the December lows are testing with a move below the $190.44 support. Growth stocks have stalled with the large-caps taking the lead… watching how this unfolds going forward. Recoverd from the selling on Thursday, but still has plenty of work ahead.

China (FXI/YINN) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Cleared resistance at $43.50, reversed lower and bounced back above the $43.50 mark. level as worries builds on the trade agreement. The break from the eight-month bottoming pattern has stalled for now. Entry $39.80. Stop $42. Gapped higher and leading the emerging markets higher. Struggling to follow through on the upside.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

THURSDAY’s Scans, March 21st: The positive boost from the FOMC on Thursday has given some positives for stocks. Technology leading the upside along with other large-cap stocks. The weakness in small and midcaps shows the great divide from investors currently. Taking what the market gives and managing our risk.

  • Technology (XLK) solid move higher and pushing towards the September highs. SOXX is part of the leadership in the sector along with IGV.
  • NASDAQ 100 (QQQ) showing how the upside of large caps is working. Solid move above the $180.28 mark. WDC, MU, AMD, EA, and ALGN leading nicely on Thursday.
  • Crude Oil (UCO/USO) solid upside continues in the commodity. Near $60 level and adjusting our stops to protect the gains.
  • Treasury Bonds (TLT) the upside leadership is a result of a passive Fed. The interest rates are now back at 2.53% on the ten-year bond and the rally in bonds is now back at the September highs.
  • Energy (XLE/IEO/IEZ) moving back to the top of the current trading ranges and looking for the catalyst upside.

Overall stocks remain in a positive trends with obvious leadership. Taking it one day at a time.

FRIDAY’s Scans, March 15th: Positive day overall, but we can still see weakness in the small and mid-cap sectors. We need growth stocks to participate if new highs are to be hit and maintained. The break above resistance on the NASDAQ and S&P 500 indexes is a positive start to upside continuation. Semiconductors had a big week breaking higher as well… taking it one day at a time with our stops in place. Bias still remains with the buyers near term.

  • Technology (XLK) breaks above $72.35 resistance for a continuation of the uptrend… looking for follow through next week.
  • Semiconductors (SOXX) cleared the $187.40 resistance on Friday… taking a leadership role to help the NASDAQ move higher.
  • Brazil (BRZU) bounced from the test lower and is at a decision point to move higher. The $35.75 level is key if the bottom reversal is to follow through.
  • Biotech (IBB) making its way back to resistance and now needs to follow through… small caps moving higher would help the cause.
  • Europe (EURL) solid week for the country ETF. Cleared resistance at the $26.80 mark to continue the uptrend. Adjusting stop and letting this run.

Positive week for the broad markets. Taking what it offers and ignoring the speculation. Plenty of economic data to ponder along with global picture. Taking it one day at a time.

THURSDAY’s Scans, March 14th: Day of digesting the move back to resistance. Watching how the Friday quadruple witching expiration settles. I expect some intraday volatility and testing. There is still money flow in the market as stocks are rewarded for good earnings. Some rotation with large-cap leading, small and midcaps are lagging… looking for the catalyst.

  • Little movement overall in the sectors resulting in little changes in the scans.
  • Gold (GLD) volatility related to the dollar and better economic data. the result has been a test lower in the metal and the stocks.
  • Dollar (UUP) volatility about the direction of both the US and global economies. The stall in the China talks about tariffs isn’t helping the global pictures, but better data in the US is helping the domestic outlook.
  • Large-Cap (SPY/QQQ) strength of the move higher this week with solid leadership from all. NVDA, COST, AAPL FITB, BHGE, are examples of the leadership currently.
  • Other sectors of note for the week… IBB, BRZU, XLK, XLF, EURL, UCO, IYR, all have show solid upside opportunity.

Plenty of work to be done and plenty to ponder as this all unfolds.

Sector Rotation of S&P 500 Index:

  • XLB – New lows and found support… got the move above the $50.35 mark. Entry $50.50. Stop $54.10. Upside tested at the $55.95 mark again.
  • XLU – The utility sector found support at $51.11… moved above $52.72. Moved above $57.10 resistance and showing some near term topping. Watching and managing the risk. Entry $53. Stop $55.25. Bounced at the support of $57.12.
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $28.25 (adjusted). Trying to clear the February highs. Bounced back from the selling.
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and continued upside trend. $54.92 level of resistance to watch. Managing our risk. Entry $51.90. Stop $53. Cleared resistance at the $54.92 level.
  • XLI – Industrials moved to near-term low and bounced. $65 level cleared for trade opportunity. Entry $65. Stop $74.05 (adjusted). Testing $74.15 support and not looking good.
  • XLE – Energy stocks bounced back with crude prices moving higher. Remain in the trading range and plenty of uncertainty in the sector overall.  Cleared $67 as a positive advance from the current trading range.
  • XLV –  Healthcare fell to the 200 DMA and bounced at support. Still not showing a lot of strength overall. Watch the parts for clues as
    XPH stalls, but IHI and IHF show some positive signs.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $68 (adjusted). $71 resistance to clear as the sector tests support. SOXX, IGN, HACK, SOCL, and IGV all part of the puzzle for the upside to continue. Advanced higher on Thursday leading the upside.
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.50. Solid earnings boosted the sector and finally breaking above the $26.33 resistance. Need leadership from the sector. Not pretty as the sellers take their shot with interest rates moving lower and dollar weaker.
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $107 (adjusted). Cleared resistance at $109.21, but has tested on the downside this week. Consumer coming into question short term. Solid advance on the week. Watching how it unfolds.
  • RWR – REITs broke lower… bounced from lows clearing $93.21 resistance… positive upside move. Entry $88. Stop $96.50. Watching and managing the risk. Made move to new high last week. Bounced back from early week selling as FOMC news helps the setor.

(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:

Markets tested and held key support levels. The bounce from the December lows remain in play and watching how the buyers respond to the move above key resistance levels to end the week. Looking at the charts you can see the key levels of support holding, the key resistance levels giving way to end the week, and now comes the question of follow through on the upside. Are the sellers done? Do the buyers have enough conviction to head to new highs? Plenty of question marks and only time will tell the outcome. There are some issues facing investors as the trade agreement has not materialized with China. Fundamental data is weak overseas. Some positive economic data for January helping the cause. We will take the positive week for what it was as we continue to emphasize sound money management. We have look at positions to take profits, adjust stops, and manage the risk of the current environment. The goal is to avoid speculation and follow our disciplined strategy for each position. Taking it one day at a time.

Ten of the eleven sectors managed to close the week in positive territory as money moved into large-cap stocks. Technology and healthcare led the upside for the week. Industrials were the laggard as money looks for a new home. Interest rates ended at 2.59% as they continue the trek lower. The ten-year bond moves back to the top end of the range showing money rotation short term. The dollar struggled as talks of a strong US economy plays into the speculation of the Fed. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers.

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.