Solid upside week for stocks

MARKET OUTLOOK FOR April 8th, 2019

Friday closed the week on a positive note with stocks continuing to push higher. Small and midcaps finally join the party pushing higher and leading the day. The jobs report was enough to keep buyers engaged as 196,000 new jobs were added versus 175,000 expected. There were challenges with the data overall, but the buyers were focused on the top line number… the number of people working fell 201,000, full-time jobs dropped 190,000, and part-time jumped up 60,000. The devil is always in the details. We will take what is offered and manage the risk accordingly.

The S&P 500 index closed up 13.3 points to 2892 and holding above the 2815 level. The uptrend from the December lows remains in place and the last seven days have recovered from the test of support. Ten of the eleven sectors closed in positive territory on the day. Utilities and energy were the leading sectors to close on the upside. The downside was led by basic materials as money continues to look for new opportunities. The long-term trendlines improved but are approaching the key levels to make or break the current trends. We will watch how the current activity unfolds and the impact on the trends longer term. SPXL entry $33.50, stop $46.28 (adjusted).

The NASDAQ index closed 46.9 points to close at 7938. The large-cap stocks (QQQ) have been the leader for the move higher and managed to clear the March 21st high. The close back above 7597 support was positive to keep the current uptrend alive and well. Semiconductors bounced back above the key $187.41 level and followed through the last five days to lead the way higher. Software tried to recover from selling on Thursday, but not enough to impress. 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 $57.50 (adjusted). Solid leadership in this sector and watching how it unfolds with the move above $180.28. The buyers have taken control near term.

Small Cap index (IWM) the next leg of the move higher stalled and struggled with the $154.90 level again. Friday we got a move higher to lead the day and show some signs of hope for the sector near term. Broke lower testing the $149.05 support and back to the resistance at $154.90. The trend from the February highs has now reversed back to positive. 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.

Transports (IYT) hit some resistance at the $192.42 level. The test of the $182.43 mark failed then bounced back above that level and $186.70 cleared. The big gains on Monday brought the $192.42 level back in play but have failed to clear the resistance. Added a position at $188.30. Stop $186.70 (adjusted). Taking what the sector offers.

The dollar (UUP) The reaction to the FOMC pushed the buck to support at the $25.50 level. A dovish Fed willing to offer stimulus is not favored by the dollar… But, a weaker economic picture globally is helping the dollar currently. It is a matter of which news story holds the greatest belief for the buck. The big question mark for the buck remains a possible resolution to the trade tariffs with China. The ETF closed at $26.06 and remains in a positive pattern holding support… Watching as this continues to unfold.

The Volatility Index (VIX) closed at 12.8 on Friday moving lower as the tug-o-war remains between buyers and sellers near term. Watching how this all unfolds patiently.

Economic Data: April starts a new round of data for the month of March… looking for some improvement over February.

Monday… Retail sales fell 0.2% or 0.4% ex-autos. ISM manufacturing rose to 55.3 vs 54.2. Construction spending rose 1% vs 2.5% previous. Business inventories rose 0.8% vs 0.6% previous. More signs of a slowing economic picture.

Tuesday… Durable goods fell 1.6% vs 0.1% previous.

Wednesday… ADP employment report 129,000 vs 197,000. ISM services 56.1 vs 58.1 expected. Vehicle sales 17.5 million vs 16.8 million expected. Some good… some bad. Watching how markets respond overall.

Thursday… no new to speak of as the weekly jobless claims declined more than expected. Looking at the March jobs report due out Friday AM.

Friday… jobs report showed positive top line number beating at 190,000 new jobs. It is the details that are a challenge from my perspective. Full-time jobs decline while part-time jobs rise. The number of people working overall declines by more than 200,000. Higher paying jobs declined as well as the participation rate. Good headline numbers weak internal numbers.

It is all about the progress since rates were hiked by the Fed… we continue for the fourth straight month to see slowing in the data. Eventually this will show up in stock prices through earnings.

(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 resumed and tested the $107 support again… bounced back to the $115 level on Friday showing some buyers as small caps rise equally. Watching how this unfolds this week.

Semiconductors (SOXX) Tested below the $187.41 support and managed to hold. Solid gains higher for the week as the sector moves higher. Watching how this unfolds going forward. Entry $187.50. Stop $187.50 (adjuted).

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 $202.60 (adjusted). Topping pattern in play and needed a move back above the $210 level which happened on Friday… looking for a follow through. Showing some weakness in the sector near term.

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 $85 (adjusted). Managed to break above the trading range in a positive week of trading. Adjusted stop and letting it unfold.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.5% as yields bounce back following the big decline on weaker economic data. Watching the bond near term along with the volatility index. Yields remain near the current lows even with the modest bounce.

Crude oil (USO) showing resolve to work higher. 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 $21.50 (adjusted). Managing our risk and letting this play out with our test of support at $58.25 (crude price)… The OPEC cuts are being rumored to have impacted supply. Watching for facts.

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 $42 (adjusted). News from China helping on the week, but the details are what will matter moving forward. Adjusting the stop and letting it unfold.

Gold (GLD) spiked lower again retesting support. Watching how the metal responds to the ups and downs of the dollar and global economic picture. Downtrend developed on the chart.

MidCap (IJH) The uptrend from the December lows are tested with a move below the $190.44 support. The have now managed to move higher and Friday cleared the February highs completing the reversal. Entry $190.45. Stop $188.

China (FXI/YINN) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Bounced off support at $43.50 mark. Talk of tariff agreement back on the table… but, we have heard this too long. The break from the eight-month bottoming pattern finally getting some follow through. Entry $39.80. Stop $42. News of improving PMI from a private rating service in China… perhaps, but doubtful… we will see how it unfolds… stocks jumped on the news.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

FRIDAY’s Scans, April 5th: Jobs report leads the market modest higher to end the week on a positive note. The energy sector was the leadership on the day as crude continues to march higher. Utilities, healthcare, and consumer discretionary helped lead the markets. All is good in the wonderful world of stocks. We will continue to watch the current rotation and the opportunities that are unfolding.

  • Energy (XLE) breaks from the trading range to clear $67 and offer another entry point for the sector. Digging into the sector for leadership offers some solid upside opportunities. HES, XOM, FTI
  • Consumer Discretionary (XLY) adding to the upside run in the sector. Adjusting our stop accordingly. Solid leadership from HOG, DG, DHI.
  • Biotech (IBB) attempting to break higher from the consolidation pattern. LABU clearing $64 for entry point. Needed the leadership from small caps to help the sector move higher.
  • Homebuilders (NAIL) solid break higher the last two days. Lower interest rates helping the cause.
  • Crude Oil (USO/UCO) continues to move higher in solid uptrend. Watching how this unfolds with supply cuts from OPEC and sanctions on two major oil producing countries. Adjusted stops.

Positive week overall for stocks as the buyers remain engaged. Watching, adjusting, and managing our money.

THURSDAY’s Scans, April 4th: Software sees some selling. Industrials and basic materials move higher. Consumer discretionary moving higher. Some rotation of money, but not enough to raise any flags. Watching how the jobs report impacts trading. Following the money and looking where the opportunities lie.

  • Basic Materials (XLB) breakout continues to follow through and digging into the leadership offered some short term opportunities. FCX, CE, FMC, NEM, and SHW. Taking what the market offers.
  • Industrials (XLI) trying to break through resistance and offer some leadership. Watching SWK, IR, FDX, MAS, and CMI.
  • Commodities… SGG, WEAT, CORN, SOYB, NIB all moved higher on the day… watching how this unfolds. DBA spiked in a reflection of the move.
  • Retail (XRT) cleared resistance at the $45.50 mark. M, URBN, ZUMZ, FL, and AEO show upside opportunities.
  • Software (IGV) downside move has my attention as we manage our stops.

Jobs report due out Friday AM. Watching the rotation.

Other moves of note… TWTR, GG, MSFT, AAPL, FB, T, F, MU, AMD.

WEDNESDAY’s Scans, April 3rd: Semiconductors lead the day with a solid jump to new highs. The chatter about major indexes not holding the early gains was of interest, but Thursday and Friday will help sort out the winners and losers. White House offered positive comments on the China-US trade talks. progressing. OPEC production cuts having some impact on the price of crude near term. Taking it one day at a time… plenty of things to like and some not to like. Stick to your startegy and mange your risk.

  • Technology (XLK) semiconductors (SOXX) leading the upside move for now. This is key leadership for the broader indexes as stocks like AMD, MU, NVDA, and MSFT push higher.
  • Automobiles sales were better than expected… F jumped higher and breaks from the trading range. Worth our attention to review and scan the sector overall.
  • Energy (XLE) stocks are not trading in sync with the price of crude rising. The current resistance at $67 remains in play.
  • Biotech (IBB) pattern consolidation in position to break higher. Watching for the upside opportunity in the sector. XBI also showing some positive signs. Scanning the sector for stocks show solid leadership in play.
  • Social Media (SOCL) breaks from consolidation pattern to renew uptrend.

Overall market remains in an uptrend. Some sectors are doing better than others. Follow the leaders and remain disciplined in your approach to stocks and managing your risk.

TUESDAY’s Scan, April 2nd: Markets stalled as investors digest the news about the economy and the talking heads evaluate the current conditions. There was the talk from the White House about an interest rate cut… too much, too soon… watching how investors deal with the reality of a slowing economic picture. One day at a time and tightening stops.

  • REITs (RWR) moved to new highs again as interest rates hold near the 2.48% mark on the 10-year bond.
  • Crude Oil (USO/UCO) climbing again as it breaks from the consolidation range. Raised the stop on our position. UGA posted solid gain as well on the move.
  • Europe (EURL) bounced back nicely to clear $26.79 and resume the uptrend. Watching our stops and looking for more upside.
  • Small Caps (IWM) no participation to speak of from this sector. Without it… hard for me to believe the upside rally goes far.
  • Retail (XRT) reversed on Tuesday… not a good sign for the upside either. Watching how the parts unfold… some key areas not participating in the upside move.

No sellers showing up yet. Taking what the market offers one day at a time. Stops in place. Focus on the strategy and discipline not the emotions of the news.

MONDAY’s Scan, April 1st: Solid upside for the broad markets. Interest rates rose eight basis points, money rotated again towards large cap stocks, and small caps continue to lag. All in well on Wall Street and investors are happy… at least they were on the first day of the second quarter. Taking it for what it is and managing our risk.

  • S&P 500 index (SPY) clears the March highs and eyeing the 2018 highs. Positive move technically for the markets. Need to follow through.
  • Financials (XLF) big bounce off support thanks to the yields moving on the 10-year bond. Watching how this unfolds near term. Entry at $26.35 on confirmation.
  • Industrials (XLI) and Basic Materials (XLB) bounce nicely to regain their upside momentum after selling lower. Need some follow through near term.
  • China (FXI) solid upside gap higher on the new of better PMI in the country. Watching how that unfolds as well.
  • Technology (XLK) and Semiconductors (SOXX) nice upside move and pushing back to previous highs.

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. Held support at the $54.15 mark and has moved into a leadership role with the climb above $55.95.
  • XLU – The utility sector found support at $51.11… moved above $52.72 for entry. Cleared $57.10 resistance and showing some near term topping. Watching and managing the risk. Entry $53. Stop $56.75. Topping pattern showing on the chart and letting this unfold with stops in place.
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $28.25 (adjusted). Cleared the February highs and continued the uptrend.
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and continued upside trend. Managing our risk. Entry $51.90. Stop $54.25 (adjusted). Cleared resistance at the $54.92 level. Testing the break higher.
  • XLI – Industrials moved to near-term low and bounced. $65 level cleared for trade opportunity. Entry $65. Stop $74.05 (adjusted). Back to resistance at the $76.80 mark and watching.
  • XLE – Energy stocks bounced back with crude prices moving higher. Breaking from the trading range and plenty of uncertainty in the sector overall. Watching for follow through on the move above $67.
  • 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. Consolidation pattern in place…
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $73.50 (adjusted). Trading near the October highs and resistance. SOXX, IGN, HACK, SOCL, and IGV all part of the puzzle for the upside to continue.
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $25.76. Stop $25.50. Cleared $26.33 level of resistance and watching.
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $113.50 (adjusted). Cleared resistance at $113.50 level. Taking on a solid leadership role the last two weeks.
  • 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.

(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 and have bounced back near the October highs as resistance. The S&P 500 has been up for seven days running. The leadership remains in place and the small caps joined the upside effort to end the week. Looking at the charts you can see the key levels of support holding, the key resistance levels remain in play as well. April is here and investors decided they like the economic data thus far for March. There are earnings on the horizon as we get first quarter results from companies. 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 remains on the weaker side both domestically and internationally. We will take the positive week for what it was as we continue to emphasize sound money management. We will 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 continues to move to move with some rotation. Financials and basic materials led the upside for the week. Consumer staples were the laggard as money looks for a new home. Interest rates ended at 2.5% as they got a small bounce from the trek lower. The ten-year bond moves higher as money rotates to safety. The dollar bounced back as the global picture remains uncertain. 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.