Some buyers show but questions remain

OUTLOOK: June 29th

Indexes started lower on Thursday and managed to bounce back and hold key levels of support. The technical data is not great… volume and internal market data are not overly convincing for the move. Today will be important from the standpoint of follow through. The leaders were back to leading and the question… will they be enough to carry the markets overall? Remember until the threat of news is taken out of the equation any market advance will come with trepidation… investors are looking over their shoulders from something to happen. Thus, expecting the buyers to fully engage in taking stocks higher after a modest pullback is not likely… and if it does, it will come with lower volume. Uncertainty is not a word investors want to hear nor do they want to guess what might happen with trade, interest rates, inflation, economic growth, or geopolitics. GDP was finalized at 2% versus 2.2% and that is not making a very convincing story for the outlook of the trade issues facing the markets. We end the week, the quarter, and the first half of the year today… watch for posturing and repositioning heading into the second half of the year.

The S&P 500 index closed up 16.6 points at 2716 as the index flirts with the 2707 support. This is the key test for the current uptrend. Telecom and technology lead the day as eight of the eleven sectors closed higher with intraday activity still volatile and direction uncertain. It was a day of recovery for most sectors as they attempt to hold the upside trend and return some momentum. The sellers took control on Monday and again on Wednesday with some buying on Thursday. A look at the chart shows the break of the topping formation and a break of the key support. Watching how today unfolds. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.

The NASDAQ index closed up 58.6 points to close at 7503 attempting to recover from Wednesday’s selling. The move lower broke support at the 7505 mark and the trendline from the April low. The long-term uptrend remains in place, but the sellers have stepped into the arena. The large caps (QQQ) broke $170.93 support but was able to move back above that level on Thursday. The SOXX broke support at $187 last week and Monday failed to hold the $182.38 mark… Wednesday closed below the 50 DMA… and finally a bounce of modest proportion on Thursday leaves the downtrend in place from the June high. Watching how the day unfolds with the buyers in question. The key remains patience along with a strategic approach to managing money.

Small Cap index broke the $164.43 support and led the downside Wednesday. The sector that showed leadership is giving way to the sellers of late. $162.50 level held on Thursday… manaing our risk as this unfolds. The leadership of this sector had been key to the bounce from the April lows. Entry $155. Stop $165.77 (HIT STOP). Exits were hit on Monday for the position. Watching for the next opportunity to arise.

Gold (GLD) dumped lower again on Thursday after breaking the $120.45 support the last four days have been ugly for the metal. The downtrend has accelerated the last ten days. The strong dollar isn’t helping matters and worries over global geopolitics have only added to the downside momentum. The downtrend is in play along with the short side trade and the break of $120.45 support adjust our stop to $74.35 on GLL. Entry $71. The gold miners (GDX) are equally volatile based on the metal, but they continue to hold near the support at $21.92. Metals and Mining (XME) left a doji candle near the 50 DMA… watching if a change in direction is in store. Base metals (DBB) continues to dump lower on new tariffs worries. Sectors are all short side trades.

The dollar (UUP) bounced back on Tuesday and the last two days closed above the $25 mark. The clearing of resistance at the $23.65 level started an uptrend above the November highs for the current trend. Stops are in place and watching how this unfolds near term. The overall move higher is a 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. Took the upside trade near term as the move above $23.75 was the entry point for UUP. Stop $24.85 (adjusted).

Crude oil (USO) tested support at $64.20 the last two weeks and then bounced on the news of the production increase from OPEC. The increase was obviously less than many expected and rallied investor interest. The last three day has oil above the May highs at $73.45. Speculation trading at its best again in play. Remember all of this is about the sanctions on Iraq… OPEC controlling the supply… Russia is a wild card… don’t forget the US can influence this as well. We added a new position at $68. Stop $64.20. (UCO $29.10 entry. stop $32.44) Adjust the stop on the three-day vertical rise.

Emerging Markets (EEM) The cliff dive for the last two weeks are big for the sector. Tariff worries? Stronger dollar? Weaker commodities? You choose, but each has some influence on the sector. Emerging markets could not hold the move back above the $46.62 resistance and the Fed may have put selling back in play looking at the chart following the FOMC meeting. Watching how this unfolds with the accelerated selling in the downtrend. The dollar, tariffs, trade wars, and interest rates are all playing into the volatility of the sector it isn’t promising. We will let the market speak and it continues to say lower in the current trend. EDZ entry $42.40. stop $52.90. (Sold 1/2 of position at $54.50. Holing with an adjusted stop on balance.)

The Volatility Index (VIX) closed at 16.8 Thursday as the anxiety levels spiked with little ease in the index. Tariffs are still an emotional challenge near term for investors as they attempt to understand the possible outcomes. 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 last week was mostly negative talk about the tariff deadlines of July 1 announced by the White House… 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 let our emotions get involved in a process that requires a disciplined strategy and action. Economic data still supports the growth story as witnessed by those sectors doing well and holding up in the current storm of speculation. Semiconductors showed a drop in money flow again for the week and broke support at the $187 level. Energy got a boost from the OPEC news heading higher on Friday. Treasury bonds become more stable with interest rates holding near the 2.9% mark. The NASDAQ and Small Cap continue to hold near their respective highs and S&P 500 index has established a rolling top pattern. 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. The big question facing us currently… will traders use the current angst of China and other issues to sell stocks lower. Technically the market show signs of being overbought and that could result in some short-term repositioning. Short-term news, emotions, and greed drive money… manage your risk and look on the horizon for answers to the trends. 

Monday set the tone for the week by selling off more than one percent and testing the next key level of support. Tuesday was a modest bounce, but no real action to keep the upside in play. Wednesday was a continuation of the selling. The news is providing the catalyst for investors to take their exit of positions they are ready to sell and speculate what will happen to others. We have hit many of our stops, others remain in place, and we are focused on where money is rotating… bonds, cash, utilities, and other safe havens… the cash portion is larger than I would like to see, but we will remain focused on what the opportunities are versus the speculation driving the moves. Friday ends the quarter and we continue to watch how this unfolds with the sellers. 

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

KEY INDICATORS/SECTORS &LEADERS TO WATCH: 

Biotech (IBB) Uptrend remains in place from the April/May lows, barely. We added a position on the move back above the $107 mark to complete the bottom reversal attempt. $107 entry. $110 stop (stop hit). Intraday volatility continues with the small caps, but the large caps XBI continue to push towards the January/March highs… watching how this plays out going forward. We also own XBI. Entry $91.10, stop $97.50. Letting them both play out near term with some tests to end the week. Stop hit on Monday and watching how it unfolds. Always willing to add the position back if the trend warrants… otherwise we watch. Moved back to the $107 level of support… held on Thursday and watching how this unfolds today. 

Semiconductors (SOXX) The sector is testing the move higher from the May lows and managed to close below the initial support at $187. We own a position… entry $173.50. Stop $187 (Stop HIT). The drop in money flow the last two weeks has hampered the upside trend and the $182.40 mark is the next level to watch. This is a sector to watch as an indicator for the NASDAQ near term. Gapped lower on Monday with modest trading on Tuesday. The short side of the trade is starting to look attractive if we fail to recover the $182.38 mark. The $11 mark for SOXS offered entry on Wednesday and stop at $10.55. This is a low-risk play for the selling in the sector and willing to see how it unfolds. Some modest buying on Thursday… see what Friday deals us as the move was not convincing. 

Software (IGV) bounced off the near term low and test at $171.11 support. A nice move higher clearing the $185 and testing to end the week. Entry $176. Stop $185 (STOP HIT). Letting it run and managing the stop. Negative move on Friday is a sign to watch for the sector big volume in the selling. Stop hit and watching how the accelerated selling unfolds. Tuesday left a doji candle, but no resolution. Wednesday provided the resolution to the downside again. Break of the $178.70 level is of interest support and sellers are concerned. Bounced on Thursday… 

REITs (IYR) The sector made a break from the trading range clearing $76.22 only to reverse and test the move back to $75.21 support and bounce again clearing the resistance at the $79 mark. Rates moving below the 3% mark get the credit for the rally as we watch how it unfolds on the move higher. Entry $75. Stop $78.50 (adjusted). 3.8% dividend. Flight to safety? Watching and letting this run for now. 

Treasury Yield 10 Year Bond (TNX) moved back to 2.9% last week. The ups and downs in the yield are pushing bonds up and down (TLT). The lower yields offered some upside to bonds, REITs, utilities, and telecom for the week. Yields dumped lower on the rotation to the dollar. Watching how this plays out at the 2.92% mark. One word… Patience. Flight to safety with yields dropping to 2.82% as money flows into bonds. This is pure selling driving money away from stocks. 

Energy stocks (XLE) The stocks tested the move higher and found support after crude declined. You have to love speculation to trade crude or energy stocks as the news, hype, and speculation are a key part of the trends. Broke support on Thursday, but managed to bounce back on the positive move in crude on Friday. Steady as this unfolds near term. Crude hit $73.45 and money flowed back into stocks on Wednesday… watching. If crude remains high stocks will follow… eventually. 

Natural Gas (UNG) broke from the bottoming pattern after falling more than 19% off the January highs…the next opportunity in the commodity was presented and thus far has paid off. Entry $23.15. stop $23.35 (adjusted). Some upside optimism showing on the chart… but the move in crude on Friday has brought question marks back into play. Volatility in play as commodity moves back to the top of the current range but fails to follow through on Wednesday.  

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

Daily Scan Results:

THURSDAY’s Scans 6/28: Some low volume buying on the day as they indexes produce a bounce. The outlook remains uncertain and thus volatility remains in play. Watching how the last trading day of the quarter unfolds. Some buying would be expected the question is volume and conviction. Not expecting much and not the kind of day to create new positions… that said, we will follow our discipline on what we add or exit relative to our holdings.

  • Technology (XLK/TECL) bounced… needs to follow through. TTWO, VZ, INTU, TWTR, ADS led the day… watching how this plays today.
  • Mexico (EWW) bottom reversal follow through and positive gains… $46.20 entry.
  • NASDAQ 100 (QQQ/TQQQ) upside bounce at support… needs to follow through. SHPG, MELI, TTWO, ATVI, CTRP leading and watching how the day unfolds.
  • Crude Oil – going vertical? Watching and adjusting the stop.
  • REITs (IYR/URE) upside leadership on rotation to safety. Watch and adjust your stops accordingly.
  • VIX Index (UVXY) sold half at $13.50. Stop $11.50.

Thursday bounce does not negate the downside moves. Watching and managing our stops accordingly, but the market still has plenty to prove short term if the upside is to resume. We have hit our stops on positions, we have added some short positions, and we continue to manage the risk in light of the increased volatility and take what the market gives.

WEDNESDAY’s Scans 6/27: Selling rules the day or least the news driving selling ruled the day. The scans are exactly what you would expect following a day like that… short side setups everywhere as support levels give way and the anxiety levels rise. Some of the selling is purely methodical as money wants to exit where the valuations have peaked. Other selling is pure speculation with short activity rising to meet the anxiety. Either way, money is moving and that is where my interest lies. Where is it going? Is it tradeable relative to risk? We have added some positions and we are watching plenty of others. I am not one to chase anything, I am only interested in the risk being relative to the reward and living to play another day. Stay patient and take what the market gives that fits your style of investing. 

  • Semiconductors (SOXX/SOXS) the one sector that has jumped out at me the last two weeks. The relative weakness in the sector has been obvious… the short side trade had not until it gapped lower on Monday. We took a position on the downside Wednesday and will manage the risk of the trade as it unfolds. 
  • Biotech (IBB/LABD) equally the downside accelerated on Wednesday, but the weakness hasn’t been as strong. $25.90 was entry offered… we passed based on our strategy, but the trade did pan out on the day. $28.58 is the next level of interest or a retest of the $24.50 mark. We will watch how this unfolds near term.
  • VIX Index (VXX/UVXY) the upside trade has worked for now. Willing to take half the position off at $13 or better today and the stop moved to $11.25. 
  • China (FXI/YANG) Raised stop to $60 as the selling accelerates again. Willing to exit half of the position if news arises to contradict the driving factor… tariffs. 
  • Emerging Markets (EEM/EDZ) the short side continues to accelerate with each news bite that indicates a stronger dollar or trade wars. Stop moved to $51.20.

Markets are challenged by lack of direction and we are in the middle of a media storm playing with the emotions of investors. The uncertainty behind the tariffs, the business restrictions, the dollar, crude prices, and just about any other reason being tossed around, is keeping money moving towards safer havens. Stay focused and most of all define the strategy before you put money at risk.

MONDAY/TUESDAY’s Scans 6/26: Big drop on Monday as the sellers take the lead. Tuesday left a doji candle that shows more favor towards a pause in the selling. The cards are aligning for a test or selling in the broad markets. We have hit stops on some positions, some are close, and looking at the downside trades in others as they unfold. Patience is the name of the game for now and we will let it all play out. 

  • VIX Index (VXX/UVXY) the reversal in the index to the upside has been building with a climax move thus far on Monday. Entry hit on Friday at $10.80, stop $11. This is a trade on the emotions climbing in the markets and nothing more.
  • Energy (XLE/ERX) upside bounce on crude moving higher remains, but the pressure on stocks comes now from the broad markets moving lower. Watching crude as the upside accelerates on lower increases from OPEC than expected… speculation game continues. The opportunity may well be in the stocks if they lag the upside move in crude going forward.
  • Semiconductors (SOXX/SOXS) selling in the sector accelerated giving more opportunity on the downside move. Entry $10. Stop $10 as we trade what the chart shows more than what analyst project. This is a trade only with a tight stop.
  • NASDAQ 100 (QQQ) Held support at the $170.93 mark and watching the outcome. The downside trade setup would be of interest if we break support and the trendline in play from the April low.
  • Biotech (IBB/LABD) reversal of fortunes in the sector as the sellers push the sector lower. After clearing the $112 resistance the sector dumped lower the last four days. Watching how this unfolds as we hit our stop and now look for the next directional trade in the sector.

Overall the angst over the tariffs remains a factor. The deadline is approaching and money is responding to the belief of where it will be treated the best going forward. Follow the money and let the speculation take care of itself.

FRIDAY’s Scans 6/22: Some money flowed into stocks, but not enough to change the current sideways movement and speculation/news driving money. We continue to look at the charts, money flow, volume, and fundamental data. The bottom line… lack of clarity as it pertains to tariffs, Fed, White House, and economy. Without clarity, the news drives the activity short term. The charts are showing some fatigue as investors show a willingness to rotate money to safer ground. Scans show the news of the day… oil prices as the key driver… weakness in semiconductors is a worry point… weakness in financials… consumer discretionary test… small caps test. Letting this unfold as we approach the end of the first half of the year.

  • Semiconductors (SOXX/SOXS) the break of support at $187 raises the issue of leadership for the NASDAQ. We hit our stops on the short term trade off the April low and now watch to see how this develops… low volume on the move, but money flow has been dropping along with the relative strength.
  • Energy (XLE/ERX) bounced on crude moving higher. The proof, as they say, is in the details. If OPEC increases production enough to offset the global demand prices will be flat to steady. That is a big IF… watching and allowing this to unfold. UCO clears $29.10 entry point. IEZ, IEO, UGA, and FCG tag along for the ride.
  • REITs (IYR/RWR) continue to move higher as interest rates flatten and money flow looks for safety. Managing our position in the sector and taking it for what it is… modest growth and a solid dividend holding.
  • NASDAQ 100 (QQQ/TQQQ) Topping pattern in play and watching how it unfolds with the large caps have been a key part of the move higher from the April lows. FOX, NFLX, FB, COST, ALGN, MNST, and REGN have been key leadership.
  • Biotech (IBB/XBI) leadership is key to watch as well in the current upside move. Tested to end the week, but has shown positive momentum in the move off the April lows.

Overall not much changed in Friday’s trading… some juggling of money flow to energy on the news and speculation relative to output from OPEC. Looking to next week as the first half of the year comes to a close along with quarterly earnings and another month of economic data. Taking what the market gives one day at a time.

(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 above the $58.44 resistance level again and back to the $60 resistance again… and again, they declined to build the current consolidation pattern for the sector. Watching $58.44 support (entry) and $60 resistance. Testing lower breaking support at the $58.44 mark Thursday and bounced Friday. Broke support at the $58.44 mark and watching. 
  • XLU – Utilities have been under pressure from higher interest rates. They got relief as rates moved back below the 2.9% mark. The bounce in yields hurt the move higher in utilities as they reversed and moved below the May lows and February lows in sight. A positive week with a move back above the $49.50 mark and follow through… entry $49.55. stop $51 (adjusted). Watching how it unfolds this week. Benefactor of the selling as money rotates to safety. 
  • IYZ – Telecom has become more of a trading sector than the buy and hold historically. The volatility has increased and thus swing trading works better. Some buying? Some selling? Finally a move above the $27.63 resistance and holding for now. Back below $27.63. Bounced back on Thursday? 
  • XLP – Consumer Staples broke the February lows, March lows and finally bounced off the May lows. The ability to gain some momentum is shown in the nice move above the 50 DMA and some follow through for the week. Entry $50.50. Stop $49. Upside remains in play. 
  • XLI – Industrials made a move back above the $75.72 level of resistance and forfeited it on the worries about tariffs. Looking at $71.43 currently for support. Testing support. 
  • XLE – Energy broke lower as selling in the sector built from the announcement from OPEC and Russia to increase production levels in light of the Iran sanctions. Now that the news is official the sector bounced on the increase is less than expected. Watching as it finds reality. Held support and steady. Bounced with crude oil higher. 
  • XLV – Bounced off $79.50 support. Some follow through as the sector moved back above the $83.24 resistance. IHI and IHF leading the upside charge for the sector. Nice upside follow through with help from each sector. Tested lower. Rolling top pattern. rolling top in place. Trying to hold support at $83.24. 
  • XLK – Technology broke higher from the flag pattern of consolidation to push to new highs, but has been in another flag pattern of consolidation. Entry $67. Stop $70 (stop hit). Semiconductors are testing lower and putting pressure on the sector. Managing or risk as this unfolds.  Moved lower, tested support, watching. 
  • XLF – the sector has become a hot potato with the interest rates, dollar, and geopolitics. Fell off the cliff with the news in the EU and the decline in rates impacting the sector. Too many uncertainties in the sector with global geopolitics in play. $26.90 key support to hold. Broke support and showing negative outlook on the chart with downside building. 
  • XLY – Consumer Discretionary moved above the $105 resistance and a solid uptrend on stronger earnings. Entry $102.50. Stop $109.35 (stop hit). Some topping in the chart as overall markets stall on worries. Watching and managing our risk. Big drop, stop hit, watching how this unfolds. 
  • RWR – REITs have been hampered by the uncertainty around interest rates. Tested lower on interest rate moves above the 3% mark… testing higher on the move below the 2.8% mark. Watching and managing our risk in positions. The sector broke higher as money flow rises. Safe haven for money? Entry $87. Stop $91.20. 3.8% dividend. Safety net for money as it rotates. Watching as the move higher plays out… raising stop and looking to take some money off the table. 

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

FINAL NOTES:

The question remains about direction and volume despite the positive moves from the April lows in the major indexes with some hitting new highs. I will take the positive gains, but worries remain on many fronts and therein lies the challenge. The data shows four sectors moving higher and seven moving lower for the week. The end result is a test of the moves higher and some question marks about what the future holds. The next week will be interesting as we approach the deadline now set for tariff implementation. Expect volatility as we move forward and the talking heads raise all types of questions. Technology, small caps, midcaps, and retail continue leading the upside charge. Healthcare added some upside on the week to show some positive indications for the S&P 500 and the Dow. Utilities and REITs are enjoying the reprieve from higher rates near term. Energy bounce on the crude oil speculation, but financials continue to show struggles under the weight of the uncertainty in the financial markets. We need stocks to hold their own in the face of news and worries in order to keep the second leg of the bounce in place along with the uptrend. The key is to focus on the strategy you want to take during the current market environment. News and speculation will drive the short-term while fundamentals drive the long term. Short term we are in a process of a bounce off support and a break above resistance. We need to follow through on higher volume if anything is to materialize on the upside. 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.