Staying focus is the goal

The markets started out weak but were able to find some support as buyers stepped in to stem losses. The energy sector headed lower on what looked like profit-taking after a strong run in crude and the stocks. Small caps looked similar heading lower on the day as the sector struggled and broke below the 10 DMA. The economic data was weaker on the day as the jobless claims and housing starts were lower. The test of the highs is not unusual at these levels and some volatility is creeping back into the markets. No major changes as things still look status quo overall. Watching for opportunities, but also willing to be patient here and let things unfold. Patience and focus as we end the trading week.

Short news notes of interest…

  • Jobless claims increased by 13,000 to 861,000. That was not a good sign for employment growth. The continuing claims decreased by 64,000 at 4.494 million. One week doesn’t shift the tide but it has the attention of investors.
  • Housing starts declined 6% in January to an annual rate of 1.58 million units. Permits rose 10.4% to 1.881 million units. Single units declined 12.2% and that is putting pressure on the housing market with a short supply. ITB fell on the news.
  • Philly Fed Index decreased to 23.1 in February versus the 26.5 in January. The region is still doing well, but watching how the data continues to unfold.
  • Trading in GameStop was on trial in Congress as the question and answer session provided humor. The focus of course was the game of pin the blame on someone. Waters led the committee and is know for her quote in January of calling hedge funds “unethical”. She promised more questioning of the SEC and other agencies. Evidently, she didn’t hear the answers she wanted to hear so she will keep going until she gets what she wants.
  • Facebook is taking on government and investors alike in the battle to show its will versus bowing to the bureaucracy of it all. After blocking all news from Australia after refusing to pay royalties to news companies, the UK lawmakers and publishers say it is time to get tough with the “bully” Facebook. They promised more actions… getting interesting as governments start to show their true colors of being in control and should we say, equally “bullying”?

Sector Rotation and the S&P 500 Index:

The S&P 500 index closed down 17.3 points to 3913. It was down 0.44% on the day. The index closed off the highs as investors show some concern about the economic outlook. Money flow was lower again some profit-taking emerged on the day. Two of the eleven sectors closed on the upside as sellers were present. The VIX index closed at 22.5 up slightly on the day. Watching how this unfolds moving forward.

Thursday: a mixed day that favored the downside overall. The utilities got a boost from earnings helping the sector bounce off support. Energy struggled on the day despite the cold weather in the northeast. Only two sectors closed in the green to show some distribution overall. Patience as we let this unfold and what opportunities result.

  • XLB – Basic Materials bounced off the lows with money flow bottoming on the reversal. $70.80 support held and now we look for the upside to resume.
  • XLU – Utilities hold support on the test lower and find some buyers. Watching interest rates and the dollar currently as they hurt the sector when they are struggling. Down on rising interest rates and held the $61.75 support. Nice bounce on earnings data on Thursday.
  • IYZ – Telecom bounced at the support of $30.95 and moved back to the previous highs. Watching how it unfolds. Pushed to new highs and showing some leadership of late. Tested on Thursday.
  • XLP – Consumer Staples moving lower to establish near-term downtrend and bounced at support. Watching. Held support.
  • XLI – Industrials moving lower and held support to bounce back to the previous highs, but remains in a trading range. Positive economic data in the sector but moving sideways.
  • XLE – Energy tested $39.12 support and bounced offering entry. With crude pushing back near $60 this week watching how it progresses. Entry $41. Stop $42.45 (adjusted). Gapped higher on the rise in crude prices. Tested on Thursday.
  • XLV – Healthcare tested the uptrend and held above support at $113. Flag pattern on the chart broke to the upside offering entry. Entry $116.75. Stop $114.50. Struggled with the biotech outlook. Bounced on Wednesday.
  • XLK – Technology remains in an uptrend but tested the upside and resumed with some challenges near term. IGV and SOXX leading upside moves. Some selling/testing.
  • XLF – Financials bounced at the support of $28.95 and bounce back to the previous highs creating a ‘V’ bottom on the chart. The upside in play near term. Entry $29.75. Stop $30.53. Gapped higher on the move in interest rates and dollar holding steady.
  • XLY – Consumer Discretionary holds uptrend line and bounced at the 50 DMA. Resumed uptrend and tested the move to new highs. Watching. Bounced on the retail sales data.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Held support at the $82 level and moved back to new highs… Watching. Entry $84.45. Stop $87.50.

Using the six-month charts as an indicator for the short term view… Eight sectors are in confirmed uptrends with renewed upside. Three are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for S&P 500 index is an uptrend short term with a positive bias currently.

(The notes above are posted at the end of each week based on the activity of the previous week’s trading. The BOLD/ITALIC comments are the current day changes worthy of note.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

The NASDAQ index closed down 100.1 points to 13,865. The index was down 0.72% on the day with mixed activity overall for the index. The NASDAQ 100 index (QQQ) was down 0.44% for the day as money flow into the sector was lower with some selling. The large caps have been lagging of late and remain a concern as rotation affects the sector. Semiconductors (SOXX) closed down 1.03% giving back some of the upside. Technology (XLK) moved down 0.49% after testing the $128.57 level of support and hit a new high. Watching how this unfolds as investors look for opportunities.

Semiconductors (SOXX) The sector remains in an uptrend breaking higher from the consolidation flag. The sector added 4.8% the last two days and showing some hope of leading again. Entry $415. Stop $420. Added to the upside and watching for a test of the move. Two days of testing and held support at the previous highs. Watching how this plays out looking for the upside to resume.

Software (IGV) The sector came back to life after six weeks of consolidation and volatility. Broke to new highs and showing solid money flow into the stocks. Entry $361.77. Stop $376 (adjusted). Some give back last two days as test.

Biotech (IBB) The sector broke higher after testing support and maintained the uptrend. Managing the risk and letting this playout. Entry $164.70. Stop $164.70 (adjusted). Down 2% on Tuesday… watching. Small bounce on Wednesday. Down 1.7% on Thursday.

Small-Cap Index (IWM) The sector consolidates near the new highs. Entry at $213.76. Stop $216.19 (adjusted). The uptrend remains in play as we watch how it unfolds moving forward. Some selling last two days and testing the $218 support.

MidCap (IJH) The sector turned higher along with small caps. Solid move and holding near the highs. Some selling last two days.

Retail (XRT) The retail sector volatility dropped and some normal returned following the GME frenzy. This week XRT has traded more in line with the previous volume. $81 is the level we are watching to clear on the upside. Some indecision as topping pattern on the chart.

Emerging Markets (EEM) The sector recovered from and moved to new highs. China (FXI) is the leader in the sector. Testing the run higher.

Transports (IYT) The sector has struggled but found some buyers of late with a head and shoulders pattern on the charts. Watching for a decision on the direction near term. Some selling at the highs.

The Dollar (UUP) The dollar tested lower this week as stimulus and inflation become a real thing for investors. The new team at the Treasury are weak dollar proponents and it is not helping the cause. Devaluing currency has never been good for economic growth. Holding support for now and watching.

The Volatility Index (VIX) Volatility closed 19.9 down from last week’s 20.8 level as buyers returned to the market and anxiety levels subsided. We are back at previous support and watching. Jumped on Tuesday as some selling rose in sectors and money was moving again.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.2% up from 1.17% last week. Rates are holding above the 1% level and rising again… negative for bonds. TBT hit entry at $17.84. Stop $18.258 (adjusted). The move to 1.3% on Tuesday amplifies the message on inflation concerns.

Crude oil (USO) Crude moved to $59.47 from $56.89 for the week or up 4.3% for the week. Plenty of speculation to influence prices as OPEC cuts to supply showing an impact. As we stated nearly seven months ago… the greatest opportunity was in crude. Taking what is offered and managing the risk. USO Entry $29. Stop $38.75 (adjusted). UCO trade position entry $25.78. Stop $49.40 (adjusted). Jumped above $65 on drawdowns in US supply data, but failed to hold it and closed lower on Thursday… watching. Now it gets interesting.

Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. Watching as we hold above $166.50 support levels. Still challenged near term. Under pressure again as the short-selling ramps up near term. Dollar not helping the cause.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

THURSDAY’s Scans for February 18th: More selling overall, but no real damage done to the charts. This amounts to profit-taking and a test of the move higher. Charts are still in a good position to continue higher and we will remain patient to see how it unfolds. Our stops are in place and the focus remains on the economic data near term. Facts are always better than rumors for the long-term outlook. Patience as we end the week.

  • Testing… Energy (XLE), Crude Oil (USO), China (FXI), Biotech (IBB), Small Caps (IWM), Natural Gas (UNG), and Semiconductors (SOXX) all tested the last two days. Stops in place and watching how they unfold.
  • Facebook (FB) Watching the fight unfold between government and independent business. This is going to impact the course of history for free trade and independent businesses. The question is will Facebook go it alone will other large companies take a stand? Not to mention, what happens to the stock prices going forward.
  • Commodities (DBA, DBC, DBP) all tested on the day… watching.
  • Utilities (XLU) got a boost from earnings… parts may be worthy of time to find the leaders versus the whole.
  • Homebuilders (ITB) and housing market overall are raising questions of supply and demand… interest rates rising? What does the future look like? Plenty to watch unfold and important to protect the gains in the sector near term.

WEDNESDAY’s Scans for February 17th: More mixed results for the markets as money is still rotating to where it will be treated the best… energy, telecom, financials, commodities, and China. Taking what is offered and managing the risk. Plenty of data being reported about the economy and plenty to digest as we look forward. Don’t overthink this follow the trends and focus on the reality in the charts.

  • Energy (XLE) remains the leader… crude (USO), natural gas (UNG), gasoline (UGA) all leading the upside. Oil services (OIH), exploration (IEO), and other components showing positive trends. NOTE: USO received notice from RBC Capital Markets they cannot buy oil futures contracts. This will hamper its ability to meet the fund’s objective. By prospectus they can hold treasuries and cash. Not good for the fund. We are evaluating what options we have relative to the notice.
  • Semiconductors (SOXX) some selling, but the trend remains higher for the sector. Watching how the automobile shortage for chips unfolds as well as the sector overall.
  • Apple (AAPL) Berkshire Hathaway sold all their Apple stock as one of the previous largest holders many take that as a bad sign for the stock. Worth watching going forward as the chart shows an uptrend in play, but a major test is showing… watching support and ticker.
  • GameStop (GME) just when you thought the story was over… Congress has to get involved… after all, they know show much about this subject. Maybe they are trying to get some insider information from Reddit and others who will testify.
  • Phizer (PFE) has not delivered 10 million vaccine supplies to the EU. This is a concern relative to meeting the demand for the vaccine globally. Watching the biotech stocks near term on the news.

TUESDAY’s Scans for February 16th: Interesting start to the week. Moves of interest were in the volatility index, interest rates, crude oil, and the dollar. This shows concerns about inflation. It also signals some rotation in money by investors. Watching how it unfolds and we continue to take what is offered in positions we have while managing the risk.

  • Crude Oil (USO) clears the $60 mark per barrel. Raised our stops and watching how it unfolds. Energy (XLE) gapped higher on the day as well.
  • Natural Gas (UNG) jumped 4% as the winter storm moves through the country. Taking the upside move and adjusting the stops.
  • Financials (XLF) ‘V’ bottom recovery and gapped to new highs. Taking the offering as interest rates helping the upside move.
  • Europe (IEV/EURL) Solid upside move and gap higher to start the week. Adjusting our stops and letting this run as vaccine news helping the outlook for Europe.
  • Commodities (DBA, DBC, DBP) all moving higher on the inflation concerns. Watching and managing the risk.

MONDAY’s Scans for February 15th: Markets are closed for Presidents Day.

FRIDAY’s Scans for February 12th: End the week on a positive note with investors still focused on the upside. Energy was clearly the leader on the day as the sector continues to benefit from the rise in crude. Financials and technology add to the upside as well. Watching, managing risk, and focusing on the goal, not the news.

  • Energy (XLE/ERX) in position to break higher near term. Adjusted stops.
  • Technology (XLK) pushed to new highs. SOXX positive week. IGV positive week. SOCL showing positive leadership.
  • Cannabis (POTX) Hit stops… sold hard last two days. Looking for the next opportunity as the dust settles.
  • Clean Energy (PBD/ICLN) consolidating sideways after big run… watching how it unfolds near term.
  • Treasury Bonds (TLT/TBT) moving lower as rates tick higher. This trend is likely to continue near term.

(The Scans are done daily and left on the page for one week to allow you to see the progression of the opportunities or warnings.)

FINAL NOTES:

Thursday: Markets stall with some selling as the majority of sectors take a rest and fall slightly. The questions in the headlines remain focused on the ability to go higher based on the current data. The wildcard is the stimulus package being debated in Congress… $2 trillion changes a lot of things looking forward. The ‘new’ government is focused on spending… the question is where it comes from… you guessed it, taxes. Markets hear all the debates and proposals their potential impact and make moves in front of them. Watching and listening to all the suggested fixes.

Wednesday: Some days are better than others… at least my mom told me that… that was true for stocks on the day, but there is plenty of data points to be evaluated and plenty of speculation to be avoided. Taking what we see based on what we know and avoiding the noise. Energy remains the front runner for now as money continues to rotate. Government intervention is growing around the world as Australia and Facebook wage war and Google acquiesces to the demands. GameStop participants are asked to testify to Congress about their actions… and Trump is permanently banned from Facebook…

On a sad note, Rush Limbaugh passed from cancer and will be missed for his views and reporting on politics and other issues around the world. No matter if you agreed or disagreed with him or not he always made you think… and to me that is a contribution to society that will be missed.

Tuesday: Start to the trade shortened week was mixed. There were clear winners defined by the current activity and news. The challenge for investors remains the impact of the stimulus on an already extended market. The additional challenge is to not overthink what is happening. Follow the money and don’t fight the Fed. The money is going where it believes it will be treated the best the fastest. The Fed wants inflation… thus, it is getting it. The challenge is will it swing too far too fast? Time will tell, but for now we will follow the money to make enough to offset the cost of the inflation being generated.

Weekend Wrap & Outlook… The market’s sentiment remains positive as stocks move higher for the week, but manage to take a rest as well. Friday there was the hope of stimulus and reopening of the economy. The market psychology is bullish and some think that is bad… From my view we take what the market gives and when the horse dies… dismount. Money flow slowed this week and stocks drifted sideways three of the five trading days, but found buyers on the other two. The long-term trends remain on the upside following the test of momentum. For the week all eleven sectors closed in positive territory for the second week showing the impact of sentiment on stocks. The VIX index closed at 19.9 and back to the December lows. The dollar headed lower thanks to the new Treasury head. Crude moved higher hitting the $59.60 level the highest since February 2020. UGA moved higher with prices at the pump elevated… hopefully you own the ETF to afford the increase. Watching the current movement in the broad markets as money continues to rotate and money flow shifts. The goal remains to manage money not the markets or the pundits in the media. Let the future unfold and manage the risk that is. Track the data. Know where the markets stand relative to the facts. Money rotates to where it will be treated the best. Watch the trend, know which side the Fed is on daily, and ultimately the data will establish the longer-term trend. We remain focused on what is working and what is failing. Therein lies the opportunities.

“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 your trading strategies with a disciplined approach to investing and managing the risk of our money.