Steady day with some rotation

OUTLOOK: July 19th

Broad markets remain steady on Wednesday as money moves towards financials on solid earnings data. Earnings overall have started off positive with the exception of Netflix. This is a positive for the broad indexes and the large caps will remain a focus for investors. Transports (IYT) were the benefactor of positive data from CSX and UAL helping the sector jump 2.3% to lead the broader S&P 500 to positive territory on the day. Crude tested lower then bounced off support, but gasoline moved up 1.4% on the day. The continued rattling about trade in the background has kept investors cautious from my view near term. Trump did state he is negotiating with Mexico and Canada separately on trade… some positives… and European leaders are coming to Washington to work on trade next week. Fingers crossed that some progress will be made on the trade and tariff front. More earnings and data on tap for the day as we manage our risk and let it all unfold.

The S&P 500 index closed up 6.1 points at 2815 as the index holds above the February highs. The resumption of the uptrend is what we are watching as the buyers remain steady on Wednesday. Financials and industrials led the upside move. Only four of the eleven sectors closed in positive territory and the volume remained below average. Basic materials and consumer staples led the downside on Wednesday as the laggards continue to look for momentum. The large caps continue to show strength among the modest volatility. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.

The NASDAQ index closed down 0.6 points to close at 7854. The move back above the 7505 mark and the June highs has continued to put the index at a new high. Technology, software, and biotech helped lead the index higher. The long-term uptrend remains in place and the tug-o-war with the sellers is not likely over. The large caps (QQQ) equally moved above the $178 mark and eclipsed the June high and posted a new all-time high. The SOXX moved back above the key $182.38 mark… watching how that unfolds as the upside has not come easy for the sector. The key remains patience along with a strategic approach to managing money.

Small Cap index tested the move back above the $166.65 level and tested it again on Wednesday holding on to key support. The current activity showed some rotation from the growth sector to safety and then bounced back near the June highs. Double top pattern showing on the chart and watching how the previous leader unfolds. The leadership of this sector has been key to the bounce from the April lows. Watching for the next opportunity to arise.

Transports (IYT) bounced off the 50 DMA as support with some positive earnings data in the railroads and airlines. The move above $192.40 is positive and looking for a follow through on the upside efforts. Airlines have been the drag on the sector as they sold lower since the March highs. Watching the bottoming formation on the chart for airlines currently. Trucking has dropped lower as well the last month. If we hold the move and follow through looking to add a position near term.

Gold (GLD) dumped lower again Wednesday tested the $115.86 (GLD) support and held… looking for anything positive currently. The dollar rallied and the metal continues to struggle amid the news globally. The close Wednesday leaves the downtrend in play along with the short side trade. Not a pretty currently. The gold miners (GDX) produced a dump lower as breaking support at $21.92. Watching how it unfolds relative to the metal. Metals and Mining (XME) is testing the 200 DMA again and bounced again. Base metals (DBB) continues to dump lower on tariffs worries confirming the short side trade. Bounce on Wednesday worth watching for follow through.

The dollar (UUP) closed above the $25 mark on remarks from the Fed Chair. There has been some selling showing a topping pattern in the buck. Plenty of reasons to believe the dollar has peaked short term… but then the talk of more tariffs and further hikes in interest rates from the Fed are keeping the upside alive. Watching how this unfolds along with global politics. 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.

Crude oil (USO) has dumped lower again to test the $66.28 mark following the rise above $74. This is a supply and demand issue simply put. When traders believe supply is short prices rise… when there is too much supply prices drop… supply data the last two weeks has not favored crude prices… simply put. Remember all of this is about the sanctions on Iraq… OPEC controlling the supply… Russia as a wildcard… and don’t forget the US can influence production as well. We banked our gains for the upside trade and watching how the current selling unfolds.

Emerging Markets (EEM) The cliff dive was a big negative for the sector. The modest bounce of late showed some signs of hope. The continued test lower hasn’t helped… the bear flag pattern continues to unfold at the lows, but any momentum on the upside has faltered of late. Tariff worries? Stronger dollar? Weaker commodities? All reasoned worries for the sector. Watching how this unfolds and where the sector heads short term. We did bank some solid gains last week on the short position and looking at the upside move possibilities as trade short term.

The Volatility Index (VIX) closed at 12.1 on Wednesday as the anxiety levels move lower on the day. Geopolitics is 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 week was positive overall with the NASDAQ moving to new highs, the S&P 500 eclipsing the February highs and large caps getting into the fun of moving higher. Economic data as it relates to inflation was disappointing. Both the CPI and PPI showed increasing pushing 3% year-over-year. This may put the Fed back into the equation and make the testimony next week by Mr. Powell all the more important. The uncertainty of the tariffs being increase is still on the table. Despite all of the banter and anxiety surrounding these issues 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. The bounce in growth stocks the last seven trading days has helped keep the uptrend in play despite weakness in semiconductors and financials. Small caps showed weakness but remain near their current highs. The leaders are back on the rise again with technology and healthcare leading the way. Energy and crude oil tumbled on worries and supply data. Utilities and REITs are the benefactors of the lower interest rates. 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 going into next week… how will earnings impact the current trend higher…  Technically the market remains in an uptrend… but there is plenty of news in play to impact the stability of the trend. There is some short-term repositioning in play and we will look at the opportunities, exit positions that warrant it, and take what the market gives.  Manage your risk and look on the horizon for answers to the trends.

There is plenty to look forward to next week as the President travels to Helsinki to meet with Mr. Putin, Mr. Powell will testify to the Congress and Senate about the state of the economy, earnings will get into full swing, and I am sure there will be plenty of discussion about tariffs.

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

KEY INDICATORS/SECTORS &LEADERS TO WATCH: 

Biotech (IBB) Uptrend is back in play after a test of the $107 mark. The solid bounce on Friday pushed the index well above the $112 resistance as the sector regains its momentum. Test of $109 was our entry point… Entry $111. Stop $116.50 (adjusted). Bounced back from Monday holding near the new highs.

Semiconductors (SOXX) The sector moved lower breaking the support at the $182.38 mark and testing the 50 DMA. The bounce off support was positive Tuesday as we moved back above $182.38 level… showing some positive signs on the chart. No momentum in this key sector of late and that is a negative for the NASDAQ.  Some follow through on Wednesday and looking at $187 as next level to clear. 

Software (IGV) The sector tested to the $178.87 mark of support. Bounce higher and ended the week at new highs. This has been a key leader for the move higher in technology. Bought the position back as upside resumed. Entry $184.60. Stop $190 (adjusted). Small test Monday, new highs on Tuesday and Wednesday. 

REITs (IYR) The sector made a break from the trading range clearing $76.22. Rates moving below the 3% mark get the credit for the rally as we let this unfold on the move higher. Entry $75. Stop $79.70 (adjusted). 3.8% dividend. Watching and letting this run for now. Moved lower on Monday? Moved lower on Tuesday? Moved lower on Wednesday testing the $79.76 support… Profit taking? 

Treasury Yield 10 Year Bond (TNX) moved back to 2.83% some volatility shows up in the bond. TLT has been a benefactor in the rate declines moving above the $121.68 resistance. The lower yields created upside to bonds, REITs, utilities, and telecom the last few weeks. One word… Patience as this plays out. 2.87% some activity, but remains near current lows.

Energy stocks (XLE) The stocks tested the move higher and moved into a consolidation pattern. You have to love speculation to trade crude or energy stocks as the news, hype, and speculation are a key part of the trends. Crude rallied to a new high, but supply worries hit the commodity mid-week putting damper on the run higher. Watching how this unfolds in the coming week. Followed crude lower and bounced remaining in the current range. 

(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 7/18: a positive day with some juggling in positions. Financials moved higher again on earnings data. Industrial move on the trade talks on the docket again. Interest rates ticked higher the last two days causing some stir in REITs and utilities. Crude tested support on the downside move from the current highs. Another day of hope as we face some potential money rotation and some technical data pointing towards overbought… Follow the money and manage your risk.

  • Treasury Bonds (TLT/TMV) moved below support $121.68 as yields tick higher. Watching how this unfolds with money flow turning towards growth and large-cap stocks.
  • Financials (FAS) cleared $68.50 resistance and set up an entry on solid earnings move. KBE has double bottom setup as well. IAI hit entry at $66 and confirmed upside move.
  • Semiconductors (SOXX) made a solid move and watching how the sector unfolds near term for the trading opportunity.
  • Transports (IYT) cleared resistance and watching for an opportunity on the upside.
  • Stocks to Watch: NOK broke the downtrend from the May highs. MU followed through on move $57.50 level for entry. CSX jumped on positive earning hitting new high. ABT cleared resistance at the $63.60 level adding to biotech strength.

Positive day for stocks overall, but some rotation in money is in play. Watching the risk levels rise and we have adjusted our stops accordingly. Another test of the move higher is not out of the question. Patience is the key for now.

TUESDAY’s Scans 7/17: Positive bounce back from early selling shows some resolve from the buyers. Some rotation in play as money leaves crude and energy for financials and consumer stocks. REITs show some weakness more profit taking than anything. Leaders hold overall with the large caps bouncing on the day. Small caps show a stall in momentum and transports remain weak along with the Dow. Another day to watch for follow through on the upside and any rotation in money… volume remains on the weaker side of the equation.

  • Financials (XLF/FAS) finally showing some positive momentum with earnings helping the cause. Banks (KBE) have posted positive earnings along with MA and V. The brokers (IAI) showing some positive upside as well.
  • Biotech (IBB/XBI) nice move back to the highs keeping the leadership alive and well.
  • Brazil (EWZ/BRZU) nice bowl bottom in play clearing $21.11 for entry and trade opportunity near term.
  • Natural Gas (UNG/DGAZ) downside momentum in the commodity remains along with the short trade.
  • Precious Metals (GLL/ZSL) gold and silver are both short trades in play… they continue to find a reason to sell lower and we continue to ride the downside moves. Adjust your stops based on the move Tuesday.
  • Stocks to Watch: XRT triangle pattern near the highs. Worth scanning the sector for leaders. ROST breaking from the trading range near highs. TJX breaking from trading range near highs. WFC moved above 50 DMA and resistance at $56 mark. KO breaking from resistance and follow through on upside move. VZ showing signs of life off support and attempting to clear the April highs.

Solid day for investors as markets continue to show a willingness to put money to work.

MONDAY’s Scans 7/16: Juggling for position is how the day unfolded for stocks… this changed nothing. The NFLX news will change the landscape for the large-cap stocks… the leaders. It will raise questions about earnings and the outlook for FB, AMZN, AAPL, GOOG, and others. Watching how the day unfolds and taking what the market offers. We will practice some patience for now…

  • Fed Chair will speak to Congress today – expecting that to create some issues.
  • NFLX earnings and impact on the NASDAQ 100 index. After the open watch to see how the buyers react… will they step in or let the sellers take control? What the other leaders do in response will give insight as well. Will money rotate to other sectors? Cash? Safety? All of this will give near term insight to how this unfolds.
  • Bank (KBE) good earnings from BAC helped set a positive tone for the sector on Monday. Watching for some rotation in the sector. It has been lagging and some good news will go a long way.
  • AMZN prime day started with a big glitch in the software and was down for more than 20 minutes. Watching how that impacts the stock.
  • Stocks to watch: MU completing a bottom reversal on a test from the May highs. CMCSA in position to break from the bowl bottoming pattern… $34.60 level to hold above. ORCL breaking above the 200 DMA and completing a ‘V’ bottom pattern. PFE breaking from the trading range? $37.25 level to hold above.

Plenty of activity as the juggling begins with earnings. The energy sector is watching crude oil prices as they tumble.

FRIDAY’s Scans 7/13: I am going with boring day to end a positive week. Scans showed weakness in the financials, telecom, and REITs… 1) Financials (XLF) are the biggest concern as they struggle heading into earnings. 2) Semiconductors (SOXX) are the other concern as they struggle to find any momentum. Both are key to how this unfolds relative to momentum for the broader indexes. 3) Healthcare (XLV) and drugs (IHE) are showing positive leadership moving above the February highs. 4) biotech (IBB) is heading higher and gaining momentum. 5) Large caps (QQQ/SPY) showing positive upside on the week and definitely leadership potential.

Goal… one day at a time and taking what the market has to offer without getting caught up in the noise and confusion of speculation. The talking heads are not experts they are noise. Ignore the noise and focus on the leadership of the markets overall.

THURSDAY’s Scans 7/12: all is well… at least for the day. The theme of a yo-yo tournament continues to play out with the ups and downs. NASDAQ and NASDAQ100 lead the day. S&P 500 index moves back above the June and February highs. Small caps holding near the highs. All was right with the markets on the day as money was flowing back into growth stocks. Taking what the market offers and nothing more.

  • NASDAQ 100 (QQQ/TQQQ) new highs and leading the way.
  • Technology (XLK/TECL) new highs and leading the NASDAQ.
  • Software (IGV) new highs and leading technology.
  • Semiconductors (SOXX) improved, but lagging… need to see some leadership resume in the sector to help the cause.
  • S&P 500 (SPY/SPXL) pushed past the June highs and showing some strength in the large caps despite the lethargy in financials.

Overall positive day and we continue to trade what the market offers.

(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 level and continues to consolidate on worries about tariffs, etc. Watching how it unfolds. Testing lower Monday, bounced on Tuesday, tested on Wednesday… yo-yo effect. 
  • XLU – Utilities got relief as rates moved back below the 2.9% mark. A positive week again with a move back to the $52.72 mark and the uptrend remains in play… entry $49.55. stop $51.80 (adjusted). Watching how it unfolds this week. Stalled as interest rates move higher… watching downside potential.
  • IYZ – Telecom moved back above the $27.63 resistance and watching the move above $28. Entry $27.80. Stop $27.10. Struggled on Friday to keep the upside momentum as hits resistance at the 200 DMA.  
  • XLP – Consumer Staples finally found support and has been in a gradual uptrend from the May lows. The ability to gain some momentum is shown in the nice move above the 50 DMA. Entry $50.50. Stop $50.75. Continued the uptrend and watching. 
  • XLI – Industrials made a move back to $71.43 holding support and a bottom reversal pattern in play. Looking for some type of follow through and to clear the $74.20 resistance. Patience as it continues to bottom. Entry $72.50. Stop $71.40. Solid move above the $74.20 resistance. Looking for follow through. 
  • XLE – Energy stocks have been volatile as they deal with the question of production impacting the price of crude. The announcement was less than expected to produce a rally in oil and some upside off the lows in stocks… looking at how this one unfolds. Testing lower
  • XLV – Bounced off $83.24 support. Upside follows through as the sector moved back above the $85.65 resistance and getting momentum from drug stocks. Cleared $86.74 or March highs. Entry $83.25. Stop $85.50 (adjusted). Testing breakout. 
  • XLK – Held support at the $68.75 mark. We clear $70.25 resistance. Added position $70.80. Stop $71. Hit new highs again… only concern currently is the lagging of semiconductor stocks. Letting it unfold. Nice move to a new high as the sector continues uptrend despite weakness in semiconductors. 
  • XLF – Testing support at $26.90… again in a bottoming pattern. No momentum to speak of with earnings announcement coming soon. Nice bounce in response to bank earnings. $28.24 target near term.
  • XLY – Consumer remains a leader after testing support and bouncing back near the June highs. Letting this unfold with some clarity and then we will decide how to trade. Gaining some upside momentum on earnings. 
  • 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. Entry $87. Stop $93.50. 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 if the tide shifts in rates. Tested lower. Profit taking? 

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

FINAL NOTES:

There are plenty of questions about direction and volume despite the buyers remaining engaged for the week. We have booked positive gains on positions and continue to trade what the market gives. The CPI and PPI put forth new questions to be answered by the Fed. Mr. Trump continues to stick with tariffs, and 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. There is plenty of fundamental data on the horizon with earnings starting. The data showed eight of the eleven sectors moving higher for the week. The volume, however, was on the low side. The end result was a positive bounce on positive data ending the week. Next week will be interesting as we start the earnings season. Healthcare, utilities, telecom, and technology offered leadership efforts on the week. Bonds, utilities, REITs and other defensive sectors continue to fare well in the current rotation and upside movement. Energy is consolidating along with crude oil as speculation about supply and demand keep the commodity and the stocks in check. 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. We will keep our focus on our strategy in the current market environment. We added some positions on the move this week and 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.