The markets take a pause and the questions start… the finger-pointing begins and you would think the indexes fell hard on the day versus being barely negative. It was more of a lackluster day than a day of worries. The issues were the infrastructure bill and some backlash from the Republican Senators as the White House finds ways to maneuver procedures to get the votes needed to pass legislation… all that and more worried investors. Be that as it may, the end of the day saw little changes in the charts and we continue to watch and let it all unfold. The upside remains in play for now and we will take what is offered one day at a time.
Short news notes of interest…
- Treasury bond yields slipped to 1.65% on the ten-year bond. There are signs on the chart of a possible rally in bonds with the double bottom pattern showing some upside strength of late. The reason… speculation, but there is no potential rate hike from the Fed until late 2022. That will be interesting news if true, but we will watch to see if the opportunity unfolds.
- Precious metals have moved higher on the lower dollar of late. Looking at GLD, SLV, GDX, SIL, and PPLT as they unfold.
- Archegos stock drams continues with news that Morgan Stanley sold $5 billion in stock the night before the demise started. This storyline will continue for some time as the tentacles reach far into Wall Street and the banking firms involves. Shareholders are sure to follow suit or file suit with the data unfolding.
- Goldman Sachs bought 75 million pounds of shares of Deliveroo to prop up the IPO price according to Financial Times. That would equate to 25% interest in the company. This could be interesting data going forward.
- Carnival Cruise Lines stated it was not taking a stance on the mandatory Covid-19 vaccination for travelers. Norwegian Cruises stated earlier this week they would demand vaccination for travelers. The CDC has extended the no sail order through November, but many are want to start as soon as July. Another example of far-reaching government controls… this will be interesting moving forward.
Sector Rotation and the S&P 500 Index:
The S&P 500 index closed down 3.9 points to 4073. It was down 0.1% on the day. The index moved through resistance at the 3984 levels and near the new highs. Money flow was negative and volume was still below average for the move. Five of the eleven sectors closed in positive territory as the market took the day off. The VIX index closed at 18.1 and was slightly higher. The index is still in the trek higher on speculation and we will take what it offers with a cautious eye. The long-term trends remain on the upside.
Tuesday: Mostly consolidation activity on the day in the sectors utilities led the upside with a 0.5% gain. Consumer discretionary and consumer staples helped the upside as well. The downside came from technology and healthcare. No major moves and no major changes… taking what is offered.
- XLB – Basic Materials remains in an uptrend and closes the week at new highs after testing. Adjusted our stops and watching. New highs.
- XLU – Utilities found support at $61.75… watching how this unfolds. Rising interest rates don’t help the sector. Broke from the trading range and tested the break. ‘V’ bottom break higher.
- IYZ – Telecom now shows a triple top on the chart and Thursday closed above the top of the range… needs to follow through to complete the breakout move. New highs.
- XLP – Consumer Staples found support at the 200 DMA and moved higher… it has tested the move since and watching how it unfolds.
- XLI – Industrials broke from the trading range and rose to new highs. The test lower held and now we let it play out with stops in place. New highs.
- XLE – Energy surged higher the last month and rose to near term highs. The fall in crude prices pushed stocks lower finding support at $48. Keeping our eye on a move above the $50.50 level. Tested lower remains in the range.
- XLV – Healthcare bounced at support and struggled to move back above the 50 DMA. It managed to break higher offering entry for XLV $115.50. We own IHF ($246.50) as the leader in the sector. Managing our risk.
- XLK – Technology found a way to break from the consolidation pattern on the week. Money flow is higher after testing support… watching the break added a position at $133.50 entry. Stop $130. Added to break from consolidation pattern to previous highs.
- XLF – Financials are forming a consolidation pattern on the chart. Watching and looking for a break back to the upside. Patience with our stops in place.
- XLY – Consumer Discretionary has moved sideways following the test lower in February. Showing positive signs from retail and plenty of stimulus yet to be spent. New highs.
- IYR – REITs made a run to new highs as hopes of reopening the country will benefit the retail space available along with a return to offices. Watching and managing the risk of positions. DRE, CSGP, PCH and others breaking higher. New highs.
Using the six-month charts as an indicator for the short-term view… Eight sectors are in confirmed uptrends with some sideways activity the last six weeks. 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 reversal bias on the charts short term. We remain defensive and cautious about the broad index.
(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 7.2 points to 13,698 as the index was 0.05% on the day and closed well above the 12,977 support. The index got a boost as the growth and large-cap stocks see positive acceptance the last few days. Money flow was higher and reversing the downtrend. Watching how the growth stocks respond. The NASDAQ 100 index (QQQ) was down 0.07% holding yesterday’s gains. The $312 support is in the rearview mirror for now. Semiconductors (SOXX) closed down 1.12% testing the break to new highs. Technology (XLK) moved down 0.43% and holding the break higher from the consolidation pattern showing some leadership again. Watching and managing our risk.
Semiconductors (SOXX) The sector remains volatile but managed to break higher from the consolidation pattern. The upside move came on above-average volume and strong leadership. This renewed leadership offers some hope to the NASDAQ overall. We added a position in SOXL. Entry $34. Stop $41.63. Adjusted stops on move.
Software (IGV) The sector showed volatility again after testing the current lows. The up and down activity shows the uncertainty in the sector. The upside returned after going higher with the rest of the technology space. Added to the upside move.
Biotech (IBB) The sector broke lower from the January highs and has struggled since. The sellers pushed the sector to the 200 DMA and bounced… not overly convincing in the action. Watching for opportunities. Entry $150. Stop $145. The upside was not overwhelming.
Small-Cap Index (IWM) The sector moved below the 50 DMA as the sellers too control of the near term direction. The bounce off the lows this week was a positive along with clearing the 50 DMA… watching with no positions currently. The upside was not overwhelming.
MidCap (IJH) The sector tested the 50 DMA bounced off support and watching how it responds to the bounce off support. The upside was not overwhelming.
Retail (XRT/RTH) The retail sector continues to find buyers and maintain the uptrend. The sector remains in favor despite the GME craziness. Taking what is offered and managing the risk. Added to the upside move.
Emerging Markets (EEM) The sector tested lower, found support, and moved back to resistance near term. The dollar is an issue along with global concerns about the virus. Patience.
Transports (IYT) The sector has been showing positive signs and leadership for the Dow. Tested lower, but held and moved back to new highs to end the week. The uptrend remains in play. Raised stops. New highs.
The Dollar (UUP) The dollar has bounced of late as a safe haven move globally. The bottoming pattern validated the upside move on the chart with the dollar up 4.3% since January. The rise is due to the rise in treasury yields helping the dollar. The Fed let the capital retention requirement expire on March 31st put on banks during the pandemic. That will have a positive impact on both. Heading lower on positive economic data.
The Volatility Index (VIX) Volatility closed at 17.2 breaking below the previous support. This is a positive near term as investor anxiety subsides on the stimulus and infrastructure spending. Small bump higher.
Treasury Yield 10 Year Bond (TNX) The yield closed the week at 1.67% up from 1.66% last week. Rates have been rising on inflation fears… negative for bonds. The bonds (TLT) have declined nearly 15% since the highs in January. Raise your stops and protect the gains on the short positions. TBT entry $17.84. Stop $21.04 (adjusted). Moved to 1.65% on worries Tuesday.
Crude oil (USO) Crude moved to $61.41 from $60.99 last week. The commodity rose on Thursday despite the news that OPEC+ will gradually increase production in the coming quarter. Many believed they would continue with the cuts.. Watching as supply and demand will now come into play weekly based on production levels changing. Fell 4.4% on the data and outlook for OPEC and supplies. Bumped up 1% on Tuesday.
Gold (GLD) The commodity is struggling against the background of uncertainty relative to the dollar and inflation. The break of support at $166.50 finds support at the $157.29 mark and a small bounce… watching. The bottom reversal remains in play… Entry $162.45. Stop $156. Watching the dollar… bottoming pattern in play.
(The notes above are posted every weekend and updated daily in Bold Print)
DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT
TUESDAY’s Scans for April 6th: A day of trading in place… low volume, slowing money flow, some volatility, as investors are willing to take a break. The upside move has been solid the last three days and a pause is perfectly normal. It did bring out the chatter about government spending and excess. It also brought back discussions of inflation and the impacts. The Fed minutes are released on Wednesday and could shed some light on the inflation outlook from the Fed. Watching, managing what is, and taking what is offered.
- Natural Gas (UNG/KOLD) short side moving higher again after a pause. Watching how that unfolds near term.
- Gold Miners (GDX/NUGT) double bottom pattern and set up for a reversal move.
- Platinum (PPLT) double bottom pattern on the chart and set up to continue the uptrend.
- Homebuilders (ITB/NAIL) still running higher on speculation rising about the housing markets run. Adjusted the stop.
- Brazil (EWZ) double bottom on the chart and showing a possible reversal of the near-term test.
MONDAY’s Scans for April 5th: The markets added to the upside move from last week as growth stocks continue the bounce. Looking for a test of the move higher and some opportunities in the test. Technology, consumer, and cyclicals leading the upside move. The energy sector struggled with crude oils move down by more than four percent on the OPEC news impacting forecast on supply data. There is plenty to like short term, but the volume remains on the light side of trading. Manage the risk and let it unfold.
- Semiconductors (SOXX/SOXL) more upside as the sector hits new highs. Raised our stops and letting it run for now. Willing to take some profit on Tuesday based on the open.
- NASDAQ 100 (QQQ/TQQQ) hit new highs and raised our stop on trades added last week. Manage the risk near term and look for the opportunities within the index.
- Dollar (UUP/UDN) testing despite the positive economic data. Worries around more spending coming from the White House proposal of 2.4 trillion dollars infrastructure. Watching how this impacts commodities near term.
- Google (GOOG) jumped four percent as the high court rules against Oracle in their elongated dispute over software. Added to the gap higher from the trading range.
- Homebuilders (ITB/NAIL) running higher as the outlook for demand remains positive for the sector.
FRIDAY: Markets closed for Good Friday.
THURSDAY: Scans for April 1st: It was no April fools day as money flow rose and investors put money to work to start the new month. The NASDAQ and S&P 500 moved higher showing a broad move in the indexes. With the long weekend in front of us we added some positions, raised stops on others, and will do our homework to see what opportunities hold the most promise looking forward. Money flow and volume are saying caution. Talking heads are saying stocks run higher. We will let it all unfold and take what is offered.
- Semiconductors (SOXX/SOXL) raised our stop on the run higher and watching how the leadership holds up.
- Treasury Bonds (TLT) rates have settled in near the 1.7% level on the ten-year bond giving some reprieve to the downside activity. Watching and managing the risk of our short side positions.
- NASDAQ 100 Index (QQQ/TQQQ) upside bounce from the test lower is a positive… Entry offered at the $324 mark.
- Energy (XLE/XRE) solid move higher on the bounce in crude prices and the OPEC news. Watching of entry position if holds the move above the $50.10 level.
- Software (IGV, SKYY) upside in the sector as the technology sector finds buyers. IGV entry at $340.20 Wednesday. SKYY $87.35 Thursday. Managing the risk.
WEDNESDAY: Scans for March 31st: End of the month, end of the quarter, will money flow rise? Good question as we face a three-day weekend. We will see if there is a follow-up to the rise in the NASDAQ on Wednesday. Semiconductors, cloud software, biotech, and other growth sector posted a solid day, but remain challenged by the current environment of the market. There is still a lack of clarity and direction in the markets near term. We will remain patient and take what is offered.
- Semiconductors (SOXX/SOXL) the sector added to the upside bounce from last week and we adjusted our stop on the position added last Friday. Stop is not $38 locking in a nice gain if the bounce reverses near term.
- Drugs/Healthcare (LABU, IBB, XPH, XLV) found support finally and attempting a bottom reversal trade opportunity. Manage the risk and trade accordingly.
- China (FXI/YINN) attempting a bottom reversal pattern. Hit entry point on Wednesday and managing the risk of the trade.
- Crude Oil (USO/SCO) downside bias in play as the supply data shows some build up last week. Not a trend. The OPEC+ meeting is Thursday… looking for short side trade based on the data… Patience.
- Cloud Computing (SKYY) nice bounce and bottom reversal short term… looking for the opportunity if it follows through. PTON, ZM, NOW, CDNS showing some development.
(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.)
Tuesday: Markets take a pause as investors regroup. No big news events on the day just some good old fashioned worrying. We continue to take what is offered and watching for the near term upside to continue. Fed minutes are out on Wednesday will add some insight into what the Fed is thinking. NASDAQ 100 in position to move higher. Some rotation is still taking place overall. The move lower in treasury bonds was almost expected based on the chart and watching how interest rates move near term. Plenty of opportunities and taking what fits our risk parameters.
Monday: Positive start to the week as money finds its way into the markets again. The question is how long does the run last? Good question, but not one you can answer easily without speculation. I am looking for a test of the move higher in the NASDAQ to offer more opportunities near term. We have to be patient, take what is offered, and manage the risk that is. The challenges remain, but for now, investors are putting money to work.
Weekend Wrap & Outlook… The market shifts sentiment again as buyers put some money to work. The NASDAQ found support and broke higher from the trading range offering some opportunities on the move. The S&P 500 index broke to new highs showing some leadership again. Economic data is leaning towards growth aided by the stimulus. The economic data shows a positive bias overall with the normal question marks in a recovery. Shipping is leading as there is a backlog of products sitting on docs around the world. Pandemic restrictions and closures continue to show up in the supply of products and raw goods. The move by countries and states to shut down doesn’t help the fear factor. Energy has been volatile on the news but posted solid gains to end the week on OPEC data. The balancing act for both consumers and investors remains a challenge. The bond market got a reprieve of late with rates holding near the 1.7% mark on the ten-year bond. The dollar has settled following the move higher of late. Overall some positives are arising from the previous negatives.
With that in mind, the markets closed the week with a broad-based move to the upside. The cyclicals are leading and growth stocks are lagging. Value /dividend stocks are in favor over growth and thus they are acting more like growth stocks. Commodities have cooled as money exits for greener pastures of current moves. The long-term trends remain on the upside but I remain cautious about the current environment. For the week technology and REITs led the upside. The VIX index closed at 17.2 and showing some easing of anxiety near term. Watching the current movement in the broad markets as money continues to rotate to where it is treated best.
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 develops 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.