Tariffs, talk, and speculation lead market lower

OUTLOOK: Week of April 10th

The buyers lacked conviction, at least based on the breadth and volume during the three days of buying. That allowed the sellers to step in on Friday with rumors and talk about China and the US ready to wage a trade war. The challenge is the volume on the selling was much more convincing on Friday. The tug-o-war continues as both sides play wait and see. Maybe earnings season starting this week will help the outlook short term? Time will tell and so will the charts. We continue to take it one day at a time and let the overall story determine the direction. The test of the 200 DMA by the S&P 500 index is another attempt by the sellers to control the short term direction. Monday may be a day of decision overall… but, I am not counting on that picture to be a reality.

The S&P 500 index closed down 58.3 points at 2604 holding just above the 200 DMA. After three days of gains, the test comes again of the 200 DMA… this is definitely a game of patience. The chart is testing the long-term trendlines off the January/February 2016 low. The double bottom pattern could still unfold, but the downtrend could be reestablished as well, flip a coin in the news-driven environment. The whipsaw action has been a challenge for establishing positions. With the trade negotiations ongoing expect more volatility. The downside remains below 2765 for the short side interest and SPXS hit the entry level at $28.20… added a position at $28.50 as a hedge. It has been an up and down ride as we adjusted the stop at $28.50. Managed the position with our stop market on the close… it had to be at $28.50 in the last five minutes of trading. We still own the position and watching how it unfolds today with the same process in place.

The NASDAQ index moved below the 7103 and 6909 levels of support, but Friday closed at 6915 holding support for now. The up trending channel off the Feb 9 low broke the bottom channel line confirming the near-term direction as down and with the current activity sets up a potential double bottom pattern. The last three weeks have shown big swings as the buyers and sellers fight for direction. The buyers pushed for control on Wednesday putting money to work at the opening lows and Friday the sellers took it away. The China issues are back in the headlines and plenty of dynamics in place as the White House makes moves that rattle investor confidence. Patience is required along with a strategic approach to managing money. SQQQ entry $17.85, stop $17.65 (adjusted). The downside is in play and watching the February lows as we manage the risk.

Small Cap index had been weaker on the bounce off Feb 9 low, but finally produced a move above the $154.90 resistance. The bounce reversed and the downside has momentum again at the support of $150.11. Watching how the possible double bottom plays out near term.

Gold (GLD) moved back below the $126.02 mark after a test lower on Thursday. The trading range is in place and watching how this unfolds short term. The metal is a trade on news nothing more. The gold miners (GDX) made the move back above the $21.92 mark from the bottoming pattern in play. Base metals (DBB) moved lower in the downtrend and gapped below the 200 DMA on Wednesday, but managed a bounce on Friday… watching for now.

The dollar (UUP) bounced off the lows with some buying keeping the bottoming pattern in play. The negative tone from the FOMC pushed the buck lower but has bounced of late with Mr. Trump’s comments. Trying to break from the trading range with a solid gain on Thursday… watching for a possible move above resistance $23.65 to hold.

Treasury Bond yields moved to 2.83% Thursday on optimism and to 2.77% on Friday on the selling. The hope and fear emotions continue to push the yields around along with bond prices. The bond is nothing more than a conduit with the uncertainty in play for stocks. Interesting battle of money rotating on worries relative to trade wars. The short side trade hits stop on move higher in TLT. If the bounce works look for bond yields to bounce and bonds to decline as money will rotate back to stocks. Patience is needed for now.

Crude oil (USO) moved back above the $61.60 mark and the move higher and tested the January highs. The upside follow-through had the commodity above $65 but failed to hold the move on the dollar bounce and is testing the $61.60 level again. The news is driving and oil remains in a broader trading range. The dollar relationship remains in play influencing the price of crude along with worries of ramping up production in the US on the price move above $60. News about overproduction hit the news on Friday… could mean some downside in oil prices short term. Trading the commodity at best for now.

Emerging Markets (EEM) dumped lower breaking $47.90 support and testing the short side. It did manage a bounce but moved lower on Friday. The dollar, tariffs, trade wars, and interest rates are all playing into the volatility of the sector. We will let the market speak and we will decide what trend to trade.

The Volatility Index (VIX) closed at 21.4 as investors get rattled over the tariff wars. We sold all of our positions Thursday as the buyers came to the aide of stocks. The move Friday will keep me in tune with what is taking place, but for now, we see how it unfolds on Monday. FOMC meeting, tariffs, antitrust lawsuits, Mr. Trump, etc. all adding to the investor anxiety. We banked a nice gain on the trade the last ten days and look to see how it unfolds.

There is plenty on the table relative to dynamics and agendas from the government, economic data, traders and investors alike, but the emotions injected into the market now raises questions about direction and momentum. The ABCD pattern broke to the downside and retest of the February low last week followed by more volatility and testing this week. The key is patience and taking what the market offers versus our emotions. Simply put there is plenty to ponder about what will and will not impact the markets both short and long-term… My goal is to manage money, not markets. Manage my risk based the current environment coupled with my strategy for each position. The key is to stay focused on the horizon, not the rear-view mirror. 

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

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) remains a sector of speculation… The speculation from Washington relative to what will happen with drug prices and healthcare. The sector has taken on an emotional ride of ups and downs based on the current belief and market trends. The downside is in play again as we break the $105.30 support and the February lows being tested on Friday. A short signal on the break of the $104 level. LABD entry $39.30. Stop $37.40.  

Semiconductors (SOXX) bounced off the low at the $166 level and established a new high. It has retreated on the selling sending the sector lower… It did manage a bounce early in the week then retreated again on Friday. Selling confirms the short side trade entry at $12.30, stop $11.80.  

Software (IGV) hit new highs and closed below the $171.11 support on the test lower. Watching how this sector holds up near term… Some downside selling Monday added to the downside pressure. No positions currently and the short side is being watched.

REITs (IYR) The sector remains in a trading range as it continues to build a base. Interest rates have been the challenge overall… looking for the opportunity to add a position and collect the dividend long term. Moved back above $75 and holding. 

Treasury Yield 10 Year Bond (TNX) moved to 2.77% this week as money is jumping around looking for the best opportunity. The rolling top activity moved below the 2.79 support and watching how this impacts the bond sector. Waiting for some clarity on the bond near term. 

Energy stocks (XLE) The sector tested the $67 level of support again and remains in the bottoming range. Entry at $68.85 is of interest if the upside validates the move. The short side is a big question as oil continues to test the uptrend moving back to $61.60 level on Friday. Watching patiently for direction.

Natural Gas (UNG) forming a bottoming pattern currently after falling more than 19% off the January highs… watch for the next opportunity in the commodity. The downside continues breaking below the next support retesting the lows and keeping the downside in play. $21.50 level of support held and small bounce. Needs to clear $22.69 for upside to convince. 

The NASDAQ tested the 6909 support again in a volatile week. The S&P 500 index tested the 200 DMA again and closed at 2604. The bias is negative and volatility is alive and well. Leadership is testing the downside move as financials and technology lead the downside moves. Short trade entries hit and testing with the volatility daily. News on tariffs are still in the picture and providing volatility. The President is attacking Amazon just to add to the excitement. VIX index remains above 20. Money is rotating with some headed to the safety of bonds and some to cash. There is no shortage of speculation and news. The key is to keep your focus on your trading strategy and not the emotions of the day to day swings in the market. The downside bias remains and a break of the February 9th lows will only serve to accelerate that bias.

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

Daily Scan Results:

FRIDAY’s Scan 4/6: The downside returned as the President has to one-up China on talking about tariffs. We will let this unfold into the new week and see how the buyers and sellers decide on the direction. The scans return to the downside efforts prior to the three-day bounce last week. Testing again at key support levels will test the resolve of both sides. Patience is the key.

  • Biotech (IBB/LABD) reversed lower to test the support and the short side trade is back in play clearing the $40.21 resistance. Looking to add to the trade on the short side with confirm.
  • Semiconductors (SOXX/SOXS) negative trading day to end the week puts the short side back in position to gain momentum. The move above $13.52 is the entry point with a confirm of the move. TECS also makes move as the sector struggles.
  • NASDAQ 100 (QQQ/SQQQ) the downside is still lurking on the move back towards $20. A move above this level would offer some short-term opportunities int he short side of the trade.
  • China (FXI/YANG) the downside is where the challenge lies for the country ETF. Tariffs are not a win for the country any more than the US. Watching how the downside opportunity unfolds.
  • Emerging Markets (EEM/EDZ) downside is alive and well with all the rumbling about the tariffs. The winners and the losers are being juggled by investors trying to get in front of the inevitable.

Leaders… still looking for the catalyst in either direction currently. Tough week for all and willing to give it room to unfold.

Patterns… bottoming ranges, double bottoms, and consolidation… all need a catalyst good or bad… willing to wait for now.

Charts to Watch… XLF, FXI, IBB, XLE, SCO, SOXX, QQQ, SPY, DIA, USO, WEAT, TLT

THURSDAY’s Scan 4/5: Modest bounce for the third day of gains in stocks. The challenge remains volume from my view as it traded with below average volume for the third day. Upside needs to get through the next level of resistance if the bounce is to gain any momentum. The overnight comments from Trump have that as one big question market and the jobs reports are due out before the opening bell… remain cautious and managing the short-term risk/reward for now… cash is still a sector to hold money while this all unfolds.

  • See added notes in red to Wednesday from Thursday trading.
  • Energy (XLE/ERX) can the upside move follow through and break through the top end of the trading range? It will need some help and volume. IEZ added solid bounce as well. Failed to advance the upside… watching.
  • Latin America (LBJ) nice reversal move as news of trade wars benefitting the regions hit the headlines and help. Looking for follow through and belief before adding any positions. Moved lower on the news Friday. 
  • Semiconductors (SOXX/SOXS) the bounce failed to hold on Thursday and watching how it unfolds relative to the short trade above. $13.52 is level to clear on short side ETF. Cleared $13.52 and looking for follow through. 
  • Europe (EURL/IEV) bounced in the bottoming range. Watching how Europe unfolds in all the rattling as well.
  • Small Cap (IWM) bounced off support and holding… letting this unfold as well for upside trade if it clears resistance with some volume. Retest the $150.11 level of support. 

Leaders… continues to add some upside. Two worry spots were SOXX and IBB. Watching as this plays out near term.

Patterns… bottoming remains in place… the break above the first levels of resistance in XLF, QQQ, IWM and others is offering some hope in the upside returning… the overnight tariff comments aren’t going to help in early trading.

Charts to Watch… LBJ, IWM, CORN, ITB, XLE, IEZ, IYM, XME, TBT, ITA

WEDNESDAY’s Scan 4/4: The buyers held their ground despite the proposals by China to add tariffs… it got help from the White House stating there were still ongoing negotiations… of course there are. We continue to take it one day at a time and look for the opportunities as they are presented. No addition to short positions as the buyers stepped in… we did lock in some gains early as the buyers showed interest. There is no reality just disciplined approach to managing the risk presented currently. The buyers will need to put more volume behind their efforts if the bounce is to have any hope on the upside follow through. Patience is key for now.

  • See added notes in red below on Tuesday for the outcome today on Wednesday.
  • Homebuilders (ITB/NAIL) big bounce off the lows on Wednesday… still in bottoming range.
  • Biotech (IBB/LABU) big bounce off the lows Wednesday… Needs to clear $77.05 and confirm.  
  • NASDAQ 100 (QQQ) solid bounce off the lows. Double bottom? Cleared the 200 DMA on the upside. c
  • Healthcare (XLV/CURE) bear flag pattern in play… watching how that unfolds with the downside bias in place.  
  • Financials (XLF/FAS) bottoming pattern remains in play as hold above the 200 DMA.

Leaders… they returned to form, but still plenty of questions. IBB, QQQ, XLK, XLF, SOXX, XRT

Patterns… bottoming patterns everywhere… XLV, ITB, QQQ, SPY, XRT, EWW, IYR, XLY…

Charts to Watch… ITB, IYR, XLU, TMV, SCJ, FAN, FAS

TUESDAY’s Scans 4/3: The buyers attempt to show up, but the volume was on the weak side. There were some positive movement in the leaders, but not enough to give the upside outlook momentum. The market is testing mode relative to the February lows and key support levels. The key is to let it unfold each day and establish the trend. The overnight news with China has already shifted the outlook on the day, but it still has to play out. For now, we go with the bottoming process and watching how it unfolds.

  • NASDAQ 100 (QQQ/SQQQ) tested resistance at the $23.03 mark and retreated. Watching today how it unfolds and if it can clear this level on the close. If not, look to take some gains on the trade above $16.65. Sold half at $19.65 in AM.
  • Volatility Index (VXX/UVXY) not enough buying to move the VIX below the 20 level. China is adding to the anxiety overnight and a move to the $54 mark would prompt taking some more gains on the position and letting the balance run with stops at $49. Sold more of position. (see notes above)
  • China (FXI/YANG) tariff issues escalate as China imposes tariffs on $50 billion in goods. The downside to the country ETF is of interest as it will accelerate the short side trades. Sold half of the short position at $52.50.
  • Energy (XLE/ERX) bounced off the lows in the trading range and looking for upside follow through. Crude has traded higher and the stocks have lagged… watching how this unfolds today. $29 level of interest on the upside.
  • Semiconductors (SOXX/SOXS) the bounce off the 200 DMA is a positive from the selling… but, the downtrend remains in place. Watching how it responds today and willing to add to the position if we close below the 200 DMA. Bounced off support and watching how it unfolds with stop in place. 

Leaders… all bounced off support on Tuesday… still plenty of question marks and in need of a follow through on the upside. The overnight news from China could make that a bigger than the normal challenge. Watching how the buyers respond to the initial selling.

Pattens… all most all of them are bottoming patterns near term. Letting them unfold based on the news and data pushing stocks up and down. Today it is about the first hour of trading and the response to the initial drop… do the buyers step in?

Charts to Watch… GLD, GDX, XLF, IWM, QQQ, SPY, TMV, WEAT, EWM

MONDAY’s Scans 4/2: Welcome to April showers… the selling resumed to start the new month and the short side of the market remains the trade for now. Adjusting stops and managing what is one big emotional rollercoaster for investors. Today will be a key day for the major indexes as they test a key level of support. Taking it one day at a time for now.

  • Biotech (IBB/LABD) downside breaks hard and the selling resumes. Short position established (See above) and we will watch how the $40.21 mark holds on the short ETF.
  • Semiconductors (SOXX/SOXS) downside clears support and the short ETF breaks through $12.27 offering a short entry (see above). $13.52 is next level to clear on the trade… stops in place.
  • Volatility Index (VXX/UVXY) trade on the volatility is working out well with the VXX trade up 9% on Monday… sold half… looking to exit more of the position if the buyers show up.
  • NASDAQ 100 (QQQ/SQQQ) downside accelerates with the selling on Monday. Break of support a negative and the sentiment has shifted to the downside short term. $20.03 next level to clear on the short ETF.
  • Small Caps (IWM/TZA) sellers are in control short term with the negative sentiment taking root. The short side ETF cleared $12.14 and watching how it unfolds… stops in place.

Patterns: trading ranges and double bottom setups. The challenge is the sellers taking control on Monday again and sending the sentiment more on the negative side of the equation. Letting this unfold and not making any predictions. We established some short side positions as well as exiting some long-term positions.

Leaders… rolled over on Monday with semiconductors, biotech, NASDAQ, technology, and consumer all moving below key support levels. Do they bounce? Do we move lower? Good questions… let the market decide… not your emotions.

Charts to watch… UVXY, LABD, SOXS, SQQQ, TECS, FAZ, all breaking higher on the short side. YANG, ERY, EDZ, NUGT, EUM, and SLV all remain in trading range.

(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 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 below the February low and the 200 DMA… downside in play and looking for support to hold near the $56 mark again.
  • XLU – Utilities have been under pressure from the speculation of higher interest rates from the Fed and a weaker dollar. I have been looking for support and the next opportunity as the fear evaporates and reality settles in. $48.55 entry. Stop $47.50. This does pay a 3% dividend and willing to stick with the slow-moving sector for now.
  • 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? The downside accelerates with stocks selling on Friday. Short side remains in play.
  • XLP – Consumer Staples broke the February lows and finally found support near $51. Bottom reversal pattern in play and watching how this unfolds with $53.15 resistance to clear. Patience as we start the week of trading. 
  • XLI – Industrials moved to support at the 200 DMA and bounced modestly… returned to test and the downside is still the trend.  
  • XLE – Energy sold to bottom of the range at $67 and remains in a bottoming trading range. No traction and erased the bounce from Thursday. $68.82 is level to clear on the upside.
  • XLV – Healthcare has been up and down following the Feb 9th low. ABCD pattern broke to the downside offers short side trade. Watching how it unfolds along with the broad markets as it bounced off $79.50 support.  
  • XLK – Technology tested $64 support, bounced, and made positive progress, but gave it back on Friday’s selling. Large-cap tech challenging the downside with SOXX and IGV breaking support. Watching how the week starts.  
  • XLF – ABCD pattern breaks with downside bias… tested the February 9th low and held. Letting this unfold and then we will take what the market offers.
  • XLY – Consumer Discretionary sold to support at $99.40. Bounced on Thursday and reversed on Friday. Watching how it unfolds near term. 
  • RWR – REITs reacting to the current uncertainty around the hike in interest rates. Bounced off the $82.75 support and moved above $85.65 resistance. Tested on the selling Friday and letting this unfold near-term

News about the trade wars and tariffs with China continues to be the sticking point for the broad markets.Three-day bounce is erased on Friday as the President continues to banter with the Chinese. The reality is still to be determined and in the meantime, we look for the best opportunities as they unfold.  No time for speculation on the realization of earnings and more data on the way this week.  

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

FINAL NOTES:

The ABCD pattern broke with a downside bias and caught support, bounced, sold again. The question remains about direction and volume. There is a lack of conviction from either side as the volume remains below average. The leaders are still in place and could easily make the move on the upside with enough conviction from the buyers.  All eleven sectors on the week moved lower. The S&P 500 index closed lower on the week overall. The bounce off support failed leaving the direction in question and volatility is alive and well with the VIX index at 21.4. The key is to focus on the strategy you want to take during the current market environment. News and speculation drive the short term while fundamentals drive the long term. I trade both and have specific strategies for both. Short term we are in a process of testing the February 9th lows. A break of that level would signal a big negative technically for the broad indexes. Leadership is rolling over and the sentiment has shifted near term. We will start the week with earnings data for the first quarter… The goal remains money management, not market speculation… our downside bias has been confirmed and we will take what the market offers and manage the risk.

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.