Test lower and bounce gives some hope

OUTLOOK: February 9th

The first leg of the move lower is obviously not done after the bounce on Friday showed the buyer is willing to step in at some point to offer support to the index. This was an interesting week with the move lower eclipsing 10% (0fficial correction territory) and bouncing on Friday intraday to show some effort from the buyers to step in. We have to watch how this unfolds with the official test of the 200 DMA now in the books. I am not saying we rally and I am not saying we head lower… I am simply stating that we have reached that level technically where something has to happen… good or bad. Too early based on the data for the major correction to take place, but that is my opinion and leans towards speculation. We have to have a belief of we will fail to trade what we see. My belief is a bounce off the established lows on Friday.

The S&P 500 index closed up 38.5 points at 2619 and the 200 DMA (2538) and now comes decision time for direction after falling more than 10% peak to trough. The chart is now in line with the long-term trendlines off the January/February 2016 low. The uptrend remains on the long-term charts and I state that as a matter of reference for this move as it impacts the short-term trend lines. We have now balanced the irrational move higher in January with a a greater move lower. Watching as this unfolds on Monday. For the day the upside was led by MAT(gap higher in the current range), NVDA (gapped higher to remain in the uptrend), DLTR (held key support and bounced), DXC (bounced off support in the uptrend), and AEE (attempt to bounce off lows). Technology resumed the downside along with energy impacting the index. The downside came from EXPE, TRIP, CMG, BHGE, and CBOE. There is still volatility in the broad index as the downside unfolds. The last ten days all the sectors are posting negative returns with energy, basic materials, and technology leading the downside moves. The last month is the same with the exception of consumer discretionary. Plenty to watch, listen and learn as this unfolds in the coming days.

Gold (GLD) continued lower after breaking support at $126.03 and watching $124.45 level and how this unfolds on the short side trade opportunities. There is some indecision in the metal near term as seen in the topping pattern. The dollar (UUP) worries abound, but it did manage to bounce off the current lows and establish a bottom reversal pattern. $23.65 level to watch for resistance. Treasury Bond yields moved to 2.82% and continue to rattle interest-sensitive stocks. Crude oil (USO) breaks support at $61.60 mark and confirms lower on Friday with strength in the dollar. The emerging markets (EEM) dump lower breaking $47.90 support and testing the November lows with a bounce on Friday. The Volatility Index (VIX) closed at 29… still showing obvious anxiety present in the markets as money heads to the sidelines. There is plenty on the table relative to dynamics and agendas from the government, traders and investors alike, but the emotions injected into the market now raises questions about the downside and the level of correction that will transpire and/or the opportunities that exist in the bounce and recovery. The economic data is lost in the news with positive results. It will play a role in the rebound when it occurs so don’t lose sight of the good in the bad. The goal is to manage money, not markets. Manage your risk and 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)


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. Thus making it more of a trading sector than investing. The current move lower hit stops and Friday tested the $101 support, bounced and we will watch how next week unfolds for follow through and opportunities. 

REITs (IYR) The sector broke the $79 level of support and continued lower breaking $75.74 support and hitting our stops last week. SRS hedge entry $30.25. Stop $34 (adjusted) we added to protect our principle short term. We did collect the 4% dividend achieving part of the goal and if the downside expands we will gain our equity gain with this trade. Money management is key with all positions and this is a good example of what it takes. 

Treasury yields (TNX) moved to 2.82% holding near the highs of late. That is enough to solidify the move higher in yields and the short side trades in the bond. The lack of commitment from the Fed and Washington’s wanting a weaker currency isn’t helping, and neither is the comments from the new Fed Chair. Watching how this unfolds, but for now, rates have moved higher and the short side of the bond remains the trade with worries of yields rising further. TMV holding entry $18.50, stop $19.25 (adjusted). 

Gold (GLD) Gold remains in a long-term uptrend with a broad trading range in play the last six months. The volatility of the trend is speculation and news driving money. The downside is gaining some interest as it holds near the $124.50 support. The dollar shift is impacting the price of gold currently. 

Crude Oil (USO) has become a story of what if’s more than what happened or is happening. Supply remains the overwhelming issue, but speculation about the dollar is impacting the price near term. The last three months the commodity has managed to fight its way back above the $50, $52.50, $57.50, and now $61.60 levels of resistance and confirm an uptrend off the June low. Entry $50.20, Stop $61.60 (stop hit). Broke support… the dollar rally is impacting the psyche… if buck finds footing the downside would play out. Moved below the 50 DMA broke $61.60 support. 

Energy stocks (XLE) was stair stepping upside off the August lows and the double bottom pattern clearing $63.22 for entry and a stop at $72 (adjusted). We hit our stop as the price of stocks follows the market and now oil prices are falling on the stronger dollar. It is simply a matter of choosing which speculation theme to follow. 

Volatility Index (VIX) The negative week for stocks pushed the index to 29 on Friday keep the anxiety trade alive and well. The worries are building and they are speculation driven… the key concern is the volume of buyers backing away and the sellers taking control near term. Watching how this unfolds with respect to the rotation of money. 

The S&P 500 index closed the week down 5.1% erasing the gains for the year. The drivers remain concerns over interest rates and the price of stocks. That puts speculation in overdrive as the impact of higher rates will slow the economy initially as consumers have less spendable income. The belief is tax cuts will offset the loss and longer-term create a stronger economic growth versus the stimulus given by the government over the last eight years. All the moving averages were negative on the week and volume was above-average on the selling. There is plenty to ponder as we start the new week… not the least of which is the move in interest rates, the dollar, and the Fed. Will interest rates move to 3%? Will inflation raise its head to disrupt? We remain on guard about how the buck will impact the inflation picture as well as commodity prices. Remember rising commodities impact inflation relative to spending and discretionary dollars from consumers. The rise in the dollar this week is a positive from my perspective. Overall we are still cautious about the direction looking forward. Patience is required with this market overall as news leads the parade. Economic data remains mellow to start the year. Plenty of talk on the table concerning a correction, a bounce, or more of the same. Let the dust settle and look for the best opportunities. 

(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 Scans 2/9: Early selling creates potential intraday reversal and some upside opportunities. The test of the 200 DMA for the S&P 500 index allowed for buyers to step back into the market from a technical perspective. Semiconductors, technology, and others found support at the 200 DMA as well. It was bounce and watch for Monday from my perspective as we look for a follow through. 

  • Cyber Security (HACK) tested the 200 DMA and a follow through move above the $32.13 mark is of interest for short-term trade on the bounce. 
  • Small Caps (IMW/TNA) bounced off support at $57.46 and closed on the 200 DMA… $64.50 level to clear on the upside bounce.
  • Semiconductors (SOXX/SOXL) tested below $166.10 and bounced. $173 level to clear.
  • Financials (XLF/FAS) tested 200 DMA and bounced. Need to clear the $67.60 mark for an opportunity.
  • Crude Oil (USO/SCO) follow through on the downside trade and we continue to see some opportunity… with weaker dollar and money rotating out of the commodity… stop now at 22 or break even.

Work watching other moves on Friday relative to a follow through. DGAZ cleared $29. TECL needs to follow through. TQQQ likewise looking for follow through. UUP at $23.65. Plenty to watch relative to the scans.

We will look to Monday for direction on how this will unfold.

THURSDAY’s Scans 2/8: More downside following the bounce on Tuesday. This is not surprising, but it’s interesting that there was no real buying on this selloff. As stated yesterday the modest selling on Wednesday was a bad sign for the buyers and that held true on Thursday. The charts are now in correction mode. The push lower on higher volume shows the lack of interest from the buyers and the buzzards are circling. Take it one day at a time, but the bias is now on the downside.

  • NASDAQ – Broke 6793 support… 6601 could be the level of this leg lower? QQQ $149.01 target and short side trades are on with the move below Monday’s close $158.17. We hold SQQQ currently with a stop at $20.20.
  • S&P 500 Index – Sold lower as well breaking 2591. SPY failed to hold $259. Short side in play along with stops. Bounce is possible, but the reality of sellers remains in play. All eleven sectors closed lower on the day.
  • Small Cap Index – Sold back to the 200 DMA support. Testing the November lows. The short trade is in with stops at the $147.98 mark.
  • Technology (XLK) – Moved below the November lows. Semiconductors (SOXX) are leading the move lower equally testing the November lows. FB, AAPL, AMZN, NFLX, GOOG all leading the move lower and look ugly. TECS trade in play with a stop at $6.52.
  • Financials (XLF) – Moved back to the Tuesday intraday low and held. Not pretty as FAS trade came into view at on break below $27.70.

Bottom line the first leg of selling is not really over. Was Thursday the climax selloff we needed? Maybe. Do we get a real effort towards a bounce? Maybe. Do we know anything more after Thursday’s selling? No. Patience is the name of the game now as we let this all unfold.

We added some short trades, but the real push will be on the bounce and the next leg down.

WEDNESDAY’s Scans 2/7: Up and down day that closes negative and leaves the door open for more downside. Watching today’s activity for more data and input to the decision process. The scans show the indecision is alive and well along with the intraday activity. Down to up activity was expected, but the closing lower again states more downside could be the decision near term. Patience as today offers more data.

  • China (FXI/YANG) the chart shows the interest from the sellers the last two weeks. $5.13 is level to watch if the downside is to take root and offer trading opportunity.
  • Oil and Gas Exploration (DRIP/IEO) bowl bottoming pattern for the short ETF. $15.69 is level to watch for the trading opportunity if this unfolds.
  • Emerging Markets (EEM/EDZ) China is the driving factor for the sector and the volatility of the last four days isn’t helping. $9.14 for the short ETF is the level to watch. Don’t assume… let it unfold and present the opportunity. Leaders don’t die easy.
  • Natural Gas (UNG/DGAZ) sellers are still engaged with the entry at $24.50 we continue to manage our short side trade. Raise stop to break even on the trade.
  • Crude Oil (USO/SCO) first break of interest on the current uptrend. $22.40 entry on break. Downside needs to confirm, but the weakness in the dollar was the reason for willingness to take the downside trade. $20.15 stop on trade. Watching how it unfolds.

Other moves on Wednesday to watch… RUSS, DUST (added to the entry at $24.40), ZSL, TMV, WEAT, SOCL, and LABU.

TUESDAY’s Scans 2/6: Buyers step into the early gap lower. Take the markets on a ride higher for the day. Now comes the challenge… how does it unfold. Typically you get the bounce off climax selloff. Not sure Tuesday qualifies, but close enough. The test lower followed by a bounce and then a retest of the lows will set the stage. There will be plenty of opportunities as we go forward. Patience and strategy are the keys to finding the trades. Watching the scan list from Friday and Monday… watch how the broad markets react first then dig into the opportunities… Tuesday’s scans showed some other moves of note.

  • Brazil (EWZ/BRZU) Bounced to regain the losses from Monday… inside day and looking for the break upside from this move.
  • Homebuilders (ITB/NAIL) Tested the 200 DMA and bouned. Watching for upside opportunity to resume.
  • Semiconductors (SOXX/SOXL) Tested the December lows and bounced. $151 level to watch for upside trade as this unfolds.
  • Emerging Markets (EEM/EDC) upside bounce after climax selling. $139 level to clear on the upside.
  • Technology (XLK/TECL) bounce following test of the December lows. $116.20 level to clear on the upside.


There is plenty happening and willing to be patient.

MONDAY’s Scans 2/5: Selling accelerates and the buyers sit on the sideline. I am not going to try and rehash the warnings and the need for stops and, and, and… I only want to look at where we are and where we may go from here. My beliefs are simple at this point… evaluate how the buyers respond to the last two days of selling. If they don’t hold support, more selling is on the way. Take what it gives and evaluate each day looking forward. I am only looking at the broad index in these notes to give a broader perspective of what is taking place. There are plenty of short trade opportunities that set up Thursday and Friday. They have to be managed based on the move Monday… the bigger question here is what happens moving forward. IF you added short positions… adjust your stops, bank some gains, and manage the risk. 8% downside in five days presents the opposite risk of a bounce erasing those gains if you were short. Take it for what it is and manage your money accordingly.

  • S&P 500 Index (SPY/SPXS) Confirmed the downside move in spades. Broke $267.38 support. Erased the gains from January and then some. Short side entry hit at $274 and stop is now $268. Watching how the day unfolds with the futures negative.
  • NASDAQ 100 index (QQQ/SQQQ) $157.55 level to hold. Futures are below that currently. Short side trade $163 entry. Don’t chase the downside… let this test and fail for entry if you are not already in a short position.
  • Small Caps (IWM/TZA) $148 support. If it fails more downside to $144.60 and the 200 DMA. $154.90 short trade entry and risk of that trade needs to have a stop at $150. Let this unfold.
  • Emerging Markets (EEM/EDZ) Broke $47.90 support erasing the vertical move above that level. The downside risk remains, but looking for a bounce back from the emotions and then a resulting directional move.
  • Transportation (IYT) Broke $191.70 support and held at the $186.50 mark. A key sector for direction of the broader markets overall. Watching how it unfolds in this current selling. The sector was already moving lower… a good indication of what transpired.

Plenty to evaluate and plenty of damage to evaluate in the broad market as well as key sectors. I continue to dig through the rubble and look for the value and opportunity… up or down.

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

Sector Rotation: 

  • XLB – Materials topping pattern breaks lower hitting our stop and test the 200 DMA… watching for how this unfolds… needs to move back above $59.50 for interest on upside trade. 
  • XLU – Utilities have been under pressure from the speculation of higher interest rates from the Fed and a weaker dollar. Now that rates are pushing above 2.82% look for more pressure on the sector. Looking for support and the next opportunity as the fear evaporates and reality settles in. $48.55 level to clear. 
  • 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? Some consolidation and drop to November lows. Watch for the opportunity. 
  • XLP – Consumer Staples moved to the November low and held Friday… watching. 
  • XLI – Industrials moved to support at $71.43 and bounce Friday… watching. 
  • XLE – Energy sold below $67 and watching to see how this responds to weaker oil prices of late. 
  • XLV – Healthcare tested the 200 DMA and held… watching how it responds to the $82 resistance on the bounce.
  • XLK – Technology tested $62 support, bounced, and watching how it progresses this week. 
  • XLF – Financials remain in a long-term tested $27 support, bounced, and watching how it unfolds this week. 
  • XLY – Consumer Discretionary sold with the rest of the market… found support at $99.42 and watching. 
  • RWR – REITs reacting to the current uncertainty around the hike in interest rates. Bounced off the $82 support and watching. 

Finished the week with the S&P 500 and NASDAQ indexes forfeiting the gains for the year and then some. The market environment is volatile with speculation on many fronts impacting the near-term direction. Last week interest rates move to 2.82% was enough to ruffle some beliefs and the sellers took over. As a result, stops were hit, stops adjusted and views questioned. Our mindset is one of risk management as we look for the next opportunity.  The outlook is patience to let the next opportunity unfold along with the short-term trend. The sellers had the upper hand last week and now comes the decision point with a follow-through move to Friday’s bounce. We have to remain disciplined in our approach to investing our money. The goal is risk management as the story-lines continue to unfold.

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


Downside week for the market raises questions. Traders are driving the short term swings and opportunities with news as the catalyst along with a pinch of speculation. The week was filled with questions, speculation, and selling overall. Volume was above-average with the selling accelerating on Friday. The focus remains on the impact of the tax cuts, earnings, and interest rates. The speculation relative to the highs being to0 high to continue became a self-fulfilling prophecy. Our goal is to take the opportunities that meet our strategies and allow us to manage our money with the least amount of risk. There are plenty of short-term trading speculation I have little interest in, but the long-term remains in an uptrend overall. We will proceed with caution and patience taking what comes our way and fits our strategy for investing both short and long-term.

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.