The markets take a rest to start the week

OUTLOOK: March 13th

Some checks and balances to start the week of trading. Overall it seem to be a blah day of trading as some sectors consolidated. We don’t see any significant changes in the day of trading as investors take a well deserved break from the trading mania that is of late. The tariff worries continues to weigh on the outlook, but the short term impact is an ongoing debate. Trump has not backed down on the fairness of the tariffs to US companies. The NASDAQ continues to set the pace on the upside as the index close up again setting a new high as the Dow continued to move lower. The technology space remains a positive while other sectors continue to struggle. Crude moved lower as the concern over increased production in the US persist. With prices pushing above the $60 level it invites the US companies to increase their production and in turn keep the price of crude in check. Monday didn’t solve anything nor did it answer many questions. Fundamentally the data has been good and the jobs report for February hit the sweet spot for investors. Patience remains my motto as this unfolds and the indexes break through resistance and to new highs on the NASDAQ. The longer-term chart resumes the uptrend. Look at the market and your positions from the proper perspective and don’t let the short-term volatility impact your views longer term.

The S&P 500 index closed down 3.5 points at 2783 and tested the move from last week. The chart remains in line with the long-term trendlines off the January/February 2016 low. The bounce off the Feb 9th low broke the ABCD pattern in play to the upside. There is always the need to confirm and for the upside to clear the previous highs at 2872. Cleared the 2779 mark on Friday and the rest is up to the buyers. SPXL entry at $49.10 if the upside confirms on Monday.

The NASDAQ index continued higher as well off the test of 7103 level of support last week and closed at a new high again on Monday. The leadership from technology continues to lead the chart higher. The uptrend is back in place and now comes the follow through for the move last week. The upside entry $175 hit on Friday. Stop $170.

Small Cap index has been weaker on the bounce off Feb 9 low, but the last four days have produced a move above the $154.90 resistance. The bounce off the intraday low on Friday $148.40 followed through on the upside showing some positive traits finally. Entry $154.90 opportunity… Added the entry Friday on the confirmation of the move at $157.50, stop $152.40.

Gold (GLD) moved back to $124.50 mark of support and bounced again on the tariff news. It continues to hold support and looking to see how the positive move Friday impact the chart. The downside remains my bias on the metal and watching what takes place from here. The gold miners (GDX) moved above the $21.92 mark and failed to hold the move as the bottoming pattern remains. Base metals (DBB) failed to hold the move higher 2/16 and have tested lower with a bounce on Friday that failed to confirm on Monday.

The dollar (UUP) bounced off the lows with more buying establishing a double bottom pattern. Cleared the $23.65 level for the upside opportunities in the buck and then the tariff talks started pushing the buck lower again and have taken on a negative tone. Watching for directional confirmation. Nice bounce in the buck on Friday, but remains in the bottoming pattern.

Treasury Bond yields moved to 2.87% as they continue to deal with a rolling top. Thus, we remain undecided on the move towards the 3% mark for the ten-year bond… short side trade remains in place (TMV). The negative bias is still in place… just stalled on uncertainty.

Crude oil (USO) moved back below the $61.60 mark and remains in consolidation mode. The news is driving, but none of it enough to establish a direction. The dollar relationship remains in play influencing the price of crude.

Emerging Markets (EEM) dump lower breaking $47.90 support only to bounce and sell at resistance ($49.90) again… and bounce again back near resistance… looking for an upside follow through if the momentum from last week is to continue in stocks. Entry $50 if it follows through on the upside.

The Volatility Index (VIX) closed at 15.7 on Monday… chart reflects the anxiety evaporating and the buyers gaining control of the charts. SVXY trade is playing out short term. $12.75 entry, stop $12.50.

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 upside move gained momentum last week news on North Korea, fewer tariffs, and good economic data. The volume for the week rose as the indexes setup an upside pattern with the NASDAQ breaking to new highs. We hit stops the remaining short positions, added to our long positions, added some trades, and continue to take what the market gives despite my beliefs. 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. Thus making it more of a trading sector than investing. The current move lower tested the $101 support, bounced, cleared $107 and broke the $112 resistance as well… positive follow through and move through the top of the current trading range. Added at $112. Stop $107.

Semiconductors (SOXX) bounced off the low at the $166 level and established a new high. The sector continues to be one of the leaders. Added at $181.60, Stop $187 (adjusted). Nice follow through to new highs. Another upside day for the index. 

Software (IGV) hit new highs last week and despite the retreat midweek it is holding above the $171.11 breakout high (entry). Watching how this sector holds up near term as the upside continues to lead to new highs… stop $177.

REITs (IYR) The sector broke support and is building a bottom reversal pattern now with a double bottom setup. We added a position on the initial move… Entry $75.15, Stop $71.50. We would look to add to the position on follow through above the $75.30 mark (Friday). Looking for a positive follow through this week. Nice upside confirm of the index confirming the upside. 

Treasury Yield 10 Year Bond (TNX) moved to 2.89% showing some rolling top activity of late. The recent bantering and talk from the Fed and Washington aren’t helping the cause. Add some inflation (CPI) and it makes for interesting times. 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 $20.75 (adjusted).

Energy stocks (XLE) The sector tested the $67 level of support again and a bounce to end the week as crude leads the activity. Entry at $68.85 is of interest if the upside validates the move. 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. $22.69 upside level cleared but tested to end the week. Patience as this unfolds. UGAZ confirmed entry at $59.75, stop $58.50. Cautious and stops in place. Nice bounce follow through on the day. 

The NASDAQ closed the week at a new high to lead the broad indexes. The bias has shifted to positive… need to confirm this week on the upside for the S&P 500 and Dow indexes. Leadership is in technology and a broad movement for the overall markets on Friday was positive. Patience and risk management remain the theme. 

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

Daily Scan Results:

MONDAY’s Scans 3/12: A continuation of the upside for the NASDAQ, but the Dow and S&P failed to participate in the downside play. A market divided cannot stand right? We continue to watch how all of this unfolds without bias for now. Some moves of interest, but for the most part a day of consolidation.

  • Natural Gas (UNG/UGAZ) held support and bounced back from the test to keep the upside in play for now.
  • Semiconductors (SOXX/SOXL) upside continues.
  • Greece (GREK) downtrend line reversal… $10.45 cleared.
  • Singapore (EWS) nice move above $27.05 to clear resistance.
  • Small Caps (TNA) nice follow through to the move above $73.

Leaders remain with the SOXX, IBB, XLK, QQQ, IGV…

Patterns of note… BRZU consolidation with upside bias. XME consolidation pattern. EWS double bottom pattern. YINN bottoming attempt. FAN double bottom. FCG bottom pattern.

Other charts to watch… SCO on oil worries. NAIL bounce of the current lows. URE break from bottoming pattern. GREK bottom reversal follow through.

FRIDAY’s Scans 3/9: Solid broad move higher on data and news helped push the charts back into a positive trend overall… this tips the bias to positive and the scans reflect that as well. Take what is there and manage the risk as it unfolds each day. Nothing more, nothing less.

  • China (FXI/YINN) solid move upside Friday invites the double bottom trade setup. Added a position at $37.55 on the move… stop $34.45 and watching.
  • Emerging Markets (EEM/EDC) double bottom trade setup in place. $139 entry hit with second entry at $146 mark. Watching how this unfolds near term with a stop at $134.
  • Semiconductors (SOXX/SOXL) continued to move higher as the leader continues to show positive activity. Stop adjusted to $185.16.
  • Financials (XLF/FAS) completes a double bottom pattern with the move above $74.48. Added position on the move. Watching and managing the risk with a stop at $68.48.
  • NASDAQ 100 (QQQ/TQQQ) we added a position at $171.10 Thursday and it followed through on Friday with our stop at $171.10. Manage the risk and let the leadership unfold.

Leaders remain in XLK, SOXX, IBB, QQQ, IGV, IGN… XRT, XLF, IAI, and XLV exerted nice upside to end the week. The ABCD pattern is playing out to the upside and the breadth of the move on Friday adds an upside bias to the markets.

Patterns of note… QQQ leading the upside charge. EDC, XLF, XLV, TNA, LABU, and others showing upside bias in the ABCD patterns as the market shifts to positive. IWM positive break higher.

Other charts to watch… BRZU, YINN, UCO, MVV, IYT, IAI, IEZ, KIE, and KWEB.

THURSDAY’s Scans 3/8: Another day of positive results with intraday juggling around news. The charts are showing some positive signs, but the volume and breadth are worrisome. Not willing to abandon the downside belief yet, but I will never fight the trend. I will take what is offered with a strict risk management strategy… especially when it goes against the belief. Patience and remember its Friday…

  • Crude Oil (USO/SCO) downside developing slowly… need the dollar to bounce higher from the pattern and a good look at the inventory data. $23.50 on volume would be interested in SCO trade.
  • Healthcare (XLV/CURE) cleared entry level at $49. Double bottom pattern in play and watching how this unfolds with IHI, IBB, and other leading the way… pharma is still lagging but move higher on Thursday. LABU followed through on move higher.
  • Volatility Index (VXX/SVXY) retreat in the volatility levels offers a short trade on the index.
  • Technology (XLK/TECL) continues to lead the upside move… HACK, SKYY, IGN, IGV, SOXX,
  • Treasury Bonds (TLT,TMV) rolling top in play? Watching how the short side trade unfolds.

Leaders remain SOXX, XLK, IGN, IGV, SKYY… joined by SPY, DIA, QQQ, IBB on Thursday. UNG tested, XBI followed through, FDN holding new highs, IAI new highs.

Patterns of note… EWW, EWH, IYK, IBB, UUP, IHI, and UGAZ.

Other charts to watch… CORN, YINN, URE, FAS, IYR, EWK, and KWEB.

WEDNESDAY’s Scans 3/7: The low to high day produced plenty of question marks relative to the sellers. The downside bias had the perfect setup to sell, but it almost felt like a game between the two sides. It felt like the buyers wanted the big sell off to put money to work and the sellers didn’t want to give them the satisfaction and the downside reaction fizzled through the day. Small Caps joined the technology stocks in the upside effort showing some positive traits over the last three days. Watching how it all unfolds.

  • Gold (GLD) failed to follow through on upside move… gold miners (GDX) led the downside on the day and the short side remains the bias for both. The upside entry failed to produce a follow through.
  • Biotech (IBB/LABU) moved above $98.60 entry and set stop at 94. Treating as a trade opportunity only and will raise stops quickly if upside follows through.
  • Crude Oil (USO/SCO) downside move on the day as the consolidation remains around the $61.60 mark on the chart.
  • Small Caps (IWM/TNA) break above resistance and showing some positive leadership on the upside. This is a positive for the buyers.
  • NASDAQ 100 (QQQ/TQQQ) remains a leader for the markets as the large-cap tech stocks continue higher. Letting this unfold and taking what the market offers.

Leaders remain with SOXX, XLK, IGN, IGV, SKYY pushing higher… Small caps joined the fun with IWM/TNA posting nice moves the last three days. UNG added to the breakout move. XBI broke above resistance. FDN new highs.

Patterns of note… UGAZ, ERY, SOCL, TECL, IWC, and IHF.

Other chart moves to watch… GLL, RUSS, KWEB, MVV, IAI, KRE, and IHI.

TUESDAY’s Scans 3/6: Sideways trading was the theme of the day as money took time to digest the move off support on Friday. The ABCD pattern remains in play and the catalyst for the downside part remains tariff news. The futures are trading lower this morning and that will impact the scans as the showed positive bias on Tuesday… Looking to see how the day unfolds and what direction ultimately wins the process.

  • Gold (GLD) makes a move on the upside in response to all the babble and resignation on tariffs. The gold miners (GDX) equally responded on the upside move. Watching how this unfolds with both GLD and GDX moving above technical entry points.
  • Homebuilders (ITB/NAIL) solid move higher in the sector to follow through on the bottom reversal pattern setup… I still favor the short side of this trade with higher interest rates putting pressure on mortgages.
  • Natural Gas (UNG/UGAZ) positive move higher to bottoming pattern. Cleared the entry point technically at $59.75… upside trade in play and I would treat it as nothing more near term. Stop $58.
  • Semiconductors (SOXX/SOXL) upside continues as it hits a new high to lead technology (XLK/TECL) higher. Watching the response to the news today as $182.55 is the next entry point.
  • Small Caps (IWM/TNA) upside follow through for the sector on the day clearing $154.90 resistance… the close shows testing with the futures lower on the after-hours news. Looking for confirmation of the move above resistance if the upside is to lead the sector higher. TNA $75.55 entry.

Leadership remains technology (XLK) with semiconductors (SOXX), software (IGV), cloud computing (SKYY) and networking (IGN) leading the upside. Large-cap NASDAQ (QQQ) continues to look positive on the move along with biotech (IBB/XBI).

Patterns have emerged in two forms… ABCD and bottom reversal/consolidation. The key will be the catalyst to lead them to a breakout worthy of trading. Watching the volume and the news driving the moves today and going forward.

Other Charts… UGL, SIL, MVV, BRZU, XME, IAI, XRT, KRE, and IHI.

(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:

  • XLB – Materials bottomed and bounced off the 2.9 low… Failed to hold the move above $60.96 and it has moved back above this level to try the upside again? Watching patiently for the answer. 
  • 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. Added to the position with a move above the $49.50 mark… Failed to hold the move above the $49.50 level as the bottoming continues. 
  • 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? Watch for the opportunity. Bounced off the lows. $27.75 upside trade entry. Nice follow through with a stop at $27. Letting this unfold in the volatility of bottoming. failed to clear resistance at $28.62. 
  • XLP – Consumer Staples moved to the November low and held taking upside trade on the bounce again if we can clear the $54.92 mark. Bottoming range remains.  
  • XLI – Industrials moved to support at $71.43 and bounced… Bottom reversal and followed through upside. A double bottom pattern in play? ABCD pattern… watching how it unfolds.
  • XLE – Energy sold below $67 and it responded positively with the upside in crude returning. $68.82 level of resistance to clear. Failed to hold the move above $68.82 and broke $67 support on the low again. Bottoming range remains in place. 
  • XLV – Healthcare has been up and down following the Feb 9th low. ABCD pattern in place and looking to break to a positive bias with a move above the $86.75 level. Watching patiently for this to unfold.
  • XLK – Technology tested $62 support, bounced, and watching made positive progress with a ‘move back to previous highs and now moving to new highs. $64.80 entry. New high on break from the cup and handle pattern.
  • XLF – Financials remain in a long-term uptrend tested $27 support, bounced, and following through on an ABCD pattern upside move. Cleared resistance and offered trade upside $28.25. Stop $28 (adjusted). Move above $29.60 Friday a positive…
  • XLY – Consumer Discretionary sold with the rest of the market… found support at $99.40. ABCD pattern in play and looking for an upside bias confirmation. $107 level to clear.
  • RWR – REITs reacting to the current uncertainty around the hike in interest rates. Bounced off the $82 support and watching. $85.65 level to clear from bottoming pattern and entry. Closed above on Friday and looking for the upside confirmation. break above the $85.65 level a positive. 

Emotions are in full swing as the ABCD pattern plays out. The upside bias was established on the Friday move higher… plenty of work to be done, but the upside move in the NASDAQ is helping the rest of the market find positive momentum. Everything needs to confirm the upside bias and that will be the challenge of the week.  

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

FINAL NOTES:

Bounce on Friday sets up the ABCD pattern to establish upside bias. The high volume buying on the day was a positive for the broad markets. Ten of eleven sectors closing higher on the day showed the bias broadening. There is still the need for follow through if the upside trend short term is going to reestablish itself. 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 an ABCD pattern. The NASDAQ broke higher reestablishing the uptrend… S&P 500 and Dow indexes are working on upside bias and need to confirm. The goal remains money management, not market speculation… our downside bias has now given way to the upside if it confirms. Willing to 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.