Threat of more tariffs weighs on investors

OUTLOOK: July 12th

The markets opened lower and closed lower on Wednesday as the promise of more tariffs from the White House weighs on investor outlook. At the end of the day, it could have been worse with interest rates, gold, and crude oil all moved lower in response. Utilities were the lone sector to close in the green. Energy, industrials, and basic materials were the hardest hit by the news as they stand to be hurt the most by the tariffs. The move lower was a normal process as the indexes had moved back to their previous highs the last four days and a test is part of the process. The question now… will they resume the upside move? That is what we watch and see as the balance of the week unfolds.

The S&P 500 index closed down 19.8 points at 2774 as the index the move to the June highs. The resumption of the uptrend is what we watch as the test on Wednesday was part of the process. Utilities were the only sector to close in positive territory and the volume remained below average. Investors spent the day digesting the thought of $200 billion in new tariffs and jockeying their position in light of the news. Financials remain weak overall but remain above the $26.90 level. The upside moves were positive as we resumed the uptrend and now we test the move. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.

The NASDAQ index closed down 42.5 points to close at 7716. The move back above the 7505 mark and back to the June highs was positive… now we test the move and look to move higher. Technology, software, and biotech helped lead the index higher and they led the test on Wednesday. The long-term uptrend remains in place and the tug-o-war with the sellers is not likely over. The large caps (QQQ) is testing the move back above the $170.93 and back toward the May high. The SOXX moved back below the key $182.38 mark… definitely watching how that unfolds. The key remains patience along with a strategic approach to managing money.

Small Cap index tested the move back above the $166.65 level on Wednesday. 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.

Gold (GLD) dumped lower again on Wednesday as the metal continues to struggle amid the news globally and the strength of the dollar. The downtrend is in play along with the short side trade. Not a pretty move as it relates to the bounce attempt the last week. The gold miners (GDX) produced a dump lower as well but held support at $21.92. Watching how it unfolds relative to the metal. Metals and Mining (XME) produced a modest upside the last three days clearing $36… and tested on Wednesday back to that level. Base metals (DBB) continues to dump lower on tariffs worries confirming the short side trade again.

The dollar (UUP) closed at the $25 mark on the tariff rumbling. 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 kept the move alive. Watching how this unfolds along with global growth. 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 enjoyed the upside momentum following the news of the production increase from OPEC. The dump lower on Wednesday is a reaction to the increased tariffs. Crude oil moved above the May highs at $74.15 and tested lower. Speculation trading at its best again in play. 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 consolidation 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 didn’t help on Wednesday… the bear flag pattern broke to the upside showing some positive signs for the oversold sector and tested the move on Wednesday. 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 113.6 on Wednesday as the anxiety levels move higher on the day. Tariffs are 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 started negative and we took the holiday break and then ended positively. Economic data or fundamental data will always trump speculation… it may only be for the day, but in the end, fundamentals add clarity to the markets. The uncertainty of the tariffs being started is still on the table and next week will hold my interest as to how investors respond. We may have experienced the infamous sell on the rumor and buy on the news fate. 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 two days helped keep the uptrend in play despite weakness in semiconductors and financials. Small caps showed weakness but equally showed leadership to end the week. The leaders are showing money rotating out towards safety with bonds on the rise again. Energy and crude oil continue to get a boost from the OPEC news on increased production. 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… will traders use the implementation of tariffs from China and the US to sell stocks lower? 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.

Watching the response to the PPI hitting 3.2% year over year. Price increases are not what the economy needs at this point and the yield curve flattening even further is a recessionary sign. All of this is news building in the background and implications are not good for stocks. Watching how this unfolds in the come months. 

(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 BIIB posted positive results on a new drug.  Test of $109 was our entry point… Entry $111. Stop $109. Nice follow through Monday and test on Wednesday. 

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 and the upside cleared the $82.38 level as we now watch to see if there is upside momentum and follow through. $183 level to clear with volume to add a position. Moved back below the $182.38 mark on Wednesday testing the move higher. 

Software (IGV) The sector tested to the $178.87 mark of support. Nice bounce on Monday to clear $183.27 resistance. This has been a key leader for the move higher. Bought the position back as upside resumed. Entry $184.60. Stop $178. Follow through on Monday and holding the uptrend move. 

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. Lower rates remain and favor the sector. Watching and letting this run for now. Steady as we go… holding near the highs. 

Treasury Yield 10 Year Bond (TNX) moved back to 2.83% as money rotates to safety. TLT has been a benefactor in the rotation 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. Small bounce to 2.87% impacted bonds and utilities… Moved back to 2.84 on Wednesday on worries… patience 

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 has rallied to a new high and put hope back in the stocks. $77 level to clear near term. Nice move from consolidation… with follow through on Tuesday… 

(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 7/11: No rest for the weary. The upside bounce was met with some selling or a test as the banter over tariffs continues. The bigger worry is the PPI data showing a jump to 3.2% year over year. This is recessionary levels if it persists… that along with tariffs could make it interesting… talk about allowing the speculation hounds out of the pen! We will watch and adjust accordingly.

  • Crude Oil (USO/SCO) big dump lower on Chinese tariffs on US crude oil. This is one worth watching.
  • Semiconductors (SOXX/SOXS) the downside is on the table again as the sector moved lower amid the selling on Wednesday… still not showing much strength overall… downside again?
  • Energy (XLE/ERY) downside response to crude. Watching the sector as the weakness has been in place, but the selling on Wednesday was more aggressive.
  • China (FXI/YANG) downside is back on the banter… watching.
  • Small Caps (IWM/TZA) the second day of selling puts us on watch. The leadership from the sector has been key to the move back to the June highs. watching how this unfolds today.

One day is not a reversal and watching how the trading unfolds today. There is plenty of data to digest and plenty of news to rock the boat. Taking it one day at a time as the tariffs, inflation, recession, earnings, and other news unfolds.

TUESDAY’s Scans 7/10: Some positives on the day, but the worries after-hours of more tariffs from the US weigh on stocks and investors. Watching to see how the day unfolds with the challenges still in play short term. The scans show no real changes as we adjust our stops and manage the short-term risk of our positions and the news.

  • Natural Gas (UNG/DGAZ) the downside accelerates and the short trade plays out with the move above the $24.50 mark as an entry.
  • Semiconductors (SOXX/SOXL) upside playing out on the reversal at support. $152 entry point playing out near term. This is still a key sector for the growth side of the equation to play out.
  • Energy (XLE/ERX) upside playing out well with the follow through to the move higher on Monday. Clearing $39 a positive for the uptrend to resume.
  • Brazil (EWZ/BRZU) upside in play as the bottoming pattern continues to play out. There is some leadership from the country ETF as the emerging markets attempt to reverse the downside trend.
  • Consumer Staple (XLP) making a move upside clearing the $51.86 resistance and continuing the uptrend.

Plenty to watch and absorb as the tennis match continues relative to tariffs… earnings are starting and we will have plenty of data to reveiw in light of the economic picture. Patience and discipline are key in evaluating the outlook.

MONDAY’s Scans 7/9: Nice follow through day for the indexes… can they continue? The news is still on the tariffs while investors are watching the data. I will take the gains on the day, but still watching with a cautious eye how this unfolds. The uptrends resumed and all is well for now. 

  • China (FXI/YINN) bounced… watching for positive follow through on the charts and in investors movement and confidence. $27.50 level to clear.
  • Emerging Markets (EEM/EDC) upside follows through is positive on the chart as the reversal follows through. Looking for the confirmation and the opportunity if the upside resumes.
  • Financials (XLF/FAS) Finally made a move above previous support. Watching how this unfolds relative to the dollar, interest rates, and earnings.
  • NASDAQ 100 (QQQ/TQQQ) upside move is challenging the May highs. Technology leading the move along with other large-cap stocks. Needed leadership.
  • Oil Services (IEZ) positive upside move for the sector as it clears resistance and renews the upside after a test of the 200 DMA… watching.

Plenty of positives short term… willing to add some trades, but they are nothing more than that. With the lack of clarity still in place for the broad markets, the current mode of trading is short-term focused. We have banked some solid gains on the short side trades and some upside trades the last three weeks. Now comes the next transition in the process… will the buyers stay long enough to offer more trading opportunities on the move… patience and discipline are the keys.

FRIDAY’s Scans 7/6: solid follow through to Thursday as investors embrace the jobs report over tariffs. There was positive momentum on the day despite the lower volume trading. Money flow is still sideways and worries are still on the horizon. As always we are happy to take what the market offers and then manage our risk accordingly. A positive end to a mixed week. Look for trading to return to normal next week with everyone back from their holiday vacation.

  • Biotech (IBB/LABU) was the leader for the day as BIIB announced positive results from their new Alzheimer’s drug. Nice pop higher for the sector.
  • Emerging Markets (EEM/EDC) showing signs of life. Looking for the sector to clear the upside resistance in the bottoming pattern.
  • NASDAQ 100 (QQQ/TQQQ) resumed upside move with positive leadership from the large-cap growth stocks. BIIB, DISH, LILA, GILD, FB, and NFLX all posted positive moves on the day.
  • Healthcare (XLV/CURE) equally added to the upside move breaking above resistance at the $49 level.
  • Technology (XLK/TECL) positive move above the $138 resistance.

Overall positive two days for the markets to bounce off support and keep the uptrend in play.

Question marks… tariffs, earnings, volume, and clarity.

Optimism… drug stocks, lower interest rates, earnings, jobs, inflation, and hope.

Taking it one day at a time for now.

THURSDAY’s Scans 7/5: Nice bounce across the broad indexes with most showing positive moves and a recapture of the selling from Tuesday. Volume was better but the uncertainty around the tariffs, and outlook remain. Letting the day unfold and investors the opportunity to digest the impact of both tariffs and jobs report. This remains a traders market as the volatility remains with a lack of clarity going forward.

  • Semiconductors (SOXX/SOXL) bounced off support showing solid volume in buying as the sector builds a bottom pattern. Needs to follow through and clear the $147.30 level.
  • Mexico (EWW) nice continuation of the bottom reversal… initial entry signal was $45.33. And $46.40. Watching and managing the stops as the country ETF rises. Stop $47.65.
  • Technology (XLK/TECL) sporting a head and shoulder pattern. Watching for some resolution.
  • Small Caps (IWM/TNA) nice bounce off support and showing some positive upside on Thursday. Letting it play out near term.
  • Gold Miners (GDX/NUGT) nice follow through on the bounce off support. Needs to hold move above the $25.76 mark.
  • Europe (IEV/EURL) bottoming pattern building… looking for upside follow through.

The bounce on Thursday was a positive now we need to follow through. Otherwise, it was just another move in the current test of support. Consolidation in play… need buyers to emerge if the upside is to follow through… watching the data reports today as well as the tariff implications on the deadline passing and implementation.

(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 below the $58.44 support and broke the uptrend again. Watching how it unfolds with the cloud of worries over tariffs in play. Nice bounce back to the $58.44 level to end the week… Cleared resistance and then sold on tariff worries. 
  • XLU – Utilities had been under pressure from higher interest rates. They got relief as rates moved back below the 2.9% mark. A positive week again with a move above the $52.72 mark and the uptrend accelerates… entry $49.55. stop $52 (adjusted). Watching how it unfolds this week. Selling returns as interest rates move up. Hit our stop and booked a nice gain on Monday. Tested $51.11 and bounced on tariff news.  
  • IYZ – Telecom moved back above the $27.63 resistance and watching the elongated consolidation pattern clearing $28. Entry $27.80. Stop $27.10. Upside following through along with test.
  • 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. Upside remains in play with solid follow through. 
  • XLI – Industrials made a move back to $71.43 and holing at support. Looking for some type of reversal or break lower. Patience as it continues to bottom. Solid follow through and then test on worries. Entry $72.50. 
  • 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. Nice upside move… followed by test on worries about tariffs. 
  • XLV – Bounced off $83.24 support. Some follow through as the sector moved back above the $85.65 resistance and getting momentum from drug stocks. BIIB led the upside on Friday. Entry $83.25. Stop $85.50 (adjusted). Moved above resistance at the $86.74 mark and tested on Wednesday. 
  • XLK – Holding support at the $68.75 mark. Downside pressure came from the semiconductors. Letting this play out near term as we clear $70.25 resistance. A positive move to end the week… looking for follow through and semis to recover. Followed through and hope. 
  • XLF – broke support at $26.90… and in bottoming consolidation pattern. No momentum to speak of with earnings announcement coming soon. Finally bounced higher, but tested on Wednesday. 
  • XLY – Consumer remains a leader, but that is being challenged with the tariff worries pushing the sector to key support levels. Letting this unfold with some clarity and then we will decide how to trade. Followed through.
  • RWR – REITs have been in a clear uptrend since 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. Selling and watching.

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

FINAL NOTES:

The question remains about direction and volume despite the buying to end the week. We booked positive gains on positions and continue to trade what the market gives. The positive news from the jobs report on Friday added to the bounce on Thursday. There is plenty of fundamental data on the horizon with earnings starting soon. The data showed all eleven sectors moving higher for the week. Despite the tariffs starting investors were willing to put money to work. 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 consolidation 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.