Trade meeting going ‘well’… markets respond positive

Market outlook for October 11th

Some follow through to Wednesday’s bounce as the buyers continue to engage… volume was on the low side and closed well off the highs of the day. The after-hours news was that the trade meetings were going very well with China… read into that what you want, but the futures were positive as well after-hours. Plenty of speculation on what will happen with Friday’s meetings and that will drive how the market plays our heading into the weekend. Take it for what it is and let it unfold.

The S&P 500 index closed up 18.7 points to 2938 as the index follow through on the Wednesday bounce. The markets are dealing with trade and what will take place in the negotiations with China and the US. Nine of the eleven sectors closed higher on the day with energy and financials leading the move. The downside was led by utilities and treasury bonds. Plenty of questions remain relative to how this unfolds near term. The long-term trend remains sideways and steady.

The NASDAQ index closed up 47.1 points at 7950. The index tested lower on Tuesday and bounced back on Wednesday and Thursday. Technology is still trying to provide some leadership for the broad index as semiconductors show some strength. Questions remain relative to growth stocks and large caps despite the bounce at support. QQQ posted a solid bounce as well with the large cap index pushing back to the $189-190 resistance.

Small-Cap Index (IWM) The sector led the charge back to the July highs and then led the downside move to the August lows. Lack of belief in the outlook for economic growth remains a cloud over the sector. Sold the balance of our short side position with nice gain and watching how the bounce unfolds in the coming week. Tested support at the $146.71 mark and watching for now.

Transports (IYT) The sector like small caps moved to the July highs and back to the August lows. The bounce off support is a positive as watch to see how this unfolds. Plane deliveries and tariffs have been a headwind to the sector and we expect more challenges going forward. Short side entry at $185.45. Tested $176 support… watching and adjusted stop to $180. Sold 1/3 of position on morning decline and bounce Thursday. Stop remains on balance. Nice bounce back from the selling on Tuesday and watching how it moves from here.

The dollar (UUP) The dollar holding steady near the current highs as the analyst debate the prospects of further rate cuts from the Fed. 20 DMA is setting the trendline. Moving lower on the positive talks with China… at least the rumor of them being positive.

The Volatility Index (VIX) closed at 17.4 as the bounce settles some of the recent anxieties. There is still plenty of issue in the news and the economic data. Hit stop on the balance of our UVXY trade and closed with a nice gain. Jumped to 20 on Tuesday and back to 18.6 on Wednesday and 17.5 on Thursday… watching for signs of anxiety.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector moved to the July highs and back to the August lows. $190.45 level to clear near term as we watch how this unfolds. Sold hard on Tuesday… modest bounce on Wednesday and Thursday.

Biotech (IBB) Tested support at $96 bounced and I moving back to the $101 resistance level. The downtrend remains in play. We hit our stop on our short side trade and watching how this unfolds. Gave back the bounce from last week on Tuesday… modest move on Wednesday on upside.

Semiconductors (SOXX) The sector bounced, cleared $210.92 resistance and moving back toward the July highs. The last two weeks has tested the move and broke support at $210.92 and bounced. The sector look solid compared to other on the chart. Sold hard on Tuesday… some bounce back the last two days… showing some strength in the sector overall.

Software (IGV) The sector bounced back in the previous trading range and showing some signs of hope from the buyers. Watching how this unfolds near term. Remains in the current trading range.

REITs (IYR) The upside trend remains on the long-term chart with some a trading range near the highs. Patience with our long term positions and short term watching how interest rate market unfolds. Remains in the trading range. Holding near the current highs.

Treasury Yield 10 Year Bond (TNX) The yield closed at 1.51% for the week as the retreat to the downside shows money rotating to safety with bonds posting a nice gain. Raised stop on TLT to $143.70. Bounced to 1.65% on Thursday as bonds see rotation out to stocks on China trade rumors.

Crude oil (USO) Watching support at $52.50 and resistance at $58.25. Tested $52.50 level of support and testing the previous lows. Economic picture weighing on the price of crude along with the supply data. No change the last four days of trading. Small bounce at support on trade rumors.

Gold (GLD) The upside in gold has been driven on speculation of the rate cuts and global weakness overall. The tug-o-war of tariffs, interest rate, and speculation are keeping gold in play and in a current trading range. Holding near the highs and watching. Holding steady for now and testing support. Watch the downside if the trade rumors unfold to be true.

Emerging Markets (EEM) Bounced from the bottoming range established in August hit resistance at $42.25 and tested the support at the $40.25 level. Too much news and worries surrounding the sector. Trading the stair stepping lower pattern. Volatility remains in the sector as we await the China/US tariff talks. Bounced on the rumors Thursday.

China (FXI/YANG) the country ETF is a good benchmark for what is taking place with the current news and tariffs. The move lower found some support at the $39.50 mark. Watching how this unfolds and what opportunities are presented. Bounce on the news of talks going well.

(The notes above are posted every weekend and updated daily Bold Italics)

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

THURSDAY’s Scan for October 10th: nice follow through to the bounce from Wednesday… tough to want to trade the move as it is news driven and the news has yet to be validated. “Trade talks going well.” is not exactly confirmation of something happening. I know I am skeptical, but after all, has any of trade talks amounted to anything other than a reason for both sides to add more obstacles to the economic picture? Watching and listening to what unfolds and is actionable.

  • Emerging Markets (EEM) they moved higher on the rumors… watching as they will gain if it the news is true.
  • Gold (GLD) watching as the metal will move lower if the news is true.
  • Crude Oil (USO) watching as the commodity will move higher is the rumor is true.
  • Treasury Bonds (TLT) watching as they will move lower if the rumor is true on trade.
  • Dollar (UUP) watching as it will move lower if the rumor is true on trade.

WEDNESDAY’s Scans for October 9th: The buyers made a showing, but the challenges remain for stocks… LEADERSHIP. The bounce was a plus and lack of follow through from the sellers shows same lack of conviction as the buyers. Plenty of focus on the selling and weakness, but the buyers are not going away quietly. Tomorrow may answer some questions on trade, economics and hope… patiently waiting for answers.

TUESDAY’s Scans for October 8th: Sellers take back control and raise plenty of questions relative to the markets near term direction and conviction. It would be easy to jump back on the short side bandwagon, but there has to be some sign of conviction and follow through from either side… the buyers…. the sellers… whomever is going to take control flip a coin for now.

  • Watching: QQQ, SOXX, DIA, SPY, IWM, TLT… where is the leadership? Short side or the long side?
  • Weakness in IWM, QQQ, MDY, IYT… all bad sign near term. Looking for strength on either side.

MONDAY’s Scan for October 7th: Nothing happening in the broad markets as the indexes close basically unchanged. We will watch how this unfolds in the coming days as we look for some upside follow through to the bounce at support. That has not materialized on Monday… patience.

FRIDAY’s Scan for October 4th: The broad markets continued the bounce from Thursday as the jobs report offered just enough to keep the buyers optimistic. Watching how next week unfolds and what the storyline will be. Plenty of data reports showing weakness in the economic picture. That said, there is the optimism of rate cuts on the horizon keeping people engaged on the buy side.

  • Major indexes (QQQ, SPY, DIA) all closed lower on the week, but managed to bounce back from the early selling. Watching how they unfold in the coming week.
  • Upside positives showing in NAIL, SOXX, XLU, IYR, TLT, GLD, ICF
  • Downside in IWM, IAI, USO, IEV, HACK, IGE, XLE, KOL, UNG, EEM IBB
  • Economic data showing continued weakness in the economic outlook.
  • Commodities show near term strength in DBA, weakness in metals DBB, positive upside trend in precious metals DBP.

(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.)

Sector Rotation of S&P 500 Index:

  • XLB – Basic Materials broke support at the $55.95 level and reversed to end the week. Watching how it unfolds. Bounced at support.
  • XLU – Utilities moved higher as money continue to rotate to safe havens. Support is at the $62.50 mark. Collecting the dividend and letting it play out.
  • IYZ – Telecom held support at $27.62 bounced and watching how this unfolds.
  • XLP – Consumer Staples remains in the uptrend line. Watching how this unfolds near term. Testing the current highs.
  • XLI – Industrials moved back to support in the trading range and bounced. Bounced at support
  • XLE – Energy broke lower on weaker oil prices and testing the lows. Watching and managing the risk of the short side trades. Bounced at support.
  • XLV – Healthcare held support at the $86.75 level. Watching as it moves back into the trading range. Sold lower on Tuesday, bounced last two days and looking for resolution.
  • XLK – Technology tested lower bounced and holding steady. SOXX showing positive signs on the chart.
  • XLF – Financials have been under pressure with lower interest rates and global weakness. Plenty of volatility with the news. Bounced at support.
  • XLY – Consumer Discretionary tested lower, but remains within the current trading range.
  • IYR – REITs held the $88 support and cleared the 90.80 resistance. Holding near the highs for now.

There are currently seven sectors are in sideways or consolidation trends. Three sectors are in confirmed uptrends. One sector is in a confirmed downtrend. The result is SPY in a confirmed sideways/consolidation trend. We have to remain patient and let this all unfold. Remember the parts make up the whole.

(The notes above are posted Weekly based on the activity of the previous weeks trading. The BOLD/ITALIC comments are current day changes worth noting.)

FINAL NOTES:

Thursday: Upside response to the trade talks going ‘well’. It is still a bounce. There is still no solid data or facts around the trade talks. Buyers were present, but the volume was weak. Speculation is alive and well and until we have something solid to trade on we will take it for what it is… a bounce at support and watching how it unfolds.

Wednesday: Markets bounced back from the selling on Tuesday, but not enough to change the downside momentum. Both sides are somewhat tentative when it comes to volume and topping pattern on the charts show no conviction from either side. Taking what is offered and letting the message unfold.

Markets found enough buyers to hold key support near the 200 DMA. The bounce off the lows was a positive as the buyers showed some resolve. Watching how this unfolds near term with earning on the horizon. The economic data took center stage and it validated the weakness in the current environment. The tariff wars expanded with the WTO giving the US a victory on EU subsidies to Airbus. This set a whole new string of events with tariffs added to more goods. I continue to manage the risk of the current environment. We traded the downside move and posted some solid gains as we hit our stops on the bounce Thursday and Friday. Some trades added with the bounce, but being cautious as I am not a big believer in the upside move. The treasury bonds rallied again as money rotated to safety and yields fell to 1.51%… adjusted our stop and watching how this movement progresses. The risk remains high for upside opportunities as the underlying data remains weak. The market remains controlled by headlines as each day holds movement related to the speculation of what might happen. Trade with China and the US remains at the top of the list. Throw in Brexit and other global issues and you get the picture. There are still too many questions unanswered and that invites speculation and volatility. We remain focused on what is working and what is failing. Therein lies the opportunities. Manage your risk accordingly and let this unfold… one day at a time.

Disciplined entry and exit points allow you to manage your risk in up or downtrends. Investing and trading is a matter of a defined strategy implemented with discipline. It is not magic. It is not being a prophet. It is about following your strategy one day at a time. 

“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.