OUTLOOK: July 30th
More problems in technology as even earnings from Amazon can’t save the day. Twitter missed earnings fell 21% and like Facebook had investors exiting the social media stocks. A look at SOCL ETF shows the 7 plus percent drop in the sector over the last two days. This leaves me with one big question mark about the near-term direction for the broad markets. Technology plays a big role in the direction and XLK fell 3.4% the last two days after hitting a new high three days ago. As will all things market… we watch, we evaluate, we adjust our stops, and we manage our risk. On the positive side, GDP was up 4.1% in the second quarter, but the news was lost in the crying of missed earnings from two large-cap technology stocks… We now set our sites on Monday.
The S&P 500 index closed down 18.6 points at 2818 as the index struggles to hold the move above the February highs in the face of an earnings dilemma. The resumption of the uptrend is what we are watching as the buyers put money to work on Wednesday and take it away on Thursday and Friday. The volume remains on the weaker side even with the selling on earnings. Financials and consumer staples led the upside as only three of the eleven sectors closed in positive territory. Technology and REITs led on the downside as money flow shifts gears. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.
The NASDAQ index closed down 114.76 points to close at 7737. The move to new highs on Wednesday was erased on Thursday and Friday with the earnings miss from Facebook and Twitter weighing on the index. The move to a new high reversed back to the previous consolidation. Social media (SOCL) setting the tone on the downside. The long-term uptrend remains in place and the tug-o-war with the sellers is not likely over. The key remains patience along with a strategic approach to managing money. Stops in place and watching how the day unfolds.
Small Cap index moved back towards support at $164.43 dropping 1.8% on the day. Still in a consolidation topping pattern as we see how this turns out. We are watching how this unfolds near term. The leadership of this sector has been key to the bounce from the April lows. A turn lower would be a negative for the broad markets overall.
Transports (IYT) the move above $192.40 was positive and held on Friday despite the test. Nice follow through on Thursday to solidify the upside momentum. Some positive moves in the airlines, but trucking struggled moving lower on the day. The volatility is keeping the overall trend sideways to higher with a positive move off support in June. Watching the bottoming formation on the chart for airlines currently. Held the move and offered an entry point. Entry $192.50. Stop $190 (adjusted).
Gold (GLD) moved lower again testing the $115.86 (GLD) support and held… the metal is struggling to find buyers. Some consolidation in play at the lows currently. The close leaves the downtrend in play along with the short side trade. The gold miners (GDX) moved lower as well breaking support at $21.92. Metals and Mining (XME) tested the 200 DMA moved to resistance at the $37.40 mark and moving lower again. Base metals (DBB) dumped lower on tariffs worries, but with the talks in the EU progressing it is worth watching for follow through on a bottom reversal even with the testing the last two days.
The dollar (UUP) closed above the $25 mark as the up and downs continue. China has made moves to devalue the yuan with some quantitative easing adding to the ease in the dollar. There has been some selling showing on the chart with a topping pattern in the buck. Plenty of reasons to believe the dollar has peaked short term… Watching how this unfolds along with global politics. The overall move higher is 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) is consolidating after selling lower the last two weeks… the worries remain around the supply data causing the current angst. The commodity closed at $68.69 on Friday. This is a supply and demand issue simply put. When traders believe supply is short prices rise… when there is too much supply prices drop… supply data the last two weeks has not favored crude prices… simply put. 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 selling unfolds.
Emerging Markets (EEM) The bottoming consolidation in the sector broke higher with a follow through and the upside continues from the June lows. Some sign of hope with the move above resistance at $44.10 as tariff talks bring investors back to the dance. The bantering the last few weeks helped push the sector back to resistance and with some news of hope on the tariff front money flow increased. Watching how this unfolds and where the sector heads short term. Entry $44.50. Stop $43.50.
The Volatility Index (VIX) closed at 13.03 on Friday as the anxiety levels move on earnings miss from Twitter adding to the sentiment shift. Geopolitics helped with talks about tariffs easing in Europe. 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 the NASDAQ set the tone to end the week with earnings misses from Facebook and Twitter leading the index down one percent for the week. The S&P 500 ended the week slightly higher as money is looking for a home with financials and industrials helping steady the direction. Economic data was positive with the GDP showing more than four percent growth in the second quarter. Interest rates moved higher as talks of Europe and the US coming to terms on tariffs. Earnings have been on the positive side with the biggest disappointment being NFLX, FB, and TWTR. We now head into next week with caution about the direction in the NASDAQ and Technology stocks. The selling on Friday shows investors can shift quickly in belief and act equally as quick. Small caps showed weakness but remain near their current highs. 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 leaders struggled to end the week as money rotates towards industrials, basic materials, and financials to end the week. Technology is leading the weakness on the downside. Energy and crude oil tumbled on worries and supply data. Utilities and REITs are watching interest rates as both tested during the week. 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. 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.
(The notes above are posted daily based on the activity of the previous days trading)
KEY INDICATORS/SECTORS &LEADERS TO WATCH:
Biotech (IBB) The break lower from the flag pattern on Friday was negative and hit our stop. Entry $111. Stop $116.50 (Stop Hit). Now we watch how it unfolds and take what it gives. Always willing to buy back if the momentum returns.
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 as we moved back above $182.38 level… testing resistance at the $187 mark now. I like the positive sentiment shift this week back toward the sector.
Software (IGV) The sector tested to the $178.87 mark of support. Bounce to new highs, but joined the selling on Friday. Watching how this unfolds to start the week.
REITs (IYR) The sector made a break from the trading range clearing $76.22. Rates moving below the 3% mark got the credit for the rally. With interest rates suddenly moving back to the 3% mark leaves questions about the move. Manage your stops with your eye on rates. Entry $75. Stop $79.30 (adjusted). 3.8% dividend.
Treasury Yield 10 Year Bond (TNX) moved to 2.96% on the week as the Bank of Japan made statements they are considering to stop buying US Treasury bonds. That sent rates higher and worries through the bond sector. TMV hit entry and watching how the downside unfolds for bonds. Entry $19.40. Stop $19.40.
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. Supply worries are back and this is keeping the stocks in check for now. Letting the next opportunity unfold.
(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 7/27: Earnings from Twitter add to the anxiety in technology stocks. The moves lower triggered stops in positions. The challenge remains a market that is technically overvalued and overbought. Neither of which can predict the reversal or correction in value. Thus, markets can remain irrational longer than we think or believe… therein lies the challenge for many. We take what the charts show and we manage our risk according to our strategy and nothing more. Getting to valuation prognostication is a dangerous game. There are still plenty of positive and to go with the negatives… we will follow the money short-term and the trends long term.
- Biotech (LABD) sold lower on Friday and opened the door to the short side as the chart clears resistance at the $23.41 mark. Worth watching… not willing to step in just yet.
- Brazil (BRZU/EWZ) upside moves on the week and looking positive with the bowl bottoming pattern attempting to break above resistance at the $25.72 mark. This would offer an opportunity to add to positions.
- China (FXI/YINN) the tariffs are still in play… talks continue… speculation continues… the bottoming patterns is on my watch list.
- Energy (XLE/ERX) made an upside move from the bottom of the current trading range… positive… however, the sector remains in the range and watching how it unfolds along with the price of crude oil.
- Small Caps (IWM/TZA) downside move on Friday has the sellers showing their hand near term. We have discussed the topping pattern in the sector and we continue to watch with the move lower on Friday. TZA cleared resistance at $8.90… watching for follow through and opportunity if it unfolds.
Other moves to watch from last week… DUST, KOL, EDC, CURE, UGA, SCJ, EWW, IAK, and FAS.
Moves on Friday worthy of note… GASX, LABD, SQQQ, VXX, UGAZ, SRS, and EWJ.
THURSDAY’s Scans 7/26: Facebook takes center stage with earnings pushing the NASDAQ lower. Money is rotating and looking for a better home. The interesting move of the day came from the SOXX. Nice gain puts the upside back in play and helped the day not be worse. Some rotation in play as money looks for where it will be treated the best.
- Energy (XLE/ERX) nice upside follow through for the sector with modest volume. The trading range remains in place with the move to the top side of the range. Watching how this unfolds. Gasoline (UGA) driving the upside momentum.
- Semiconductors (SOXX/SOXL) nice move to resistance and putting the sector in a position to move higher with follow through. XLNX and QCOM lead the upside move.
- Small Caps (IWM) make positive upside move and looks positive on the day. Watching the sector as the rotation has been a part of the chart near term.
- Insurance (IAK/KIE) upside momentum breaks higher leading the financials currently.
- Utilities (XLU) nice move above the $52.72 resistance and looking for the follow through. Interest rates have moved higher… but, not affecting the sector yet.
Plenty of issues on the horizon as we face more earnings, more tariff talks, more economic data, and more speculation. Takeing it one day at a time.
WEDNESDAY’s Scans 7/25: Stocks rally on news related to tariff negotiations. Facebook lays an egg on the earnings forecast. Which will have more impact on the broad markets moving forward? Good question and one that will get answered in the coming days… Thursday is likely to move lower based on the reaction to FB overnight. The scans show rotation from small caps and semiconductors is still in play. Industrials, healthcare, and financials have benefitted from the moves. Following the money flow for momentum.
- Emerging Markets (EEM/EDC) continues to get a boost from the money rotation on news surrounding the tariff negotiations. China (YINN), Brazil (BRZU), Latin America (LBJ), and Europe (IEV) all moved higher on the news.
- NASDAQ 100 (QQQ/TQQQ) nice move to new highs on the day. Watching FB impact today.
- Healthcare (XLV/CURE) leading the upside move and looks positive on the break higher from consolidation. Biotech (IBB) and drugs (IHE) helping lead the upside.
- China Internet (KWEB) bottoming pattern in place. Looking for a move above the $60.50 level.
- Europe (IEV/EURL) nice bottoming pattern breaking higher on the tariff news. $36.24 next resistance. Worth watching relative to the current momentum.
The talks with the EU over tariffs going to zero were a positive overall for the markets… the key will be the reality of the tariffs going away… that will take time.
Facebook impact will be the immediate issue facing investors today and if the losses after-hours holds the NASDAQ will be down nearly 1% at the open. Patience is required and look for the opportunities in the aftermath.
TUESDAY’s Scans 7/24: The high to low move in the NASDAQ, IWM, QQQ, and MDY were not good signs for the leadership. The SOXX did the same adding to the already weak looking chart. One day does not change everything, but it puts us on notice relative to any rotation and or money exiting the markets. The consensus, for now, is rotation as the drugs, financials, industrials, and basic materials all move to the upside on the day. The stimulus and relief in China showed up in the scans as well. Watching how Wednesday unfolds…
- China (FXI/YINN) big rally as stimulus moves attracts money. The break above $25.60 was positive on the chart and looking for follow through and opportunity in the country ETF.
- Brazil (EWZ/BRZU) upside opportunity continues to unfold. Adjusting our stop on the position to $22.50. The bottoming pattern now faces resistance at the $25.72 mark.
- Emerging Markets (EEM/EDC) upside break from the bottoming pattern offers an entry opportunity with caution. The consolidation or bottoming the last three weeks made a positive move and a follow through will offer a trade. $97.15 entry if we hold the move from Tuesday.
- Semiconductors (SOXX/SOXS) watching the weakness on Tuesday as well as prior… not helping the cause for the NASDAQ as money continues to look for a better opportunity.
- Small Caps (IWM/TZA) watching the weakness on Tuesday as well. The topping pattern in the sector is not a healthy sign and we are looking at the possibility of playing the test lower. $8.88 TZA.
Interesting day for the sectors as well as the overall markets. Rotation from IWM, MDY, SOXX, IGV, QQQ, and others. Momentum rise in IHE, XLB, XLV, XLI and other on the upside. Can this keep the market in an uptrend? Time will tell… we, however, need to address our risk, manage our stops or exit points, and look where money is moving. No need to panic, no need to rush the rotation, however, there is a need to manage the risk.
AKS is a good example of what is happening the beaten down stocks from all the tariff talks.
MONDAY’s Scans 7/23: Some rotation continues with the large caps seeing inflows of money. The Google earnings after-hours will help today. The challenge from the bond sector could have an effect on stocks as that story unfolds. Global markets continue to be in a holding pattern as they key off the US markets for now. No big changes in the scans overall and watching how the week unfolds.
- Treasury Bonds (TLT/TMV) We noted move last week in the chart of the bottoming pattern… this opened the way to the entry at $19.10. Raise stop on the move Monday and let this unfold. $19.70 stop.
- Financials (XLF/FAS) benefitted from the rise in rates. Letting this unfolds as earnings led the reversal off the low in June and hitting resistance at the $70.50 level.
- Gold Miners (GDX/DUST) downside finally gives way as the metal continues to decline. Break of $21.92 was the short signal and now accelerating on the downside.
- Gasoline (UGA) rose for the fourth day… bucking the weakness in crude. A double bottom pattern on the chart.
- Healthcare Providers (IHF) continue to provide leadership for the healthcare sector. The move to new highs after test in June is a positive short term.
Some consolidating, some rotation, and some waiting to see action on the day… there is plenty going on in the markets overall. Watching, trading, and managing our risk accordingly.
(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 back below the $58.44 level and continues to consolidate on worries about tariffs, etc. Watching how it unfolds.
- XLU – Utilities got relief as rates moved back below the 2.9% mark. A flat week as the sector tries to clear the resistance at the $52.72 mark and the uptrend remains in play… entry $49.55. stop $51.80 (adjusted).
- IYZ – Telecom moved back above the $27.63 resistance and is testing the move again. Entry $27.80. Stop $27.50.
- 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 and now dealing with the 200 DMA. Entry $50.50. Stop $50.75. Going with the trend and being patient.
- XLI – Industrials made a move back to $71.43 holding support and a bottom reversal pattern in play and cleared the $74.20 resistance and $75.72 mark on Friday. Entry $72.50. Stop $71.40.
- XLE – Energy stocks have been volatile as they deal with the question of production impacting the price of crude. Too much speculation as stocks remain in the current pattern.
- XLV – Bounced off $83.24 support. Upside follows through as the sector moved back above the $86.74 resistance and gaining momentum from drug stocks. Test on Friday has my attention. Entry $83.25. Stop $86 (adjusted).
- XLK – Earnings missed… stocks drop. Watching how this unfolds in the coming week. Hit our stops on the position.
- XLF – Tested support at $26.90… rallied on earnings and bounce in interest rates this week. Watching resistance at the $28.24 mark. Entry $27.50. Stop $27.50.
- XLY – Consumer remains a leader after testing support and bouncing back near the June highs. Letting this unfold as the sector shows strength overall. Consolidation pattern in play at the highs.
- RWR – REITs have been in a clear uptrend since the February lows. Granted it has come with some volatility and speculation, but the upside is in place. Entry $87. Stop $93.50 (HIT STOP). 3.8% dividend. Testing on moves in interest rates near term.
(The notes above are posted on the weekend and updates are added in red daily as they change or develop.)
Earnings adjust the uptrend to a watch it if reverses direction question. Plenty of bantering and speculation on the news from Facebook… Netflix… Twitter… and others. The earnings season has been positive thus far and we will watch how investors react next week. We will end the month of July which will inject economic data back into the equation. GDP for the second quarter gained 4.1%, but that was lost in the earnings dilemma on Friday. We have to focus on our own strategy and ignore the news. We have booked positive gains on positions and added others as we continue to trade what the market gives. All of the economic data remains on track for growth. There is always something to worry about, but at the end of the day it is about the trend and we continue to see a positive uptrend for stocks despite the selling on Friday. Earnings have been positive overall. The S&P 500 index showed seven of the eleven sectors moving higher for the week. The volume remains on the low side. The results for the week were positive for the index and not so great for the NASDAQ. Financials, industrials, and consumer staples offered leadership efforts on the week. Bonds, utilities, REITs and other defensive sectors held their own and watching interest rates following the bounce. Energy is consolidating along with crude oil as speculation about supply and demand keep the commodity and the stocks in check. We need stocks to hold their own in the face 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 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.