OUTLOOK: March 9th
Trump speech on tariffs was less dramatic with some explanations offered investors bought stocks and we closed slightly higher on the day keeping the hope alive. The volume was again below average and the leaders shifted to include the S&P 500, Dow, and NASDAQ. The small caps digested their four day run higher along with semiconductors. The NASDAQ closed higher on the day making an attempt at the Feb 27th high and setting the chart up for a potential break higher? Watching that today as it unfolds. Without looking at the volume and breadth of the move of the last week, the market is acting like it wants to resume the previous uptrend. If that is the case we will definitely take what the market gives, but the selling bias remains technically. Fundamentally the data has been good and today we will hear the jobs number for February. Patience remains my motto as this unfolds and 2700 or 2750 is the bounce range we look to clear on the upside (closed at 2738). Watching how it transpires today. A test of the February 9th lows remains my view, but the sellers will have to take some action for that to happen. From the longer term chart, you see more of a topping pattern for 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 up 12.1 points at 2738 and spent most of the day drifting lower and then rallied the last hour on Trump comments relative to the tariffs. The chart remains in line with the long-term trendlines off the January/February 2016 low. The bounce off the Feb 9th low is being challenged with the ABCD pattern in play. Need to clear 2779 upside to break the pattern or 2660 downside. Letting this unfold as we continue with a negative bias. We added SPXS at $26.90. Stop $27 (adjusted). Target $32.
The NASDAQ index continued higher as well off the test of 7103 level of support and bumped higher on Thursday testing the upside resistance. The chart has the same setup but has more leadership with technology holding up well in the current selling. 7422 is the level on the upside we have to clear (closed at 7427 Thursday and looking for the confirm today.) or 7116 on the downside. The move below support 7206 put the short side trade in motion for me with SQQQ at $16.70 entry, $20 target, stop $16.25 (Hit Stop Thursday).
Small Cap index has been weaker on the bounce off Feb 9 low, but the last three 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… passed on the move as we exited our short position. Tested the move Thursday and held… could offer entry point today on the move higher.
Gold (GLD) moved back to $124.50 mark of support and bounced again on the tariff news. Sold on Wednesday and Thursday as markets settled in from the emotional reaction. 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 Tuesday and failed to hold the move on Wednesday as the bottoming pattern remains. Base metals (DBB) are showing some topping on the charts closing below $19.35 and attempting to hold the next level of support at $18.68. Closed below it on Wednesday as the negative bias remains in the commodities short term.
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 2.86% 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). Watch TLT as the ‘fear’ of stocks could create a rally in bonds. The VIX is showing some settling in anxiety levels and could allow bonds to resume the downside move as yields rise.
Crude oil (USO) moved back above the $61.60 mark and retreated on Wednesday and Thursday showing the same ABCD pattern as stocks. The dollar relationship remains in play along as seen with the move on Thursday.
Emerging Markets (EEM) dump lower breaking $47.90 support only to bounce and sell at resistance ($49.90) again on a stronger dollar. Last week we retest of the $47.90 mark that held. Short side entry offered with the move below $48.60. Bounce in play again as we watch how the tariff news impacts the sector near term.
The Volatility Index (VIX) closed at 16.5 Thursday… chart shows the uncertainty from investors currently in the market outlook. Watching how it unfolds with all the talk of tariffs and trade wars or not.
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 direction and momentum. The downside move gained momentum last week with threats of tariffs and trade wars globally. The selling volume for the week rose as the indexes setup a downside pattern. The economic data continues to garner attention as the Fed confirms growth and interest rate hikes. The Fed Chair comments to Congress reinforced this outlook and the impact on interest rates. 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.
It is all about the news and speculation surrounding the tariffs on steel and aluminum. OR is that just the news headline to drive the markets lower… thus far the selling has not materialized, but there is still plenty of news around the rumors. Trump helped calm the issues on Thursday with some concessions. Watching how the day unfolds as it relates to the current consolidation pattern in play.
(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 and cleared $107 and holding in a trading range of $107-112. Positive follow through and move through the top of the current trading range. Positive follow through on the upside.
Semiconductors (SOXX) bounced off the low at the $166 level and established a new high… then tested lower, but the sector is holding okay. Watching the $181.60 level of support and the 10 DMA. Moved back to the previous highs and new highs… leading the markets upside attempt.
Software (IGV) hit new highs last week and despite the retreat midweek it is holding above the $171.11 breakout high. Watching how this sector holds up near term. Moved to a new high again showing positive leadership.
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. Gave up gains… watching downside. Bottoming pattern remains in play. Moved to the breakout point or resistance… double bottom in play.
Treasury Yield 10 Year Bond (TNX) moved to 2.83% 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 interest 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 with a break and bounce to end the week as crude leads the activity. Entry at $68.85 is of interest if the upside validates the move. Short set up with ERY entry at $11 if downside follows through. Bounced off the low and tested again at the bottom of the range.
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 is level to clear. Patience as this unfolds. Cleared the $22.69 mark of resistance to confirm the upside reversal. UGAZ confirmed entry at $59.75, stop $58.50. Follow through tested on Thursday to the break above $22.69. Cautious and stops in place.
The S&P 500 index closed the week down 2% for the week. The middle of the week was negative testing the upside bounce off the 2/9 low. Monday and Friday were positive, but not enough to overcome the selling. Watching the ABCD pattern unfolds. We continue to look for leadership. Semiconductors and software are positive, but they are outweighed by the downside of materials and industrials. Patience is the key for now with risk management at the forefront. Positive week as the pattern unfolds. Leadership from technology has been leading with teh small caps joining the push higher. Watching how the “news” unfolds relative to tariffs and resignations. Indecision is a decision that leads to speculation. Patience.
Daily Scan Results:
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.
MONDAY’s Scans 3/5: A positive follow through to the bounce on Friday. Looking for the follow through if the near term activity is to resume the uptrend. Average volume on the bounce and technology leads the upside move. We will deal with any short trades if the upside continues, but my bias in the pattern remains on the downside. I know it sounds stupid… but you have to trade what you believe and not your emotions.
- Biotech (IBB/LABU) bounce follows through and back to resistance. $98.60 is the level to clear for the upside trade in LABU. Watching volume and bias as this unfolds.
- Financials (XLF/FAS) nice follow through to the bounce on Friday. There is still work to be done to resume the uptrend.
- Crude Oil (USO/UCO) followed through on the bounce Friday. Watching as the dollar struggle resumes. Needs to clear the $26.71 level upside. Still in the pattern consolidating.
- NASDAQ 100 (QQQ/TQQQ) upside bounce followed through and watching how it unfolds. Technology leading the sector currently.
- Semiconductors (SOXX/SOXL) upside follows through as the sector heads back towards the previous highs. Watching the volume on the moves upside.
Leadership reamains in technology (XLK), semiconductors (SOXX), and software (IGV). Some solid upside moves in biotech (IBB) and financials (XLF) on the day.
Patterns remain in the ABCD move as a majority. The consolidation is building across the board and watching for the next catalyst… up or down.
Other Charts of interest… CURE, FDN, FCG, SKYY, WEAT, XBI, IGN, DBA
Plenty to ponder on the move Monday… volume, news driven, emotions still in play (VIX)… hope of the upside return is the driver. For me, the technical data still points to a retest of the Feb 9 low. Letting this unfold and taking it one day at a time. Short side trades set up slowly as bull markets die a slow death.
FRIDAY’s Scans 3/2: Positive day with a relief bounce in the broad indexes. Tested lower to start the day and then the buyers stepped in and the index closed near the highs of the day. Prototypical day to continue the ABCD pattern setup lower. Hit some stops on short side trades, but we will look how they unfold and add them back if they warrant the trade. The long-term outlook remains a testing of the uptrend.
- Semiconductors (SOXX/SOXL) trading range… $181.60 twice attempted to break higher… both failed. Still leading… still questionable letting it unfold as one of the last leaders to hold support and hold for the broader index.
- Software (IGV) uptrend remains in play and the new high on Monday last week was tested… reestablished upside interest on Friday and watching how it unfolds this week… another leader holding on during negative times.
- Biotech (IBB), semiconductors (SOXX), small caps (IWM), technology (XLK), Cybersecurity (HACK), and pharma (XPH) showed some leadership with a solid bounce on Friday off support. All worth watching as we start the new week of trading.
- Energy (XLE/ERY) testing the $67 level of support as the sector remains under pressure from sellers. The bounce in oil helped the cause on Friday, but the weakness in the stocks remains… short side set up in place with a break below support.
- EAFE index (EFA) not a pretty chart, but it is a classic downside move with a failed bounce and retest of the lows. Break of the 200 DMA and we will see more downside in the index. EFZ is the short side ETF to trade.
Watching for Leadership: SOXX, XLK, HACK, QQQ, TMV, KWEB, SOCL, FDN, and KRE
Pattern Setups: ERY, NAIL, UGL, IEO, DUST, UNG, GLD, XME, and EFA
Charts of Interest: LABU, SOXL, TNA, TMV, ERY, SCO, EWO, and IYR
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 moved below $60 on Wednesday… tested support at $58.44 to end the week.
- 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.
- 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. 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. Top of the bottoming range and watching. Cleared $28.62 and looking for follow through.
- 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. Testing the lows again. Bounce off support and testing again.
- XLI – Industrials moved to support at $71.43 and bounced… Bottom reversal and followed through upside. Break of support at $75.72 on Thursday. The reversal is in play.
- 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. Holding at support without direction currently.
- XLV – Healthcare tested the 200 DMA and held… its all been up and down since. Managed to move back above the $83.24 level on Friday… watching patiently for this to unfold. Biotech, healthcare providers, medical devices are positive… drugs are lagging.
- XLK – Technology tested $62 support, bounced, and watching made positive progress with a ‘V’ bottom back to previous highs and testing again. $64.80 entry. Sold at $67.50 Friday. Bounce off the test and locked in gains. Leading upside attempt.
- XLF – Financials remain in a long-term tested $27 support, bounced, and watching how it unfolds this week. Cleared resistance and offered trade upside $28.25. Stop $28 (adjusted). Tested again on Friday and watching how this unfolds near term. Positive off support.
- XLY – Consumer Discretionary sold with the rest of the market… found support at $99.42. Positive bounce and follow-through with entry at $102.50. Stop $104 (adjusted). Hit Stop Friday… watching how the saga unfolds with downside bias in place.
- RWR – REITs reacting to the current uncertainty around the hike in interest rates. Bounced off the $82 support and watching. Tested lower again with a bottom pattern in play. $85.65 level to clear from bottoming pattern.
Fed Chair stated the facts as we know them and the reaction from traders was negative… it was a justification to sell the bounce off the February 9th low. The bigger question is answered, a retest of the lows and maybe more in motion. We hit stops locking in some gains and trading the downside opportunity as it unfolds. Emotions are in full swing as the ABCD pattern plays out.
Bounce on Friday sets up the ABCD pattern. The high volume selling mid-week offers short side positives and the reaction to the bounce to start the week will be of importance. There are still plenty of questions on the horizon about too many things to outline. 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 correction bounce that has stalled and is looking for a rationale to move higher. The retracement is at a key level… I am looking for a retest of the lows. Our long positions we will look to take profit… if the test lower shows volume and conviction we establish our short side trades with a near-term horizon (0-90 days). Long-term views remain in an uptrend and our stops have been given more room with the recent move off the 2/9 lows. I can only focus on what is happening, how it impacts my beliefs and current positions, nothing more. The key is to filter out the noise and focus on the strategy being deployed with my money.
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.