Turkey, economy, and Fed worries

OUTLOOK: Week of August 13th

Turkey worries were in the headlines all day… then there were the worries about inflation and the Fed hiking interest rates… which led to worries about how the economy would respond… which led to some modest selling and increased volatility. The VIX rose to 14.7 clearing the resistance at the 13.7 mark and putting the index above the 200 DMA. At the end of the day currency collapses of any size impact markets as the ripple effect does leave a mark. We continue to watch how this unfolds along with the Fed and interest rates.

The S&P 500 index closed down 11.3 points at 2821 as the index struggles to hold the bounce off support in June and the current trend. The trend remains on the upside and technically the chart remains in an uptrend from the April lows. The volume remains on the weaker side even with the modest selling the last two days. Utilities and telecom were the leaders on the upside as three of the eleven sectors closed in positive territory. Material and energy led on the downside as they react to the news of the day. The chart is holding the long-term trendlines off the January/February 2016 low. Patience is key.

The NASDAQ index closed down 19.4 points to close at 7819. The move lower hinders the progress of the bounce in June. There is the start of a double top on the chart if the sellers follow through. Technology has struggled of late keeping the index from moving higher.  We will see how this unfolds in the coming week… practice patience along with a strategic approach to managing money. Stops in place and watching how this unfolds.

Small Cap index remains in a consolidation topping pattern and $170 highs are the level to clear. 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. Neutral on the sector currently.

Transports (IYT) moved back below the $200.53 mark some selling the last two days. This is a key level for the index to clear in an effort to regain the previous uptrend. The sector remains in a positive upside move from the June lows. Some positive moves in the shipping and logistics stocks are keeping the upside in play. Entry $192.50. Stop $196.60 (adjusted).

Gold (GLD) broke support at the $115.86 and accelerated lower on Monday. The additional downside confirms the downtrend is still in play (GLL). The gold miners (GDX) moved lower as well accelerating the downside trade (DUST). Metals and Mining (XME) moved back below the 200 DMA after hitting resistance at the $37.40 mark and breaking support at the $35.15 mark. Tariff talk from China reversed the bounce. Base metals (DBB) dumped lower on tariffs worries, but still building a base in a defined trading range.

The dollar (UUP) closed above the $25 mark as the bounce continues with emerging markets struggling. The resistance at the $25.17 gave way and the uptrend was renewed. The bounce above the previous highs is of interest as China continues to take verbal jabs and add tariffs on the US. They have devalued the yuan with some quantitative easing adding to the dollar. The Fed comments on raising rates helped as well, and the CPI data gave momentum to the dollar on Friday. 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) was consolidating after selling on worries about the supply data, but added worries on the tariff news from China pushed crude back to the support of $66.28. The commodity closed at $67.20 on Monday. When traders believe supply is short prices rise… when there is too much supply prices drop… supply data the last three 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 nice follow through, but China started the negative talks in the media and the upside struggled to hold the $44.09 support. Friday the Turkey news sent it lower with more downside on Monday to retest the June lows. Too many worries and uncertainty for me.

The Volatility Index (VIX) closed at 14.7 on Monday as the anxiety levels jump on Turkey, tariff worries, and the Fed with interest rates. This puts VXX in play. 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 was boring and like watching grass grow until Friday introduced the news drama with the CPI moving higher adding to speculation surrounding the Fed hiking rates again. Then Turkey’s currency took a dump along with their stock market as the new leadership ignores the sanctions from the US. Intel was downgraded taking semiconductors lower… it was a day of news and speculation. The end result was the broad indexes failing to break above the previous highs and testing lower. Where do we go from here? Time will tell along with the charts. Our job is not to prognosticate, but to manage the risk of our money based on our strategy and discipline both short and long-term. The NASDAQ set the tone as the index sold lower to 20 DMA. Downgrades to Intel took technology and semiconductors lower in turn taking the index lower. The S&P 500 ended the week lower as well with only energy closing Friday in positive territory. Telecom, consumer discretionary, and technology were the leaders for the week as the index struggles near the current highs. Interest rates moved lower on Friday to 2.85% on the worries of the day with CPI and emerging markets. 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. Energy and crude oil remain challenged by the supply data and we continue to watch as that story unfolds. Utilities and REITs are watching interest rates as both are being challenged near the current highs. 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. 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 sector tested support at $114 and bounce back keeping the uptrend in play. Watched the $116.50 level on a test of the move and added the position again at $116.75. Stop $114. Tested the move to close the week on Friday. Consolidation at the highs for now. 

Semiconductors (SOXX) The sector moved lower breaking the support at the $187 mark Friday. The move is challenging the bounce off support and the renewed uptrend. The downgrade to Intel presents a challenge for the sector and we will watch how this unfolds in the coming week. Entry $182.50. Stop $182.50. 

Software (IGV) The sector tested support, bounced, remains in an uptrend, cleared the $191 mark. The long-term uptrend remains in play along with the near-term volatility. Watching how this unfolds to start the week.  

REITs (IYR) The sector made a break from the trading range clearing $76.22. Interesting divergence with rates on Friday as they dropped and so did the sector. The CPI data trumped the worries for the day in interest rates.  Watching how the week unfolds. Entry $75. Stop $79.30 (adjusted). 3.8% dividend. 

Treasury Yield 10 Year Bond (TNX) moved to 2.87% on the week after moving above 3% on the FOMC meeting. The CPI data was of interest to the bond market… investors pushed money into bonds and we will watch how this unfolds in the coming week… fear driven? Time will tell. 

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:

MONDAY’s Scans 8/13: More worries/drama from Turkey. Throw in the Fed and you have the making of a day that was driven by uncertainty… despite that the indexes held up okay. No major selling. No major changes in trends. Just another day of letting the market find its way. I am willing to be patient here and let it play out… stops in place and watching money flow. Follow the leaders. 

  • Financials (XLF) rising concerns in the sector over Turkey and inflation. Watching as the sector moved back below the 200 DMA on Monday.
  • Gold (GLL) & Gold Miners (DUST) both dive lower on the day confirming the downside trade remains in place.
  • Emerging Markets (EDZ/EEM) downside back on the worries around Turkey and the rising dollar. EWZ, FXI both head lower as well on the news.
  • Drugs (IHE) and healthcare providers (IHF) continue to move higher.
  • Dow (DIA) showing signs of a double top on the chart. $251 is key support level for the index.

Plenty of movement in reaction to the worries and news. Let it all settle and follow the money to the leadership near term. The longer term trends remain in place as the short term volatility rises.

FRIDAY’s Scans 8/10: Drama rules the day with economic data, emerging market worries, tariffs, and news. Taking it for what it is… a reversal at the previous highs on average volume. We discussed the sellers not participating any more than the buyers… but, Friday showed they are lurking in the shadows. The damage was not dramatic on the day… it was attention-getting. We will watch how this unfolds in the coming week and manager our stops accordingly. Use the weekend to do your homework and make the necessary adjustments.

  • Semiconductors (SOXX) downside accelerated on the downgrade to Intel. Watching support and how this unfolds relative to the upside. Stops are in place.
  • Volatility Index (VXX) the move back to 13.1 (VIX) is key… a move above this level will be of interest. $30.25… move above would offer opportunity.
  • Financials (XLF) forfeited the move above resistance at $28.25. Tested the 200 DMA. Watching how this unfolds next week.
  • Russia (RSX/RUSS) Short side trade playing out well. The fear, news, and sanctions are taking a toll on the country ETF. Taking some profits is advisable and let the balance run with stops in place.
  •  Treasury bonds (TLT) bounced higher as rates decline on worries and news. Watching how this unfolds with an eye on money flow… an indication of rotation and fear rising.

Plenty to ponder from the news, economic data, and geopolitics. Friday’s move lower on average (but higher) volume was the first sign from the sellers in more than a week. Taking it for what it is and managing our risk as it unfolds.

THURSDAY’s Scans 8/9: Another day of jockeying for indexes as they remain near the highs, but stalled. NASDAQ, S&P 500, and Mid Caps all remain near the highs. Low volume. Buyers are watching as well as the sellers. All we can do short term is manage our stops, evaluate the risk of the current environment, and be patient. 

  • Semiconductors (SOXX) stall on the day with a modest decline. The near-term trend remains up and we adjust our stops accordingly. 
  • Energy (XLE) continues to struggle as the tariff on crude oil creeps into the stocks on worries about the future sales to China.  
  • China (FXI) the country ETF moved higher on the comments within the communist party about too hard of a stance against the US. Watching how that unfolds.
  • Russia (RSX) Breaks lower on rumors of more US sanctions. The ruble fell 3% and at a two-year low. The country ETF is testing the June lows.
  • Treasury yields tumble back to 2.93% after a short move above 3%. Good for the bond as the PPI data helped ease some worries.

Another day of running in place. Good exercise, but not going anywhere. Stops adjusted based on the current environment short term. Longer term outlook remains in positive uptrend. Stay focused and disciplined as you manage your positions.

WEDNESDAY’s Scans 8/8: It was a grind it out kind of day. Some indexes pushed higher and some drifted lower. No real changes to speak of from the scans. The move by China on tariffs did impact the oil sector as well as the commodity. It was a day to sit back and watch as the talking heads rambled about new highs like the market was taking off. It is still consolidating, still churning, still looking for conviction from the buyers. The sellers have not been present either… thus, the lower volume. I am more than willing to let this all unfold, keep my stops in place, and maybe go fishing. 

  • Crude Oil (USO/SCO) the move lower was prompted by the tariffs from China pushing the commodity down 3%. Watching as the chart tests to support and the news unfolds. 
  • Natural Gas (UNG/UGAZ) rallies in the face of the tariffs. The move above $23.76 resistance is positive with the near-term uptrend in play.
  • Base Metals (DBB) bounced again off the current lows. The consolidation pattern at the lows has my attention along with the news. Letting this unfold.
  • China (FXI) the country ETF bounced on the news of the tariffs. Maybe this will help stem the selling near term. Short side is still in control technically.
  • Healthcare (XLV) moving higher with the continued upside in XPH (drugs), IHF (providers), and IHI (medical devices). Adjust stops and let it run.

Plenty of headlines and little activity in the overall markets. Watching and letting this unfold. Adjust your stops and manage the risk.

TUESDAY’s Scans 8/7: Continue to positive upside moves for the week as the leaders move higher and the laggards lag. Interest rates moved higher impacting the interest sensitive stocks on the day. Financials followed through on the upside along with consumer discretionary and technology. China continues to threaten the US and now Apple gets thrown into the mix. They stated that the tariffs are not the cause of their markets decline… interesting to note… must be their economy! All of the worries remain in the background as the buyers continue to exert activity that has gradually moved the indexes back towards their previous highs. 

  • China (FXI) the country ETF did manage to bounce off the current lows but remains in a bottoming trading range. Too much speculation and bantering for my taste, but worth our attention as the entire picture unfolds.  
  • Natural Gas (UNG) the bottom reversal pattern continues to play out nicely with more upside on Tuesday. $23.76 and $24.50 are the next levels of resistance to clear for the commodity.
  • Gold Miners (GDX/DUST) the downside trade accelerated on Tuesday with the sellers taking advantage of the current lack of interest in the stocks. Strong dollar, higher interest rates, and geopolitics all playing a role in the current outlook for the commodity.
  • Semiconductors (SOXX) cleared resistance and the upside move from the June lows is a positive for the sector as well as the NASDAQ. Nice follow through on Tuesday.
  • Mexico (EWW) the uptrend from the June lows continues to move back towards the April highs. The country ETF continues to benefit from positive trade talks with the White House.

Overall the upside continues to show positive momentum albeit on lower than average volume. We continue to take what the market gives and let this all unfold one day at a time… stops in place.

(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 above the $58.44 level and continues to consolidate on worries about tariffs, etc. Watching how it unfolds with the test back near $58.44 Friday. Continued the downside with a break below the $58.44 mark on Monday. 
  • XLU – Utilities got relief as rates moved back below the 3% mark for the week and cleared the resistance at $52.72 and looking good currently. Uptrend remains in play… entry $49.55. stop $51.80 (adjusted). 
  • IYZ – Telecom moved $28.62 resistance with some momentum in the sector. Entry $27.80. Stop $28 (adjusted). Nice bounce higher to keep upside trend in place. Moved to resistance of the March highs.
  • XLP – Consumer Staples has been in a gradual uptrend from the May lows. The ability to gain some momentum is shown on the chart. Entry $50.50. Stop $53. Going with the trend and being patient. Testing the last three days with a move to the 200 DMA.
  • XLI – Industrials made a move back to $71.43 holding support and a bottom reversal pattern cleared the $74.20 resistance and $75.72 mark before testing lower on Friday. Entry $72.50. Stop $74.50 (adjusted). Testing the move above $75.72.
  • XLE – Energy stocks have been volatile as they deal with the question of production impacting the price of crude. Too much speculation as the sector remains in the current pattern. Patiently awaiting a break in the direction as it remains in a trading range. 
  • XLV – Bounced off $83.24 support. Moved back above the $86.74 resistance. Stalled at the $90.50 level and watching how this starts the week. Solid week for the sector as we let trend run and manage our risk. Entry $83.25. Stop $88.50 (adjusted).  
  • XLK – Earnings missed… stocks drop. Earnings beat… stocks rise. Downgrades announced stocks drop? Bounced off support and attempting to regain the upside momentum short term. $72.50 cleared and moved back towards the previous highs. Entry $72. Stop $70.50. Tested lower on Intel news Friday.  
  • XLF – Tested support at $26.90… rallied on earnings and bounce in interest rates. Watching resistance at the $28.24 mark. Insurance is leading the sector higher. Entry $27.50. Stop $27.50. Not pretty on Friday with the move in interest rates and geopolitics hurting the sector. Added to the downside on Monday. 
  • XLY – Consumer remains a leader after testing support and bouncing back near the June highs. Letting this unfold as the sector remains in a trading range currently. 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. Double top forming on the chart and watching how that unfolds. Entry $93.40. Stop $91.50. 3.8% dividend. 

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

FINAL NOTES:

New, tariffs, Fed, and economic data impact investors on Friday. With the earnings season coming to an end investors turn their attention to the headlines and reintroduce volatility after sluggish week. 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, but the CPI data on Friday didn’t sit well with investors. 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. The S&P 500 index only produced four of the eleven sectors moving higher for the week. The volume remains on the low side. The NASDAQ managed to find some sellers as the downgraded to Intel took a toll on semiconductors. Telecom, consumer discretionary, and technology offered leadership efforts on the week. Bonds rallied on Friday with rates dropping to 2.8%. Utilities move through resistance to keep the upside trend moving. 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 to start the week. 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.