Ugly day to end the week

So much for the buyers’ attempt on Thursday as the selling resumed on Friday to close the week in negative territory. Mega-caps MSFT, AMZN, and FB led the downside despite positive earnings announced Thursday after-hours. News that the US set a record for new cases of the virus added to the day’s anxieties. In all the negative there were some positives internally as the data shows hope of a bounce at the key support levels. Looking at the intraday chart you can see two attempts of the market to bounce at support. This will be a key point to watch on Monday and throughout next week. The attempt came from the Fed announcing easing its Mainstream Lending Programs. Maybe some end of the month juggling as we look towards the end of the year Santa rallies? We can assign reasons endlessly, but the point being, we need to be aware of the support, the season, the Fed, and the data. The most important being the Fed… never fight the Fed.

Short news notes of interest…

  • Personal Income increased 0.9% in September and personal spending rose 1.4%. That is a positive for the retail sector as the consumer is spending and income is rising. Despite the data XLY fell 2.1% for the day… this is September data.
  • University of Michigan Consumer Sentiment settled at 81.8 for October after reporting 80.4 in September. Some tied the rise to the election as expectations index among democrats rose 50% while republicans rose just 7%… interesting that now the consumer sentiment is measured by political party affiliation…
  • The S&P 500 index declined 5.8% for the week as the sellers pushed the index to the September lows. The takeaway from this is the rotation to cash more than safety assets. Investors are pushing money away from harm’s way… worthy of our attention moving forward.
  • Coronavirus reports two days of the highest numbers in the US. Europe pushing towards lockdown again. Chicago announced new closing, California is slowing the reopening process… and on the headlines read. This is a big, big, big issue looking forward. The economy can’t deal with the March/April closing now we are looking at more… this could get ugly fast. Approach the markets with caution plain and simple.
  • Crude oil prices fell 10.5% for the week on worries about the shutdowns. Watching how low crude can go on speculation without validation. There will be an opportunity in the bounce once we establish a bottom. The commodity is more subject to opinion short term than facts.

The S&P 500 index closed down 40.1 points to 3269. It was down 1.2% on the day. The index erased the gains from Thursday and ended the week down 5.8%. The close remained below 3330 as the level to clear but held the 3232 level of support at the September lows. The action was mixed by sector but the large-cap technology stocks took the index lower. The leaders on the day were energy and telecom. The downside was led by consumer discretionary. Three of the eleven sectors closed in positive territory as investors continue to juggle positions. The upside has given way to safety concerns for the near term and money flow is still cautious. The VIX index closed at 38 with some calming from the spike in investor anxiety. Negative indication short term still in play as we watch how this unfolds.

The NASDAQ index closed down 247 points at 10,911. The index was down 2.45% on the day as investors sold technology stocks on the day. The renewed test to the downside remains an issue as we play pin the reason on the donkey. Mega-caps were back to their selling ways leaving the downside in control for now. The NASDAQ 100 index (QQQ) was down 2.54% for the day. Large caps remained below the $282 level and eyeing $261.45 as the next support to hold. Semiconductors (SOXX) closed down 1.33% for the day holding support and some hope for now. Technology (XLK) was down 2.21% with plenty of work to be done. Watching how this unfolds as the market shifts gears again.

Small-Cap Index (IWM) The sector sold down 6.1% for the week erased the bounce and is attempting to hold the $151 level of support. We hit our stops on the position and now watching how this unfolds.

Transports (IYT) The sector topped at $212 and reversed lower on virus worries worldwide. Down 6.4% for the week and testing $194.47 support. Long term positions approaching stops at the $191 level.

The Dollar (UUP) The dollar broke higher this week from the lows as economic uncertainty builds globally on shutdowns in response to the rise in cases of the virus. Watching and letting this unfold.

The Volatility Index (VIX) Volatility spiked to start the week as the index surged to 32.4 and rose to a high of 40.2 and closing the week at 38. We did trade the move and now watching to see how high the anxiety will rise or do we return to “normal”?

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector sold down 5.7% after last week’s attempt to break higher. Not a good sign near term. $187 support for now… September lows are still a possibility.

Retail (XRT) The retail sold 8.4% as money rotated out of the sector on fear of what lies ahead. $48.15 support at the September lows. We hit our stops on positions and watching how this unfolds.

Biotech (IBB) The sector gapped lower as the news around the vaccines and antibody drugs has been a drag on the sector near term. Patience with the September lows the key support.

Semiconductors (SOXX) The sector remains in an uptrend but the chart is showing some topping again. Watching the $303 level of support. Hit our stops on short term trades and watching our long term holdings.

Software (IGV) The sector sold off 6.9% for the week and broke support. We hit our stops on short term trading positions and watching how the long term uptrend unfolds going forward.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.86% up from 0.84% last week. That didn’t happen without a test of the 0.75% level first. Short side trade in bonds remains TBT entry $16.34. Stop $15.75. Watching the trendline for some decision points.

Crude oil (USO) Crude moved to $35.70 down from $39.88 for the week or down 10.8%. Plenty of speculation to drive prices and watching how this unfolds. Short positions doing well… but, looking for a bounce as this is oversold.

Gold (GLD) The metal broke lower from the descending triangle pattern to continue the negative decline from the spike higher in July. Support at $174 held. Watching how this unfolds near term. Stronger dollar keeping metal in check for now.

Emerging Markets (EEM) The sector has turned volatile of late with the stronger dollar and Europe reacting to the virus spread. Entry $44.50. Stop $43.50. China (FXI) is hitting against resistance as well near the highs.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

FRIDAY’s Scans for October 30th: The month ends with some selling and it was not a pretty month overall. The attempted rally from the 9/25 low was erased and closed down 2.5% for the month. Double top pattern on the chart and plenty of questions looking forward. The interesting part is there the hope of a Fed rescue along with a stimulus package after the election to push the market higher towards the end of the year. Talk about believing in Santa. We will take the path of risk management and letting the markets unfold. We have hit plenty of stops, hold plenty of cash, and looking for the next opportunity. There will be plenty of news, data, bantering, and crying next week with the elections on Tuesday. Watch and know what the risk is in front of you.

  • Volatility Index (VXX/UVXY) upside is in place as investor anxiety grows. Looking for another opportunity to trade the emotions again this week.
  • Crude Oil (USO) the downside remains as the commodity drops more than ten percent this week. Watching for a bounce and managing the risk of our short position in crude.
  • Sectors are at key support levels with the September lows in play on the S&P 500 index. This will offer opportunities either way we move. SPY is the upside trade should there be a bounce or reversal and SPXS should the downside continue.
  • Internet (WEBS) short side entry hit and managing the risk as the technology sector is under pressure from the sellers.
  • Technology (XLK/TECS) approaching key level of support and opportunity on the downside should a bounce not materialize near term. Plenty of issues here for the near term.

THURSDAY’s Scans for October 29th: The markets put in a bounce on the day as you would expect from the bold selling on Wednesday… but, not convinced it is ready to reverse the downside momentum just yet. The negative sentiment still needs a reason to reverse. Earnings after-hours were positive, economic data remains on a positive trend with GDP and jobless claims improving, but there is the challenge of the shutdowns in Europe and talks in the US with Texas and New Jersey cities making closures again. Therein lies the biggest issue currently… until this changes markets will remain on edge. It creates major uncertainty for the outlook and the economic impact. Thus, I remain patient and willing to reduce risk and let this unfold.

  • Semiconductors (SOXX) bounced 2.5%… A short entry signal on Wednesday at $311.50 was hit, but we gapped lower at the open and we didn’t enter the trade. We hit that level on Thursday offering an opportunity to trade the downside again as it failed to hold that level and entry at $311.
  • Crude Oil (USO/SCO) the short side entry $16.76 as accelerated, adjust stops ($19.50), and watching as the downside is getting extended based on data. Hit the target and managing the profits.
  • NASDAQ 100 (QQQ/SQQQ) downside in place and the bounce offers a short side trade opportunity. $276.90 entry-level. Watching how it ends the week and if it is going to follow through again on the downside.
  • China (FXI/YINN) double bottom pattern on the chart and Watching the opportunity if it presents itself on the upside. Clearing the August high is the entry point for the opportunity. CQQQ is rising as well.
  • Volatility Index (VXX/UVXY) Sold our position throughout the day as the buyers stepped into stock the anxiety levels were moving lower. Sold half early at the target and the balance when it broke intraday support. Watching as I don’t believe the anxiety is done.

WEDNESDAY’s Scans for October 28th: Selling accelerated as fear levels rose from investors. The virus rises in the number of cases, lockdowns in France, lockdown fears spread to the US cases rise, and investors take a risk-off approach to their money for now. Don’t be surprises if the markets bounce on Thursday… but, will it be enough to shift the tide? We have hit stops raised cash level and watching for what is next. Don’t be in a hurry and don’t chase the downside. Focus on what you know, what you believe, invest accordingly, and manage the risk.

  • Energy (XLE) downside resumed and watching how low this will go. The bounce failed to produce any follow through and the outlook is still not pretty for any changes in consumption.
  • Volatility Index (VIX/VXX/UVXY) opportunity on the upside followed through. Raised stop and looking to take 1/2 off on Thursday. The rise in anxiety is expected, now the question is what will calm investors worry?
  • NASDAQ 100 (QQQ/SQQQ) Short side entry hit. Watching what and how this unfolds. There is fear in the market… the question being, how much?
  • REITs (IYR/SRS) downside trade is doing well. We need to manage our risk here as the target is approached at $16.20. Adjusted the stop and watching how this unfolds near term.
  • China Internet (KWEB) moved to resistance and testing. Looking for the break higher and follow through. Thursday added to the upside.

TUESDAY’s Scans for October 27th: Markets are still in a mode of uncertainty as to the challenges relative to the economy rise. No stimulus is the assigned cause for the rise in concern, but the reality is the virus shutdowns and reluctance to reopen or push the economic recovery are hindering progress. On the other side, public safety is the primary concern. Like all things… there has to be a balance. Where that balance is currently is drawn along political lines. Unfortunately, that isn’t helping matters nor is it providing reasonable solutions to advance all things good. With that in mind, we continue to take this one day at a time with a focus on the horizon.

  • Charts – since the top on 10/12 have been lagging and declining. The markets have retraced 38% of the gains from the 9/23 lows. This is a solid test of the gains and watching for some sign of the buyers resurfacing. Watching for leadership to return along with direction from investors.
  • REITs (IYR/SRS) short side trade continues to show momentum short term.
  • Social Media (SOCL) solid upside in play from the 9/23 lows… adjusted our stops as the upside looks extended.
  • Agriculture (DBA) commodities are still leading on the upside. Adjusted our stops again as the trend remains in place.
  • Financials (XLF/SKF) showing some downside this week… watching how the sector unfolds near term.

MONDAY’s Scans for October 26th: Spike in volatility shows the unrest from markets as the data points push the fear button. The continued shutdowns and response to the rise in cases is impacting the near term outlook for the economic data. The charts have reflected the uncertainty in the last few weeks, but the sellers on Monday accelerated the reaction. How does this unfold near term? Is there are correction on the horizon? What about the stimulus? What about opportunities? What about clarity? What about??? Too many questions are the result of uncertainty looking forward and therein lies the challenge for the markets near term. Some stops hit, more cash raised, more opportunities on the horizon.

  • Energy (XLE) crude dropped more than 3% on the day and the sector fell 3.6% in response… all speculation, but it didn’t help the reversal attempt. Short side setting up again.
  • S&P 500 Index (SPY) breaks a key support level at 3427. Closed below the 50 DMA. 3330 is the next level of support. Negative day and set up for more downside technically.
  • NASDAQ 100 Index (QQQ) broke $282 support. Closed below the 50 DMA. Volume rose on the selling pressure in the small and large-cap stocks. Negative technical look for the index and watching how it unfolds.
  • REITs (IYR/SRS) selling continued in the sector and set up a short side trade in SRS. Watching how this unfolds near term.
  • Treasury Bonds (TLT) reversal in rates on the day… money flowed into bonds as safety to selling. Watching how this unfolds near term.

(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 establishing a trading range with support at $61.09. Watching how this unfolds for now.
  • XLU – Utilities bounced above the $61.75 resistance and headed higher. Entry $58.50. Stop $61.25. Testing near the highs. Patience
  • IYZ – Telecom broke the $27.60 support $26.25 support in play again. Breaks lower short side opportunity.
  • XLP – Consumer Staples moved to the September lows and down 4% for the week. A break below $62 a big negative for the sector near term.
  • XLI – Industrials moved sideways and testing the support level again at $74.80. Down 6.4% for the week.
  • XLE – Energy gapped lower as a continuation of the trend set from the June highs. Managing the risk. The bottom reversal attempt is of interest and watching to see if it finds momentum.
  • XLV – Healthcare tested the $101 support level and is ugly following a week of selling losing 5.7% on the week.
  • XLK – Technology hit stops and watching as the short term view gets volatile. $109.30 support in play… breaks look at the short side opportunities.
  • XLF – Financials are challenged by the outlook for defaults and commercial real estate. $23.50 support in play and watching for opportunities in the sector.
  • XLY – Consumer Discretionary is coming under pressure as the outlook is getting cloudy not just from a lack of stimulus, but the lockdowns in Europe and some US cities. September lows are key support.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Tested support at $76.22 again and watching.

The trends are shifting again based on investor activity. We have hit stops and as you can see above many of the sectors are approaching or at key support levels. Proceed with caution. Using the six-month charts as an indicator for the short term view… Four sectors are in confirmed uptrends as the testing phase continues. Six are in consolidation patterns showing indecision from investors, and one is in a downtrend. The result for SPY is in a move to a sideways trend short term with a downside bias currently. The leadership is rotating as money flow shifts directions.

(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:

Weekend Wrap & Outlook… The markets decided to sell lower on the week and retest the September lows. This was the fear at the October highs as they failed to establish a new high. This puts a double top pattern on the chart technically and shifts the bias to the downside near term. The long term trends remain, but the near term pressure is causing anxiety for investors. There as been some reality relative to data for the week and there has been plenty of speculation about the shutdowns due to the virus impacting the global outlook. How all of this plays out will be of keen interest to investors and traders alike. The currentl belief is shifting to the downside and the outlook is changing without stimulus. The election is next Tuesday and will bring its own set of speculation and changes. All said, we have hit plenty of stops of late and we are holding a large percentage of cash. Yes, I am defensive. My belief is we will test lower before going higher baring any interference from the Fed or a stimulus package near term. The virus will trump both if it continues to spread at the current rates with cities and municipalities shutting down businesses. Technology stocks were challenged as money flow slowed and some rotation took place. Semiconductors and software showed weakness in the week not helping the broad markets. The economic data is showing some slowing in the recovery but still overall positive. The retail sector is being hit by the lockdowns and fear of more. The uncertainty going forward is showing up in the volatility index. The VIX index moved to 40.2 as the anxiety levels remain elevated for the week. The dollar bounced as global shutdowns rise. The downside of 5.8% for the week in the S&P 500 index was a solid sign of money rotating to safety or cash. None of the eleven sectors posted gains for the week as worries about the economic picture and shutdowns grow. The market is looking for leadership currently and none rose to the top this week. The dollar and cash were the winners. Crude oil moved down 10.8% and closed at $35.70. Watching the current movement in the broad markets as money continues to rotate and cash levels remain elevated. The goal remains to manage money not the markets or the pundits in the media. Let the future unfold and manage the risk that is. Track the data. Know where the markets stand relative to the facts. Money rotates to where it will be treated the best. Watch the trend, know which side the Fed is on daily, and ultimately the data will establish the longer-term trend. We remain focused on what is working and what is failing. Therein lies the opportunities.

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.