Virus cases rise, stocks fall

Stocks, bond yields fall as the virus gains. The number of cases is rising still and with it worries about the US economic outlook. The week started out with a gap higher and has been inching lower since. The S&P 500 index closed in negative territory for the week while the NASDAQ closed slightly positive. Plenty of question marks to consider over the weekend as investors begin to ponder their next moves. This is typically a positive period for stocks as next week starts the holiday season. With Thanksgiving getting more attention for how many guests should eat at your home than the celebration of giving thanks and Black Friday shopping. The shopping is likely to be online this year and dining with family and friends through zoom. It is a time to reflect for sure and to measure the current risk/reward of the markets looking forward.

Short news notes of interest…

  • Pfizer files Covid-19 application for emergency use authorization. This is the start of dealing with the virus through a vaccine. More are expected to file in the coming weeks. Watching how this impacts the psyche of the markets as well as the country overall.
  • Existing home sales rose 4.3% in October and was the fifth consecutive month of positive sales gains. Shrinking inventory will work to feed new home sales. ITB is on our watch list currently.
  • Leading economic index increased by 0.7% in October as expected following an increase of 0.7% in September. The report continues to show strength and has become broader in its positive readings.
  • The Philly Fed Index decreased to 26.3 in November from 32.3 in October. This follows the decline in the Empire State reading last week. Northeast is struggling to maintain a growth outlook. Watching how this unfolds looking forward.
  • The Treasury Department is ending part of the CARES act relative to the Federal Reserve. The move has sparked comments and disagreement between the two entities. I stated this would get interesting in Thursday’s notes… it did on Friday as talk about aid for the economy and market backstops was a hot topic. Watching how this unfolds into the new year.

The S&P 500 index closed 24.3 points to 3557. It was down 0.68% on the day. The index held 3550 support on the day as the index closed lower on the week. Plenty of back and forth along with worries facing investors near term. The utilities led the upside on the day barely closing in positive numbers. Ten of the eleven sectors closed in negative territory as investors weigh risk at current levels. The technology sector was the downside leader losing 1.1% on the day. The VIX index closed at 23.7 as anxiety ticked higher on the day. Watching the momentum changes and how it proceeds.

The NASDAQ index closed down 49.7 points at 11,854. The index was down 0.42% on the day as investors held above the 10 DMA. Semiconductors have been the leader for the index term and held up well despite the move lower. Tech overall continues to show signs of fatigue near term. The NASDAQ 100 index (QQQ) was down 0.66% for the day. The index remains in a well-defined trading range. Semiconductors (SOXX) closed down 0.47% for the day and held near the Monday highs. Technology (XLK) moved down 1.03% and holding above the $118 support. Watching how this unfolds as the market shifts gears again.

Small-Cap Index (IWM) The sector moved up 2.1% and held the gains for the week as it takes on a leadership role and continues the uptrend. Volatility in the sector remains a challenge as we added a position on the bounce from the $151 support.

Transports (IYT) The sector tested support again at the $193.50 level. The continuation of the move from the support is in play along with the uptrend.

The Dollar (UUP) The dollar turned lower this week talk of stimulus sends the buck lower. Watching how it unfolds at support.

The Volatility Index (VIX) Volatility is dropping against the backdrop of the vaccine announcement. A move below 21.6 would be of interest from my perspective and end the surge started in March. Closed at 23.7 on Friday.

KEY INDICATORS/SECTORS & LEADERS TO WATCH:

MidCap (IJH) The sector posted a solid 4.4% gain last week and moved sideways this week. Watching the current trend and managing the stops.

Retail (XRT) The retail bounced back from the test of support and is now at new highs. Posted solid gains on the week and held them into the close on Friday. Adjusted stops and letting it run.

Biotech (IBB) The sector remained in a trading range. XBI has broken to new highs as the large-cap biotech leads the way. Taking the opportunities that are offered in the large-cap stocks.

Semiconductors (SOXX) The sector remains in an uptrend and broke higher on the week. The $303 level of support held and the bounce offered an opportunity to add positions. Managing the risk and letting this unfold.

Software (IGV) The sector sold after an attempt to break higher. It settled into the defined trading range and watching to see how it unfolds near term.

Treasury Yield 10 Year Bond (TNX) The yield closed the week at 0.82% down from 0.89% last week. Rates flirted with the 1% level as inflation slows again and stimulus talk started up again. Watching how it unfolds.

Crude oil (USO) Crude moved to $42.17 from $40.12 for the week or up 5.1%. Plenty of speculation to drive prices and watching how this unfolds. Looking for a break above resistance currently.

Gold (GLD) The commodity remains in the trading range and on the bottom side of the range. Looking for a catalyst and a weaker dollar may provide the needed move.

Emerging Markets (EEM) The sector turned lower, bounced, and broke to near term highs. Entry $44.50. Stop $46 (adjusted). China (FXI) was the leader on a break higher as well. and we adjusted our stop on those positions as well.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENTT

FRIDAY’s Scans for November 20th: Markets finished the week on the downside as investor worries rise about a stimulus, the virus, and the economy. There will always be something to worry about relative to stocks and with that in mind we keep our eye on the trend and our stops measured. Rumbling from analysts at markets being overvalued again. This is of interest as we head into a historically positive period for stocks. Taking it one day at a time with an eye on the risk factor. Below are the leaders and some interesting moves of late worthy of trades if they unfold.

  • Leaders on Friday: XBI, TLT, TAN, FXI, KWEB… worth watching into the new week of trading.
  • Leaders for the week: KOLD, DUST, PBW, IEZ, UCO… these have played out well for trading opportunities the last week. Stops in place.
  • Treasury Bonds (TLT) Yields fell on the week and the price of bonds rose in response. $38.60 level to clear on TMF.
  • Solar (TAN) Moved above the resistance on Friday and watching for a follow through to start the week. Clean energy (PBW) made move higher this week.
  • Energy (XLE) another flag pattern on the chart relative to the move from the lows in Ocotober. Letting this unfold as the parts are of interest as well.

THURSDAY’s Scans for November 19th: Markets respond to the rumors of a possible stimulus from Congress prior to year-end sparks some buying. Watching the ‘rumor’ as it unfolds as it has not been a topic to make it very far of late. The markets are still digesting the upside move on Monday without any real follow through the last three days. This put us in a cautious mood for now. Manage the risk and let the opportunities unfold.

  • Energy (XLE) continues an attempt to move higher as crude remains stuck at resistance. XOP, IEZ, OIH
  • Semiconductors (SOXX) remain in a solid uptrend and adjusted our stop on the day.
  • Clean Energy (PBW) solid run higher going vertical and adjusted our stop on the positions.
  • Retail (XRT) continues higher despite the slowdown in sales data for October. Managing the position.
  • China Consumer (CHIQ) consolidation near the highs. Adjusted our stop but watching how this moves near term.

WEDNESDAY’s Scans for November 18th: More testing for the broad markets and the uncertainty between the virus and the vaccine. It is a race to see which one will have the greater influence on markets. FANG stocks remain in a trading range (FNGU). Commodities continue upside move with DBA moving higher. Natural Gas (KOLD) continues to struggle. Our scans continue to find opportunities in global country ETFs and other sectors of note. Taking what is offered and managing the risk.

  • Long Term Corporate Bonds (IGLB) breaking higher from a four-month trading range.
  • Crude Oil (USO/UCO) top of the trading range? Ready for a move higher or retest of the move?
  • Natural Gas (KOLD) downside remains in play and watching for a break from the current trading range. Solid follow-through upside on the short trade Thursday!
  • Semiconductors (SOXX) at the top of the trendline and holding up despite some selling.
  • Alerian MLP (AMLP) uptrend in play as the ETF confirms the move above resistance at $23. Next challenge the 200 DMA.

TUESDAY’s Scans for November 17th: Markets take a pause in the move higher and watching how this unfolds in response to the vaccine and the war on the virus. The new administration elect is chomping at the bit to be in control of this situation and close the necessary practices to keep the virus from spreading. Closure didn’t work globally last time how is going to change this time? Caution, precautions, and common sense will have to prevail not government mandates. Some honest education would be nice as well versus telling and nine different opinions. This is going to be a big cloud to deal with going forward. Watching how it unfolds and protection the downside risk if the terms are too harsh.

  • Energy (XLE) added to the upside following through on the optimism.
  • Brazil (EWZ/BRZU) showing strong upside reversal. Cleared $86.40 resistance and positive move upside.
  • Clean Energy (PBW) back to the uptrend and climbing on the election results… stops are a must.
  • Mortgage REIT (MORT) running following the break from consolidation.
  • Large Cap Biotech (XBI) solid trend higher from the September lows.

MONDAY’s Scans for November 16th: Vaccine news and positive results offer hope to the fear that is Covid. We will see if this is the solution to the problem and how the new administration will deal with the outcomes. For now, markets are responding to the hope that is offered by the vaccine. Question of the day… “should I sell some of my portfolios to protect the downside?” Good question, but the answer lies in the strategy you started with and the risk you are willing to accept currently. Know where you are, where you are going, and the risk of the trip. Manage the risk and let the trip unfold… no one knows what the future holds.

  • Energy (XLE) gaps higher gaining 6.5%. Adjust stops on positions and let this unfold. Crude was up 3% and managing the risk.
  • Industrials (XLI) gapped higher and adjusted our stops. Letting this play out near term.
  • Financials (XLF) gapped higher and adjusted stops. KRE was up 4.2% on a gap higher.
  • Natural Gas (KOLD) breaking from a double bottom pattern on the upside as the short side trade unfolds.
  • Small Caps (IWM) solid upside as the leadership unfolds for the sector. Adjust your stops and manage the positions.

(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 break to a new high as clears the highs of the trading range. Gap and fade for the sector and watching the outcome.
  • XLU – Utilities struggled all week falling 4.8% and hitting our stop. Watching support and looking for any opportunities.
  • IYZ – Telecom moved to resistance at the $29.67 level and tested. Watching how this unfolds with our stop at $29.
  • XLP – Consumer Staples double bottom and break higher. Offered upside trade opportunities and watching as the sector test the breakout.
  • XLI – Industrials gapped higher on breakout and continuation of the uptrend. Watching.
  • XLE – Energy gapped higher on speculation of growth relative to the vaccine. Move to 200 DMA and found resistance.
  • XLV – Healthcare broke higher from the trading range offering an entry point for the sector. Tested the move and watching how it unfolds.
  • XLK – Technology is in a trading range and looking for upside momentum. Semiconductors broke higher and leading the sector.
  • XLF – Financials gapped higher and getting support news from interest rates, dollar, and economic outlook. Watching the near term outcome.
  • XLY – Consumer Discretionary bounced back to the previous highs as the consumer continues to show strength. Holding in the trading range for now.
  • IYR – REITs have struggled with interest rates, vacancies, and virus talk about people moving out of cities. Tested support at $76.22 and bounced to the top of the with a break above $84.45… testing currently.

The trends are shifting again based on investor activity. We saw sectors bounce off key support levels and followed through to resume some uptrends and stall others. Proceed with caution. Using the six-month charts as an indicator for the short term view… Six sectors are in confirmed uptrends as two breaks higher. Five are in consolidation patterns showing indecision from investors, and none are in a downtrend. The result for SPY is in a move to a sideways trend short term with an upside 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 gapped higher to start the week but found a way to give up the gains with the S&P 500 closing in negative territory. The virus is taking center stage with the rise in cases and fear rising of more shutdowns. Thus far the shifts have been towards trying to control gatherings more than shutting down businesses. We will want to see how that unfolds moving forward. The economic data remains on the positive side as we continue to see improvement in the numbers. The talk on Friday centered on stimulus and the Treasury returning the $455 billion of unused aid for the Federal Reserve. That started the negative talk, but the move was not really negative as much as prudent to put the money where it can help most… small businesses. There is plenty to like, but there is also plenty of uncertainty surrounding the outlook for the markets as well. The virus spike in cases is an issue that is raising concerns. This fear factor is one thing that can disrupt the short term if it becomes believable enough. The long-term trends remain and the near-term bounce is positive as some sectors resume uptrends and indexes are pushing back to the previous highs and some setting new highs. How all of this plays out will be of keen interest to investors and traders alike. There were discussions again about the stimulus package, but it resulted in the same issue… not enough money according to Pelosi. Technology stocks led the volatility as the sector closed lower on the week. Semiconductors bounced and closed at new highs for the week. The retail sector bounced back despite the disappointing sales data for October. The VIX index moved to 23.7 after a week of ups and downs for the index. The dollar moved back to support and down as stimulus talk was in the headlines. The S&P 500 was down 0.7% for the week and six of the eleven sectors posting losses for the week as early gains from Monday fell off. The market is looking for leadership currently and small caps rose to the top again this week. Energy showed positive signs as crude continues to move higher. It is at the top of the range currently and looking for a catalyst to break higher. 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.