Volatility jumps as investors worries rise

MARKET OUTLOOK FOR MARCH 8, 2019

Large-cap stocks joined the small and midcaps moving lower and testing some important levels of support. This does mean we draw a conclusion that the markets are heading lower… it means they are testing the current trend from the December lows and we have to manage our emotions and our money. Trends aren’t broken until they are broken… the sellers are asserting themselves and the buyers will either respond in-kind or we will have test lower. As you know, I am a firm believer in letting the market speak and following the trend. For now the uptrend remains in play, but the sellers are testing the trend and we will watch how it unfolds and the resulting opportunities.

The S&P 500 index closed down 22.5 points to 2748 as its topping pattern continues with a test to the 200 DMA. The uptrend from the December lows remains in place. Some negative economic data is on the table to speculate about looking forward. Some sellers show up to challenge the buyers again on Thursday. One of the eleven sectors closed in positive territory on the day. Utilities were the leading sectors to close on the upside. The downside saw consumer discretionary and financials lead the way lower. The long-term trendlines have improved and were approaching the key levels to offer an entry signal but have stalled. We will watch how the current activity unfolds and the impact on the trends longer term. SPXL entry $33.50, stop $42 (adjusted).

The NASDAQ index closed down 84.4 points to close at 7421. The growth stocks struggled on the day with semiconductors leading the downside impact for the broad index. The close below 7505 breaks this level of support for the index. 7206 would be a logical testing point for the test if this continues to unfold. QQQ is our indicator near term. The bounce produced some opportunities to buy an upside position on clearing the $152.51 mark and holding. TQQQ entry $34.17. Stop $48.16 (adjusted). The test to $170.93 is in play and we are watching how this unfolds near term.

Small Cap index (IWM) the next leg of the move higher stalled, tested and broke $154.90 support. The break of $152 on Thursday triggered our stop in the sector and watching how this unfolds and what opportunities result. The sector has been in a leadership role as it tested and held the $144.65 level of support. Added a position on a move above the $133.78 mark. Entry $133.90. Stop $152.25 (HIT STOP). The accelerated decline on Thursday is a concern. Watching to see is short side opportunity occurs… or if the buyers step back in?

Transports (IYT) hit some resistance at the $192.42 level. The move back below the 200 DMA a negative along with the break below 186.70 support and testing the $182.43 mark Thursday. This is creating a divergence of activity and transports are a leading indicator for the economy. Clearing the $164.73 level offered upside trade opportunity. Entry $165. Stop $186.35 (STOP HIT). The break lower hit our near term stop as we watch how this unfolds.

The dollar (UUP) fell as the Fed talked to Congress and confirms its neutral stance on interest rates which would be expected. The buck bounced back the last five days to regain the upside momentum and continued on Thursday. The move higher has my attention as it becomes the benefactor of a weaker global outlook becoming a safe haven for currency. The big question mark for the buck would be a resolution to the trade tariffs with China. The dollar closed at $26.07 and remains in a positive pattern holding support… Watching as it clears resistance at the $25.87 mark.

The Volatility Index (VIX) closed at 16.5 on Thursday and erased the move lower. The selling is a result of anxiety and that is moving the index higher. Watching how this all unfolds with the sellers stirring showing signs of engaging. Patience. SVXY trade has played out nicely. Hit stop at $50.

Economic data remains in an undefined category of so-so. Inventories for December rose 1.1% versus 0.4% in November… not a good number as it equates to slower sales… a fact that earnings reflected for the fourth quarter. This adds to the weaker retail sales data and existing home sales. GDP for Q4 is 2.6% vs 2.3% expected… party! However, it was 3.5% in Q3… Friday posted a weaker ISM manufacturing number to 54.2%. Personal income fell in January along with consumer sentiment. Core inflation remains tame and well within the Fed range… Weaker data is a warning sign for stocks. Watching how this unfolds moving forward.

The jobs report is due out today… it will have an impact one way or another. The concern today is it will be temporary at best… it is Friday, we have had two days of testing from the sellers… watching for a test to the 50 DMA if the news isn’t great. Patience and let the market speak… I am just speculating on the current activity.

(The notes above are posted daily based on the activity of the previous days trading. The BOLD/ITALIC comments are current day changes worth noting.)

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

Biotech (IBB) The sector broke below support and finally bounced. $95.04 was the level to clear and did so with momentum. Entry $96. Stop $109.17 (adjusted). Cleared the $107 level to return to the previous trading range. Cleared $112 and a key resistance point this week. Hit $115 on the close Friday and watching how it moves to start the new week. Intraday volatility has my attention. Wednesday shows why you watch and manage your risk. Downside break was ugly at 3.1%. Thursday moved to the next support level of $109. Watching the $107 mark of support as the test level.

Semiconductors (SOXX) Broke support at the $153 level established the December lows and then started the current uptrend. $153.13 cleared and added a trading position on the move… A target of $182.37 cleared and watching how the sector unfolds. SOXL – Entry $78. stop $120 (adjusted). $105.24 sold half of the position. Gapped higher to start the week then tested back to support at $182.37 and bounced higher Friday… volatility in the sector and letting it play out for now. Intraday volatility has my attention. Break of the $182.37 level a negative on the day… watching how this unfolds… knowing this is a key indicator for the larger index.

Software (IGV) Broke $167.88 and bounced back above the same level to create the December lows and start the new trend. The sector was oversold producing a solid bounce… and follow through. $167 level added a trading position. Entry $167.90. Stop $200.45 (adjusted). Cleared $197.48 and moved to the previous highs from September and now new highs. Adjust stop and let it run. A big downside for the sector to start the week. Watching how this unfolds. Added to the downside Wednesday and watching support at $201.

REITs (IYR) Tanked on uncertainty from the Fed and the economic outlook. Broke $75.21 and bounced… trading opportunity on reversal above $75.21. Entry $75.25. Stop $82.50 (adjusted). Showing some volatility and uncertainty as interest rates rose all week. This is an interest sensitive sector… watching how the yields move next week.

Treasury Yield 10 Year Bond (TNX) closed the week at 2.75% as yields bounce the last three days on weaker economic data. TLT gapped lower on the move in yields hitting stops on the bond and testing the $118.59 support levels. Watching the bond near term and interested in the short side trade should the yields continue higher. Reversal of direction as yields drop (2.63%) with stocks selling showing rotation to safety the last two days. Bonds remain a positive with anxiety rising.

Crude oil (USO) worries about the IMF data on the global economy give way to speculation about supplies moving lower on OPEC promise to lower production… again. Sanctions on Venezuela have been playing into the volatility as well. Plenty of issues, but the upside remains in play. The move above the $48.03 level offered some hope and opportunity to add a trading position. UCO entry $15.10. Stop $18.42 (adjusted). Managing our risk and letting this play out with our target $58.25 (crude price) in sight. Some selling on Wednesday along with stocks. Remains in a consolidation pattern.

Emerging Markets (EEM) Watching what happens as the bounce from the bottoming pattern follows through but is testing on uncertainty about trade and economic growth. Rumors of trade resolutions and talks with China helped the index but needs some reality to help. Watching for the clarity to unfold. Cleared $40.88 and broke higher from a double bottom pattern. Entry $41. Stop $40.50 (adjusted). News from the European Union and the European Central Bank on the state of the economy is not good for the sector. Fell to support and watching how it unfolds.

Gold (GLD) moved above the $126.02 resistance tested lower and then accelerated as the bid dropped out from under the metal. The dollar and geopolitics have been the catalyst for the metal… both up and down. The boost in the dollar and higher interest rates on the week worked against the metal and we hit our stop on our position. Entry $116.50. Stop $123.30 (STOP HIT). The gold miners (GDX) equally respond to gold moving lower… Entry $19.70. Stop $21.90 (HIT STOP). Watching how this moves to start the week. Downside continued to start the week. Tuesday finally some buyers, but nothing to write home about as it builds some support at the $121 mark.

MidCap (IJH) The uptrend from the December lows remains in play with the move above the $190.44 resistance. A small test for the week as this is the first sector to clear the key resistance levels and looking for others to follow. Entry $166.50. Stop $187.52 (Stop Hit). Tested lower to support at the 200 DMA and $190.44 level. Watching how this topping pattern unfolds. The chart takes a downside turn and breaks support. 1.3% tumble isn’t the end of the world, but it does get our attention as a break lower from the topping pattern… if confirms looking at the downside trade.

China (FXI/YINN) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Cleared resistance at $43.50 this week and reversed to test the same level as worries build on the trade agreement. The eight-month bottoming pattern is offering some hope. Entry $39.80. Stop $42. Gap lower on ECB news and worries about global growth. Watching how the $43.50 level responds.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

THURSDAY’s Scan, March 7th: the sellers continued to engage and push stocks lower to the next level of support. We will let this unfold, but it is not unusual for trends to test. This is still a test and we would look at the 50 DMA as the level of support to hold. That would result in roughly a 5% test of the rise off the December lows. The key is to manage our money in the context of our objectives by each position held, not by emotions or the whole. With that in mind we watch how this unfolds and the opportunities it will present.

  • Small Caps (IWM) Mid Caps (IJH) continued lower. We hit our stops and booked our gains. The key now is finding support and the opportunity that arises.
  • NASDAQ 100 (QQQ) Tested support at the $170.93 mark and watching the move today… stops are in place.
  • Financials (XLF) break below support… negative sign. Brokers (IAI) banks (KRE/KBE) and insurance (KIE) leading the downside.
  • China (FXI/YANG) falls on news from the EU and growth. Watching how it handles this level of support.
  • Transportation (IYT) falls to $182.43 support. Watching this sector as an indicator looking forward.

Plenty of activity happening… jobs report out today. Watching how it unfolds and managing the risk accordingly.

WEDNESDAY’s Scan, March 6th: the sellers take a shot and hit… some damage done, but the key will be follow through. The small and midcap declines broke the first key levels of support. The SOX index fell as well giving some cause for worry about the NASDAQ. The confirmation of the reversal in transports offers more worries as a leading indicator. The near term moves offers some concerns about a more serious test of the current trend. If this effort follow through 2678 would be the key level of support for the S&P 500 index. Taking it one day at a time.

  • Small Caps (IWM) break of support puts growth stocks on notice. The leadership of the sector is in question.
  • Midcaps (IJH) break of support adds to the questions for growth stocks.
  • Semiconductors (SOXX) breaks of support raises concern levels for the NASDADQ.
  • Healthcare (XLV) break of support a concern. The biotech (IBB) dump lower was most of the cause, but continued weakness in the providers (IHF), pharma (XPH) and devices (IHI) adding to the concerns.
  • Transports (IYT) added to the downside move and obviously a concern for the broader indexes.

Plenty of fuel for the fire on Wednesday as stocks move lower and add to the speculation of a test for the uptrend bounce from the December lows. Patience and focus on the goal not the noise. Stops will take you out of harms way should the downside materialize… the focus is on the next opportunities.

TUESDAY’s Scan, March 5th: Slow day for stocks overall. The sellers abated, but the buyers weren’t present either. Some big names like Facebook and Google are doing well, but there is not enough breadth to carry the markets higher. The good news is the sellers are not completely ready to engage. They attempted some selling on Monday but were denied control. Watching how this all unfolds and looking for the opportunities.

  • Telecom (IYZ) down for the second day and a concern. The sector has been a leading indicator of late for overall market movement. Watching the progression.
  • Transports (IYT) Almost anything bought by consumers is moved by transportation… if the stocks are lower ahead of the balance of the market… something isn’t right. Watching how this unfolds and what opportunities are created moving forward.
  • China (FXI/YINN) still moving higher after a test last week. Uptrend is a result and hope of a trade agreement. Buy on the rumor… sell on the news? Watching and stop in place.
  • Social Media (SOCL) solid upside move and break from the consolidation pattern at the current higher. Worth digging in and trading the individual stocks here as well.
  • Natural Gas (UNG/UGAZ) rising offering some opportunities short term on both stocks and commodity.

There is nothing more than to wait and see how the markets unfolds. There is a lack of conviction as seen in volume, breadth, and volatility… let it unfold, go play some golf, go shopping, or take a long drive… watching the market the last two weeks is like watching paint dry.

MONDAY’s Scan, March 4th: Mixed day as indexes started higher, sold lower, and bounced off the lows to end basically flat on the day. The intraday volatility is something to watch as we discussed last week. The sellers showed interest and it has my attention. Review your stops and manage your risk accordingly. No big changes on the day overall but some sectors of note below.

  • Software (IGV) fell 1.8% to lead the downside… important to note this puts the sector back below the September highs. Watching and adjusting our stops. HACK fell 2.1%.
  • Healthcare (XLV) tested the upside resistance of $93.32 then fell 1.3% on the day back to the bottom of the topping range. IHF fell 3%.
  • Telecom (IYZ) back below the $29.50 resistance and watching how the selling unfolds today.
  • Aerospace (ITA) fell 1.6% to add to the topping pattern.
  • Plenty of topping patterns in play as we watch how this unfolds.

Taking it one day at a time for now and letting the direction define itself.

FRIDAY’s Scans, March 1st: Solid day for stocks as the major indexes move higher on hopes of a trade agreement still in view. The economic data is putting some challenges in front of investors as they weigh the outcome of the data. Overall the trends remain on the upside and some testing continues to be the theme. No real sellers of yet, but we have our eyes open and stops in place.

  • Biotech (IBB) solid upside move on the day and the week. Adjusting stops and letting it run.
  • Consumer Discretionary (XLY) solid day and keeping the upside trend alive despite the weaker auto sales and lower income data for the consumer. Interest rates ticked higher on the week and watching how that unfolds as well.
  • Utilities (XLU) moved back to the December highs and facing some resistance at this level, but remains in a solid uptrend.
  • Gold (GLD) takes a plunge lower on higher dollar activity and higher interest rates. Hit our stops and watching the outcome going forward.
  • Medical Devices (IHI) great week to keep the upside move going. Cleared the September highs on Friday.

Taking precautions as economic data weakens… looking at where the opportunities lie as investors rotate some money during the week. t

Sector Rotation of S&P 500 Index:

  • XLB – New lows and found support… got the move above the $50.35 mark. Entry $50.50. Stop $54.10. Upside continues with a move above the $54.15 mark. Hitting resistance at the $56 level at the top of the previous range. Testing support.
  • XLU – The utility sector found support at $51.11… moved above $52.72. Moved back above the $55.24 level again and hitting the $57.10 resistance. Watching and managing the risk. Entry $53. Stop $55.25. Cleared $57.12 resistance but needs a solid follow through.
  • IYZ – Telecom found new lows and bounced…  $26.25 level cleared for upside trade. Entry $26.35. Stop $28.25 (adjusted). Cleared the 200 DMA and accelerated higher moving towards the September highs. Big negative on Monday breaking below the $29.50 mark. Leading the downside. Confirmed the break on Wednesday
  • XLP – Consumer Staples found new lows and bounced. Cleared $50.50 and continued upside trend. $54.92 level of resistance to watch. Managing our risk. Entry $51.90. Stop $53.
  • XLI – Industrials moved to near-term low and bounced. $65 level cleared for trade opportunity. Entry $65. Stop $74.05 (adjusted). Upside leader with a move to $76.80… next level to clear. Gapped higher and continued the uptrend. Broke support and watching how it unfolds.
  • XLE – Energy stocks bounced with the market. OPEC talks to cut production is helping the upside move clearing $58.20 and now $67 is next resistance. Entry $58.30. Stop $64. (adjusted). Managing the risk. 
  • XLV –  Healthcare fell to near-term lows and bounced. $85.74 level cleared for upside trades. Entry $85.25. Stop $90 (adjusted). Watching and managing the risk. Some topping on the chart with a solid move on Friday. $93.52 next level to clear. Sold lower on the day with XPH, IHI, IHF all heading lower. Testing a key level of support.
  • XLK – Technology moved to near-term lows and bounced. $61.70 cleared for trade opportunity. Entry $61.70. Stop $68 (adjusted). $71 next level of resistance to clear and follow through. SOXX, IGN, HACK, SOCL, and IGV helping the cause on the upside. The parts struggled on the day with IGV, HACK heading lower. Testing the 200 DMA.
  • XLF – Financials moved to recent lows and bounced. $23.76 level cleared for trade. Entry $23.80. Stop $25.50. Solid earnings boosted the sector and finally breaking above the $26.33 resistance. Need leadership from the sector. The parts struggled on the day with IHI, KBE, KRE, and IAI heading lower.
  • XLY – Consumer fell to near-term lows and bounced. $98.96 level cleared for trade. Entry $99. Stop $107 (adjusted). Cleared resistance at $109.21 and positive short term. Retail data not great, but investors are looking forward not back… letting it play out. Moved to support.
  • RWR – REITs broke lower despite lower interest rates… bounced from lows clearing $93.21 resistance… positive upside move. Entry $88. Stop $95.98. Watching and managing the risk. Some profit taking? Interest rate moves bother investors in the sector.

Watching the overall weakness of the markets in the last few weeks. Need some type of positive catalyst or the sellers may get their way near term. The score is currently two sectors in an uptrend, six sectors consolidating, three sectors reversing lower.

(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:

Markets are testing and facing key resistance levels. The bounce from the December lows remain in play and the fourth leg higher in the current trend is testing. There are some issues facing investors as the trade agreement has not materialized, but hopes of a meeting in mid-March are on the table. Fundamental data is weakening. Some of this was expected based on the tariffs… but, the bigger issue will be how it unfolds moving forward. This was a week of testing and talking with Friday closing on a positive note.  There is plenty of news along with some not so good economic data on the week. We continue to emphasize sound money management. We have look at positions to take profits, adjust stops, and manage the risk of the current environment. The goal is to avoid speculation and follow our disciplined strategy for each position. Taking it one day at a time.

Seven of the eleven sectors managed to close the week in positive territory as money rotates modestly. Energy and technology led the upside for the week. Consumer staples and basic materials were the laggards as money rotates to safety on the week. Interest rates ended at 2.75% moving up more than 10 basis points. The ten-year bond moves lower on the higher rates. The dollar bounced with higher rates. We continue to take this one day at a time. There is plenty of influencers in the markets currently and headlines are the drivers.

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.