Volatility remains along with speculation

Market outlook for August 12th

The markets ended the week with Mr. Trump stated that the US/China are talking, but he was not ready to make a deal. That rattled markets on Friday helping to erase most of Thursday’s gains. It has been a bumpy week for stocks as the volatility rose on worries about trading and many other issues. Despite the volatility, the major indexes only forfeited 0.5% for the week. The key issue from perspective remains uncertainty about where we are heading economically. As long as the questions continue to grow the volatility will remain.

The S&P 500 index closed down 19.4 points to 2918 and closed near 2923 resistance. The focus on China/US trade remains in the headlines and the banter continues. Six of the eleven sectors closed higher for the week with REITs and utilities leading the upside. The downside was led by energy and financials. We banked the profit on the short side trades. The long-term trend comes back into question with the move lower breaking the trendline from the December lows.

The NASDAQ index closed down 80 points at 7959 and failed to hold the 8000 level. Watching the May peak as a target? Technology stocks rebounded from the beating on Monday, but remain under pressure from the sell-side. QQQ held support at the $180.73 level and bounced back to the $186.81 resistance. Banked our gains on the short side trade on the move lower last week and watching for the next opportunity.

Small-Cap Index (IWM) The upside move stalled in a trading range near the $154.90 mark and broke lower testing the $146 level of support. Bounced back to $152.28 resistance and retreated… Emotionally charged activity in the sector currently. No positions currently in the sector.

Transports (IYT) The sector was in an uptrend that included some volatility but dropped 6.9% on the currency devaluation. Modest bounce from the lows and watching as this unfolds. No positions currently.

The dollar (UUP) The dollar moved higher but retreated on the tariff comments. Retreated further on China’s yuan move Monday. Held steady on Tuesday and watching how this unfolds going forward. Closed at $26.46. Watching the Yen (FXY/YCL) as it is the current benefactor of the tariff talks.

The Volatility Index (VIX) closed at 17.9 after peaking at 24.90 early in the week. The index remains elevated and watching the 17.4 level of support.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector has moved to the $190.44 support/resistance. The downside is a reaction to the current environment of the markets and no positions currently.

Biotech (IBB) The sector remains at support near the $104 level and looking for a catalyst up or down.

Semiconductors (SOXX) The consolidation pattern at the high breaks lower on the news from the Fed and new tariff play from the White House… Locked in short side trade gains and watching for the next opportunity.

Software (IGV) hit new highs and reversed on the Fed/tariff news and locked in our gains. Watching how this unfolds moving forward.

REITs (IYR) The upside trend remains on the long-term chart. The test of support at $87.50 bounced. Patience with our long term positions and short term watching how interest rate market unfolds.

Treasury Yield 10 Year Bond (TNX) fell to the 1.7% level on all the worries. Money rotated to safety and our TLT trade went vertical. Stop $138.

Crude oil (USO) Fell lower on the speculation around global slowing economically. Bounced Friday on European news of drawdowns in supply. Watching support at $52.50 and resistance at $58.25.

Gold (GLD) The upside in gold has been driven on speculation of the rate cut and global weakness overall. Jumped higher on worries about economic data. Stop now at $139.93.

Emerging Markets (EEM) Broke lower from the trading range as tariff threats add to the worries about an economic slowdown. Banked our gains on the short side trade. Watching for the opportunity.

China (FXI/YANG) the country ETF is a good benchmark for what is taking place with the current news and tariffs. Watching the move lower play out as Mr. Trump makes his intentions clear… as does China. Broke support at $42 and the downside is back in play. YANG Entry $49.75. Stop $59.66.

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

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

THURSDAY & FRIDAY’s Scand for August 9th: Solid gains on Thursday were negated on Friday… This is the market environment currently as uncertainty is fueled by speculations. The fundamental data is lost in the speculation of what might or could happen. Our job is to find opportunities in volatility. We locked in gains on short side trades as the bounce materialized on Wednesday. Friday showed we may not be done yet, but there will have to be another catalyst point. Upside positions in gold, short trades in China and others are still playing out well. The scans are a mess with the Friday decline and deferring to Monday’s to see what happens. Exercise some patience and manage your risk accordingly.

WEDNESDAY’s Scans for August 7th: No big changes in the charts as they test lower and bounce back. The leadership is based on speculation and rotation not facts. Gold made big move higher, crude moved lower, and the speculation headlines remain in charge.

  • Gasoline (UGA) dipped lower to test support as crude move to the June lows. Short side trade is in play and looking at this key level of support.
  • Homebuilders (NAIL/ITB) made solid upside move with interest rates hitting near their lows of 2016.
  • Gold (GLV/GLD) remains in upside trend. Adjusted stop on position.
  • Manage the risk on downside trades if the upside finds

TUESDAY’s Scans for August 6th: It was a bounce that changed nothing. The headlines are full of speculation and what-ifs… There are some good setups for trading the bounce and then there are some good setups for trading the downside. For example, KO is in a position to trade higher, while AXP could trade lower. We have to watch and let this unfold. Taking a shot in the dark is not always a good thing without the aide of night vision goggles. Watching how Wednesday unfolds.

  • Social Media (SOCL) watching the parts with MTCH moving higher after-hours.
  • Semiconductors (SOXX) again it is about the parts not so much the whole. KLAC, CREE, and TSM are a few with good upside setups with a follow-through.
  • Financials (XLF) solid bounce for banks. Watching and breaking down the parts.
  • Treasury Bonds (TLT) watching for the top. Adjusting the stop in the event money rotates back to risk on.
  • Gold (GLD/GLL) watching for the top. Adjusted stops and letting this play out at the new highs.

MONDAY’s Scans for August 5th: More selling as currency devaluation brings out global sell-off in stocks. Why ask now what to do with stocks? That question should have been answered with stops in place to protect your money. Short side trade setups have played out well and we have to adjust our stops and let this unfold. You would have to expect a bounce at some point as the oversold indicators are flashing on the charts. Watching how today unfolds and we will lock in some gains on trades and let the rest play out. The scans all show cliffs on the charts as the last three day concluded in a 5.6% decline in the S&P 500 index and a 6.8% decline in the NASDAQ… Look at stop adjustments. Watch how Tuesday unfolds.

(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 held support at the $55.95 level and hit resistance at $58.13.
  • XLU – Utilities remain in the trading range of $59-61.23. Collecting the dividend and letting it play out.
  • IYZ – Telecom holding near support at $28.62. Watching.
  • XLP – Consumer Staples held $57.75 support bounced and watching.
  • XLI – Industrials held 200 DMA support and bounced… 75.572 level to clear for now.
  • XLE – Energy held $74.17 support and $75.72 resistance to clear.
  • XLV – Healthcare held $89 support and $91.67 resistance to clear.
  • XLK – Technology held $75 support and $78.90 resistance to clear.
  • XLF – Financials under pressure held the 200 DMA and $27.42 level to clear near term.
  • XLY – Consumer Discretionary held $113.80 support and $118.80 resistance to clear.
  • IYR – REITs held $88 support and cleared the $90.80 resistance on Friday… Watching and letting it unfold.

There is currently one sector in confirmed short term uptrend. Eight sectors in consolidation or sideways trends. Two in a confirmed downtrend. The result is SPY in a confirmed sideways trend. This is a big adjustment based on the current market environment. Remember the parts make up the whole.

(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 gapped lower to start the week and found support… bounced and watching how this is going to play out. This is currently a market controlled by headlines as each day holds movement related to the speculation of what might happen. My question is will the downside continue? Trade is a major issue… but, economic growth is the real issue at the end of the day. Focus on facts like economic data, earnings, and global data reports. The ISM manufacturing data for July fell to 51.2% and the ISM services data dropped to 53.7% showing weakness in the economy. July added 164,000 jobs and was in line with expectations. PPI fell for the first in over two years… My question, what is the Fed looking at? Why are they not more engaged? Trump is right on this front. Remember within all of this data lies the opportunities we are all looking for. Crude oil speculation remains in the news as price moved below $53 level and bounced on the European supply data. And let us not forget the inverted yield curve for bonds as yields moved lower in response to the Fed actions at the FOMC. They closed at 1.73% in response to fear and flight to safety. We remain focused on what is working and what is failing. Therein lies the opportunities. The balance of the market will eventually figure out a direction.

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.