The markets traded in a tight range throughout the day closing slightly higher with the small caps leading the upside gains. With the month of July in the books investors will look to the economic data as ISM Manufacturing, ISM Services, and Jobs Report will all report the balance of the week. Earnings will rotate to the small and mid-cap stocks which could be less impressive overall than the large caps. Thus look for data to be more of a driver than news. The MACD was a lower high from the earlier high in July showing slowing, VIX has moved off the low on both the S&P and the NASDAQ, and volume has declined… all pointing towards a test on the major indexes. Not saying it is definitive but something to watch near term. Semiconductors showed a fourth-day upside each supporting a doji candle. Again, not a definitive sign but showing fatigue in the move. As we all know bull markets don’t die easy. After selling the move higher on Thursday the buyers returned in force to push the indexes toward current highs. Take what the market gives but take note of the signs showing overbought situations and manage the risk accordingly. The uptrend is still in play and like it or not we follow the trend. No data out on Monday, but ISM Manufacturing will report at 9:45 am Tuesday and watch to see if it can move above 50 showing expansion versus contraction in the last few months. Taking it one day at a time with a focus on managing risk.
Looking at the key indicators the data was positive for the day and the charts remain in uptrends with some signs of fatigue. We have adjusted stops based on current activity. Nine of the eleven sectors closed in the green the leadership came from XLE on Monday. Volume was average on the day. Scanning the ETFs The leaders were GDX, XLE, IWM, FXI, and SIL. The S&P 500 index closed up 0.1%. The NASDAQ was up 0.2%. The SOXX was up 0.4%. Small Caps (Russell 2000) were up 1.1%. The ten-year treasury yield closed at 3.95% down 1 bps. Crude (USO) was up 1.5%. (UGA) was up 0.7%. Natural gas (UNG) was up 0.3%. The dollar was up 0.2%. We are focused on managing the risk and seeing how investors respond to the optimism relative to the outlook.
ONE Chart to Watch: QQQ – 1) Held above the $366.14 mark and closed higher on Monday. 2) Short-term trend is UP… starting from the January low. 3) Moved above the 10-day MA. 4) Watching for entry up or down? No Positions.
Additional Charts to Watch:
SPY – Moved above the June highs and resumed the uptrend. Manage your stops accordingly. $457.60 target on the current move. Hit the target Monday. Watching the current test near the highs. Sold half of the position. Letting it unfold.
IWM – struggled and reversed off support with solid follow-through on the upside clearing the $189 level. TNA entry $36.31. Stop $40. Resumed upside and let it unfolds. Adjusted stop on Monday move.
SOXX – moved back above the $497.61 level and above the June highs. Cleared the previous July high. No positions and watching how this unfolds near term. Looking for a test of the move higher with the uptrend in play.
USO – broke above the top of the range with upside pressure coming from the supply data. Hit the entry point at $65. Stop $71.22 (adjusted). Positive for the commodity as our positions post gains, but the impact on the economic picture isn’t as it acts as a tax on individuals.
IYT transports tested back to the $247.67 level bounced and moved to new highs. Entry $231.20. Stop $260. A solid uptrend in play.
DIA reversed the swing trade upside and tested back to the $337.10 support… added a position $339.35. Stop $351.30. An uptrend in play with a rolling top currently.
AAPL – reversal confirmed with higher low and break upside. Added 5/7 $173. The uptrend remains.
Stops Hit: None
Quote of the Day: “A man who correctly guesses a woman’s age may be smart, but he’s not very bright.” – Lucille Ball
The S&P 500 index closed up 6 points to 4589 the index was up 0.15% with average volume on the day. The index held the move above the 4400 level. 4585 resistance level was hit intraday. Nine of the eleven sectors closed higher on the day with energy as the leader up 1.9%. The worst performer of the day was healthcare down 0.7%. The VIX index closed at 13.6 holding at the current lows. The uptrend from the October low remains in play.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials solid week as the chart holds above the $84 resistance to move higher. The sector was up 1.8% for the week. No Positions.
XLU – Utilities Bottoming range broke higher and tested holding support at $66.85… The sector was down 2% for the week. Entry $67.05.
IYZ – Telecom In a downtrend from the February highs, bounced at support and back to the top of the current range. Need to clear $22.30 resistance. The sector was up 0.1% for the week. No Position. Stalled at resistance.
XLP – Consumer Staples broke higher from the consolidation pattern. Entry at $74.72. The sector was 0.6% for the week.
XLI – Industrials The trend broke to the upside breaking above resistance at the $102.40 level. Tested the breakout and moved higher. The sector was up 0.5% for the week. XLI entry $102.40.
XLV – Healthcare Finally broke higher from the consolidation pattern from the March lows. Volatile trading week for the sector. The sector was up 0.3% for the week. Entry.$132.64. Stalled at the highs. Testing lower again with $132.64 support.
XLE – Energy Bounced and cleared the $82.74 level and broke the downtrend from the October highs. The sector was up 1.8% for the week. Entry $81.95. Is it ready to resume a leadership role? Added to upside move need to clear $87.54 resistance.
IEO – broke higher as offshore interest rise. Entry $85. Stop $92. WTI breakout entry $4.40.
XLK – Technology The sector is testing the move higher closed on the 10-day MA. The sector was up 1% for the week. XLK entry $151.53. Tested but held support.
XLF – Financials holding above $33.35 support and in an uptrend from the March lows. The sector was down 0.1% for the week. KIE broke above resistance. Entry $40.60. Stop $40.60. UYG entry $45.60. Continued upside move.
XLY – Consumer Discretionary Tested the move higher in the uptrend. The sector was up 1% for the week. Remains in a leadership role. No Positions.
IYR – REITs moved above the $85.50 resistance level and tested this week. The sector was down 1.8% for the week. The negative influence of interest rates and reports of vacancies in commercial rentals are rising but money flow has increased to other areas of the sector. No Positions. Watching interest rate near the 4% level again.
REITs on watch with interest rates rising above 4% and the latest round of mortgage data showing a 4.4% decline in applications. That is the first decline in four weeks. 30-year mortgage jumped to 6.85%. IYR and ITB are on watch relative to the downside. Watching the downside risk in commercial properties. Rolling top on the chart.
Summary: The index added to the upside barely on the day… watching as risk rises in the current environment. Adjusted stops and letting it unfold. Nine of the eleven sectors closed higher on the day with XLE in the leadership role. The broad index remains in an uptrend from the October lows with some interim testing. Remember two things; first, the trend is your friend, and second, don’t fight the Fed.
(The notes above are posted at the end of each week based on activity from the previous week’s trading. The BOLD/ITALIC comments are the current-day changes worthy of note.)
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
The NASDAQ index closed up 29 points to 14,346 as the index was up 0.21% for the day. The index remains in the uptrend with some testing. Support is 13,762. Letting the move unfold as tech and mega caps test their respective highs. SOXX was up 0.4% on the day. IGV was up 1.3%. Watching support and how the activity unfolds.
NASDAQ 100 (QQQ) was up 0.05% on the day as mega caps traded in a tight range. Remains above the $366.14 support. The mega-caps, as we have discussed, are/were extended from the May break higher and thus we manage the risk short term. We don’t have any positions currently. Watching for the next directional opportunity. The sector had a positive bias with 56 of the 100 stocks closing in positive territory for the day.
Semiconductors (SOXX) The sector continued higher after testing and remains in an uptrend. Established a higher low followed through in a continuation of the uptrend. The sector was up 4.3% for the week.
Software (IGV) Testing again in the uptrend. The sector remains above the $336 level of support. Added IGV $291. Stop $351 (adjusted). The sector was up 0.1% for the week. Positive upside to start the week.
Biotech (IBB) The sector broke above the $128.35 resistance level and tested. The sector was down 1.2% for the week.
Small-Cap Index (IWM) Cleared the $189 resistance level to establish an uptrend. The sector was up 1% for the week. Entry TNA $36.31. Stalled at the current highs. Solid upside to test the March highs… letting it unfold.
Transports (IYT) Remains in a solid up trend with the 10-day MA as support. The sector was up 2% for the week. IYT Entry $231. Added to the upside move.
The Dollar (UUP) The dollar tanked retesting the April lows and bounced in ‘V’ bottom pattern. The dollar was up 0.7% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.96% up from 3.83% last week. TLT was down 1.9% for the week. Moved above 4% briefly and watching how it impacts the economy.
Crude oil (USO) Broke higher and remains in a solid uptrend. USO was up 4.5% for the week. UCO entry $24.15. Reestablished the uptrend as supply tightens. Broke above the Jan and March highs.
Gold (GLD) The commodity broke higher from the base and reversed on a stronger dollar. No positions. The metal was down 0.2% for the week. Messy chart showing indecision.
Our longer-term view shifted to neutral as the upside trend from the October lows remains in play. Nothing goes straight down or up… there are always positive and negative swings in a longer-term trend. A look at the daily chart from the October lows validates exactly that premise with the trend higher overall but plenty of volatility along the way. With the trend higher it puts the broad indexes in intermediate uptrend… this is a positive overall for the broad markets. The test on Thursday raised questions about the current trend but bounced back on Friday to end the discussion, at least for the day. The FOMC meeting went as expected and Mr. Powell kept the same rhetoric going. Some testing in leaders and some rotation among sectors but overall the trend remains higher. Tightening our stops on intermediate and short-term positions. We locked in some gains on technology positions and added some others as money rotated. Trading the volatility has performed better than holding through the cycle. Sector-driven activity is in play short term with some testing at the highs. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal is to manage the risk of positions, take what is offered… short or long, and then manage your money. Listen to the market not the talking heads.
Monday: Modest upside moves to start the week. Plenty of data for July on tap and watching how that impacts the current move. Letting it play out as we look for directional confirmation on QQQ, SPY, SOXX, and TLT. We have added positions in sectors showing positive momentum such as XLE and USO… and exited those hitting our stops. We see the overall trend is still up from the October lows. Watching where money is going near term for clues of what is on the horizon. Manage the risk that is and let the current trend plays out. Plenty to ponder as we progress in the current environment.
What I am watching on Tuesday: 1) SPY, QQQ, SOXX, directional decision. 2) Commodities GLD, SLV, USO, DBA… 3) TLT reaction to BOJ. 4) ISM Manufacturing data.
Decide what you’re doing before the market opens based on your beliefs. Entry. Exit. Target. Define the risk of the position. Nothing more… Nothing less.
“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 develops 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.