Moving the markets on Tuesday was a carryover of positive momentum from last week as investors started to adopt a FOMO (fear of missing out) approach. Some short covering along with a positive outlook in the semiconductor and large-cap stocks pushed the indexes higher. One of the key issues for the market has been interest rates moving down the 10-year bond moved to 4.57% and the 3-year bond auction was positive on the day as well. The end-of-the-year rally is on… at least for now. Technically the NASDAQ moved above the down trendline from July highs offering further confirmation of the upside move. The SP500 index is trying to clear resistance at the October highs. Time will tell, but opportunities on the upside is in play and taking what the market offers. Bear flag patterns on charts broke to the upside and reversed the third leg lower, now looking for confirmation of the current move higher. We will watch how Wednesday unfolds… could pause and run as the 6.3% move in six days needs to find more money flow. The economic data remains questionable at best but optimism springs eternal. Solid day on the charts as the major indexes started higher and moved sideways throughout the day. Oil, precious metals, and oil stocks head lower on the day on speculation about supply. technology and consumer discretionary provided the leadership role for the day. The volatility index dipped lower as markets bounced pushing SVXY higher. Overall positive day as buyers remained engaged with stocks. Taking what the market gives and managing the risk.
Tuesday was a positive day for the markets overall as buyers remain in play along with rotation… The charts are not a picture of strength but the bounce is in play and we will take the good with the bad. The technology and consumer discretionary sectors led the day. Earnings have been good and bad turning it into a stock picker market. The complexity of the outlook for global economics, domestic economics, and uncertainty remains in the background as money chases the belief the Fed is done with interest rates. The major indexes were higher on the day as we view this as a relief bounce until the emotional trade is done. The S&P 500 index closed up 0.2%. The NASDAQ was up 0.9%. The SOXX was up 0.5%. Small Caps (Russell 2000) were down 0.4%. The ten-year treasury yield was 4.57% down 9 bps for the day. Crude (USO) was down 4.6%. (UGA) was down 2.2%. Natural gas (UNG) was down 2.6%. The dollar was up 0.4%. We are focused on managing the risk in the current environment.
Quote of the Day: “Clothes make the man. Naked people have little or no influence in society.” — Mark Twain.
Additional Charts To Watch
KBE/KRE – The banking sector is being challenged by higher rates. Despite the solid earnings from the sector the overhang of rates pushed both the money center banks and the regional banks below the October lows and renewed the concerns over balance sheets. As seen on Wednesday and Thursday the reversal in rates relative to the Fed’s statements following the FOMC meeting has reversed the trend in banks… both KRE and KBE were up nearly 5%. All is good for banks… no more financial issues with balance sheets… 🙂 Last two days show a test of the gap higher from last week… Looking for an opportunity on the test.
Sector Rotation And The S&P 500 Index
The S&P 500 index closed up 12 points to 4378 moving the index up 0.28% with below-average volume on the day. The index moved to resistance at the 4386 level and the October high. Four of the eleven sectors closed higher on the day with technology as the leader up 1.2%. The worst performer of the day was energy down 2.4%. The VIX index closed at 14.8 moving lower on the day. Plenty to ponder between the headlines and facts. The index needs to clear the resistance and then the down trendline from the July highs.
XLB – Basic Materials broke support at the $77 level reversed and back to resistance at $79.50. Needs to clear resistance to maintain the bounce. The sector was up 5% for the week. No Positions. Tested back to $77… previous support.
XLU – Utilities found support at the $56 level… bounced and broke resistance at the $60.15 level. The sector was up 5.3% for the week. Entry point offered on the break above resistance. Tested the move last few days.
IYZ – Telecom bottom reversal along with most sectors and cleared the $21.30 resistance. The sector was up 9.2% for the week. No Positions. Tested the move back to $21.30.
XLP – Consumer Staples Moved higher from the consolidation pattern to resistance at $69.30. Need to break above the resistance near term. The sector was up 3.2% for the week. No Positions. Holding near resistance.
XLI – Industrials bottom reversal in play $102.41 level to clear. The sector was up 5.3% for the week. No Positions. Testing the move higher.
XLV – Healthcare bottom reversal in play. $129 level to clear near term as it moved above the October lows. The sector was up 3.4% for the week. No Positions. Solid follow through with IBB showing positive move.
XLE – Energy moved back to $84.33 support bounced… $87.50 next hurdle and not looking great on the chart. Earnings were the downside catalyst. The sector was up 2.1% for the week. Moved below the $84.33 level of support offering a short signal.
XLK – Technology bottom reversal and solid upside move to lead for the week. The sector was up 6.6% for the week. Entry XLK $166. Stop $171. Solid follow-through upside.
XLF – Financials relief in interest rates moving lower sparks rally off the bottom. Gapped higher with a move above the $33.64 level a positive. The sector was up 7.4% for the week. Tested and held near $33.65.
XLY – Consumer Discretionary bottom reversal needs to clear resistance at the $163 level. The sector was up 7.1% for the week. No Positions. Holding the move higher.
IYR – REITs bottom reversal gains momentum on interest rate decline favoring the sector. Cleared $79.50 resistance eat the October high. The sector was up 8.7% for the week. No Positions. Testing the move higher.
Summary: The investor is buying into the rhetoric of the Fed being done… all is well scenario being played out in the media. The move on Tuesday added to the bounce off the lows giving the index a six day run to the upside. Watching how this unfolds near terms with some consolidation expected as seen in several sectors this week. On the positive side interest rates were lower again helping the psyche of the markets. The index moved back to the 4386 resistance level. For now, this is a relief bounce and could turn into the year-end rally many analysts are hoping and asking for… Patience is key. Entry points hit for upside trades as low-risk trades were available. The near-term move extended and watching how it unfolds with our stops in place. 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 121 points to 13,639 as the index was up 0.9% for the day. The index moved higher throughout the day. 13,618y level cleared along with the down trendline from the July highs. Solid move as the index takes on the leadership role near term. Patience and stops in play.
NASDAQ 100 (QQQ) was up 0.95% for the day as the mega-caps were positive again on money flow. The sector added to the upside and broke the down trendline from the July highs. Cleared $366.15 resistance and followed through. The sector had a positive bias for the day with 64 of the 100 stocks closing in positive territory for the day. Adjusted stops and let it play out. Entry $354.20. Stop $365.
Semiconductors (SOXX) The sector moved $473 on a bottom reversal. The sector was up 84% for the week. SOXL entry $448. Stop $468. Holding above the resistance line and looking for follow-through.
Software (IGV) bottom reversal moved above the $345 resistance to post a positive week. The sector was up 6.2% for the week. Test and follow through last two days. Added IGV $336. Stop $352.50 (adjusted).
Biotech (IBB) bottom reversal cleared $115 and $119 resistance levels. The sector was up 6.5% for the week. LABU Entry $115. Stop $118. Bounced… back above $119 and watching.
Small-Cap Index (IWM) bottom reversal with gaps higher and needs to clear the $176 level. The sector was up 6.5% for the week. No Position. Watching as the sector stalls at resistance.
Transports (IYT) bottom reversal bounce… all too many reasons for this to fail. Letting it unfold and take what is given. The sector was up 7.6% for the week. No positions. Solid reversal but testing currently.
The Dollar (UUP) The dollar dumped to end the week following FOMC rhetoric. Watching for a bounce this week. The dollar was down 0.8% for the week. No Positions. Topping pattern.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.66% down from 4.84% last week. TLT was up 4.3% for the week. Watching how the Fed manages the aftermath of the FOMC announcement. Yields driving markets short term on optimism around the Fed… slippery slope.
Crude oil (USO) Crude sold lower on worries about consumption. An increase in supply for the week was a concern and crude moved back near $81 a barrel. USO was down 4.4% for the week. Up and down activity all week. Dumped lower on Tuesday… watching how this unfolds.
Gold (GLD) The commodity remains in a topping pattern… the dollar is flattening and the outlook is positive. Expect some testing of the move near term. The metal was down 0.7% for the week. Added positions at $172. Stop $182. Managing the risk. Tested with some volatility.
Our longer-term view remains a downside bias as the upside trend from the October lows was broken. The current bounce needs to clear 4386 first and the down trendline from the July highs second. The short-term upside move last week is good, but leaves plenty of work to be done from a longer-term perspective. If the longer-term trend is to resume the short-term downtrend needs to reverse… The activity for the week is trying to bounce but has plenty of work to do. Nothing, as we all know, 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 plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate downtrend… the last eleven weeks’ short-term trend has offered downside trades… solid gains posted… now they have reversed offering some upside trades. The current bounce off the lows is in play but challenged by uncertainty in the economy and geopolitics. Current activity raises questions relative to direction and growth. We look to charts and fundamentals for some answers. 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.
Tuesday: Indexes bounced after a soft test on Monday. The technology and large-cap stocks took the leadership role in the bounce last week and remain in that role thus far. Watching how the bounce unfolds… maybe a relief bounce and some selling? Maybe the start of the year-end rally? Maybe speculation around the Fed? Whatever the rationale, the fact remains to follow the charts and manage the risk while waiting for the facts to confirm the belief over time. There is no lack of issues on the table with each taking their respective turn in the spotlight. There is a lack of leadership overall although tech made a good move along with consumer discretionary… Economic data is confirming the ugly outlook. I would expect the data to remain negative with the only real caveat being how negative it will be. We have put money to work short term based on the technical moves and we continue to manage risk and take what the markets give. Remember all upside moves at this point are relief rallies and we will treat them as such until they validate otherwise. Watching XLK, QQQ, SOXX, IGV as opportunities and leaders.
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.
Explore the following links for new pages that dig into data both In & Outside the markets. Jim’s insights highlight potential opportunities emerging from the current market environment. The pages also discuss the Reality of closed opportunities, whether they proved profitable or fell short of our expectations.