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Encouraging news from the China trade negotiations buoyed the market this week. The Standard and Poors 500 Index (SPX) opened Monday at 2944, but declined on Monday and Tuesday to a closing low on Tuesday of 2893. Then the bulls started hearing positive rumors from the China trade negotiations and the market rallied the balance of the week, with SPX closing Friday at 2970, up 2.7% from Tuesday’s close. Don’t get too excited yet. SPX gapped open Friday morning and traded as high as 2993, before fading into the close at 2970. This resulted in the classic “evening star” candlestick on Friday. This was matched in the Nasdaq 100 and the Nasdaq Composite, but less so for the Dow or the Russell 2000 indices. The evening star often signals the top of a bullish trend, predicting a possible bearish reversal. Watch the trading closely next week to confirm this signal. Trading volume in the S&P 500 companies ran below average all week and barely made it up to the 50-day moving average (dma) on Friday. The lower volume continues to stand as a caution flag for this market. The bulls are buying, but they are also taking profits.

VIX, the volatility index for the S&P 500 options, spiked back up to 20.3% on Tuesday’s bearish price action, but traded lower the balance of the week, closing at 15.6% on Friday. This is a borderline level of volatility. Remain circumspect.

The Russell 2000 Index (RUT) tried to match recent lows on Tuesday’s market weakness, but bounced back the rest of the week, closing at 1512 on Friday. Friday’s price action broke out above the 50 dma at 1512 and then touched the 200 dma at 1527 before pulling back to close at the 50 dma. Russell’s bearish trend for the past several months remains a significant cautionary sign for the overall market.

The NASDAQ Composite index mimicked the S&P 500 price action this week, trading much higher after Tuesday’s down day, gapping open Friday morning, trading through the 50 dma, and closing up 106 points at 8057. The cautionary news is that the intraday high was one hundred points higher at 8116. NASDAQ trading volume was below average all week, but managed to break the 50 dma on Friday.

This week was typical of recent market activity with wide swings almost daily, based on the latest rumors and/or news (although it is often difficult to distinguish the two). Tuesday’s trading looked ugly, but then the market stabilized, traded higher Wednesday and Thursday, and then turned in a large gap opening higher Friday morning. All the financial news anchors were euphoric. Recall that they were all repeating “manufacturing recession” ad nauseum last week.

Encouraging reports from the trade negotiations with China helped turn the tide in the market this week, but Friday’s fade late in the day underscores traders’ nervousness. They took profits when given the chance. Don’t let Friday’s price action get you too excited. We may not have seen the worst of this market and I expect the volatility will continue. This week’s optimism was based on reports of positive progress in negotiations with China, but that could easily be overturned by next week’s news.

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The trade war with China continues to haunt this market. The result is a sideways market with sudden and unpredictable twitches on the latest trade negotiation news. The Standard and Poors 500 Index (SPX) attempted to match the July highs in mid-September, but turned lower and declined modestly for about ten days before plunging on October 1st and 2nd. SPX declined to 2856 on Thursday before bouncing and recovering over half of the previous day’s losses. SPX gapped open Friday morning, broke through the 50-day moving average (dma) at 2942, and closed up 41 points at 2952. This particular market tantrum appears to have ended, but the storm will continue until we get confirmation of a China trade deal. Trading volume has generally remained below average for the past couple of weeks with a notable exception on Wednesday as we hit the lows for the week. Volume declined Thursday and Friday as the market recovered. The bulls have not given up on this market, but they are clearly nervous, and definitely not “all in”.

VIX, the volatility index for the S&P 500 options, opened the week at 17.2%, spiked to an intraday high of 21.5% on Wednesday, and then declined to close Friday at 17.0%. This remains a moderately high level of volatility that is worthy of caution.

The Russell 2000 Index (RUT) steadily trended lower from its high of 1585 on September 16th to a close of 1480 on Wednesday for a decline of nearly 7%. Russell is by far the most bearish of all of the broad market indices. Thursday’s intraday low at 1462 was close to the lows in August around 1456. RUT closed higher at 1500 on Friday, but remains about 1% below its 50 dma at 1521 and its 200 dma at 1523.

The NASDAQ Composite index lost about 5% in this pullback. NASDAQ bounced on Thursday, finding support at the lows from August and its 200 dma at 7720. NASDAQ closed Friday at 7982, up 110 points, or 1.4%. NASDAQ’s trading volume spiked on Wednesday’s gap opening lower, but ran at or below average the rest of the week.

This was a scary week for the markets. That gap opening lower on Wednesday spooked me, but when the broad indices recovered somewhat near the end of trading on Wednesday, I saw a glimmer of hope. That was confirmed on Thursday with the long lower candlestick shadows on all of the broad market indices. Traders saw those lows as a buying opportunity and that continued into Friday.

The bottom line for this market has not changed. The trade war with China and political squabbling are making traders nervous. The entertainment and scare mongering that masquerade as financial news was revved up on Wednesday as talking heads on the financial networks breathlessly repeated “manufacturing recession” all day. I long for the old days of neutral, but boring, financial anchors.

Nervous institutional traders hit the sell button on the basis of the lamest of rumors and investigate later. But then they quickly jump back on board lest they miss out on the gains.

It pays to be cautious and focus on solid blue-chip stocks. The following stocks remain above their 50 day moving averages and have made solid gains in this week’s otherwise scary market: NEE, EQIX, INVH and TGT.

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The market was on edge this week as the FOMC met on Tuesday and Wednesday and issued their announcement of a quarter point rate cut. This created some price volatility on Wednesday, but it appeared the net market assessment of the move was moderately positive. Then the other market hobgoblin, China trade negotiations, hit the markets on Friday. The Standard and Poors 500 Index (SPX) opened higher on Friday, traded up to 3016 and held a positive gain until about 1:00 pm ET, when news hit the wires of the Chinese trade delegation cancelling a trip to Montana. SPX fell off rapidly and closed at 2992 for a 15-point loss on the day.

Trading volume continues to tell a bearish story in these markets. Even in the earlier part of this week, when price action was moderately positive, SPX trading volume was below the 50-day moving average (dma) and declined all week. Friday’s spike higher was an anomaly based on options and futures contract expiration. As the bulls drive this market higher, they do so carefully. They are not “all in”.

The volatility index for the S&P 500 options, VIX, opened this week at 14.9% and closed Thursday at 14.0%. But Friday’s China trade panic pushed volatility up, closing up 1.3 points at 15.3%.

The Russell 2000 Index (RUT) has traded far more weakly than its big brother indices all year. Russell surprised us with a strong 7.4% run higher from September 4th through this past Monday when it closed at 1585. The rest of this week has been a series of red candlesticks on my chart (maybe they are black on yours). Russell closed Friday at 1560, down 2 points. It was a tough week for small to mid-cap stocks and those are the stocks that lead bull markets.

The NASDAQ Composite index was almost perfectly flat this week, opening at 8122 and closing Friday at 8118. NASDAQ’s intraday lows came close to the 50 dma on Wednesday and Friday, but recovered to close higher. The 50 dma is the line in the sand to watch for NASDAQ. NASDAQ’s trading volume was below average all week, but it spiked significantly on Friday, due to options and futures contracts expiring.

The financial news has been filled with discussions of impending recession for the past several weeks. Journalists of all stripes, including financial journalists, now regularly show their political bias in their writing. Econ 101 will define a recession as two consecutive quarters of negative GDP growth. Given our GDP growth of 2% to 3% over the past two years, talk of a recession is puzzling. This week’s Fed meeting provided additional support for a positive economic outlook.

Chairman Powell went out of his way during the news conference to deny that this latest rate cut was a reaction to prevent a recession. His comments were in reaction to several media questions asserting the danger of an imminent recession. Powell said the rate cuts were designed to “insure against downside risks to the outlook from weak global growth and trade tensions”. He clearly stated that the current economic data do not support any talk of a recession or a forecast of a recession.

Friday’s markets illustrated the price volatility I have repeatedly discussed over the past several weeks. This week’s markets were relatively calm and the price moves were modest, even surrounding the Fed announcement. That changed in a flash around 1:00 pm ET Friday, based on a change in the China trade delegation’s travel plans while here in the states. There could be good reasons for that change of plans, but no one seems to know. Traders assume the worst and sell.

As I have written in earlier newsletters, Traders exit the market in volume on the least provocation. This market remains nervous and therefore dangerous. It pays to be cautious. I am focusing on solid blue-chip stocks whose prices have held up reasonably well as we hit these down drafts, e.g., DHI, JPM, KLAC, LMT, MLM, SYK, TGT, TWTR,  and VMC.

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The trade negotiations with China remain the principal worry for the markets. The political turmoil appears to be a minor irritant at this point. The result is a sideways market with sudden and unpredictable twitches on the latest trade news. The Standard and Poors 500 Index (SPX) closed today at 2962, down 16 points. The candlesticks of the past four days of trading have long lower shadows, suggesting the market is finding support from the 50-day moving average (dma) at 2949 and the May high at 2952. Trading volume continues to reflect the market’s uncertainty, remaining below the 50-day moving average (dma) all week. The volatility index for SPX, VIX, closed at 17.2%, up about 1.2 points today. This is a moderately worrisome level of volatility. Stay attentive and be cautious.

The Russell 2000 Index (RUT) put in its second week of steady declines, closing at 1520 today, down 2.4% this week alone. Today’s price action was particularly worrisome, breaking down through the 50 dma and closing on the 200 dma. The only positive note is that Russell broke through the 200 dma in late afternoon trading, but recovered to close right at the 200 dma. Technical analysts have always regarded a break of the 200 dma on a stock or an index as very bearish.

The NASDAQ Composite index came close to trading as bearishly as Russell, losing 2% of its value this week as it closed today at 7940, down 91 points. NASDAQ flirted with its 50 dma all week, but decisively broke it today, closing a little over 100 points below the 200 dma at 8041. With the exception of Tuesday, NASDAQ’s trading volume ran below average all week.

Chairman Powell’s news conference appears to have finally squashed all of the recession talk. Now the “sky is falling” crowd can better focus on the trade war with China.

Regardless of which index you prefer to follow, this was an ugly week for the markets. The only glimmer of optimism might be derived from the S&P 500 chart as the index repeatedly appeared to find support on the 50 dma. The long lower candlestick shadows the past four days may not be strong bullish signs, but they show significant support. The large institutional traders have not yet thrown in the towel.

The bottom line for this market has not changed in my opinion. Traders are nervous and exit the market in volume on the least provocation. It pays to be cautious and focus on solid blue-chip stocks. I found it interesting today to see a few stocks defy the overall market and post gains: HAS, RH, FSS, AME and ROST.

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This was a shortened week due to the Labor Day holiday, but the bulls came out in strength. The Standard and Poors 500 Index (SPX) opened Tuesday at 2909, and closed today at 2979, an increase of 70 points or +2.4% in a single week. SPX had been caught in a trading range from 2822 to 2940 since August 8th, but the market gapped open strongly Thursday morning and solidly broke through the 50-day moving average (dma) at 2944. Lest we get ahead of ourselves, trading volume remains weak. Volume remained below the 50 dma until Thursday, but only touched the average then and dropped back lower today. As the bulls drive this market higher, they do so carefully. They are not “all in”.

When we plot the Bollinger bands on the SPX chart with two standard deviations above and below the 20 dma, it makes the significance of this move more apparent. SPX started the week near the center of the bands, but Thursday’s price spurt closed outside the upper edge of the Bollinger bands, a relatively rare event. And SPX maintained just enough bullish price action today to close right on the upper edge of those bands. From a statistical, random walk point of view, it will be hard for next week’s market to match this week’s strong climb higher.

The volatility index for the S&P 500 options, VIX, opened this week at 21% and closed today at 15%. I regard 15% as the “line in the sand”. Volatility levels below 15% are relatively benign, but I start to raise the caution flag above that level. So we are right on the edge: not panicky, but not calm either.

It is old news to observe that the Russell 2000 Index (RUT) continues to trade far more weakly than its big brother indices. Whereas SPX gained 2.4% this week, Russell’s close today at 1505 represented an increase of only 0.7% for the week. RUT is bouncing off resistance at its 200 dma. That is weak. Russell would have to gain 7.3% just to return to its May highs. And those May highs are far from the all-time high set in August of last year at 1741, almost 16% above today’s close. These small to mid-cap stocks are the “risk on” stocks – a sobering thought.

The NASDAQ Composite index ran parallel to the S&P 500 index this week, opening at 7906 and closing today at 8103, up 197 points for the week or +2.4%. NASDAQ gapped open on Thursday and solidly broke out above the 50 dma, but it gave back about 14 points of those gains today. NASDAQ’s trading volume ran below the 50 dma all week, and was especially low today. The same thing occurred last week and I attributed it to the holiday weekend. This isn’t the beginning of another holiday weekend. The bulls may be buying, but they are playing safe.

The China trade negotiations continue to be the principal worry for traders. We are caught in a particularly dangerous market. It will spike higher or lower in seconds on the basis of a tweet or even a rumor. But this market recovers quickly from each rumor or tweet inspired panic, demonstrating a fundamentally bullish posture. Traders exit the market in volume on the least provocation. It remains a twitchy, and therefore dangerous, market.

In my trading group, we play moderately conservative trades. The riskiest trades we enter are plays on a stock’s earnings announcement. These trades are riskier than our usual trades simply because they are binary trades – you are either right or wrong. There is no time to hedge or adjust the trade. It is over in 24 to 48 hours.

Earnings trades may be thought of as relatively safe in this volatile market. Getting in and out quickly has a certain appeal. The overall market’s twitches are less relevant to these trades. Hence, we only entered three trades this week: two earnings trades on PANW and one earnings play on LULU. I closed one PANW position the next day for a 61% gain. The other PANW trade and the LULU trade will expire worthless this weekend for gains of 18% and 14%, respectively.

This is analogous to the day trader. We commonly think of day trading as very risky, but at the end of the trading session, the day trader is safely out of the market. When we are in a volatile and unpredictable market, entering and exiting quickly has its merits.

Limit your trading to stocks that are demonstrating steady strength in the midst of this volatile market. I believe the following stocks meet those criteria: CMG, CTAS, HSY, ICE, and SBUX.

My advice remains the same. Position your stops conservatively and don’t hesitate to trip those stops. Don’t wait and hope in this market.