Weekend Profit Navigator Nov 15

Tickers discussed: SPY / QQQ / IWM /  VIX / $TRAN/  sector rotations /  Strategy update

The Weekend Profit Navigator provides a big picture stock market analysis for the week just past with a look ahead. Key levels and trading locations for the indexes are provided, along with trading plans and timely commentary to keep you on the right side of the trade.

Earnings

 

Market Factoids

Retail rushes back in

Put – Hate isn’t new; it’s been a hallmark of this market since March

Earnings sentiment and projections take off

Clean Energy ETFs for the watchlist

Jake from the group passed along this list of clean energy ETFs to consider tracking. The rise of ESG investing has made clean energy a magnet for new money inflows. This trend should continue.  While I have not spent time looking at these individual names, I plan to do so. Thank you Jake for the contribution!  This list is in order of AUM from highest to lowest.

  1. iShares Global Clean Energy ETF (NASDAQ:ICLN)
  2. Invesco WilderHill Clean Energy ETF (ARCA:PBW)
  3. First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN)
  4. ALPS Clean Energy ETF (EDGX:ACES)
  5. VanEck Vectors Low Carbon Energy ETF (ARCA:SMOG)

Industry Group Rotation

Here is a relative rotation graph benchmarking many of the key industry groups to SPX over the last 5 trading days.  Focus your attention to the RRG table ( second graphic ).  The groups in Green have rotated to leadership and the blue group is rotating towards improvement.  THe yellow and red groups are rotating toward the weakening and lagging quadrants.

Don’t ignore Foreign Markets

The performance of foreign markets rocketed this past week. We may be entering a period of outperformance by emerging, Asian, and European country ETFs. Below is the relative rotation table showing country specific ETFs benchmarked against SPX over the past 10 trading days.  Some incredible moonshots here.

 Percent above 20ema running hot.

Below are graphs showing the % of stocks above their 20ema’s in the various market segments. You can see that for small, mid, and SPX large caps they are running hot. It would not be unusual for a period of hesitation or gentle pull back to burn off the overbought conditions. Notice that for NDX the condition does not exist as performance has lagged.

$TRAN – Transports breakout

2 weeks ago we were concerned that transports might breakdown on the big test of support. Since then it’s been a moonshot as the index has broken above the recent consolidation area. No problems here!  The transport index is a great one to watch to gauge sentiment.

The $VIX Collapses

Vol continues to implode in the post-election environment. This week VIX closed below the lows seen in September and Early October.  The next level of support is at 20 which was last seen in the August time period.  While vol spikes from nowhere are always a possibility, the current trend and vol environment looks productive for equities in general.  Kudos to anyone who shorted volatility ahead of the election.  The post election Vol-collapse thesis has played out perfectly.

Cyclical Sectors lead

The positive vaccine news rocketed the cyclical and value names to the top of the leaderboard this week as the growth and momentum names lagged.  The graphic shows the sector gains for the week. Note that XLE / XLF  / XLI  ( cyclicals ) dramatic advance while XLK / XLY / XLC ( growth) lagged.

Looking at the Indexes

SPY Weekly

Price broke out to an all-time weekly closing high. That’s bullish. While bearish divergences are never welcomed they are not sell signals. They do warrant caution however. I handle this by keeping overall exposure under control and by regularly moving up stops and strikes as the advance proceeds. Don’t become complacent. Even though the price action is bullish, that can change on a dime. Don’t get hung out to dry.   A pull back to the breakout level would be a nice buying opportunity in / around the 350 area.

SPY Daily

If the breakout from the $35 trading range sticks, looking for a move toward $390 is well within reason as it is the technically derived measured move out of the consolidation area.

QQQ Weekly

QQQ has gone from leader to laggard over the past week. Laggard does not necessarily mean selling off…could trade sideways as IWM / SPY advances. If however, traders decide to use FAAMG as a “source of funds” as they migrate to more productive segments of the market, the Q’s would be vulnerable for a pull back.

QQQ Daily

Price is wrestling with the downtrend resistance line off the prior highs. THat said, the ema’s remain bullishly stacked to no immediate reason to go super-bearish. THe first sign of trouble would be for price to lose the 8ema in pink, then the 20 ema in blue.  What has happened over this period of consolidation is that the ema’s have caught up to price and are bunched rather tightly. It would not take a big point decline to have price be below the 20 ema or even the 50 ema. We’ll need to watch this closely this week.

IWM Weekly

Big breakout to finally take out the highs of 2 years ago. Simple set up. As long as price can hold 167.50 on a weekly closing basis the chart will remain bullish. Any back touch of the breakout level at 167.50 that holds would be a great entry for a long.

IWM Daily

Price has been consolidating above $170 after the big breakout.  Trader’s can stay long against $170 but a break below would favor a gap fill to $164.  If that were to happen, I’d be inclined to buy on that gap fill with a tight stop below. Any break above 177.50 sends price to new highs and would be a nice place to roll stops / strikes higher.

Pulling it all together

For simplicity I am going to bullet point the broad themes for the upcoming week.

  • Seasonality from here to Year’s end favors Bulls.
  • Breadth has broadened out as value / cyclicals are now participating in the rally.
  • QQQ seems poised to under perform. That can come as either sideways action or a pull back.
  • Look to XLF / XLI / XLE / XLB sectors for objective long set ups. I’d refrain from just going long anything. Look for an objective line to shoot against.
  • While Covid “dark winter” is certainly possible or even probable, I think the steady stream of anticipated positive vaccine news will counter-act it as market participants look past the current spike in cases.   What would change that view is if draconian lock -downs go into effect which I think is unlikely.
  • Continue to watch the USD.   Generally speaking, lower is bullish cyclicals / value, higher is more bearish.
  • Watch TLT.   Rising yields,( lower TLT )  or even holding recent moves higher will keep a bid in cyclicals.  A rising TLT would be more bearish.
  • Spend time looking at foreign ETFs / markets. We may be entering a period of extended outperformance in EEM and other markets vs SPY.  I will be reviewing charts and sending productive looking set ups.
  • If you are comfortable with short ideas, many of the stay at home darlings are selling off. ZM, PTON, W, etc.  You may find some juicy set ups in these areas.  Long cyclicals, short stay at home may be a pairs trade worth investigating.
  • Lean bullish SPY / IWM. More neutral QQQ.

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