September 2019 Technical Commentary

Brought over from our Trend Trading Signals Website


9/29/19 MARKET WEEK AHEAD, WEEK THREE OF MARKET ROTATION

QQQ was -1.78% for the week and SPY was -.97%. Under the surface, the split between 3 factors is becoming more evident:

DEFENSIVE AND HIGH YIELD STOCKS
The strongest groups continue to be in lower volatility, defensive names, with higher than average dividend yields.
Utilities (XLU), Consumer Staples (XLP), and REITs (XLRE), continue to trade in steady uptrends, very close to recently printed all-time highs. These groups also have high daily Relative Strength readings. It is noteworthy that the top holding in the Momentum ETF (MTUM) is Procter & Gamble (PG). Many funds have a mandate to keep a certain percentage of assets invested, which may help explain some of the strength in staples and utilities, as money is flowing into lower volatility, higher yielding industries. Other groups outperforming and in uptrends are Home Construction (ITB), Homebuilders (XHB) and Aerospace & Defense (ITA). Financials (XLF) are also acting well, and leader JP Morgan (JPM) recently made a new all-time high, this is also a group of interest.

GROWTH STOCKS
The momentum growth stock weakness continues with the FANG ETF (FDN) -3.5% on the week and below it’s 200 day moving average. SaaS (Software) stocks continue to break down with SHOP, TWLO and CRM, among others, continuing to weaken. Many of these stocks went on triple digit breakout moves over the last 12 to 18 months, and the reversion to the mean could continue. These stocks have unwound very fast and could bounce sharply at any time, but they have broken down for now for my time frame and I am continuing to avoid them, with no exposure to the group currently. Software ETF (IGV) was – 3.1% last week, is 9% off the highs and is testing it’s 200 day moving average. A break below could signal more weakness. In technology, semiconductors as a group (SMH) and the SOX index are near their highs and in uptrends, and QQQ itself is steadier, at 4% off the highs and above it’s rising 40 week moving average. Many tech charts that I analyzed this weekend are weaker than the index itself, and the fact that MSFT, AAPL and GOOGL, which comprise 31% of QQQ, are near their highs, may be masking some weakness under the surface. Many tech names are oversold, but in downtrends and below their 200 day moving average, so I am observing the group closely, as it is always one of my key focus groups.

CYCLICALS
After a sharp rotation two weeks ago, energy services (XES) and industrial metals (XME), my two key focus groups here, have consolidated sharply, but are now reading oversold and holding above their recent lows. If recent lows hold, then this could prove to be a good reward vs risk scenario going forward, as these groups have sold off extensively over the last 12 to 18 months. If recent lows break, then a bottom is still yet to be found. I have smaller exposure here for now.

CHINA AND EMERGING MARKETS
These markets continue to trade in a range, and my only exposure here continues to be China A-shares (ASHR). China internet names, a core group for me, are trendless, and while some names have been showing some promise, the ETF (KWEB) is below it’s 200day moving average and there are very few uptrends in the group.

The best uptrends for my time frame currently are QQQ and Utilities, Consumer Staples, REITs, Home Construction and Aerospace/Defense.

U.S. TREASURIES AND GOLD
10 year UST yields, (TNX) continue to be in a downtrend, closing the week -4.56% at 1.675, and below the declining 200, 100 and 50 day moving averages. 1.90 and 2.00 continue to be key levels overhead. TLT continues to be in a long term uptrend, and is above the rising 50/100 and 200 day moving averages.

Gold closed the week -.57% at 1506, and while above the rising 50, 100 and 200 day moving averages, trade below and is testing the 50 day for the first time since May. Gold is in an uptrend, and key levels for my time frame are 1500, 1450 and 1400.
CRUDE OIL continues to trade in the $50 to $60 range, closing the week -3.75% at 55.91.

**CURRENT KEY FOCUS GROUPS**
US Tech, Utilities, Staples, Home Construction, REITs, Gold & Gold Miners, US Treasuries, Energy Services, , Industrial Metals and EuroZone Banks

SUMMARY
Core positioning is fairly moderate here at 20% USTs, 20% Gold/Miners, 35% Equities/ETFs and 25% cash. I am monitoring the rotation in various markets closely, but when high volume sharp range expansion occurs, my best approach is to have less exposure and activity until key trends start to emerge and/or resume.

-LMT

9/22/19 MARKET WEEK AHEAD, WEEK TWO OF ROTATION FROM MOMENTUM INTO VALUE

Last week was fairly quiet with SPX -.51% and QQQ -.90% for the week. The rotation out of momentum stocks continued through week 2, as leading momentum names SHOP and ROKU, among others, broke down further. Various Wall Street research reports published charts showing that the divergence between momentum and value factors had reached historic levels, and any reversion to the mean could take some time to work through. Over the last two weeks I have reduced my exposure in momentum names to only two as of now, dialed back net exposure and have rotated money into traditional value spaces, such as energy services, metals & mining, steel and EuroZone banks. If these opening positions start to work, I am looking to add on a scale up basis. I am not looking to add any exposure at all in the momentum stock space currently, as that trend has broken down for now for my time frame. I am not making any predictions, or proclaiming the end of the momentum stock run. It could resume at any time, and there could be very sharp rallies along the way, but for now, with the high volume breakdowns below key price levels and moving averages, I have taken a wait and see approach to the price action there and not looking to actively add or trade these names currently.

JP Morgan (JPM) traded at a new all time high last week, which is noteworthy in this period of extremely volatile interest rates, which are in a downtrend. Many have tried to make fundamental assumptions about the effects of lower rates and an inverted yield curve with regard to banking stocks, but JPM at new highs sends a clear signal. A core name for me over the years, I am monitoring the money center bank space closely. Semiconductors (SMH) and Homebuilders (XHB) also continued their uptrends.

10year UST yields closed the week at 1.755, -7.78%, and just below the declining 50 day moving average. US Treasuries are still in an uptrend and yields are in a downtrend for my time frame, so I am still holding a core long position. Gold and Miners are also still in an uptrend for my time frame, and both are above their rising 50 day moving average, so I continue to maintain my core long positions there. China A-shares continue to improve and I am holding smaller positions there and in Bitcoin. China Internet names continue to improve, as noted last week, and that group is high on my focus list.

I am watching the price action very closely in the momentum stock and value spaces, to see if there is continued follow through here. If this is the start of a major cycle rotation into value, and this still remains to be confirmed, than I believe there could be significant upside potential in many cyclical names and out of favor industries as discussed above. I am scaling in so far and will see if price confirms with a series of higher highs and lows. Also, any pullbacks, which could be sharp, need to hold above recent lows for the longer term reversal process to be in place.

**CURRENT KEY FOCUS GROUPS**
US Tech, Gold & Gold Miners, US Treasuries, Energy Services, China Internet, Industrial Metals and EuroZone Banks

–LMT

9/16/19 MARKET WEEK AHEAD: S & P 500, POSSIBLE ROTATION FROM MOMENTUM INTO VALUE, BOND YIELDS, GOLD MINERS AND CRUDE OIL
EQUITY MARKETS
Last week was eventful across many markets. The S&P 500 (SPX) was +.96% and closed at 3007, less than 1% from an all time high. Nasdaq was +.91% and closed at 8176, less than 2% from all time highs. Under the surface, there were big moves down in high Relative Strength momentum stocks, which have been top performers year to date, while money rotated into some of the year’s worst performers, mostly in the “value” stock category. The Application Software group, one of the leaders for the last two years, had many breakdowns with top performers like Alteryx (AYX) -21%, Paycom (PAYC) -16% and Shopify (SHOP) – 11% for the week. This group as a whole was weak, although mega cap techs held up well. Of the 20 worst performers last week, with a market cap over $10 Billion, all were positive for the last 12 months.

Money seemingly rotated into many out of favor names. Of the Top 20 performers for the week, with a market cap over $10 Billion, 19 of those names were down over the prior 12 months. The sharp moves were likely a combination of both short covering and also fresh buying. In either case, the moves were significant with Energy ETF XES +7% and Industrial Metals ETF XME +8%.

The sharp, high volume drops in the Application Software space are noteworthy and are technically not constructive. I reduced net exposure and while I am still holding some positions, the exits are not far off. The high volume drops are indicative of big money moving out of the space, at least last week. In the ‘value/cyclical’ sectors, I am focused on Energy names, especially E&P and Energy Services, (XES, XOP, NE, HAL, RIG, SLB), Industrial Metals, Steel, Copper and Aluminum (XME, SLX, COPX, AA, MT, FCX, AKS, SCCO) and EuroZone Banks such as Deutsche Bank (DB) and SocGen (SCGLY), both having reclaimed their 40 week moving averages, after falling beneath them in early 2018. From a technical, trend following perspective, the reclaim of the 200 day moving average, after such a long time below, is a key signal. These spaces, Energy, Metals and EuroZone Banks, have all been in major downtrends, so holding above recent lows is key.

One week does not make a trend, but trends can start at any time, and the high volume, sharp moves in momentum and value names last week could be the first signal. I am monitoring these markets daily and the primary data I am monitoring is how they handle any near term reversals (pullbacks in value and rallies in momentum) and for the emergence of an uptrend of higher lows and highs in the value names, and the beginning of a downtrend of lower lows and highs in the momentum names.

Another group that is moving higher up my focus list is the China Internet names, with ETF KWEB +2.9% on the week and closing above it’s slightly rising 200 day moving average. Many names in this group have reclaimed their 200 day moving averages, and the 200 MA has also turned up in many names, indicating a positive longer term price trend. Focus names include ASHR, BABA, BZUN, EDU, HUYA, JD, KWEB, TAL, TCEHY, VIPS. Noteworthy that China A-share ASHR is also acting well above it’s rising 200 day moving average.

I am still positioned heavily long in Tech, with QQQ near all time highs, Leaders such as Microsoft (MSFT) and Apple (AAPL) have been strong recently and Semiconductor ETF (SMH) made a new all time high, which is technically bullish. Homebuilder ETF (XHB) also made a new 52 week high. Homebuilders and Semis leading is considered a bullish sign.

BOND MARKET
10 year U.S. Treasury Yields spiked sharply last week, up from 1.55 to 1.90, a massive move, and the Treasury Bond ETF (TLT) was -6% on the week. 10s closed strongly, at 1.90, and above their declining 50 day moving average at 1.79, and a test of 2.00 could be in the cards. The 2.00 level was tested often in July, before price broke below it and 2.00 continues to be a key pivot point to watch. I booked partial gains in Bonds last week and dialed back my exposure from any shorter term positions, and still holding my longer term positions. I am watching the 2.00 level closely as the final line in the sand. Weekend news events have pushed yields down to 1.83% currently, 10 year yields have become very overbought on the daily chart and TLT has become very oversold, so I am monitoring for any moves back into the longer term trend here. I am still long in this group as the longer term trend in bonds is higher for now. A close above 2.00 in 10 year yields would put this uptrend under pressure.
GOLD AND MINERS
Gold closed the week -1.06% at 1499, but still above it’s rising 50 day moving average and is oversold on the Daily chart. Gold Miners ETF (GDX) is very oversold as well, and closed below it’s rising 50 day moving average. I am still long in this group, as the longer term trend is higher on my charts. 1400 and 1450 are key longer term support levels on any further pullbacks.

CRUDE OIL
Weekend news events have pushed WTI crude oil currently +9% at 60.21, a massive spike from Friday’s close. As noted on Twitter, I closed my crude oil short (USO) early last week, and have no positions in the physical here. $60 in WTI Crude is the key price level that I have been monitoring this year, but have no plans currently in this market, other than through Energy equities.

RECAP
The last week has seen very sharp, high volume moves across the board in U.S. Treasury Bonds and yields, high growth momentum stocks, out of favor value stocks and now Crude Oil. As stated prior, one day or week does not make a new trend, but they can start or end at any time. The high volume moves in equities are noteworthy and something that I am tracking for any follow through. I am also monitoring for any reversal in USTs and Gold/Miners back into the longer term trend, or not. In times of higher volatility, I prefer to reduce exposure and activity until I can get a better read on the market moves.
**CURRENT KEY FOCUS GROUPS**
US Tech, Gold & Gold Miners, US Treasury Bonds, Energy, China Internet, Industrial Metals and EuroZone Banks
—LMT

9/08/19 OVERVIEW AND PLATINUM BREAKOUT
My core focus groups continue to be Tech, US Treasuries and Gold and Miners (QQQ, TLT, TMF, GLD, GDX). China Internets (KWEB) are improving, as many names are above their rising 200 day moving averages, indicating an improving longer term trend. The China Internet ETF (KWEB) is trading just over it’s flattening 200sma and I am monitoring it closely. The Energy equity space is also holding over recent lows, (XOP, XES, OIH) and although the space has been in a steep downtrend, recent lows were tested and held and I continue to believe that the potential reward vs risk continues to be favorable here.

Platinum recently broke out to a new 52 week high and tested the $1000 level last week before backing off. 880 to 920 is key support on any further pullback. Silver has also broken out, and while it is a very volatile market, with sharp pullbacks, the breakout is bullish technically.

The application software space, a favorite for many years, is showing some weakness, with WDAY rolling over below it’s 200 day moving average. Other names that are oversold above key MAs but showing shorter term weakness are ZS, VEEV, TEAM and TTD. I am monitoring the group. SNAP and MTCH are two names of interest here.

LMT
9/02/19 AUGUST RECAP/SEPTEMBER LOOK AHEAD
August was a very strong month in current open positions, with core positions (over 25% weightings) in US Treasuries and Gold & Miners up nicely. TMF +35%, TLT +11%, GDX +12% and GLD +7%. Smaller positions in QQQ -1.9% and the crude oil short position in USO was +4.8% as crude oil declined in August. A small position in GBTC (Bitcoin) was -14% and ASHR – 2%.
Top single stock winners were ROKU +46%, SHOP +21% and AYX +21%. Top losers, which I also exited, were SQ -12% and WDAY at -9%. The ETF positions had the biggest impact as they are much larger than the single stock positions.

Coming in to September, I continue to be positioned heavily long US Treasuries, Gold and Miners and US tech. The trend is still up in all three groups for my time frame and I continue to view them as buyable on the pullbacks and breakouts. I have been positioned long in UST via TLT and TMF since 10y yields were in the 2.50% range in April 2019, and as long as rates stay under 2.00, the trend continues to be down. The key level for Gold is $1,400, which was resistance for over 5 years and now should provide a floor to trade against on the long side. These trends could reverse tomorrow, but my strategy is to continue to hold and trade uptrends from the long side until the trend reverses.
U.S. tech continues to be another key focus area for me, and I am positioned heavier in application software and semis. The mid to slightly larger cap names continue to perform better than the mega cap names and FANGs, which have been in a range for a year now.

China internets and the US Energy sector have moved up on my radar screen/watch list, and I started a small position in an Energy ETF, XES. Many energy names are in downtrends and making twenty plus year lows. I rarely venture under the 200 day moving average, I am not calling a bottom at all, and the group could have much more downside, but the potential reward vs risk math is favorable enough to start a small long position.
If the position starts to work, I will add on the way up, and cut it if it starts to head lower and hits my stop.
My trading process is to add to winners, and cut losers, so I won’t be chasing the group down if it continues to unwind.

THE INVERTED YIELD CURVE AND ECONOMIC FORECASTS
Simply stated, I don’t trade off the yield curve and pay very little attention to any of them for many reasons:
1. It has no value as a timing tool.
2. It is a very poor predictor of future market direction in the intermediate term, as equity markets have rallied strongly in the past for over 12 months after the curve inverts.
3. I trade each market off it’s own chart.

There have been numerous posts and media coverage that an inverted yield curve often precedes a recession and often leads to a bear market. So be it. Recessions and bear markets are a normal part of any business/market cycle. The chart of each market is a significantly better trading tool and timing indicator than the yield curve, so to me, the curve is of no value. When it all goes bad, markets and leading stocks will roll over, break below key levels and moving averages and enter a downtrend. That is what I focus on.

I also see no value in economic forecasts or predictions of what markets will be doing in 12 to 18 months. Trying to predict future market moves often takes the focus off current price action, which is most important. I focus on being positioned properly right now, and being on the right side of the big moves, while protecting the downside daily.

I will continue to trade the uptrends from the long side until they stop working , and then find new uptrends. If there are no uptrends, than I will focus on the downtrends.

LMT

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