Overseas markets were lower overnight on the chatter of Covid variants and the ECB. The S&P 500 is lower by over 60 handles in early NY cash trading.
US equity futures were lower overnight ahead of the cash open with several headlines moving the market; the ECB confirms that they are raising their inflation goal to 2%, there is talk of Covid variants, and a potential spectator-free Olympic games. It is one of those mornings. To put matters into perspective, let’s take a look at a daily candlestick chart of the S&P 500.
Figure 1 - E-Mini S&P 500 Futures March 13, 2021 - July 7, 2021, 8:42 AM, Daily Candles Source stooq.com
After the slow grind higher, we finally have a meaningful pullback so far at the open today. It was hard to see that one coming, and we will find out if the pullback has any legs to it throughout the day. The 50-day SMA is still quite a distance away (4214.14), so I would not be in any rush to buy the index here, and also don’t see any reason to get emotional and sell into it, either.
Figure 2 - Ten-Year Treasury Note Yield September 16, 2020 - July 7, 2021, 9:04 AM, Daily Candles Source stockcharts.com
It is a somewhat rough open today, with capital fleeing into Bonds (even further) and the S&P 500 opening down ~1.4%. Is rushing into buying bonds (expecting lower yields) the right thing to do right now?
I don’t think so. Taking all of the emotion out of the market, the 10-year note yields are in oversold daily territory and hitting a 61.8% retracement level, with the 200-day moving average in sight.
Yesterday, the ten-year yield gapped lower and looked like it was putting in a low, with a doji candle formation after gapping down on the session. As it turns out, today may be an even more favorable day to consider getting long interest rates in one shape, form, or fashion.
Speaking of bond yields, we examined them yesterday, and they are indeed lower again this morning. We looked at TLT, and let's take a look early this morning.
Figure 3 - TLT iShares 20+ Year Bond ETF September 10, 2018 - July 7, 2021, DailyCandles Source stooq.com
This potential head and shoulders (long-term) formation in TLT has a left shoulder high of $148.90. We are currently trading higher than this as I write this, at $149.24. It is up by 0.83% on the day so far. It is not the biggest up day in the world, but not too much fun when short from $148.00.
Emotions and trading do not mix. Today, all of the talking heads are making it sound like the sky is falling with capital moving out of stocks and into bonds. The SPX was up for eight of the last nine sessions, I believe, and the index is currently trading where it was last Monday. Is that really a big deal? That is why I love to consult the charts and technicals; there is no human emotion in there.
Another key observation: The Ten-Year note yield has not had a daily RSI(14) level this low (29) since the Covid-19 meltdown. Oversold much?
When taking a look at the early morning action in TLT, I really think the possibility exists that we were one day early. The not so good news is that we are above the 200-day moving average of $148.39, and currently above the left shoulder in the potential long term head and shoulders formation of $148.90.
It is early in the session though, and I feel like emotion is driving these interest rates lower (therefore TLT higher). If not already short TLT, consider making today the day. RSI dailies are near 74 right now and that doesn’t happen often.
A suggested risk to this trade is to a 2nd daily close above $153.16. I am currently eyeing $139.50 - $141.25 as potential take profit levels. Always use a stop loss level that caters to your individual risk tolerance. These levels can fluctuate, so please stay tuned.
To sum up the current viewpoint and opinion:
I have BUY opinions for:
- SPDR S&P Bank ETF (KBE) between $48.11 - $49.39/$50.00. Update 07/08: Banks are taking it on the chin today along with the broader market and lower interest rates. I am looking for some time to pass to see if this emotionally charged phenomenon is short lived. Always use a stop loss level that caters to your individual risk tolerance.
- Defiance Quantum ETF (QTUM) between $44.00 - $49.50. Update 07/08: We have a pullback to approximately $48.14 today here. Consider using a pullback to get long, if you believe the broader market selloff will be short lived. This one wants to break $50.00 ultimately - it is close. This is a play in automation, robotics, and AI. Try to get it on a pullback instead of buying the very top of the range. Always use a stop loss level that caters to your individual risk tolerance.
- Amplify Transformational Data Sharing ETF (BLOK) between the 200-day moving average and $40.00 200-Day Moving Average is currently $41.34Update 07/08:Waiting for pullbacks, still. Bitcoin is lower hard today, but I would only approach this near the 200-day moving average and a large flush in crypto. Wait for the pullback. Always use a stop loss level that caters to your individual risk tolerance.
- Invesco MSCI Sustainable Future ETF (ERTH) between $65 and $66. Update 07/08: Here we are trading near $66.00. This is a good play with the current administration and has been good to us so far. Always use a stop loss level that caters to your individual risk tolerance.
- Invesco Exchange-Traded Fund Trust - S&P SmallCap 600 Pure Value ETF (RZV) on pullbacks. Update 07/08: Taking some heat here with the small-caps being out of favor prior to today and now today’s broader pullback since the entry of $93.88. Consider using today’s pullback to get long, if you are not already. Always use a stop loss level that caters to your individual risk tolerance.
- iShares Global Timber & Forestry ETF (WOOD) Initial buy idea zone between $79.07 and the 200-day moving average ($80.94 as of 07/01). Update 7/08: No change in outlook here and this one has held up very nicely. Look to add the 2nd tranche between $81.24 (200-day SMA) and $80.00. Always use a stop loss level that caters to your individual risk tolerance.
- Invesco Solar ETF (TAN) Update 07/08: Down with the broader market and a break below the 200-day MA. If you have been following along, this is a favorite for a long-term holding in the current environment. It has been good to us and consider buying pullbacks if not already on board. Always use a stop loss level that caters to your individual risk tolerance.
- First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID). Update 07/08: No change to outlook, it has been good to us. Hold longs and consider a pullback to $90 level for potential entries if not already long. I like this one for a longer term-swing trade or longer-term holding. Always use a stop loss level that caters to your individual risk tolerance.
I have SELL opinions for:
- iShares 20 Plus Year Treasury Bond ETF (TLT) when $TNX trades 1.291% or at the 200-day moving average of TLT ($148.47) / $147.75 - $148.47. Update 07/08: see above for today’s viewpoint. Always use a stop loss level that caters to your individual risk tolerance.
I have a HOLD opinion for:
Thanks for reading today’s Stock Trading Alert. Let’s stay unemotional and disciplined on days like today, while keeping a watchful eye on the markets we are monitoring. Have a great day!
Stock Trading Strategist