Traders Are Getting Chopped Up … Here’s the Plan for the Week Ahead

Some winners are starting to emerge from the choppy stock market range

While last week for U.S. stocks was all about corporate earnings reports, this week it is economic data points that will likely take the lion’s share of focus on the part of investors and traders. Largely speaking stocks continue to trade in ranges, but some winners are starting to separate from the crowd, one area being the utility stocks.

stock market today

The week ahead is full of macro data, from the FOMC meeting on Wednesday to Friday’s April jobs report and more. This will matter to rates and the dollar, and thus also to stocks. Have you noticed that the U.S. dollar staged a meaningful rally over the past few weeks? In part this is due to some investors selling out of non-dollar assets such as European stocks, which then puts buying pressure on the dollar.

To be clear, a rising dollar at this point in the economic cycle will lead to reverberations across asset classes … and for stocks, that usually translates into more volatility with a directional downward bias.

Broader large-cap indices such as the S&P 500 as represented by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) closed well off their intraweek lows last week, but still remain well within a multi-week and indeed a multi-month trading range.

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Moving averages legend: red – 200-week, blue – 100-week, yellow – 50-week

One part of the market, however, that has reached the lower end of its longer-standing trading range lat week is the semiconductor complex as represented by the popular VanEck Semiconductor ETF (NYSEARCA:SMH).

The SMH ETF is now trotting around a major area of technical confluence support in the $95-$100 area. While I think this is a logical spot for a tradeable bounce to occur toward the $104 area, seeing that being aware of the risk always trumps the potential reward, any drop below said support level is a logical stop loss area.


Click to Enlarge

Moving averages legend: red – 200-week, blue – 100-week, yellow – 50-week

The utilities sector of the S&P 500 as represented by the Utilities Select Sector SPDR Fund (NYSEARCA:XLU) has been shuffling around the lower end of its longer-standing up-trending range for a couple of months now. Finally, last week at least in good part a function of an intra-week sell-off on bond yields, utility stocks rallied and broke out of said trading range to the upside. From here, barring a quick reversal back lower, the XLU ETF and thus utility stocks could see a continuation of last week’s breakout.

In summary, the increased volatility in the  stock market continues to chop up many traders who, over the past nine years, have been conditioned to blindly buy any dip. While stocks could certainly rally somewhat from here, the transition period we are in to me dictates that any rallies should be viewed an opportunity to potentially sell into lower highs … for the time being.

Check out Serge’s Trade of the Day for April 30.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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