Thursday, September 13th
The perfect trifecta for the week as the Fed provides stimulus with more quantitative easing. Some see this as an aggressive move by the Fed, but the reality is only time will tell how the economy responds this time around. The first two runs at quantitative easing didn’t work very well, maybe the third time is the charm. I am not convinced, but I am willing to let the Fed prove themselves right on this strategy.
The major indexes across the markets experienced a 1.5% gain from the news. This confirms the break higher from last week and puts the next leg higher in play. There were strong moves across the markets and major sectors. The game isn’t over until the last out is made, and this is our cue to tighten our stops and let them run for now. The market will tell you when the game is over, until them we ride the winners.
Bonds were lower as yields jumped to 2.96% on the 30 year bond. We stated yesterday that the treasury bonds would react negatively to stimulus and they did just that today. Watch the downside risk of the bonds short term. TBT or TBF are in play currently to capitalize on the move lower for bonds.
Plenty to watch and understand as this week progresses. Set your stops accordingly and keep moving forward.
1) US Equities:
S&P 500 Sectors-to-Watch – The index held above the 1420 level and ran today on the Fed decision on stimulus. Investors stepped in despite the economic picture and trusted the Fed would do the right things to take the markets higher. Stimulus is back in the driver seat and the only question is will efforts ever pay off over the longer term outlook.
WATCH: SPY – Entry $142.50 – Stop $144.40 (Raise Stop)
The leadership shift over the last week continues for the broad index:
Basic Materials – The sector has taken on a role of leadership of late, after a few days of flat line continued higher on the day and resumed leadership. Based on the stimulus in China it has produced a move higher in the materials sector. The question is will it last? Does China actually follow through? Watch and look for the opportunities in XLB. Resistance at the $37 mark short term and looking for the breakout to establish or add to the position.
WATCH: XLB – Entry $37 (Added Thursday) – Stop $36.60
Financials – The sector tested the move higher, but is back on the upside clearing $16 resistance today. The trend higher remains in play with the move it is accelerating. The FOMC meeting was the driver for the sector short term. Banks and brokers have been leading the move higher. IAI moved above resistance $22.85 and looking for a catalyst move to continue the uptrend.
WATCH – XLF – Entry @ 14.55 – Stop 15.50 (on the close) — WATCH: KBE – Entry – 22.80 – Stop – 23.32 (Raise Stop)
Energy – From uncertainty to leadership of the S&P 500 index. The selling in XLE tested support at the $70.40 level and held. The bounce on Thursday and Friday put the ETF back above the $73 resistance. The move has now accelerated pushing XLE back near the February high . UNG has found renewed strength to jump above $19.40 resistance and the 200 day moving average! Gained 12.1% this week? UGA hit a new high, but tested lower of late- tighten your stops on the play. OIL is back near the top of the short term trading range. The mixed results are all swirling around the demand versus hope of higher demand.
WATCH: HES – Entry $51 – Stop $53.95 (Raised Stop)
Telecom – The test of support resulted in a continuation of the uptrend for telcom. Hit a new high and is taking on leadership to the index as seen on the chart above. This remains a key sector for investors to take advantage of short term.
WATCH: IYZ – Entry $24.40 – Stop $24.50
Healthcare – The sector continues to find buyers and pushes gradually higher. Moved above $39 and remains in push higher. IHF moved up nicely off the lows and hit new highs and is testing the move. XPH moved off the lows as well, but moved to new highs as well. IHI medical devices ETF is pushing back to the March highs as well.
WATCH – XLV – Entry @ 38.10 & $39 — Stop $38.80
Biotech – The sector broke from the consolidation and was worth the trade on the upside play. The sector is helping drive the healthcare higher as well. Solid move to the upside and we have raised our stop to protect the gains.
WATCH – XBI – Entry at $89 – Stop $90.40
Consumer Services – The consumer services sector has the retail stocks support relative to the trend higher. XLY and XRT are both moving higher short term. Digging in and looking for the leaders has been the best play. JC Penny’s broke above our entry point and continues higher with the sector overall. Take the upside, but protect against the downside short term.
WATCH: XLY – Entry 44.50 – Stop 46.50 (Raise Stop) / JCP – Entry 25.50 – Stop 27.81
Semiconductors – The sector has been testing lower and the downside leadership has been from Intel. The sector remains weaker, but is still consolidating and looking for direction. Watch the Intel play as it is attempting to bounce off the low. We adjsuted the stop to protect the gain on the trade.
WATCH: Short Intel (INTC) – 24.55 – Stop – 23.50 (Adjusted Stop)
NASDAQ Index – The upside momentum has been as a result of the technology stocks, but the downside risk in in the semiconductor stocks. The trend is up for now, but manage your risk. Solid bounce back in the index.
WATCH: – QQQ Entry @ 65.25 Friday. Stop 68.25 Held support and bounced.
Small Cap Russell 2000 Index – The upside move off the July 30th bottom struggled, but the move higher since has been a reflection of the belief in stimulus from the Fed. The new high today at $85.60 was a positive for the sector. The key is to protect the gains we have and see how this plays out short term.
WATCH: IWM -Entry 79.60 – Stop – 83.20
Volatility Index – The index is back near the lows at 14 and testing the sentiment from investors. The VIX as we stated did move as the rally continued. Still need to watch for unexpected events moving forward. SVXY continues to move higher on the news.
Dollar – The dollar started lower on the FOMC rumors and the ECB stimulus is helping push the dollar lower as well. Throw in the Fed action on stimulus and the dollar is testing the lows from April. The short pay remains the move.
WATCH: UDN – Entry $26.40. – Stop $27.20
3) Fixed Income:
Treasury Bonds – The bond had reversed course on the stimulus from the Fed short term. Breaking support again at the $124.50 level as entry for the TBF short play.
WATCH: TBF – 29.30 Entry – Stop – $29.20
Crude Oil – Testing near the move higher as the fear factor steps up on the stimulus packages not materializing. The risk trades are coming off and that is impacting the commodities. Manage risk of the play and mange your stops.
WATCH: OIL – Entry 20.75 – Stop 22.95 (stop on the close)
Gasoline – Can’t decide as it trades near the high… up or down? The upside is still in play, but watch oil prices and if they stall at resistance. Watching for a test short term on the steep move higher. Made move back above the $60 mark again… Watch and manage your stops.
WATCH: UGA – Entry at 52.75 – Stop 58.50 (Stop on the close)
5) Global Markets: The global markets responded to the ECB stimulus, Germany’s approval of bonds, and now the Fed QE3. The EAFE index tested support near term and bounced back near the March highs. Risk is on as the index gains relative to the US heading higher.
WATCH: EFA – Entry 52 – Stop – $53.40 (Raise Stop)
Brazil Small Cap – Bought on the move to the channel top at $37.50 with potential move higher. Solid move and follow through on the upside breakout prompted the entry at $37.60. Manage the trade and Raise Stop to $40 on move higher.
WATCH: BRF – Entry 37.60 – Stop – 40
6) Real Estate (REITS) – The sector remains near the current highs. I like the outlook long term, and short term we have made a move back to the top end of the trading range. IYR made the move through the top end of the trading range and hit a new high. Still scanning and looking for the best opportunities. Mortgage REITs (REM) bounced off the selling and headed back to a new high. The uptrend remains in play. Yield on the fund is above 11% currently.
WATCH: IYR – Entry $65.30 – Stop $65.30 (Raise Stop)
7) Global Fixed Income – The issues with sovereign debt in Europe keeps us out of the asset class currently. Emerging market bonds (EMB) tested lower and bounced off support to move higher. Passed on the opportunity due to risk/reward. International Corporate Bonds (PICB) and International High Yield Bonds (IHY) remain in a long term uptrend and moved higher on Friday. Hold positions and manage your downside risk.
Europe is climbing on the stimulus/bailout of the euro and sovereign debt by the ECB.
US markets are now rising on the Fed stimulus.
China is moving on infrastructure stimulus.
What am I watching: 1) MSFT – Break above $31 would be a break from the consolidation pattern. Hit on Thursday, but pulled back into the consolidation. 2) Facebook (FB) is approaching our target of $15. Bounced 7% last week. Watch the upside for a break above $19.70 as an entry point. The move back to the upside is going to take some conviction to buy. Got the move higher on Wednesday nad expect a move to $24 short term. 3) Financials to provide the key leadership higher. BAC, C, MS, JPM, etc are on my watch list. 4) DBB – the base metals have picked up in response to the stimulus from China? They have run fast and may want to wait for a test on entry. JJC shows the jump in copper worth watching. 5) TBT – Short Treasury play is attempting to break higher as yields fall. If the Fed acts on the stimulus it could be an issue. Watch for possible move higher short term. (Got the break higher on Wednesday as trade opportunity) 6) UNG and FCG are moving higher as natural gas continues to climb on inventory data. Watch for move back to $22.50.
Watch and play according to your risk tolerance. Everyone has different trading styles and you have to find what works for you and your personality. Don’t put yourself in positions you don’t understand or take risk you can’t tolerate. Not every trade results in a profit, but controlling your downside risk determines your long term results. Trade smart.