Monday – Notes & Research
Day 1 of the Cyprus catalyst is behind us and many are still scratching their heads. Why does Cyprus matter? That seems to be the number one question in the media today. I am not going to rehash the multiple points being made and I am sure they have a thread of truth running through them, but in the end this is more about speculation than reality. Thus, we have to take the defensive side of things going forward. Scanning for rotation we continue to see developments on the upside along with some warnings.
- Friday ended the 10-day win streak for Dow and today put a dent in the upside. S&P 500 index is now 15 points from the high and we are watching scenario number four, the index doesn’t make a new high for now. This was the long shot, but it seems to have found a friend in Cyprus.
- Volatility jumps above 13 on the news. Is this the move higher that leads to the downside for the broad market. Watch as this plays out going forward. The move in volatility erased 0.6% from the index.
- Crude Oil sold to $91.76 early, but bounce and closes at $93.60 on day, up 14 cents.
- Gold rallied 1.3% on the morning news relative to Cyprus. How does it play out from here?
- China drops 1.9% on the day and continues to add to the downtrend momentum.
- Yield on 30 year bond declines to 3.18% and bond gains 0.7% on the day.
Week starts on negative note and the ride could get even bumpier before the week is over. Stay focused, be disciplined and follow your plan.
Homebuilders index drops below expectations. There is plenty of data out this week related to the housing sector. Click link to review the information.
1) US Equities:
S&P 500 Index closed down along with the NASDAQ and the Dow. String of up days comes to an end.
The uptrend remain in play short term off the November 15th low. As stated below in the charts it has bounced off the December 28th and February 25th tests as well to continue the uptrend.
Sector Rotation Strategy:
The February 25th low pivot point remains in play, but we are adding the March 14th high as the next potential pivot point on the downside this week. As you can see on the chart the move lower is unanimous. Not enough on the downside to raise unjust concerns at this point, but we have to manage the risk should the selling gain any traction near term.
December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test. The trend has continued to push higher after the February 25th test. See above.
November 15th Pivot Point for current uptrend. Target 1550-1575. The uptrend off the November low remains in play. The trend has now overcome two attempted moves lower to maintain the uptrend.
Sector Rotation of Interest:
Telecom – On March 1st the sector established a low and pivot point. It has continued to push higher over the last week making an attempt to head back towards the February highs. Added to the S&P 500 Watch List for entry. Not a positive start to the day, but fought back to close near break-even levels. Scanning the ETFs the following are worth watching:
- Verizon (VZ) moving past resistance above the October high.
- Sprint (S) attempting to break above resistance at $5.95… watch for trade opportunity. Failed and sold lower on the week.
- JDS Uniphase (JDSU) Consolidating and looking to break above resistance at the $15.30 level.
- CBB (still looking to upside), PLCM (upside break), RVBD (failed testing lower), FTR (moving sideways now) and others attempting to make a move off the recent lows.
Technology – The sector finally made a move above the top side of the trading range. Oops, didn’t hold the move today and testing range again. XLK broke above the $30 level and held. The entry point was hit on XLK and IGV. IGV is holding near the high and need to adjust the stops. Added to the Sector Rotation Model Portfolio.
- Semiconductors (SOXX) remain in a solid uptrend currently. Testing back on Friday.
- Internet (FDN) trading sideways and looking to clear $44 level to continue the uptrend.
- Watch the topping is stocks in the sector. Uptrend has been very flat relative to other leadership.
Financials – Banks have been leading the upside as the stress test is passed. The selling was only 1% on Monday relative to the Cyprus. This could nag the sector and we need to manage our stops and potential downside risk.
- Jim’s Notes – Banks
- Banks (KBE &KRE) both tested the move higher. Off 1% on the day.
- Brokers (IAI) testing the February high on the upside. Off 1.3% today.
- Insurance (KIE) leading the broad sector higher.
Energy – The sector hit resistance at the $80 level and is testing the move higher. Watch for support to hold at $78.12.
- Added XLE to the S&P 500 Model Portfolio.
- Oil Services (IEZ) broke above resistance at $57.50? Testing today with the move lower of 2.2%.
- Oil Exploration and Production (XOP) broke to new high, tested move on Monday and holding above $60.50.
- FCG broke higher on the rise in natural gas prices. I like the upside for the commodity and the stocks. Added to Sector Rotation Model and UNG to the ONLY ETF Model.
- Global Wind Energy (FAN) is attempting to break higher.
- Solar Energy (TAN) head and shoulder pattern setting up to break lower? Watch. Broke support and the 200 day moving average. short anyone?
Basic Materials – Moved back to resistance at the February highs. As seen on the rotation chart above the sector is one of the leaders and how the downside plays out will matter to the overall outlook. Watch for the sector to clear resistance and offer some upside opportunity.
- Added to the S&P 500 Model Watch List.
- Sherwin-Williams (SHW) is attempting to break higher from the resistance at $167.60
- VMC, Vulcan Materials is attempting to break the downtrend and clear the 30 DMA.
- Watch the current play relative to the news.
Consumer Discretionary – Broke above the $51 resistance on XLY hitting the entry point. The consumers are leading the broader market indexes on the race to the top. Extended the upside.
- Added to the S&P 500 Model Portfolio.
- Jim’s Notes – Consumer Discretionary
- Media stocks setting the pace on the upside. GCI, DISCA, VIAB, are good examples of the moves.
- Auto parts are also driving the sector higher, JCI, DLPH, F.
- JCP and BBY making moves to the upside.
- Dollar jumped on euro news today. The move higher puts the buck back in the upside trend. UUP closed at $22.54. Still watching support at the $22.35 mark on the downside. Manage your stops.
- FXB – the British Pound jumped big on Thursday and held the move Friday. Watch for move above the $150 level
- FXC – the Canadian Dollar is attempting to hold support at $95.35. Bounced nicely to end the week.
- FXY – yen is still in bottoming mode. Watch for a base to build short term if the direction is to switch.
- FXA – Australian dollar bouncing as stocks continue higher leading the way. Got the break higher Tuesday breaking the downtrend line. Nice gain and follow through on Thursday. — Added to the ONLYETF Watch List.
- FXE – The euro is testing support on the downside again?Attempting to build a base at the $128.15 level for now?
3) Fixed Income:
- Yields continue are shifting slightly higher as stocks hold gains. The question is if the market corrects how much will it impact? Patience as the downside in bonds continues.
- 30 Year Yield = 3.18% – down 4 basis points — TLT = $116.64 up 88 cents
- 10 Year Yield =1.99% – down 4 basis points — IEF = $106.65 up 35 cents
Tracking Bond Sectors of Interest:
Treasury Bonds – The volatility in the bond sector has risen short term and it is causing grief for investors. Watch and protect on the downside. Estimates are for 2.75% on the 10 year bond by year end? That is something to watch and play PST on the short side.
High Yield Bonds – HYG = 6.55% yield. Support held at $92.75. Let it run as investors remain in love with junk bonds. I expect the trading range to remain near term.
Corporate Bonds – LQD = 3.8% yield. The price has found short term support ($118.90)… again. If we break lower, being short is the opportunity. Patience as this plays out. holding support on Tuesday.
Municipal Bonds – MUB = 2.8% tax-free yield. The price of the bonds broke the support at $111.30 mark week and the selling continued Monday. The downside risk remains and this is a sector of the bond market to avoid for now.
Convertible Bonds – CWB = 3.6% yield. Price had been moving higher on the current rally in stocks. Hold for the ride and raise your stops. Watch the renewed volatility today.
- The commodity sub-sectors are finding some signs of life along with volatility in the sectors. Watch and play the leadership. GSG attempting to build a base on the parts moving. Hitting the 200 day moving average as short term resistance? Not for the faint of heart.
- UNG (natural gas) made the big move higher breaking out and following through on the upside. Higher early, but erased the gains into the close. The trade entry point was hit. SEE ONLYETF Model Portfolio
- Crude tested support at $89.30 last week and closed at $92.45 for the week. ONLYETF Model Portfolio The upside is still in play and ready to test the $22 resistance on OIL.
- GLD – Gold gained on the alternative asset choice. The gain put the metal back near the $155 level. Downside is still the outlook with a potential short term bounce in progress.
- DBA and DBB both broke lower today – watch the downside acceleration.
Commodities Rotation Chart:
Tracking Commodities Sectors of Interest:
- BAL – A trading range of $52.80-54.40 is in play. Cleared resistance at the upper end of the range at $54.40 and continues to move higher. Let it run and keep your stops at $54.50 or break-even. gained 4.5% on Thursday and Friday to close the week higher!
5) Global Markets:
- Global markets tested lower on the Cyprus news to start the week. China and Europe led the downside and the That set the tone for the sector and we continue to watch for the leadership to rise from the ashes.
- FXI – China’s continues to lead the downside relative to the global markets. FXP is the play for a downside trade on the move currently. Watch to see if it bounces with the balance of the global index.
- IEV – Europe bounced and held the last few days, but news today pushed the country ETF lower. Still looking for some positive momentum to lead the indexes higher. $40.50 resistance and $38.90 support.
- Japan (EWJ) broke higher, tested, and continued to move higher. Got the move above $10.20 and still moving to the upside. Watch the top at $10.55 level. Broke higher to end the week watch as this starts the next leg up.
- Australia (EWA) making a move higher the last week as well. Uptrend accelerating. Test on Monday with the rest of the markets.
- EFA – The long term uptrend remains in play and support has held and the fund has moved back to resistance at the $59.30 level. Thursday the sector broke through the high and look for some follow through. Watch and trade accordingly if it breaks to new high short term.
- EEM – emerging markets continue to struggle. My view they don’t get better until the commodities flatten out or increase in price near term.
6) Real Estate (REITS):
Tracking Real Estate Sectors of Interest:
Real Estate Index (REITS) – The pullback test is in play for IYR and $67.25 support held. The break higher above $68.50 was positive for the continuation of the uptrend. Followed through on the upside. ADDED: Sector Rotation Model & S&P 500 Model.
- Homebuilders bounced off support at $27. Watch to see if the upside remains after disappointing news in the housing sector. Housing remains in an uptrend despite the rumors. XHB holding near the new closing high.
- REM – Mortgage REIT held $14.80 support. At the $15.23 resistance to move higher currently. heading higher again in the uptrend.
- NLY- Annaly Capital Management finally broke above $15, and is testing the $15.20 support currently on the upside move.
7) Global Fixed Income:
- The sovereign debt issues had faded, but with Spain in the news again, Italy facing disruptive elections this weekend, and France taxing itself out of existence, too many concerns and the safest play is to avoid the asset class for now.
- Some basing is starting to take place and we continue to scan and look for opportunities in the sector.
Watch and play according to your risk tolerance on any position taken. 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 risk will limit the downside losses.