Markets Drift Higher with NASDAQ Leading

Tuesday – Notes & Research

The economy still not able to convince anyone of anything, but the buyers continue scramble to buy. Technology was up another 1% today to lead the broad markets. The NASDAQ gained 22 points to 3329 led by Apple up more than 3% on the day. The euphoria around the move is almost giddy. Don’t worry about the facts just keep buying.

FOMC meeting is done tomorrow with not changes expected. The lack of growth in the economy, jobs and low inflation will keep the Fed gainfully engaged in the stimulus efforts that haven’t work to this point, but at least it sound good.¬†The market has mastered shrugging off the data. At some point we all know it will end badly, but until then someone keeps buying and believing it will continue higher.

Below are our revised notes relative to the trading outlook from the watch list, and what I saw of interest for next week.

Sector Moves of Note:

  1. S&P 500 index moved above the previous high closing at 1597. Where’s the beef? The NASDAQ is providing the leadership this week as the technology stocks and Apple join the upside celebration. The index hit another 52 week high with the solid gain today. QQQ broke above $70 and holding the upside move. I still like the upside based on the current activity and the charts. The fundamentals will either get in line with the charts or they will bring the chart in line with the data.
  2. China continues to the upside after moving through resistance at the $70.50 mark on GXC. $73 target for now.
  3. Emerging markets finally making a move higher. EEM cleared the 42.80 resistance and gained 1.4% today. Added to the ONLY ETF Model.
  4. Small Cap made just enough move to push through some resistance. IWM closed at $94.10. Look for a follow through and break to new high.
  5. Crude oil fell to $93 today. We discussed last night tightening the stops and taking our gains. We did exactly that and it fell 1.6% today. We will watch for the test to set up another trade opportunity… up or down.
  6. Gold filled the gap and is not dealing with the resistance at the $143.50ish mark. Looking for a follow through on the upside. If we get the move look to add to GLD at $144.
  7. Gold miners made small move today. If gold breaks higher look for the mining stocks to find some buyers short term. Silver miners and base metal mining companies are all lagging. Trade only, but worth watching.
  8. Still looking for silver to join the upside move and fill the gap left from the selling. Small bounce, but has stalled short term.
  9. Europe held the move higher from Monday. Still resistance at $41.50. Watch for the follow through higher.

Tomorrow promises to be another day of fun filled data. The challenge is no one is really listening to the results. Take what this market give and and manage your risk.

Economic Data:

The economic data was mixed with consumer confidence being the bright spot jumping to 68.1 for April after falling to 61.9 in March. Digging into the data the one major point of concern is finding a job, which shows again the weakness in the job market for April. Doesn’t help the numbers for Friday. Chicago PMI fell to a 3 1/2 year low at 49. That was the worst number since 9/2009. ¬†More to come tomorrow with the FOMC meeting concluding and telling the hopeful news.

Economic Events & Calendar 

1) US Equities:

We are testing and hitting new highs on the major indexes. My bias is to the downside, but that is why we watch the charts and go with the trend. The data continues to show weakness in the economy, but the buyers keep stepping in with the belief it will be better long term. That may very well be true and we will all see how it unfolds one day at a time.

The April 11th chart below starts on the high as a potential pivot point lower, but has failed to accomplish any further downside after the April 18th low (vertical line). Leaders remain telecom, utilities, and rising quickly is technology. Energy has made a solid move off its low on April 17th. The others are moving sideways to higher currently. Two concerns are consumer staples (XLP) and healthcare (XLV). Both have struggled on earnings reports and the test is in play. Holding steady for now with no alarms sounding from the charts.

Scatter 418

Sector Rotation Strategy: 

The February 25th low pivot point remains in play relative to the trend. However, the volatility of the sideways trading is making me crazy. The bounce in telecom, industrial, basic materials and energy changed the bottom side of the chart to be more positive overall. Uptrend still in play, but the continued test leave plenty to worry about.

Scatter 225

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback chart below. The trend has continued to push higher. The trend remains higher, but the short term volatility is picking up. Watch the downside risk and protect your gains appropriately.

Scatter1228

November 15th Pivot Point is the start of the current uptrend. Target 1550-1575 was attained and now there is pressure to test the move. The trend has overcome two attempted moves lower to maintain the uptrend. Watch the trendline as the support on the current pullback. A break of the uptrend brings downside options back into play for the short term.

SP500Scatter

Sector Rotation of Interest:

Technology (XLK) –¬†Broke above the $30 level again. The key has been to buy the position as it moved and we have added to the S&P 500 as a trade. Solid leadership on the trading day for the sector. Tuesday added to the upside and hit a new high. Apple was up more than 3% on the day to push the sector higher.

Consumer Staples (XLP) Рthe downside relative to earnings and warnings from the big cap stock this week is a concern. Tighten stops and watch how the trend plays out next week. Started off on positive note, but the sector is still lagging from earnings impact. Watch and manage the downside risk.

Healthcare (XLV) Рthe biotech stall from earnings is weighing on the sector for now. $46.80 support is level I am watching now. protect the gains. Large cap biotech took a hit and slowed the progress. Watch to see if we can regain the upside momentum. Tuesday PFE added to the misery downside with disappointing guidance.

Industrial (XLI) Рgot a bounce from earnings this week and now at resistance near the $41.50 level. A break higher would be worth trading short term. Shift in commodities is the reason for the move. Watch the commodity emphasis on the sector. If fades pass, if it builds buy. Moved higher on the day and looks positive short term. Tuesday showing some sideways consolidation. watch 50 DMA.

Energy (XLE) Рtesting the move and resistance. Watch for a move above $77.50 as possible buy point on the upside. Need crude to behave and the earnings to be positive in the sector. All positive for now, watching the downside risk. Tuesday push slightly higher and looking to test the $80 resistance level.

Telecom (IYZ) РMoving higher, but test on Friday with an inside trading day. Still like the uptrend here and consolidating.

We are still looking for that clearly defined leadership for the broad markets. One day at a time and stay focused on the objective of each position as well as  the overall portfolio.

2) Currency:

Since the high on March 27th the dollar has essentially moved sideways. But, starting April 23rd the dollar has been steadily declining. The chart below shows the trek lower in the dollar. At the same time the euro (FXE), the yen (FCY), the Krona (FXS) and the Canadian dollar (FXC) have all started to move higher. Looking for a trend to develop short term. UDN is in play from the break of support on the dollar.

Currency

Sector Watch:

  • FXE¬†– ¬†The euro is attempting to provide some upside leadership short term. FXE $130.75 trade entry.

3) Fixed Income:

Sector Summary:

  • 30 Year Yield = 2.88% – ¬†up 1 basis point — ¬†TLT = $123.01 up 7 cents
  • 10 Year Yield = 1.67% – up 1 basis point — IEF = $108.82 down 3 cents

Tracking Bond Sectors of Interest:

Treasury Bonds¬†–¬†Yields on the 30 year Treasury was flattening out after the jump on Friday following the GDP data. This week it is content to hold these levels and shows no sign of selling just sitting quietly waiting for direction.

High Yield Bonds РHYG = 6.5% yield. Support remains at $92.75. Move back above the previous highs at the $95 level. Manage the position for the dividend as the growth side is uncertain short term. Use $92.75 as the stop. The risk is rising with each step the fund takes. The spread to treasury bonds continues to shrink and the risk/reward is high.

Corporate Bonds РLQD = 3.6% yield.  They jump higher again this week as money finds its way to bonds. Use stop at the $120.50 level to protect the upside gains. Otherwise keep collecting the dividend.

Municipal Bonds РMUB = 2.8% tax-free yield. Moving back in an uptrend ever so gradually. Collect your dividends and let it ride for now. Still climbing steadily.

Convertible Bonds РCWB = 3.6% yield. Price had been moving higher on the rally in stocks. Broke to a new high and steady as she goes. Keep and practice dividend collection.

4) Commodities –¬†Sector Summary:

  • The¬†commodity index¬†continued holding above the $25.50 level with oil and precious metals attempting to bounce and take the sector higher. Don’t get overly excited this is a challenging sector near term. Watch and be patient as any trades will be plain to the eye.
  • Natural Gas¬†– UNG posted nice gain on Monday is followed by selling on Tuesday. Still attempting to move higher short term with some volatility.
  • Crude Oil¬†– Crude moved lower today and we took the exit on UCO.
  • Gold –¬†The metal has bounced to begin filling the gap short term. GLD is moving higher. Watch and see how it plays out short term.

Commodities Rotation Chart:

I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point and gold, oil and precious metals have move higher. Watching for some leadership to develop going forward.

Commodity

5) Global Markets:  

Global markets are trading in tandem with the US. No reason to be moving higher, but content to do so. China, Europe and Australia have taken on the leadership since the 18th of April. Watch and take what the market gives.

Global Mkt

Country Watch:

  • FXI¬†– Follow through on the bounce off the recent lows. The move broke the downtrend line again and has followed through on the upside. There is a trade, but the risk is high. Watch and see how this develops. So far, so good on the trade to the upside on the move.
  • EFA¬†– Held support and broke above the previous high of $60.85. Follow through has been positive.
  • EWI¬†(Italy) The move above $12.60 was the entry and where we added the trade to the ONLYETF Model on a upside break above resistance. Still moving higher and we will manage the play going forward. Testing the break higher on Monday, watch and adjust your stop.

6) Real Estate (REITS):

Real Estate Index (REITS) РIYR tested $70.73 support and is now back at the high of $72.50 and breaking higher today.

Sector Summary:

  • Most of the REITs are extended short term on the upside, thus the test in IYR. Watch and manage your stops. But, let it run as high as it intends to go.
  • Scanning IYR we find the charts look very similar on the upside. SFI (breakout), VNO (at top of range again), PLD (breakout and retraced), LXP (broke higher and¬†trekking¬†nicely), FR (breakout and move higher), KRC (break higher today), ARE (nice move to top of range) and HST (breakout today) . The moves have all followed through over the last two week on the upside.
  • Mortgage REITs are selling back towards support and worth watching. NLY, REM, IVR, WMC and MBG. Moving slightly higher and allowing investors to collect the dividend.
  • RWO – SPDR Global Real Estate ETF is in a positive uptrend and hit a new high. Watch for test of the move if markets struggle. Solid uptrend remains in play.
  • REITs and MLPs mixed in the same ETF with MDIV is a good alternative to picking through all the choices. This mult-assets income fund pays a 5% dividend.

7) Global Fixed Income:

Sector Summary: Making another move to the upside short term.

  • There are some funds moving in favorable direction of late.
  • PAFCX – Bounced off low with the movement in yields going lower. Holds $11.60 worth owning short term. The bounce remains in an uptrend and the dividend is the play.
  • PICB – hit support traded sideways and broke higher. Entry $28.95 + 3.1% dividend. The upside previous high is now in play. Watch and adjust your stop to $29.15
  • EMB – Big recovery and interesting in watching. 4.3% dividend yield. Entry $120.25. Breaking higher following the consolidation adjust your stop to $120.50 and go forward collecting the dividend.
  • PCY – Big recovery as well off the low for short term play. Entry $30.60. 4.8% dividend yield. Breaking higher as well. Raise stop to $30.70 and collect the dividend.

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 losse