S&P 500 Index Leads Market Higher

Tuesday – Notes & Research

Because of travel posting the essentials tonight…

Sector Moves of Note:

  1. S&P 500 index closed at 1650 gaining 1% and breaking above the current consolidation. The trend remains in play on the upside and the worries are fading again.  The volatility moves to the upside and the break higher is positive.
  2. The dollar moved back near the highs over the last week and breaks higher today. Watch for the upside to continue as the central banks around the world continue to focus on devaluation.
  3. Healthcare followed through on the upside breakout again today. The biotech (XBI) continues to the  contributor gaining more than 4% the last two days.
  4. Consumer staples (XLP) is on the list to watch as well heading into the summer months. The¬†consolidation¬†or narrow trading range broke higher today and adding another buy signal. Solid retail sales data announced for April and extending hope going forward that growth isn’t completely dead. The Consumer Services (XLY) sector extended higher today as well hitting a new high as well.
  5. Energy stocks (XLE) found some momentum and followed through on the break higher today. Watch for IEZ and XOP to add to the upside as well.
  6. Utilities sold lower last week, but managed to bounce off support today. Watch for the upside off the low to follow through.
  7. Global markets are struggling as EFA, EEM and IEV retrace recent moves higher. They have been tracking along with the US markets, and the current stall is pushing those markets lower. Stops raised and watch how this plays out near term.
  8. Bonds continue to struggle with jumps in yield as confidence builds. 30 year yield jumped to 3.16 off the 2.82% level just two weeks ago. This shows confidence building in the economy to push yields higher. Is this the bond rotation everyone predicted in January? Not convinced of that, but we are seeing some short term rotation.

The market continues to grind it out each day, but today was a better showing than normal on the upside. Take it one day at a time and remain disciplined with your stops.

Economic Data:

Retail sales were up 0.1% for April and well ahead of expectations. Business inventories were better than expected and auto sales were solid. Overall not bad, but the worries over the decline gasoline sales and futures spending are still in play.

Economic Events & Calendar

1) US Equities:

The broad indexes hold the move higher this week and the upside remains in play.

The April 18th chart below is the last low in the test off the April 11th high. Leaders are consolidating, but remain positive. Materials, technology, energy, consumer services and financials off this pivot point. Telecom and healthcare are adding to the upside as well. The laggards are consumer staples and utilities. Still some rotation in process, but that has slowed as the outlook gets focused on the Fed.

0418 SP

Sector Rotation Strategy:

The February 25th low pivot point remains in play relative to the trend. However, the volatility of the sideways trading is showing in the chart starting on April 11th, thus the chart above. Uptrend still in play, but the continued test leave plenty to worry about.

0225 SP

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.

1228 SP

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.

SP Scatter

Sector Rotation of Interest:

Technology (XLK) – Break above the $30 level was the entry point and it has followed through nicely on the upside. Getting extended and we need to protect the downside. Target remains $31.65. Hit the target intraday and testing the upside. Adjust your stops and remain focused. Didn’t get the big participation on the upside today?

Consumer Staples (XLP) Рthe downside relative to earnings and warnings from the big cap stocks is and remains a concern. Even with the solid gains on the week for broad index, the sector struggled. Keep your stop tight and watch how the trend plays out next week. $40.75 is the short term perspective stop. The upside continuation play today with a gain of 1.1% is  a positive for the broad markets.

Healthcare (XLV) – the biotech and pharmaceuticals stalled from earnings and weighed on the sector. $46.80 support level held and solid bounce, but still showing some weakness. Keep stops at the $46.80 mark and let it go for now. Friday moved to the top end of the range again and broke higher. Monday it did follow through and break higher with the help of the biotech stocks. Tuesday added to the upside acceleration.

Energy (XLE) – Moved above the $80 level and held into to end the week. All positive for now, but watching the downside risk. Watch to see if there is any upside follow through as it is happy to consolidate near the $80 level. Nice follow through on Tuesday pushing above the $81 level.

Telecom (IYZ) – Moving higher, but consolidating near the high. Still like the uptrend here and we moved above the $26.90 level and now looking for a move on the upside going forward. $26.10 remains the exit point. Uptrend working higher for now.

Utilities (XLU) – breaking down short term on some selling. The fund managed to hold support at the $39.60 and the 50 day moving average. Watch how this plays out short term. If the bounce holds looking to add some shares at this level of the test. Got the bounce on Tuesday… look for follow through tomorrow.

2) Currency:

Since the high on March 27th the dollar has essentially moved sideways to down. Starting April 23rd the dollar steadily declined until bouncing on May 1st. It has not accelerated back to the previous high and looks ready to move higher. The chart below shows the path of the dollar. Solid break higher on Tuesday watch for the trend to extend higher.

Currency

Sector Watch:

  • UUP –¬† The dollar has been trading sideways and the bounce the last four trading days, breaks to new high. The balance of the currency market has accomplished sideways to downside moves.

3) Fixed Income:

Sector Summary:

  • 30 Year Yield = 3.16% – up 6 basis points —¬† TLT = $116.56 down $1.28
  • 10 Year Yield = 1.95% –¬† up 3 basis points — IEF = $106.71 down 43 cents

Tracking Bond Sectors of Interest:

Treasury Bonds – Complete reversal on the yield has pushed the bond lower and is in position to test the previous low. Not a place to be other than short the bond. TBT.

High Yield Bonds – HYG = 6.5% yield. Support at $94.75. Moved up to $96.25 and met with some selling on the shift in yields and risk. Manage the position for the dividend as the growth side is uncertain short term. Use $94.75 as the stop. The last two days move shows the risk in the bonds currently. $95.20 support?

Corporate Bonds РLQD = 3.6% yield.  Bonds have dumped with the rise in rates short term. Hit the stop at $120.80 as the selling accelerated. HIT STOP on Friday. Still moving lower and no interest for now.

Municipal Bonds – MUB = 2.8% tax-free yield. Shifting gradually lower as the risk relative rates is in play. Collect your dividends and let it ride for now.

Convertible Bonds – CWB = 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:

  • Commodity Index (DBC) – Moved back to resistance at $26.50. Not holding the move. Watch and be patient.
  • Natural Gas – (UNG) posted a big loss last week and still no bounce. $21.17 support. No play currently. Watching for support to catch. So far so good? Watching
  • Crude Oil – (OIL) Crude moved up on speculation of improving economy? Yes, that is called speculation. Watching the downside opportunity on the move. Some clarity is still the call. Close below $ 95 support would be the downside catalyst. Closed below and set on the side trade for the adventurous.
  • Gold – (GLD) Looks content to stay in the trading range developed the lats couple of weeks. No need to rush anything in the metal short term.
  • Gasoline – (UGA) Resistance is at $56.80 now. Watch to see if it can follow through on the upside move. Tested again on Monday, but still upside if the commodity decides to run.

Commodities Rotation Chart:

I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point. 1) UNG Рdumped lower the last week. and continues to look for support.  Watch $21.15 support? maybe a short setup  2)  PALL is movinb back towards the high as the driver in the sector 3)  JJC Рcopper jumped on positive analyst comments and is stalling for now. 4)  OIL -jumped on economic data, but looking toppy short term. 5)  UGA РGasoline moved with oil finally? This is getting interesting for some short term trades posted above.

DBC rotat

DBC – PowerShares Commodity Index ETF (click to view) Composite of 14 commodities tracking index.

5) Global Markets: 

Global markets have been trading in tandem with the US, but the downside in the global markets has been worthy of note the last couple of days. Japan is still moving higher in the chart below, but the others are drifting in line with the US and some are falling like India and China. Still high level of risk in the global markets short term.

EFA Rotation

EFA – iShares EAFE Index ETF (click to view) 10 Developed Countries making up Europe (66.6%), Australia (8.9%) and Far East (24.5%). (Weighting of fund) Not most balanced, but give indication of global markets.

Country Watch:

  • Most of the country charts are starting to group together. They are tracking along with the US markets of late. EFA is a good barometer for trading the developed markets and VWO for the emerging markets.

6) Real Estate (REITS):

Real Estate Index (REITS) – The sector continues in the uptrend overall. My rating is a HOLD currently. Holding above the 10 DMA for now. Let the trend run its course.

Sector Summary:

  • IYR – Support is $70.50 and our stop is at the same level. Still moving up gradually and we continue to hold and collect our dividend as well.
  • REM – Mortgage REIT continue to struggle. The downside remains a concern and we continue to look for the opportunities, but not interested currently in owning the sector. Monday broke support at $15.10 and now at the 200 DMA.¬†
  • RWO – SPDR Global Real Estate ETF is in a positive uptrend and hit a new high. Manage your stops accordingly.
  • MDIV – First Trust Multi- Asset Income ETF is a good alternative to picking through all the choices of income funds. This multi-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. Sharp turn lower on Friday with stop at $11.60.
  • PICB – hit support traded sideways and broke higher. Entry $28.95 + 3.1% dividend. Turned lower as the money rotates out of the sector.
  • EMB – Big recovery and interesting in watching. 4.3% dividend yield. Hit stop on reversal lower at $120.25.
  • 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. Hit stop on Monday.

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 downs