The markets ended the week on a positive note following the broad based selling on Thursday. This in effect puts the charts in a choppy pattern and makes it difficult to find any consistency relative to the outlook. The risk-off focus is showing in the small cap stocks. The Russell 2000 index moved below the 50 and 200 day moving average on Thursday, but managed to close back above the 200 DMA on Friday. A move above 1155 would be a positive and potentially set up a trade opportunity on the bounce off support, but that assumes a continuation of the move on Friday. Thus, we will start the week watching the index for a confirmation on the bounce.
The chart below shows the volatility in the sector since hitting new highs in March. Biotech (IBB) has not helped the choppy trading as Yellen stated in her comments last week the sector was over valued. One day at a time is all we can do for now, but if the risk-off trade continues the next support test could be near the 1190 level.
Running the EGG Scans – First the daily winners…
SVXY – the short volatility trade bounced back again closing near resistance at the $89 mark. Watch for more upside if the buyers continue to buy the dip.
SCO – long crude oil was in the scan today as the commodity bounces on speculation on the geopolitical rumblings around the world.Watching for a possible upside follow through and trade on the news.
TUR – (Turkey) turning higher as some calm prevails over the issues with oil and economic picture.
China (YINN) back on the upside and the positive trade we have been tracking is back on track.
Emerging Markets (VMO) back at the top end of the trading range and looking for a break higher if the positive momentum following Thursday’s events continue to start the week of trading.
Patience as we let some of the chop work out of the market short term.
We posted China (FXI) as the EGG potential last week. We gapped higher on Monday as noted, but just as importantly we held the move. With the test on Thursday we added the trade and held into the weekend with the bounce back on Friday. I still like this trade looking into the week and we will manage our position and our risk accordingly. No events to this point over the weekend and the upside should remain in play as we start trading on Monday. See table below for the details on the stop.