Another Day of Watching and Waiting

Wednesday, August 29th

Another day of jogging in place. Hurricane Issac couldn’t even get things stirred up for the energy sector. Oil fell more than a dollar today, closing at $95.15, as only 12% of the wells were shuttered and three refineries. The disruptions should be limited as to the production process. The key will be the flooding results as the storm passes over.

The warning signs remain, but as we have discussed the focus is on the Fed and stimulus. Some are worried that Bernanke may not have enough of a consensus to act now. However, it more of a matter of when not if. Thus, the market waits for Friday and the news from Jackson Hole.

Scanning the industry groups today we see no big changes overall. The commodities are still on top and the weakness continues to plague the materials and mining stocks. Overall another up and down day that ended near the flat line.

Sectors experienced another slow day, but we updated the data below based on the results.

1)  US Equities:

S&P 500 Sectors-to-Watch – The index did little and no significant changes to the outlook. The 1395 level remains our first level of support to watch short term. The uptrend remains in play, thus the selling is a test of the move higher off the June 4th low. Uptrends don’t die easily and we will need more issues and worries to kick in before the bottom falls out of the current trend.

We have adjusted our stops, sold some positions and we are being patient to see how this plays out short term. There is plenty of news and data swirling around the world, but thus far we are holding support above 1395.

Energy – Uptrend remains in play off the June lows and resistance is in play at $73 on XLE.  Oil services (OIH) is moved above short term resistance at $41.15. Crude tested the trend closing at $95.15 on Wednesday. UGA hit resistance at the March highs near $60. No big impact currently on the prices from the Hurricane. Hold your positions and manage your stops.

WATCH: XLE – Entry @ 69.25. Stop 71.30 —– OIH – Entry $41.50 Stop – $40.20

Financials – The sector pulled back from the move higher and in position to test support at $15. Still looking for some upside leadership from the sector going forward. Raised stop to break even on the trade. Any concerns with the sovereign debt issues will weigh on the sector.

WATCH – XLF – Entry @ 14.55 – Stop 14.80

Healthcare – The sector continues to trade sideways. We dropped to support at $38.40 and held. Hold positions and manage the risk.  IHF moved up nicely off the lows and and back to the previous highs. XPH moved off the lows as well, but stalled near the $59 mark. Looking to add to our positions if the support holds and the upside continues.

WATCH – XLV – Entry @ 38.10. Stop $38.20 (Add to position at $39)

Biotech – The sector broke from the consolidation and was worth a trade on the upside play. This was posted in my daily watch list below on Monday. The sector is driving the healthcare higher as well.

WATCH – Entry at $89 short term. (HIT ENTRY WEDNESDAY) – Stop $87

Consumer Services – The consumer services stocks have been fragmented to winners and losers. Dig into the ETF for the leaders. The retail stocks remains a stock picking sector. Break above $45.50 was positive for the uptrend today.

WATCH: XLY – Entry 44.50 – Stop 44.50

NASDAQ Index – Moved above the 3065 level again and holding. The upside momentum has been as a result of the technology stocks. However, the accelerated run higher has been slowing, watch the trendline and the current valuation. The play continues up for now, but manage your risk.

WATCH: – QQQ Entry @ 65.25 Friday. Stop 67.40

Small Cap Russell 2000 Index – The upside move off the July 30th bottom was positive, but we starting to give the move back as the downside gains momentum for small caps.

WATCH: IWM -Entry 79.60 – Stop – 80.30

Volatility Index – The index is establishing a short term trading range. A move above the 16.50 mark brings VXX into play short term today. The lower volatility has given way to some speculation in the broad index. Watch for ECB or the Fed to be the tie breaker for the VIX. It may be by lack of follow through versus any action taken.

WATCH: SVXY – Reversing on the volatility.  VXX – $11.85 Entry if rally continues in the VIX.

2)  Currency:

Dollar – The dollar got thumped on the FOMC stimulus grab. The risk for the dollar has been stimulus from the Fed and the ECB. The lack of activity from the central banks has been better for the dollar, but now they are rumbling again and sending the buck down. This is working well for our short play currently.

WATCH: UDN – Entry $26.40. – Stop $26.40 break-even.

3)  Fixed Income:

Treasury Bonds – The bond has reversed course on the stimulus from the Fed short term. The yield has moved to 2.77% on the thirty year bond, pushing prices higher on the bond. The move to 1.65% on the ten year pushed prices higher as IEF and TLT both bounced off the lows. TLT cleared $124.40 as a potential entry point.

WATCH: TLT $125 Entry.  Stop 123.50

4)  Commodities:

Crude Oil – Testing near the highs as investors worry again about global growth. 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. Held move above the $59 level today.

WATCH: UGA – Entry at 52.75 – Stop 58

Resources and Commodities Strategy – Turned sideways for now, watch and honor the stop.

WATCH: BCX – Entry $13.95   Stop $13.95. Manage the risk

5)  Global Markets: The global markets responded to the ECB stimulus anticipation on Tuesday. The EAFE index is attempting to hold the gains, but some negative sentiment from no action is in play. Watch and manage any opportunities short term. If there is no activity near term from the ECB the downside risk will grow for the market.

WATCH: EFA – Entry $50.50 – Stop $51.75

Sweden – Failed to hold the move higher and has dropped to support. Honor the exit point here.

WATCH: EWD – $28.35 entry. Stop – $27.30 (HIT STOP)

Mexico – Moved against resistance again and still looking for a break out move on the index. Watch the volatility and manage the position.

WATCH: EWW – Entry $62.25 Friday. Stop $61.50 (HIT STOP)

Brazil Small Cap (BRF) channel top $37.50 with potential move higher. Posted on last Wednesday for the opportunity in the global markets moving higher. Solid move higher on Thursday to follow through on the upside breakout. The entry was at $37.60. Manage the trade and Raise Stop to $37.60 (break-even).

6)  Real Estate (REITS) – The sector remains near the current highs. Double top (IYR) set up on the downside short term. I like the outlook long term, but short term we remain on hold. Still scanning and looking for the best opportunities.  Mortgage REITs (REM) bounced off the selling and headed back towards the previous high and remain in an uptrend test of the move.  The move above $14.80 on Monday is a new high and worth watching for entry and long term play in the ETF.  Yield on the fund is above 11% currently.

WATCH: IYR test of support at $63.60 let the opportunity develop. Entry $65.30 (HIT ENTRY Tuesday) – Stop $64.20

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.

THURSDAY:

What am I watching:   1) Downside risk in the broad indexes. SH, Proshares short S&P 500 index ETF is holding lows near $34.75, and entry would be a move above $35 at $35.15. 2) INTC is testing the low at $24.70? Broke to support by three cents, but the short play is the side to watch tomorrow. 3)  HES – Breaking higher from the consolidation with $51 entry point.  4) BX – Blackstone Group is making a move higher $14.15 entry on move above resistance. 5) MSFT – Break above $31 would be a break from the consolidation pattern. 6) JCP – breaking through resistance at $25 with entry at same level. Took the entry at $25.50 on Wednesday.

From the Morning Notes: 1) TLT – looking to hold the move above $125.50 as entry play. 2) EWG – 21.50 breakout point for the ETF to move higher as the picture gains clarity. 3)  VXX – a push higher in the volatility index short term as trade. $11.80 entry.

The broad market has become fixated on the stimulus package from the Fed or the ECB. Without some type of announcement near term the market may react on the downside. Be patient as this all plays out short term.

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.