Another Modest Drift to the Upside

The broad indexes attempted to keep the upside running, but it seemed to run out of gas following a mixed open. For the most part it has been a boring day. The bright spot was energy getting a bounce in gasoline prices. That won’t help at the pump, but it did help the energy sector which has seen some selling pressure of late. The other point of interest on the day was the decline in interest rates pushing bond prices up and the REITs ETF IYR gained 1.1% on the day after finding support off the lows on Wednesday. Nothing changed and we chalk up another trading and look to tomorrow.

The Yellen testimony or confirmation hearings were of interest to many on Wall Street, but it was more of the same from the Bernanke play book of keeping rates low to stimulate growth and in turn create jobs. That has worked so well since 2009… why not stick with it. The markets liked the continuity of the plan thus applauded the comments from Yellen.

I would be remiss if I didn’t mention the new mess made in the roll out of the Affordable Healthcare Act, which from my view is anything but affordable, concerning the cancellation of policies. This cluster can be summarized by the statement released by the trade group AHIP, “premiums have already been set for next year based on an assumption of when consumers will be transitioning transitioning to the new marketplace. The President’s proposed changes in the Affordable Healthcare Act could destabilize the market and result in higher premiums.” Wasn’t this whole change predicated on lower “affordable” health insurance? This is a sector to watch as this all unravels.

State of the Market:

The trend of the market remain on the upside both short term and long term. The micro term (13 weeks or less) is where investors are focused currently. Why? The media and analyst feeding them are concerned about the current valuation of the market overall versus buyers appetite for risk. The VIX index shows the worry factor doesn’t even exist at this point. We have all voiced our concerns about the movement of the market near term, but we have to let it play out versus speculating on direction.

Index and Sector Watch:

Dow Industrial Index (DIA) – Broke through the top end of resistance at 15,700 and continues to float higher. Go with the upside movement, but trail your stops on trades. The longer term stops have to be addressed according to your objective with the holding.

S&P 500 Index (SPY) – Cleared resistance on Wednesday at the $177.60 mark and continued higher today. The two weeks of consolidation near the highs has now made a move to the upside and followed through. The volume is on the light side, but we keep looking higher with the trend and trail our stops according to the risk we are willing to accept. Longer term views need to consider the gap between the uptrend line and current price. Building a hedge position to buffer the decline when and should it happen would be prudent.

NASDAQ Index (QQQ) – Squeaked it’s way to a new high on Thursday and followed through with a small gain today. The jump early in the large cap stocks was the catalyst on the upside today. Same issue with the move higher is to trail our stops to keep the risk manageable should the uptrend reverse.

Russell 2000 Small Cap Index (IWM) – Still trading below the previous highs and some slowing has my attention. The downside risk remain in place and without a renewed push higher we have to watch and see how it plays out going forward. If you are still in the position trail your stops up and manage your risk.

Sectors of Interest:

Real Estate (IYR) bounced off support on Wednesday and followed through today. The renewed decline in interest rates was pushing he sector lower and the reversal or stall in the rise gave some room for buying. $64.80 ish is the next level of resistance to watch on the climb back towards the 200 DMA. This sector has traded in conjunction with yields on the long Treasury bond. Watch for the upside opportunity if the rate stabilize.

Consumer Staples (XLP) was consolidating from the break above the $42 level of resistance. Today it go the follow through on the upside to keep the uptrend moving micro term (less than 13 weeks). Wednesday provided the follow through with the move back near the previous highs and the gains today pushed the sector higher.

Energy (XLE) bounced back the last two days as crude and gasoline rise in price again. The hope or optimism that prices will at least stabilize has the ETF back at the previous high or resistance. Watch to see how this plays out short term.

Emerging Markets (EEM) – The worry about the Federal Reserve cutting stimulus had the sector moving lower. Wednesday the ETF tested lower and managed to rally back to positive territory? Our question last night was is this the beginning of a bounce or just noise? Bounce is the answer and it gave a trade signal this morning as the buyers were willing to put money to work in the sector. Looking for initial move to $42 as we closed on the 200 DMA tonight.

Treasury Bonds (TLT) – Wednesday the yields started to move lower and they continued today. Is this just a short term event as investors catch their breath? Did Yellen give some confidence to the bond markets on Fed action? Too early to tell, but worth watch the bond to see if it presents any opportunities on the up or downside going forward.

For TC2000 Software users the charts of these sectors along with additional notes are posted to my Worden Notes Research. Click on Tab at Top (Notes & News), Then Click Explore Feed Windows, Then Click Third Party Research Notes. JimsNotes is in the list and you can click on view notes to follow my posts each day. 

What to Watch Tomorrow:

Trading Notes tomorrow morning to set the tone for the trading day. Don’t get them? Send and email to don@jimsnotes.com to find out how to try them free.