Wednesday – Notes & Research
Flat to positive on the day. There is plenty happening in the markets, but the overall market is inching higher.
This is getting to be interesting when you look at the inter workings of the market each day. Today VIX was higher, but then so was the market? Why? Breaking down the ten sectors gives you some clues. Five were up and five were down. The downside sectors accounted from market cap and thus, the volatility in today’s market. One very interesting move was Telecom was up 1.1% and Utilities down 1.2%? Aren’t they both utilities? The divergence is picking up and the winners are continuing to separate themselves from the others.
Buyers keep the trend going and for now we just ride it and see how it plays out.
Sector Moves of Note:
- S&P 500 index the move to 1630 was definitely mixed today. The slow drift higher is positive for the market overall versus a big run without reason. As we stated yesterday the close is above the trendline by 4%. That puts the close at the top of the up trending channel off the November low. If you put Bollinger bands on the chart it is breaking through the upside of the bands. Or simply put… overvalued?
- NASDAQ 100 index was higher as well on the day, but not overly convincing on the upside after the gap higher last week. Watch to see how this plays out looking forward.
- Gold was up 1.5% closing at $142.50 on GLD. Reversal of yesterday’s selling? The metal is stuck for now. Be patient an let this play out… up or down. GDX bounced back 5% on the day, but remains in a consolidation phased near the lows. If GDX were to move above the $31 level it would get interesting short term for the miners.
- Oil became the speculation play as crude climbed above $96 per barrel again today. Still see no logical reason for the move, but that doesn’t stop the speculation. The price moved to resistance, tested lower, and back to resistance. Looking for a solution to the yo-yo effect in play.
- Utilities are back to the support at $40.30 on XLU? We discussed the exit plan on this and we need to take the exit on the break lower or at least hedge the position. Watch to see how it plays out moving forwards. Patience with the uptrend in play.
- Financials followed through on the upside again and is setting the pace currently. Bank stocks were on the flat side today with brokers and insurance leading the way. Still positive looking forward.
- XLE (energy) held the move above the $80 resistance mark with some consolidation today. This gets interesting with crude hitting resistance as well on the upside.
- Bonds continue to struggle as yields rose to 3% on the 30 year bond. I expect some resistance at this level currently. Be patient and let this all play out.
- MOO – Market Vectors Agribusiness ETF moved up 1%, but more importantly broke through resistance at $54.35. There are plenty of stocks breaking higher in the fund worth looking at.
- Copper (JJC) broke above the $41.25 resistance today and move higher. DBB gapped higher on the move as well. $17.50 is the next hurdle for the ETF.
The market continues to grind higher, but still looking for that sign of conviction from the buyers. Take it one day at a time and remain disciplined with your stops.
No data today as investors are left to trade on their own thoughts… again. Tomorrow is the jobless claims… they started this current run, will they stop it? Wholesale inventories out as well.
1) US Equities:
The broad indexes hold the move higher from Friday 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 materials, technology, energy and financials off this pivot point. Consumer services and industrials are adding to the upside as well. The laggards are consumer staples, healthcare and utilities. The defensive stocks are selling as money rotates to the hotter sectors currently.
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.
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.
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.
Sector Rotation of Interest:
Technology (XLK) – Break above the $30 level again 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. Close to hitting the target today on the move higher.
Consumer Staples (XLP) – the 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.
Healthcare (XLV) – the biotech and pharmaceuticals stall from earnings are weighing on the sector. $46.80 support level held and solid bounce, but still showing some weakness. Protecting the gain is the priority. Keep stops at the $46.80 mark and let it go for now.
Energy (XLE) – Moved back above the $78.25 level, but still has to conquer the $80 mark. All positive for now, but watching the downside risk. The price of crude is back near the $95 mark and has helped the push higher.
Telecom (IYZ) – Moving higher, but consolidating near the high. Still like the uptrend here and if we can move above the $26.90 level it would be a big positive for the sector going forward. Got the move higher on Wednesday and the upside remains intact. $26.10 remains the exit point.
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. The chart below shows the path of the dollar almost sideways. At the same time the euro (FXE), the yen (FCY), the Krona (FXS) and the Canadian dollar (FXC) have all attempted to move higher, but still move the direction of the dollar, sideways. Looking for a trend to develop short term. No trend worth owning at this point.
- UUP – The dollar remains sideways and the balance of the currency market has accomplished essentially the same.
3) Fixed Income:
- 30 Year Yield = 2.97% – down 3 basis points — TLT = $120.35 up 18 cents
- 10 Year Yield = 1.76% – down 2 basis points — IEF = $107.96 up 13 cents
Tracking Bond Sectors of Interest:
Treasury Bonds – Yields on the 30 year Treasury was falling again as money rotated towards the bonds. There are concerns, but also money flow into the US Treasury bonds from the international markets looking for safety and yields. Watch as this continues to be a leading indicator for equities. Last few days have put some pressure on bonds with yields rising and prices declining.
High Yield Bonds – HYG = 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 ($95.20 short term trades). The risk is rising with each step the fund takes.
Corporate Bonds – LQD = 3.6% yield. Bonds have dumped with the rise in rates short term. Hold with stop at $120.80.
Municipal Bonds – MUB = 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 – 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. Need a break higher to play the sector overall.
- Natural Gas – (UNG) posted a big loss last week and still no bounce. $21.17 support. No play currently. Watching for support to catch.
- Crude Oil – (OIL) Crude moved up on speculation of improving economy? Yes, that is called speculation. Watching the downside opportunity on the move. Move back to resistance on Wednesday? clarity is still the call.
- Gold – (GLD) Fill the gap was the plan and it is still working on the plan. Downside is where I am looking with GLL. Willing to wait and le the play develop for now. Bounced back on Wednesday, watch for clarity in the move, higher or lower.
- Gasoline – (UGA) Resistance is at $56.80 now. Watch to see if it can follow through on the upside move.
Commodities Rotation Chart:
I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point. 1) UNG – dumped lower the last week. and continues to look for support. Watch $21.25 support? maybe a short setup 2) DBB accelerated off the low? $17.25 entry level for trade. 3) JJC – copper jumped on positive economic data. 4) OIL -jumped on economic data. 5) UGA – Gasoline moved with oil finally? This is getting interesting for some short term trades posted above.
DBC – PowerShares Commodity Index ETF (click to view) Composite of 14 commodities tracking index.
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. Today they traded higher with the US markets. EFA broke higher in tandem with the US markets. Sweden (EWD), Germany (EWG) and France (EWQ) are leading the country ETFs higher.
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.
- 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.
- 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.
- This weeks scan of IYR has turned up… 1) JOE – building a base and looks ready to break the downtrend. 2) FCH – trading range near the high. Look for continuation of the uptrend. 3) JLL – sideways consolidation with resistance at $100. 4) RYN – consolidation near the high move above $59.75. 5) VNO – consolidation near the high $88 breakout level. 6) BMR – consolidation near the high $22.70 breakout above resistance.
- 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.
- 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. 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 losses.