Another Slow Day with REITs Leading the Sectors

Tuesday – Notes & Research

Another slow day for the markets as NASDAQ slips 0.2%, S&P 500 rose 0.1% and Dow was up 0.3%. There was plenty of talk about the State of the Union address tonight from President Obama? Not sure he will say anything we haven’t already heard, and we will see if there is any real impact on the markets tomorrow.

Bottom line no real changes based on today’s activity! Another boring day.

Economic data was overall positive today, but nothing market changing to report. Stay focused and be disciplined in how you approach the current market environment.

Data Summary

  • Tomorrow is the January Sales Report and it will be the news of the day… assuming Obama doesn’t shift the markets direction. There are concerns the data will not be good and thus the consumer discretionary stocks have stalled.
  • Small Business Index was up again in January showing some improvement in the small business sector.
  • Yellen publicly stated the Fed is going to stay focused on job creation. This is a new task for the Federal Reserve and one I am not sure how they contribute? Regardless the comments assured the market that money will continue to flow from the Fed.
  • Fed¬†Governor¬†Jeremy Stein made concerned comments about the corporate bond market creating a bubble. That didn’t sit well with investors, but he did clarify that there were no real concerns short term. That is comforting.

Plenty of correction talk still in the headlines despite the shift in the technical data to more neutral on the market looking forward. Upside remains in play and we stick with the trend for now.

1) US Equities:

Market Summary:

  • S&P 500 index stayed above resistance at 1519 today closing up slightly on the day.
  • NASDAQ index is testing the 3190 resistance today closing down slightly on the day.

The NASDAQ 100 moved back to the 2760 mark on the day and is still in position to continue higher from the move above resistance. The move put the QQQ trade back in play on the upside with a test and go on the move. That makes tomorrow key on the upside opportunity.  Large cap technology stocks remain the answer to the upside for the index. Apple tested recent moves higher putting some pressure on the sector.

Leadership:

  • Energy has been the leader, but it is starting to trade sideways of late. Watch for direction.
  • Consumer Staples made solid move last week to push the broad index higher. Watch as it test the move.
  • Consumer Services struggled as the retail sector lost the momentum on worry about the sales data due out tomorrow. January sales will have an impact on the sector.
  • Utilities have made a solid run higher and continue to look solid on the upside short term.

Laggards:

  • Technology made a nice move last week and is testing the move higher. Still worth watching to hold the move above $29.80 on XLK.
  • Basic Materials has been struggling on the China news to start, but the European data and has added some downside pressure on the sector. Still holding above support for now. Watch the 30 DMA and the transition from the consolidation short term.
  • Industrials were on our Research Watch List and the S&P 500 Model, broke higher today and we added to the model on the move. Looking for a further move higher from the sector.

Watch List:

  • XLE – Look for continuation move higher from the consolidation near the highs. Entry = $78.60
  • XLF – Look for move through the high at $17.65 to add to positions. Entry = $17.75 Hit — The sector is starting to make a move to challenge the energy sector as the leader short term.
  • XLI – Hit the entry point today at $40.75.

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test.

Scatter1228

November 15th Pivot Point for current uptrend. Target 1550-1575 short term.

SP500Scatter

VIX Index: Testing lower with close near 13.

Tracking Sectors of Interest:

Financials РXLF moved above $17.50 resistance, retraced, and back above it again. Banks (KBE) and regional banks (KRE) both made moves higher again to set the pace. Hold for now and watch the downside risk of the sector if the broad markets shift momentum.

WATCH: Entry $17.20 XLF. Stop @ $17.20

NASDAQ 100 РQQQ cleared resistance at the $67.30 level. $68.25 is the next hurdle for the sector. Watch the upside confirmation for opportunity. The post in the model is to test the break higher. None today, but the week is young..l patience as this trade develops.

WATCH: QQQ Entry – $68.25 or test of the $67.25 breakout.

2) Currency:

Sector Summary:

  • The currency wars are still a possibility as the G-7 keeps stepping on their tongues to explain nothing. Watch the yen as this unfolds. There could be a bounce in store.
  • Japan’s Prime Minister stated the yen had over corrected on Thursday and that sent the yen higher on Friday. Watch how this plays near term. Expect a short term rally in the yen.

Tracking Currency of Interest:

US Dollar РThe close near $21.87 (UUP) is at the downtrend line? Watch to see how this plays going forward and the support now becomes $21.70 level. Watch the bounce for evidence of a continued move higher.

Euro РThe euro moved below support at $132.70, but has moved back closing at $133.42 today. Watch to see how this plays out.

Japanese Yen¬†– Has the yen found the near term low… yet? FXY bounced of $104.70 low on Friday after the comments from Prime Minister. Downside back today as call for Japanese stocks to move higher. Watch the stocks for the upside trade on EWJ.

3) Fixed Income:

Sector Summary:

  • Yields continue to creep slightly higher. The question is if the market corrects how much will it impact?
  • 30 Year Yield = 3.19% – up 4 basis points — ¬†TLT = $116.74 down 29 cents
  • 10 Year Yield = 1.98% – up 3 basis points — IEF = $106.06 down 11 cents

Tracking Bond Sectors of Interest:

Treasury Bonds РThe current play is short with TBT in the model currently to take advantage of the move lower in prices. The last week the fund has bottomed and started to consolidate. Watch for a reversal or upside in the bond if stocks start to trend lower.

High Yield Bonds РHYG = 6.55% yield. The fund has faced a drop in price this week and hit our stop at $93.75 (HYG). Support is at $92.75, which has held short term and the fund jump 32 cents today. We will watch to see if support holds and then make a determination on the upside play if it evolves.

Corporate Bonds РLQD = 3.8% yield. The price has found short term support ($118.90). Now watching to see if any upside opportunity exist in the bond.

Municipal Bonds РMUB = 2.8% tax-free yield. The price of the bonds continue to be volatile. Found support and bounced back, but still looking for direction. Willing to wait for the right opportunity on the bonds. Look for a test of the $111.42 mark support.

Convertible Bonds РCVRT = 2.7% yield. Price has been moving higher on the current rally in stocks. Watch for opportunity if the uptrend continues in stocks.

4) Commodities:

Sector Summary:

  • Oil is up the $97.51 today and heading higher again after test of the $95 support level. Higher demand being projected by OPEC. Big shock on that speculation comment.
  • Gasoline supplies fell and price rose? go figure.
  • DBA broke support and headed lower as soft commodities struggle.
  • BAL tested $52.65 support and is set to break higher for a possible trade. tested lower today.
  • CORN is testing the next level of support at $42.80 – break opens short play opportunity.

Tracking Sectors of Interest:

GSG РHolding near the high as the overall commodity index maintains the modest uptrend in play off the November lows.

UNG РDropped 5.2% on the inventory data last week. $18.27 support for the ETF was tested intraday, but closed above that level on Monday. Volatility is back and not interested in the emotional guessing game currently for the commodity. FCG is worth watching relative to break from the trading range and attempting to move higher. Got the test today and held support. Watch to see how this plays out tomorrow.

WATCH: FCG РEntry $16.65  РSet stop at $16.30

OIL РCrude is tested support at the $95 level as the chart develops a rolling top, but managed to gain 1.3% on Monday and 0.5% on Tuesday . Manage the position, but let it have some room to move as volatility picks up? Manage your stop on OIL at $22.40.

UGA РSome volatility last week from the global concerns. The upside is still in play and is likely to continue near term. Supply is short as refineries maintenance schedules kick in. The upside is still in play. Watch as we test the highs.

WATCH: UGA – SEE ONLY ETF Model.

GLD РDowntrend line still in play with support at the $160 level. Broke below $160 on Monday and put the downside in play again. Watch the uncertainty around currency and economic growth globally. The talk about the G-7 nations to avert a currency war sent the metal lower on Monday. This is all speculation once again driving price.

DBB РBase Metals need to clear the $19.70 as they attempted on Friday.  Watch for the continuation of the play higher.

WATCH: DBB – Entry $19.75 (1/2 normal position)

PALL РPalladium tested $73.60 on some selling last week. The upside is still in play as well as the uptrend. Adjust your stop accordingly and let it continue to run.

PPLT РPlatinum tested lower and is filling the gap left behind on the move to new high. Broke the support at $167 and triggered an exit short term from the metal. Watch as next level of support is $164.40.

5) Global Markets:

Sector Summary:

  • Spain (EWP) gets 2.5% move to the upside on the day? Watch for potential trade higher?
  • Indonesia (IDX) big move higher over the last week? Follow through on break from consolidation.
  • Japan breaks above $10 on EWJ today hit entry point. Watch as it tests today.
  • China’s economic data was the cause of the decline in FXI. Watch how it plays out short term.

Tracking Sectors of Interest:

EFA РDropped 2.6% last week to test the uptrend. The support levels are key and it closed above the first level at $58.15 again today. Uptrend remains in play. Nice bounce on Tuesday Рwatch.

IEV РDropped 4% for the week and is testing the first level of support at $40.  The challenge is worries escalating relative to the sovereign debt in Spain. My upside target remains $45.50, but the upside may be in jeopardy. Watch to see how this plays out short term. Nice bounce on Tuesday Рwatch.

FXI РChina broke support at the $40.85 support of the trading range. The $39.70 support is the level to watch short term? The drop hit the stop giving the opportunity to play whatever develops short term up or down.

EEM Р$43.85 support was broken, but bounced back and sitting at that level. The downside is not accelerating and we will watch to see how this unfolds. Stopped out of our positions on the move lower and now we watch for the next opportunity.

6) Real Estate (REITS):

Sector Summary:

  • REITs continue to find buyers and push the upside trend. Up 0.6% again Tuesday.
  • Homebuilders finding some resistance as analyst downgrade the sector… However, Tuesday produced a big gain of 3% in the sector.
  • REM – Mortgage REIT is breaking above $15 short term play?
  • NLY- Analy Capital Management finally broke above $15 as well and could provide some upside.
  • SJT – San Juan Basin Royalty Trust holding move higher. Watch for test and move higher.

Tracking Sectors of Interest:

WATCH РIYR РEntry Р$66.15,  РStop $67 Solid move higher the last two trading days. Watch as this moves.

7) Global Fixed Income:

Sector Summary:

  • The sovereign debt issues are fading as the global outlook improves. Stocks moving higher prove trouble for the sector overall. We have hit stops as yields impact the price of bonds.

Tracking Sectors of Interest:

EMB РEmerging market bonds have bounced off the low and could offer some upside short term plus the dividend yield of 4.2%.

PCY РEmerging market Sovereign Debt is finding some support and attempting hold and move higher. The dividend yield is 4.7%.

IHY РInternational High Yield Bonds breaking lower similar to US high yield bonds. Watch to see if any opportunities arise in the bonds.

PICB РInternational Corporate bonds support at $29.20 and looking to move lower? Watch

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.