Apple Hurts NASDAQ – Broad Markets Continue Higher

Thursday – Notes & Research

From the start today Apple held the NASDAQ 100 index down as well as the technology sector, but the broad markets rallied early and and then managed to give it all back closing basically flat on the day. It was interesting to watch as the buyers attempted to isolate Apple and keep moving the markets higher. But, in the end, it was unchanged with a high anxiety level for investors.

1500 level on the S&P 500 index was challenged today, but it was rejected and closed back at 1495. Is this the top, resistance or consolidation level? This is something to watch going forward.

What else did we learn today?

Energy sector felt the impact of the supply data? Well not really, but the interpretation of the economic data in conjunction with the supply data provided room for speculation on what it meant to future supply demand would be. Got it? Your not alone. The focal point of the natural gas and crude oil supply data was to speculate that the demand would rise going forward. Serious as I can be! Here is some of how it goes… China demand for crude will rise as a result of the HSBC monthly demand survey showed manufacturing on the rise in January. A move higher in the PMI in the Euro zone contracted less than expected demand will rise in Europe. Last, but not least, PMI index in the US was the best since March 2011, demand for crude will rise. I have no grounds to refute the argument, but can we at least call it what it is… SPECULATION? Crude climbed more than 1% on the day and XLE gained only 0.3% after being up more than 1% earlier in the day. This could get interesting and the sector has my full attention for some trading opportunities.

Jobless claims fell 5,000 to 330,000 with the expectation for tick back to the 360,000 mark. Seasonal data in January is always a challenge, but thus far it remains positive on the job front. The Leading Economic Indicator (LEI) rose 0.5% in December and was better than expected. This is a positive sign for the economy to remain on a slow growth pace going forward. Our concern was growth would slow, impacting the outlook for earnings. Economic data has been on the positive side all week.

Apple fell 12.3% when the day ended, but there are plenty of headlines call for a bounce and that everything is fine going forward. Again more speculation on something that the sentiment is firmly on the downside. Any bounce in the stock should be viewed as just that at this point. No need to speculate or anticipate anything new to develop or change short term. We maintain our target of 425 on the stock.

NetFlix rallied 42.3% on earnings beating estimates and the company added their outlook which topped forecasts. Any gap higher like that is tough to buy, but if you own the stock you have to look at protecting your profits near term.

Microsoft slightly beats expectations on earnings. When you consider the slower sales in the PC market the numbers were not bad. The stock moved lower after-hours and we will watch to see how it open in tomorrows trading.

Very mixed picture for earnings on Thursday! Manage your risk tomorrow.

1) US Equities:

S&P 500 Index / Sectors-to-Watch

The index attempted to break above the 1500 level today, but failed to accomplish the task as the sellers stepped into to push the index back towards the 1495 mark and unchanged on the day. It is now decision time for the index as it will find resistance at this level and retreat, it will trade sideways as investors make up their minds on the future outlook or it gather momentum from short covering and the such and storms higher. Time will tell and the key for now is to remain patient and let it unfolds as to which is the direction of choice.

Filtering¬†through the sectors of the S&P 500 ¬†index we find Financials (XLF) made a move to new high and continues to lead the move off the low. ¬†Healthcare (XLV) broke to a new high closing above the $41.60 and equal the broad index. ¬†Industrials (XLI) pushed back to a new high. Basic Materials (XLB) closed at a new high,and tested some on Wednesday. Technology (XLK) is struggling with Apple’s earnings results, but the bottom line… uptrend remains in play and is working/melting higher.

The chart below has a starting point of 11/15 which was the pivot point for the current uptrend. Still moving sideways with a drift to the upside on the chart and still attempting to make a move towards the target of 1550 short term. The short term chart below (second chart) show the leadership off the lows on December 28th.

SP500Scatter

The chart below is the 28th of December starting point looking for current leadership on the renewed push higher. Energy established itself as one of the new leaders this week along with Consumer Services, Industrials, and Healthcare. Financials made a move above resistance as a positive, Consumer Staples have kept pace with the index overall. The Technology sector has been the tale of two cities. Apple pulled the sector down more than 1% on the Thursday to leave some overall question marks. Utilities (back near the 200 day MA) and Telecom (back near the January high) are playing catch up after lagging the broader index. Still moving higher overall, but it is definitely a stock pickers market as the leaders push higher.

SP500Scatter

The VIX index moved back to the 12.7 low on the close. No signs of anxiety yet and the overbought signs remain, but ineffective at this point. This is a time for being cautious not selling.

Click on link above to see the S&P 500 Mode Watch List and Model

Tracking the Indexes and Sectors of Interest:

NASDAQ Index РThe index catches the Apple Flu. The index dropped 0.7% on as Apple drops 12%. 3130 holds as support and we now watch to see how this play out going forward. The NASDAQ 100 index dropped 1.4% on Apple and back below the $67.30 resistance. I still like the upside for the index if Apple will settle on support short term.

WATCH: QQQ – cleared $67.30 resistance on the close. Look for test and entry in the position.

Dow Jones 30 Index Р13,620 level cleared on the upside was a positive. Move to a new high the last five trading days.

Small Caps jumped $87.50 on IWM to continue to lead the broad markets. And, Midcap Indexes showed equal moves above the $105 level on IJH. IWM stall and IJH continues higher on Wednesday and Thursday. Watching the exhaustion building in both. Weigh out the risk factor at these levels currently and continuing to hold existing positions. consider taking some off the table here.

Financials РXLF moved above $17 and continues to the test the move higher. Banks (KBE) and regional banks (KRE) both tested the moves higher on Wednesday. Hold for now and watch the downside risk of the sector if the broad markets shift momentum.

WATCH: Entry above $17.20 on XLF. Hit ENTRY today with move to $17.30. Stop @ $17

Basic Materials РXLB  hit a new high and is still in a strong uptrend. This remains one of the leading sectors on the upside. Watch for any adjustments short term.

Retail РXRT had pushed to the $65.60 resistance or new high. Thursday the ETF continued the upside run breaking higher. The scans from the sector last week turned up some stocks worth watching. PSUN (holding the break above $1.92), WAG (new high), CVS (new high), URBN (uptrend in play), ANF (testing the high).

2) Currency:

US Dollar РThe dollar remains volatile on a daily basis. The buck retreated to support at $21.70 on UUP. The test lower was a negative for the upside short term, but still watching to see how it plays out and follows the move higher off the $21.70 support?

Euro РThe euro was testing lower on the rally in the dollar, but that reversed on the dollar weakness and is now above the previous high. Let this play out on the upside. Could add to the position on the test of support at $131.50.

WATCH: FXE – $130.80 Entry. IN PLAY – Stop = $131

Japanese Yen РHas the yen found the near term low? FXY bounced off the $108.80 low, but revisited that level on Thursday again. The question is will the bounce hold this time or continue lower? The devaluation is an attempt to stimulate exports for Japan. Still volatile, but the downside still wants to continue based on this move? Short Yen anyone? (YCS)

3) Fixed Income:

Treasury Bonds РThe yield on the 10 year held at 1.84% and the 30 year to 3.03%. The downside risk in Treasury bonds was in play, but they have regained their poise to bounce short term after holding $117.50 support on TLT. Still an upside opportunity in the bond short term. (SEE SECTOR WATCH LIST)

High Yield Bonds РTesting the highs and resistance near $95 on HYG, with the upside continuing to melt higher for now. Look for support holding at $92.75. Continued to creep higher.

Corporate Bonds РLQD, iShares Investment Corporate Bond ETF is struggling to hold support near the $120.40 level. The downtrend started in October and has not settled yet at support. This is worth watching as a short opportunity as well as an indication of the risk being added by investors to portfolios.

WATCH: LQD – Short @ 120.25 if breaks support.

4) Commodities:

The commodity sector continues to be a challenge relative to direction short term. There are sub-sectors attempting to make moves to the upside, but you have to manage your risk. Traders sector for now.

UNG РDown 2.3% on Thursday on inventory data. Winter demand remains mild, but the cold weather this week and forward forecast could push prices higher near term. The follow through above $19.20 again brought the buyers out, but we have to watch the inventory data going forward. Patience is a must for the commodity. (SEE ONLY ETF MODEL)

OIL¬†– Oil fell in late trading Wednesday giving up 1.5% on the day to close at $95.23 and back below the $96 level. Thursday crude bounced back on speculation in supply demand rising? Now you have to watch the downside risk relative to an emotional reaction from investors and the speculation on demand… I don’t like the way this is shaping up short term.

WATCH: ENTRY OIL is $21.70. (STOP $22)  Gapped to $22.75 on Thursday. Raise stop to 22.35.

UGA РGasoline tested support $56.80 held and has moved higher and breaking above resistance  at the $59.35 on Tuesday and holding the move on Wednesday. The inventory data fell unexpectedly on Thursday pushing the price higher. Watch as this may make a move toward the $62 target short term.

WATCH: ENTRY: $58 UGA – Hit entry. Stop is $59 currently.

GLD¬†– Downgrade from Goldman Sachs sent the metal lower on the day and closed at $161.42. Since September 2011 Gold has not eclipsed any of it’s previous highs. GLD resistance is at $175. We tested $159 on GLD and the metal bounced. The downtrend line remains in play and investors obviously cannot make up their collective minds on direction short term. Watch the stop below.

WATCH: GLD – Entry $163 – Stop $161.

DBB РBase Metals broke support, tested $18.60 low and now is attempting to move to the upside. A move through the $19.25 level would be the key short term. Be patient and let this develop further.

Palladium (PALL) broke above the $69.50 high and heading higher. Platinum (PPLT) remain the better bet on the precious metal side. Platinum gapped higher and it is testing the upside.

5) Global Markets:

The NASDAQ Global Market Index (NQGM) broke above 970 on the index and has moved to 1025. The global markets remains a positive among investors short term. Money flow into the country ETFs has improved along with the upside gain.

WATCH: EFA – The uptrend short term continues, following a small test short term the fund has moved back above the previous high. Stick with the uptrend play for now as it holds support.

WATCH: IEV – Europe continues to rally as investors believe the worst is over. Why? Simply put the backing of the EU and the ECB (similar to the Fed in the US in 2009). The confidence that there is a back stop has brought investors back to the table. Looking at the daily chart for the last year we can see the break above resistance and the trend higher remains in play. Upside target is $45.50 going forward.

WATCH: FXI – China has firmly established the uptrend off the November low. However, the volatility of the move has picked up on economic data from China. Watch as a consolidation pattern is building on the chart. Watch to add to positions. ENTRY: $42 FXI

WATCH: EEM – Emerging markets have been doing well. The chart shows a consolidation pattern developing similar to FXI, but there are other single country ETFs doing well. EPHE, THD, EPU, EPI, TUR, EWW and others are worth watching. (Consolidation pattern breaking to the upside on Thursday)

6) Real Estate (REITS):

The sector broke support tested lower and then reversed along with the broad indexes. The fear generated by the fiscal cliff issues sent the sector lower. The reversal is worth trading as the cliff issues are resolved short term.

WATCH: IYR – Look for reasonable entry. $64.90. The break above $66.12 was the entry point of the move above resistance. Still moving higher short term. Watch for potential test of support in the move.

ENTRY $66.15, Stop $65.75

WATCH: REM, NLY & SJT – all three are in a position to break higher.

7) Global Fixed Income:

The sovereign debt issues are fading as the global outlook improves. Still plenty to be concerned about relative to growth, but the fixed income side is attractive for now. High yield bonds and corporate bonds are gaining momentum short term.

WATCH: Emerging market bonds (EMB) – Looking for support and an entry opportunity from the selling. Looking for a move above the $122.10 level for the entry.

WATCH: Emerging market Sovereign Debt (PCY) – Testing support near the $31 mark short term. Watch to see if this breaks lower or offers and entry on the bounce. Pays a 4.6% dividend as well.

WATCH: International High Yield Bonds (IHY) – Tested support at $25.75 and bounced and hit new high and still moving up. HOLD.

WATCH: PAFCX – bounced off support near the $11.66 mark. Holding within the trading range for now. HOLD.

WATCH: PICB – International Corporate bonds broke higher and they are testing the current high again. HOLD.

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.