Apple Provides Rally Cry for the Broad Markets

Tuesday, September 4th

Early selling as ISM Manufacturing numbers were weak again at 49.6% and still showing weakness. The consensus over the weekend was Apple would be the directional leader for the week and the announcement late in the day that they would have an event on September 12th sent the stock up 1.3% and the markets rallied as well back near the even line on the day. The speculation on the iPhone 5 release is building and buyers stepped in front of the announcement.

Construction spending was a disappointment as well falling 0.9% in July. Homebuilders still rose 1.3% on the day after a negative reaction initially. Residential, commercial and public construction all declined for the month. There was an lack of spending across the board and raising some quesitons relative to the outlook going forward.

Still no clear direction short term for the broad markets. This is a period where you have to pay attention and not assume anything. The rumors relative to September being the worst month for the overall markets are in full bloom. While September does have a reputation for being down more than up, it also a month of opportunity for investors to take advantage of the selling should it appear. The key is patience looking forward withou assumptions of what is going to take place.

Sectors were volatile today intraday and closed slightly higher, we updated the data below based on the results.

1)  US Equities:

S&P 500 Sectors-to-Watch – The index moved below 1400 intraday again on Monday testing the support at the 1395 level. This remains our first level of support to watch short term. The uptrend remains in play, thus the selling is a continued test of the uptrend off the June 4th low. As we have discussed uptrends don’t die easily as the last two weeks validates. We still have to respect the downside risk and the increased volatility of late.

We have to manage our stops and be 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.

WATCH: SH – Entry – 35.15 – Stop – 34.50

Energy – Uncertainty would be one word for what is happening to the price of crude oil of late. Trading up to $97.35 on Monday and Tuesday, it fell to $95 intraday. Thus the selling in XLE continued and hit a low today of $70.40 and testing the next level of support before closing at $71. UNG was up 1.7% as natural gas continues to bounce back from the selling with $19.40 the next level of resistance.

WATCH: HES – Entry $51 Patience required as we test the lower end of the trading range.

Financials – The sector pulled back from the move higher and tested support at $15. The move has challenged the current trend higher and we have to manage the risk short term. Any concerns with the sovereign debt issues will weigh on the sector going forward.

WATCH – XLF – Entry @ 14.55 – Stop 14.95 (on the close)

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 on Friday and jumped 2.8% today to break higher. Gap made entry a mess and we passed on the position today.  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. The sector is helping drive the healthcare higher as well. Nice gain of 2.3% on the day and raised stop.

WATCH – Entry at $89  – Stop $89 Raise Stop

Consumer Services – The consumer services sector has the retail stocks support relative to the trend higher. XLY and XRT are both moving higher short term. Digging in and looking for the leaders has been the best play. JC Penny’s broke above our entry point on Wednesday. Continues to consolidate and looks positive short term.

WATCH: XLY – Entry 44.50 – Stop 44.50 / JCP – Entry 25.50 – Stop 25

Semiconductors – The sector has been testing lower and the downside leadership has been from Intel. We added the short play on the selling on Thursday. Friday the stock bounced, of course, gaining more than 2% on the day. Watch the stop and manage the play short term. Tuesday the stock fell 1.6% and back at the entry price.

WATCH: Short Intel (INTC) – 24.55 – Stop – 25.20

NASDAQ Index – Moved back near the 3045 support? Watch for the index to hold or a test of 3000 next. The upside momentum has been as a result of the technology stocks. However, the accelerated run higher has been slowing and volatility picking up intraday. The trend is 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 are struggling with resistance at the $81.75 level. Moved above $82 on Tuesday… Watch this is still questionable moving forward.  The key is to protect the small gains we have and see how this plays out short term.

WATCH: IWM -Entry 79.60 – Stop – 80.90

Volatility Index – The index is establishing a short term trend higher. Jumped to 19 at the open and fell back to 18 on the close. The uptrend is in play, but not translating into much profit on the play. Hang on and manage your stops.

WATCH: SVXY – Reversing on the volatility.  VXX – $11.85 Entry hit on Thursday. – Stop – $11.10

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 served to create volatility with the buck. We remain short the dollar, but if the upside starts to accelerate on fear we will head for the exits.

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 2.71% on the thirty year bond, pushing prices higher on the bond. The move to 1.58% on the ten year pushed prices higher as IEF and TLT both bounced off the lows. TLT cleared $124.40 for the entry point. IEF had big pop higher on Friday as the yield continues to fall.

WATCH: TLT $125 Entry.  Stop 123.50

4)  Commodities:

Crude Oil – Testing near the move higher as the fear factor steps up on the stimulus packages not materializing. The risk trades are coming off and that is impacting the commodities. 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.

WATCH: UGA – Entry at 52.75 – Stop 58.50

5)  Global Markets: The global markets responded to the ECB stimulus anticipation on Tuesday. The EAFE index was attempting to hold the gains, but some the negative sentiment from no action relative to the stimulus has given in along with euro comments. We hit stops, but the opportunity is still on the upside should this all gains some direction and clarity.

WATCH: EFA – Entry 52 on above average volume!

Brazil Small Cap – channel top $37.50 with potential move higher. Solid move and follow through on the upside breakout prompted the entry at $37.60. Manage the trade and Raise Stop to $38.10 on move higher. Big follow through on Friday didn’t hold today. Stop is in play.

WATCH: BRF – Entry 37.60 – Stop – 38.10

6)  Real Estate (REITS) – The sector remains near the current highs. I like the outlook long term, and short term we have made a move back to the top end of the trading range. Still scanning and looking for the best opportunities.  Mortgage REITs (REM) bounced off the selling and headed back to a new high. The uptrend remains in play. Yield on the fund is above 11% currently.

WATCH: IYR – Entry $65.30 – 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 and moved higher on Friday. Hold positions and manage your downside risk.

WEDNESDAY:

The upside remains give and take as the overall market is fixated on the Fed and the ECB. Thursday is the ECB and the Fed is September 12th. The late day rally on Tuesday came from Apple’s move as they set to announce the iPhone 5. The market is looking for reasons to move higher and investors want to believe in the upside… but, there are plenty of issues still facing the broad markets.

Gold jumped to $1700 following another day of gains. The precious metals have been moving on the rumor and anticipation of stimulus.  Silver is near our target of $31.40 on SLV. It looks like time to collect some gains and see who this plays out short term.

Economic data is weak to start the August reports. ISM Manufacturing below 50% still and the construction data fell versus grow as expected. This isn’t the start needed for the markets to push higher on improving ecnomic data. But, it does give the Fed stimulus hawks the boost they were looking for.

What am I watching:   1) MSFT – Break above $31 would be a break from the consolidation pattern. 2) Facebook (FB) is approaching our target of $15 currently at $17. When it was launched I stated I believed it was $15 stock. With the current activity it is worth watching. 3) FXP – China continues to struggle and the downside remains in play short term. Look for a break lower as the economic data continues to erode. PMI contracted again in the reports on Tuesday.

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.