Back to Wednesday High & Positive Week

Friday – Notes & Research

S&P 500 index closed at the Wednesday high and up almost 20 point for the week. So much for being on the negative side of things as investors continue to a willingness to buy any sign of weakness in the markets. This weekend I want to break down the sectors to see where we stand relative to the rotation in play and the upside opportunity heading into next week.

The VIX index has picked up intraday the last three days of trading, but that has not equated into any significant increase in the index overall. The intraday swings shows the dynamics of what is taking place between the buyers and sellers. This is something to watch into next week.

Sector Moves of Note:

  1. S&P 500 index moved to 1632 regaining the 6 points lost on Thursday. 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. Still overvalued and watching for test or pullback short term.
  2. NASDAQ 100 index gained 0.7% on Friday to move higher in the uptrend. No big changes to the index, but the leadership is shifting, but not enough to make me shift out of the index. Keeping it for the continued move higher.
  3. Gold was up! Gold was down! Gold was up! Gold was down! No clarity to direction for now and we continue watch and see how this is going to play out near term.
  4. Oil is starting to act like gold with the up and down trading. Still consolidating near the high and resistance. Watch and be patient, still like the downside.
  5. Utilities sold lower on the week, but managed to close flat Friday and at support at $39.65. Broke the uptrend line as well. Watch to see how this plays out next week.
  6. Financials tested the jump higher, but closes higher for the week.
  7. Bonds continue to struggle with jumps in yield as confidence builds. 30 year yield jumped to 3.1 off the 2.82% level last week. This shows confidence building in the economy to push yields higher. Is this the bond rotation everyone predicted in January? Watch to see how this settles out.

The market continues to grind it out each day. The question is where will the buyers lose faith in the upside run and allow the sellers to dominate the trend for awhile. Take it one day at a time and remain disciplined with your stops.

Economic Data:

Jobless claims were better than expected and evidently that is now a bad thing and unsettled investors. Wholesale inventories were better than expected, but still didn’t show signs of ¬†robust economy. Yet there is¬†confidence¬†in the future growth of the economy?

Economic Events & Calendar 

1) US Equities:

The broad indexes hold the move higher this week 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, telecom and industrials are adding to the upside as well. The laggards are consumer staples, healthcare and utilities. The defensive stocks are rotating money to the hotter sectors currently.

Scatter 418

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.

Scatter 225

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.

Scatter1228

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.

SP500Scatter

Sector Rotation of Interest:

Technology (XLK) –¬†Break above the $30 level 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. Hit the target intraday and testing the upside. Adjust your stops and remain focused.

Consumer Staples (XLP) Рthe 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) Рthe 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. Friday moved to the top end of the range again and looks prepared to break higher.

Energy (XLE) РMoved above the $80 level and held into to end the week. All positive for now, but watching the downside risk. The price of crude helping the push higher.

Telecom (IYZ) РMoving higher, but consolidating near the high. Still like the uptrend here and we moved above the $26.90 level and now looking for a move on the upside going forward. $26.10 remains the exit point. Uptrend working higher for now.

Utilities (XLU) – breaking down short term on some selling. The fund managed to hold support at the $39.60 and the 50 day moving average. Watch how this plays out short term. If the bounce holds looking to add some shares at this level of the test.

2) Currency:

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.

Thursday: Dollar (UUP) bounced 1% and Friday followed through with a move back to the previous high, Yen (FXY) fell again hitting new low, off 2.5% the last two days, Aussie dollar (FXA) is moving lower 2% on rate cut and The Swiss Franc (FXF) fell 2.2% the last two days to add to the downside pressure.

Currency

Sector Watch:

  • UUP¬†– ¬†The dollar has been trading sideways and the bounce on Thursday and Friday puts the buck back near the previous high. The balance of the currency market has accomplished¬†sideways to downside moves.

3) Fixed Income:

Sector Summary:

  • 30 Year Yield = 3.10% – up 11 basis points — ¬†TLT = $118.75 down $1.29
  • 10 Year Yield = 1.90% – ¬†up 9 basis points — IEF = $107.33 down 61 cents

Tracking Bond Sectors of Interest:

Treasury Bonds¬†–¬†Yields on the 30 year Treasury¬†was falling, but that trend has shifted to the rising aggressively on the improved equity outlook. The rise in rates has sent the value of the bonds lower and the downside is in play. The trade with TBF has done well of late as short play on the bond.

High Yield Bonds¬†– HYG = 6.5% yield. Support at $94.75. Moved up to $96.25 and met with some selling on the shift in yields and risk. Manage the position for the dividend as the growth side is uncertain short term. Use $94.75 as the stop. Friday’s move shows the risk in the bonds currently.

Corporate Bonds РLQD = 3.6% yield.  Bonds have dumped with the rise in rates short term. Hit the stop at $120.80 as the selling accelerated.

Municipal Bonds РMUB = 2.8% tax-free yield. Shifting gradually lower as the risk relative rates is in play. Collect your dividends and let it ride for now.

Convertible Bonds РCWB = 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. Big test lower on Friday as gold sold lower.
  • 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. Some clarity is still the call. Close below $ 95 support would be the downside catalyst.
  • 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 let the play develop for now. Gapped lower on Friday, but found a way to move higher in the range.
  • 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 Рdumped lower the last week. and continues to look for support.  Watch $21.15 support? maybe a short setup  2)  DBB accelerated off the low? $17.25 entry level for trade.  3)  JJC Рcopper jumped on positive economic data. 4)  OIL -jumped on economic data. 5)  UGA РGasoline moved with oil finally? This is getting interesting for some short term trades posted above.

Commodity

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 Russia have taken on the leadership since the 18th of April. The test continues with the global markets. Still no clear defined leadership on the chart. EFA has been the best buy relative to the developed markets.

Global Mkt

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.

Country Watch:

  • 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) РThe sector continues in the uptrend overall. My rating is a HOLD currently. Watch the 1% decline today as it may start a pullback in the sector near term.

Sector Summary:

  • 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.