Wednesday – Notes & Research
Another day of watching paint dry! The major indexes held on to very small gains, but the media made it sound like a big accomplishment. Whatever, the bottom line is another day of treading water and waiting to see what direction the markets will take looking forward. Scanning for rotation we continue to see developments on the upside along with some warnings.
- Volatility and volume disappears along with the interest from investors.
- The indexes were mixed on the day five up, four down, one sideways. The stops are in place and we will continue to let our profits run for now.
- Healthcare continues to advance to new highs and remains a leader for the broad index.
- Energy tested the February high, but reversed after hitting the highs. Still like the upside view for the sector.
- Global market continues to struggle at resistance. The output data from China was much weaker than expected on Tuesday and today Europe was weaker. Watching to see if they can hold support and continue the upward trek.
The fun for the trading week continues as the major indexes find a way to attract more buyers on each draft lower. We have updated the research to reflect today’s activity.
February retail sales data was better than expected, but the consumer sectors were up slightly on the day. No reaction from investors as they seemed to discount the news. We keep watching the data nonetheless.
Sales lifted the dollar back near the current highs and push hurt oil prices which ended lower on the day.
Import prices rose 1.1% and inventories up 1%. Both were brushed over, but there are some concern short term.
1) US Equities:
S&P 500 Index close up barely along with the NASDAQ and the Dow.
The uptrend remain in play short term off the November 15th low. As stated below in the charts it has bounced off the December 28th and February 25th tests as well to continue the uptrend.
Sector Rotation Strategy:
The February 25th low pivot point remains in play this week. The chart below shows the leadership from XLY & XLF accelerating to lead the move. XLB became the leader on the test in XLF and XLY today. XLV, healthcare pushed higher along with energy (XLE) on the day. IYZ, telecom finally resumed some upside movement on the day to help keep the uptrend in play. Not enough on the downside to raise unjust concerns, but we have to manage the risk should the selling gain any traction near term.
December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test. The trend has continued to push higher after the February 25th test. See above.
November 15th Pivot Point for current uptrend. Target 1550-1575. The uptrend off the November low remains in play. The trend has now overcome two attempted moves lower to maintain the uptrend.
Sector Rotation of Interest:
Telecom – On March 1st the sector established a low and pivot point. It has continued to push higher over the last week making an attempt to head back towards the February highs. Added to the S&P 500 Watch List for entry. Scanning the ETFs the following are worth watching:
- Verizon (VZ) moving past resistance above the October high.
- Sprint (S) attempting to break above resistance at $5.95… watch for trade opportunity.
- JDS Uniphase (JDSU) ready to break above resistance at the $15.30 level.
- CBB, PLCM, RVBD, FTR and others attempting to make a move off the recent lows.
Technology – The sector finally made a move above the top side of the trading range. XLK broke above the $30 level and held. The entry point was hit on XLK and IGV. Added to the Sector Rotation Model Portfolio.
- Semiconductors (SOXX) remain in a solid uptrend currently.
- Internet (FDN) trading sideways and looking to clear $44 level to continue the uptrend.
- Watch the topping is stocks in the sector. Uptrend has been very flat relative to other leadership.
Financials – Banks have been leading the upside as the stress test is passed with the next test coming later this week on the Fed allowing dividends and stock buyback programs to those whose balance sheets qualified. Watching how this plays out going forward.
- Jim’s Notes – Banks
- Banks (KBE &KRE) both tested the move higher on Tuesday.
- Brokers (IAI) testing the February high on the upside.
- Insurance (KIE) leading the broad sector higher.
Energy – The sector bounced off the low and is testing the February highs. The stronger dollar has been the biggest detractor to the sector overall. Now inventory data is showing a record build up, raising questions. Despite all the bad implications XLE is making the move higher. Watch how it plays out.
- Added XLE to the S&P 500 Model Portfolio.
- Oil Services (IEZ) testing resistance at $57.50? Watch for opportunity on move higher.
- Oil Exploration and Production (XOP) broke to new high, tested move on Monday and held.
- Global Wind Energy (FAN) is attempting to break higher.
- Solar Energy (TAN) head and shoulder pattern setting up to break lower? Watch.
Basic Materials – Moved back to resistance at the February highs. As seen on the rotation chart above the gains to the upside have accelerated above the other sectors and it is one of the leader of the Feb. 25th low. Watch for the sector to clear resistance and offer some upside opportunity.
- Added to the S&P 500 Model Watch List.
- Sherwin-Williams (SHW) is attempting to break higher from the resistance at $167.60
- VMC, Vulcan Materials is attempting to break the downtrend and clear the 30 DMA.
- Plenty of set ups as you scan the ETF for breaks higher. That is a positive for the sector overall.
Consumer Discretionary – Broke above the $51 resistance on XLY hitting the entry point. The consumers are leading the broader market indexes on the race to the top. Extended the upside.
- Added to the S&P 500 Model Portfolio.
- Jim’s Notes – Consumer Discretionary
- Media stocks setting the pace on the upside. GCI, DISCA, VIAB, are good examples of the moves.
- Auto parts are also driving the sector higher, JCI, DLPH, F.
- Dollar remains in a uptrend. The shift in energy independence and an improving economic picture is turning the dollar into a growth currency again. At least that is what we would all like to believe. UUP closed at resistance at the $22.60 mark. A move through this level will extend the uptrend for the buck.
- FXB – the British Pound dropped to $150.50 support level and has accelerated lower as a result.
- FXC – the Canadian Dollar is attempting to hold support at $95.35. Building a base short term.
- FXY – yen is still in bottoming mode. Watch for a base to build short term if the direction is to switch.
- FXA – Australian dollar bouncing as stocks continue higher leading the way. Got the break higher Tuesday breaking the downtrend line. — Added to the ONLYETF Watch List.
- FXE – The euro is testing support on the downside again? (EUO short the euro) Attempting to build a base at the $128 ish level for now?
3) Fixed Income:
- Yields continue are shifting slightly higher as stocks hold gains. The question is if the market corrects how much will it impact? Patience as the downside in bonds continues.
- 30 Year Yield = 3.21% – no change on basis points — TLT = $115.57 down 12 cents
- 10 Year Yield = 2.02% – no change on basis points — IEF = $105.90 down 9 cents
Tracking Bond Sectors of Interest:
Treasury Bonds – The downside pressure on bond prices eased some on Tuesday in the Treasury market. Watch and protect on the downside. Estimates are for 2.75% on the 10 year bond by year end? That is something to watch and play PST on the short side.
High Yield Bonds – HYG = 6.55% yield. Support held at $92.75. Let it run as investors remain in love with junk bonds. I expect the trading range to remain near term.
Corporate Bonds – LQD = 3.8% yield. The price has found short term support ($118.90)… again. If we break lower, being short is the opportunity. Patience as this plays out. holding support on Tuesday.
Municipal Bonds – MUB = 2.8% tax-free yield. The price of the bonds broke the support at $111.30 mark week and the selling continued Monday. The move on Tuesday held its own, but this is a sector of the bond market to avoid for now.
Convertible Bonds – CWB = 3.6% yield. Price had been moving higher on the current rally in stocks. Hold for the ride and raise your stops.
- The commodity sub-sectors are finding some signs of life. Watch and play the leadership. GSG attempting to build a base on the parts moving.
- UNG (natural gas) made the move higher. The trade entry point was hit. SEE ONLYETF Model Portfolio
- PALL – Accelerated higher, established a new high, and is testing the move currently.
- Crude tested support at $89.30 last week and closed at $92.47 on Wednesday. ONLYETF Model Portfolio The upside is still in play despite the test on Wednesday.
- GLD – Gold bounce early, but faded again today… downside is still the outlook with a potential short term bounce.
- TWO EGG MODEL TRADE POSTED ON GOLD
Commodities Rotation Chart:
Tracking Commodities Sectors of Interest:
- BAL – A trading range of $52.80-54.40 is in play. Cleared resistance at the upper end of the range at $54.40 and continues to move higher. Let it run and keep your stops at $54.50 or break-even.
- UGA – Gasoline has gained in volatility as traders look for catalyst on upside, but none being established on the current move. Testing the support levels again.
5) Global Markets:
- Global markets overall tested the moves higher today. China led the downside on economic data and Italy struggled on news as well. That set the tone for the sector and we continue to watch for the leadership to rise from the ashes.
- EWW – Mexico remains in uptrend after testing support
- FXI – China’s bounced didn’t last as the data continues to disappoint investors. FXP is the play for a downside trade on the move currently.
- Europe bounced and held the last few days, but nothing worthy of trading for now. Still looking for some positive momentum to lead the indexes higher. $40.50 resistance and $38.90 support.
- Japan (EWJ) broke higher, tested, and continued to move higher. Got the move above $10.20 and still moving to the upside. Watch the top at $10.55 level.
- Australia (EWA) making a move higher the last week as well. Uptrend accelerating.
- EFA – The long term uptrend remains in play and support has held and the fund has moved back to resistance at the $59.30 level. Watch and trade accordingly if it breaks to new high short term.
6) Real Estate (REITS):
Tracking Real Estate Sectors of Interest:
Real Estate Index (REITS) – The pullback test is in play for IYR and $67.25 support held. The break higher above $68.50 was positive for the continuation of the uptrend. Followed through on the upside. ADDED: Sector Rotation Model & S&P 500 Model.
- Homebuilders bounced off support at $27. Watch to see if the upside remains after disappointing news in the housing sector. Housing remains in an uptrend despite the rumors.
- REM – Mortgage REIT held $14.80 support. At the $15.23 resistance to move higher currently. heading higher again in the uptrend.
- NLY- Annaly Capital Management finally broke above $15, and is testing the $15.20 support currently on the upside move.
- RWT – solid break higher in the uptrend. Scanning the ETF shows strong leadership in the top half of the holdings. Hold and see how this plays out short term.
7) Global Fixed Income:
- The sovereign debt issues had faded, but with Spain in the news again, Italy facing disruptive elections this weekend, and France taxing itself out of existence, too many concerns and the safest play is to avoid the asset class for now.
- Some basing is starting to take place and we continue to scan and look for opportunities in the sector.
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.