Boring Monday with the Exception of Commodities

Monday, July 30th

Digesting the move higher from last week and waiting for the Central Banks to announce their intentions. The number of article and speculations on what the ECB will do or what the Fed will do were endless. Today was as much fun as watching paint dry. The start for energy and agriculture were good, but the rest of the market spent time treading water.

One of the best quotes about the current market was, “it’s impossible to be bullish and right for the right reasons.” Makes sense when you consider that the markets have moved higher for the wrong reasons… speculation of stimulus actually helping growth. Thus, you just have to take what the market is giving and hang on for the ride.

Natural gas was up more than 5% as stats show a draw-down in supply and the likelihood of more drilling starting up. Utilities are providing some hope as the number of power companies switching from coal to natural gas continues to rise. The stocks move higher as well with FCG gaining 1.5% today and attempting to break above near term resistance.

For me the haunting question still remains, what if the Fed doesn’t provide stimulus and waits until September as some believe? Not a time to blindly jump all in on a couple of reports. Watch, evaluate and manage your risk.

S&P 500 Sectors-to-Watch:

The S&P 500 index closed flat on Monday as investors were willing to wait and see relative to the Fed. Failed to break above the 1390 level on the day as well. That is our near term target for the move higher near term. The challenge has been the renewed volatility to get to the target. Volume was positive on the day, but no real buying only after the index sold did buyers step up. There is still plenty of issues to tackle going forward for the broad index.

Since the June 4th low there has been a constant rotation of leadership. The obvious result is an inconsistent trend or trading range and we have been in a bullish uptrend channel since this began. The creation of a new pivot points on the higher highs and higher lows brings with it new leaders and losers and we are seeing another rotation on this pivot off the July 25th low.

Telecom – The sector continued to add to the upside with a gain of 0.75%. IYZ has gained better than 12% off the low last Wednesday. The renewed speculation that Apple will be fine going forward has brought buyers back to the sector. Bottom line is there are good stocks in the sector they continue to rise.

WATCH: IYZ – Hold and raise your stops to $23.32

Energy – Taking on the leadership role as well with the bounce in crude back near the $90 per barrel level. The move back above $69 on XLE is positive for the sector and we continue to like the upside opportunity short term. Uptrend off the June low still in play.

WATCH: XLE – Entry @ 69.25. Stop 68.75. WATCH – LINE, FCG for breakout on upside in natural gas.

Financials – Holding above $14.40, but you are going to have to be patient and accept the volatility to own the sector near term. Cleared the resistance once again and we will see how it plays out. Looking for a break above the $14.80 mark on XLF.

WATCH – XLF – Entry @ 14.55. Stop 14 (have to use lower stop due to the volatility short term.)

Healthcare – Recovered last week and holing near the highs. Hold positions and let it go. 50 day moving average is a good stop for now. Expect the volatility to remain as we go forward.

WATCH – XLV – Entry @ 38.10. Stop 50 DMA

OTHER ASSET CLASSES:

Volatility Index – The index bounced back near 18 today as market trades sideways. If the news is holding up and buyers come back to the market, look for the volatility to continue to fall short term, however if the ECB or Fed disappoint look for it to spike higher on selling from disappointed investors.

WATCH: SVXY is the play if markets continue to rally. Entry $99 on test lower Monday.

Dollar – Hits new high last week on renewed concerns on Europe. Last Thursday the dollar drops big on the news from ECB. What happens from here is up to the ECB from my view. Thus, we exited our positions, but looking for direction on the news later this week.

WATCH: UUP – Watch or UDN – on ECB action

Treasury Bonds – The yield moved up to 1.55% on Friday, gave some back Monday with yield at 1.5% as the ten year bond remains in limbo. Some of the worry is off the table short term is setting the tone for interest rates. Thirty year bond jumped to 2.64% Friday, gave some back today at 2.58%. Still looking for short trade in bonds with TBT or TBF.

WATCH: IEF – Hit Stop Friday. WATCH: TBT – $14.80 entry. Stop $14.50 Tested lower on Monday – patience on entry

NASDAQ Index – Bounced last week off support near 2850. Facing resistance from the downtrend line at 2965 ish. Watch the upside to follow through or the news to dive it lower.  NASDAQ 100 index tested 2550 support and bounced back. Facing resistance at the 2665 mark or the top end of the range short term. Watching the large cap stocks to take the lead again an move higher. Solid day for Apple on Monday.

WATCH: – QQQ Entry @ $63.70 Friday. Stop $63.10

Small Cap Russell 2000 Index – The downside has been a challenge and the index is still in a downtrend. Watch for move higher if we play this move off the July 23rd low.

WATCH: IWM – Entry $79.10. Still opportunity for the entry. Stop is $77.90.

Commodities: Solid start to the week with UNG moving higher. Agriculture moved as well with DBA. Still the winner for the asset classes moving higher.

Crude Oil – Crude moving sideways, but OIL remains above $20.75 breakout mark ($21.87 close). Closed at $89.50 today on some profit taking. Watch and hold positions for now. Watch the downside short term.

WATCH: OIL – Entry $20.75 – Stop $20.75

Gasoline – bounced back last week, but remains in a push higher. Closed at $53.82. The upside for the fund still in play if oil continues to move or hold near these levels short term.

WATCH: UGA – Entry at $52.75 – Stop $52.75

Natural Gas – Holding above $20 on UNG. The trend remains to the upside with some volatility expected. Solid gain on Monday up more than 5.6%. Watch and manage your stops.

WATCH: $20.80 is stop on position – Entry $20

Precious Metals – Gold rose from the grave last week and broke from consolidation pattern as a trade. GLD, $148.50 is support. Gold mining stocks jumped on move in gold. Move above $42.60 entry on Thursday.

WATCH: GLD – Entry $156 – Stop $155.   WATCH: GDX – Entry $42.60 – Stop $41.10 (solid gain on Monday)

Global Markets: The global markets moved higher in response to the ECB comments relative to the euro, Spain and Italy. The EAFE index has moved higher on the news and belief something with happen this time around. Watch and manage your risk in the short term.

China – Tested the lows bounced on the European news. Watch the consolidation wedge forming over the last 6-7 weeks and ready to break higher. This has been volatile based on the global economic issues and the economic slowing in China. Watch for a upside move on the improving data this week from China, but expect volatility short term.

WATCH: FXI – Entry $34.20 on breakout from consolidation.

Mexico – moved lower after a test of the March highs and bounced on Europe news. Got the bounce off the $60.50 support and closed above the 30 day moving average. Got the follow through and entry point on $62.25 Friday.

WATCH: EWW – Entry $62.25 Friday. Stop $62.10

Singapore – moving back above the high at $13. tested back and bounced off support at $12.50, and we took the entry at $12.70 on Tuesday. Nice follow through to $13.16 and new high.

WATCH: EWS – Entry $12.70, Stop $12.88

LEADERSHIP:

Housing – Positive outlook for housing sector and the homebuilders going forward. The new home sales data on Wednesday didn’t go over well with a 8.4% decline bucking the positive news. The sector tested support near the $20.80 mark and reversal was the opportunity to take a new play in the sector. The upside is still in play with some stalling short term taking place. Watch and manage the opportunity going forward.

Watch: XHB – testing support at the $20.80 mark. Held support at $20.80 $21.90 entry opportunity on breakout from consolidation.

Energy – See Above – The sector is setting up to take a leadership role short term on anticipation of improvement globally. (thin ice)

Materials – solid bounce of the bottom of the up trending channel and looking for a move to resistance at $35.75 and this higher if the leadership is to follow through.

Financials – See Above – The volatility in the sector will give you motion sickness, but there is strength. JPM broke from the consolidation and look for a break above the $37 level as positive. BAC bounced off the low and worth watching. WFC retesting the highs $34.40. Follow through break above $14.85 on XLF is a positive. Watch for the leadership to return to the sector.

Retail – Sector is working off support and cleared $50.20 resistance. This is still a stock picking sector. AMZN looks solid and earnings were good along with guidance. Pushed to new high on the news. EBAY made solid move on earnings as well. RL ready to break back above the $150 mark. COH moved back above $61.30 and COST cleared another new high. TJX and TGT both in position to break higher as well.

TUESDAY:

Fixed income as the short lived selling of bonds reversed to buying Monday. Watch this as a sign of what is in store looking forward.

S&P 500 Index to break above the 1390 mark as short term resistance.

Earnings, FOMC on Wednesday, ECB on Thursday and Jobs Report on Friday are the biggest risks of the week. If the news disappoints the exits will be crowded.

Economic data was better than the ugly low expectations and that prompted a push higher on Friday. Plenty of data this week as the month comes to a close. Tuesday starts the parade with income, spending, home prices and Chicago PMI. Jobs data starts on Wednesday and ends Friday with the jobs report. Construction spending, FOMC announcement, Auto Sales, Factory Orders and ISM Manufacturing. Promises to be interesting.

FOMC meeting on Wednesday looms large based on the anticipation created for the Fed to provide stimulus and a joint effort with ECB to rescue the world.

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.