Bounce Keeps Moving Higher

Another positive day with the broad indexes posting gains for the fourth day out of five.¬†The scatter graph below shows the ten sectors of the S&P 500 index measured against the index itself (white line). When the market bounced last Friday off the last low it created a new pivot point and thus we would like to see the leadership. You don’t have to look very hard to see the move in healthcare (XLV) is driving the index higher. Biotech (IBB & XBI) are driving the sector over the last two trading days. Industrials (XLI) (blue line) isn’t far behind as is consumer services (XLY). The surprise move is from utilities (XLU) which has benefited from the decline in interest rates and the rise in bond prices. (see below) The laggards have been the usual suspects of consumer staples (XLP), financials (XLF), basic materials (XLB) and telecom (IYZ). The surprise is energy (XLE) leading the downside. The commodity prices declining on a stronger dollar have contributed to the move lower. All said, follow the leaders and take what the market has to give.

SP500Scatter

The worries have not disappeared they are just on the sidelines for now. The move higher on the day was not earth shattering with modest gains of 0.35% and the volume was the lowest of the week. The sellers are still around and don’t be lulled into believing they have given up. A catalyst is all they need and that is where having a willingness to accept the risk of the environment comes into play. Caution is advised and tight stops a must.

On Wednesday natural gas fell more than 3% and negated the bottom reversal… I noted that inventory data may change that and that is what transpired today. That does not make me smart just observant. The 2% gain today did not change much as the bottom or base is still being built and we will see if this presents and opportunity going forward. FCG the natural gas stocks ETF fell 1% on the day in sympathy with the energy sector. This may¬†be something to watch as well, especially if the commodity continues to move higher.

Treasury bonds moved higher on the day with TLT hitting a new 12 month high. Since January the bond ETF has gained 14.2%… not shabby at all. The issue is that bond prices were supposed to decline according to analyst. The Fed cutting stimulus and the renewed vision of interest rates ticking up in the first quarter of next year would provide the catalyst… that has not occurred and may not any time soon. The bidders offered to buy 2.6 times the amount of bonds offered today at the auction with a yield of 3.22%. The demand is strong and the statistic shows supply is low… thus higher prices on bonds. Who is buying? Just about everyone and that is putting pressure on the on bond yields to decline. So much for analyst projections this year.

Crude continued to decline today after bouncing late on Wednesday in response to the supply data. Why the reversal today? Europe is my rationale. The German bond fell to 1% on the 10-year bond, (that influenced the US treasury bond as well.) and that is putting pressure on the economic picture, which in turn makes the projections for oil demand decline. The 2% decline put the price near the $95.60 level and support on the downside is $95.10. The break lower could put further pressure on the commodity. DTO is the short ETF trade for crude and cleared the $32.85 resistance on the move today.

Bottom line… one day at a time. The opportunities are unfolding we just have to be willing¬†to take the risk necessary to capitalize on the moves.

Running the EGG Scans¬†– First the daily winners…

I feel like I am one of those rides at the fair that goes in a circle at high speeds and tilts on it’s side. You can decide if it is fun or you want to throw up! Today was low velocity (volume) spin around (more fun) than Tuesday. We have to hang on endure the music, the spinning and the lack of vision and when it stops, if we don’t throw up, we will say we enjoyed the ride.

Biotech (BIB) puts in back to back gains of 3% or more to lead the NASDAQ and broad markets higher. This breaks the consolidation pattern or triangle on the upside with the move and worth watching as a potential play for the EGG if we hold the move. A small test to give a better entry point would be ideal for tomorrow.

Pharmaceutical (PJP) joined biotech with a nice gain on the day. That is helping lift the healthcare sector (XLV) overall. Solid leadership in the sector and worth watching as well.

NASDAQ 100 (QLD) posted a solid move on the day and pushing back towards the previous high. This is the leader overall and definitely was in that role again today.

Energy MLPs (AMJ) are getting a boost from the Kinder Morgan news earlier this week as the upside continues despite the price of oil. CBA was one the individual leaders in the sector.

Natural Gas (UNG) see above notes. The sector is on my watch list, but needs to find its way back near the $21.95 mark.

Positive day overall, but nothing earth shattering on the indexes. Patience is the key to define the ownership going forward.

Still Watching: 

Gold miners (NUGT) enjoyed the bump in gold prices that has helped¬†the miners move higher. The stocks did well to start the week, but declined 3% on the day. Some upside and breakout in the price of gold would help the momentum return to the stocks, but for now that doesn’t seem to be the path. Still holding for now and watching the progress.

Volatility index is back on the downside and breaking the next level of support at 12.90 to close at 12.6. SVXY as we posted is the current trade in the VIX.

Treasury bonds regained loses from Tuesday and hit new 12 month high on Thursday. The yields fell back to 3.19% and testing lower. TLT moved¬†above¬†the¬†key resistance point near the $116 mark. I still believe this is fear motivated by investors. But, it also is getting rotation from the global markets looking for safety in light of the geopolitical issues. Whatever is driving rates lower… there are plenty of analyst and investors scratching their collective heads.

China (FXI or YINN) Bounced off the low and made move to new high and tested lower today down 1%. Again I refer you to the carnival ride above. I like the longer term view of the country ETF, but you need to have a strong stomach to endure the ride.

Small Caps (IWM) The sector spent most of the day in negative territory and lacked in definitive follow through or break above the 200 DMA. I like the trade, but proceed with caution for now. There is still plenty of work to do. Watch as the downtrend is still in play until we follow through on the move off support. $115 could be short term move.

Social Media (SOCL) cup and handle breakout still in play. Moved above $20.11 on the Tuesday and Wednesday produced the confirmation for the follow through on the upside. Started lower on Thursday, but managed to fight back into positive territory. I still like the upside of the sector.

Curde oil (DTO) the downside has been the trade in oil and today was not different as the price decline below $96. This is good for consumers and maybe the lower prices will stick to help with spending side of the economy. (see above notes)

Current EGG:

Bounce back in play and as we stated we were watching to see if the upside resumed. I cannot say that is true, but the low volume move for the broad indexes is pushing them back towards the previous high. As they say in golf if is not how, but how many… if is not how we get to the higher levels it is simply that we get there. This¬†remains a short term trading cycle from my view and that keeps risk avoiders on the sidelines.¬†Since we don’t like undue risk¬†we will continue to be patient and let this short term volatility play out.¬†¬†We will see where the futures are in the morning and make any posts that develop that are worth the risk.