Broad Markets Struggle with Data and Outlook

Market starts the week on a negative note as the major indexes give back some of Friday’s gains. The IMF lowered global growth expectations, big shock! The retail sales data was disappointing, as expected and the fiscal spending cliff that Congress is playing. In all it was enough negative data to keep the bulls from pushing higher following the Friday move. Nothing really changes and the short term bias is still focused on the negative sentiment overall.

Earnings from Citigroup were better than expected, but the stock only rose 0.6% on the day. The banks continue impress with better than expected data. KBE, SPDR Bank ETF fell 0.2% on the news. The regional banks (KRE) were equally down. This remains a sector to watch to lead the markets off the current test.

Discipline remains the priority! This is not an easy market environment and the outlook remains cloudy at best.

Sectors-to-Watch:

The lack of perceived options from the Fed Minutes was hanging over the markets last week, and the talk continued today with comments from several analyst projecting that Bernanke will not do anything near term in anticipation of a fiscal fight in Washington. That could leave the markets in a near term quandary relative to the overll direction. The commodities came to life on the drought worries for the soft commodities, and geopolitical issues in Iran have rattled the oil commodities, along with a weaker dollar the last few trading days. Will the trend last or do we see a reversal on the current on uptick.

The defensive sectors continue to lead the broad markets with healthcare, utilities, consumer staples and telecom. This is a sector driven and theme driven market. The theme of owning dividend stocks or defensive stocks has done well all year. Thus, we remain diligent in following the themes and attempting to capitalize on them.

The negative twist in the market continues as investors attempt to determine short term direction.

Positive – XLV, XLU, XLP, IYZ

Negative – XLF, XLE, XLY, XLK, XLB, XLI

News is driving, earnings have ramped up and they will be the key for this weeks trading.

Volatility Index – The index closed at 17.1 up slightly on the day, but remains near the recent lows. Watch for the index to flatten if the market continues find a way to push higher. There is no real fear or negative showing in the index short term. This has been a big help over the last two weeks to keep the focus on the upside versus the selling.

WATCH: SVXY was the winner as the market rallied.

Dollar – Heading lower as the euro finds support. This is worth watching as some now believe a weaker dollar is better for the US economy? Bounced back to the top of the trading range, but is testing lower the last couple of days of trading.

WATCH: UUP – Support is at the $22.80 short term. Watch resistance the $23 mark.

Treasury Bonds – The yield is 1.46% on the ten year bond. The  data sent the bond higher and yield lower for the day, testing the upside trend in play. The fear factor support was 1.56% short term and we broke that level to test the June lows.

WATCH: IEF – $108.80 (HIT ENTRY ON MONDAY) Stop at $108.30 for now.

S&P 500 Index – Test lower, but the 1330 level held. The uptrend off the June 4th lower remains in play short term. The move on Friday put the index back at the level of last weeks close and today was not enough on the downside to disrupt the curret activity. Nothing has changed and we have to remain patient and focused.

WATCH: SPY – $132.50 Support? Looking for follow through move above $136.

NASDAQ Index – More aggressive selling due to the technology sector. The support at 2860 held and we are close to the 2900 mark again. The volatility index for the NASDAQ tested to lows, but bounced significantly over the last seven trading days and with Friday’s rally returned lower. This is the index that is challenged and shows extremes currently. The Semiconductors hit a new low on Thursday and gained 0.9% on Friday, only to lose `1.1% today. Still not healthy and not interested in owning this for now.

NASDAQ 100 index holds more interest as the large cap stocks are doing better. The QQQ ETF held support and closed just at the potential entry point if we follow through on Tuesday.

WATCH: QQQ – support held at $62.25 – Entry at $63.60

Small Cap Russell 2000 Index – Broke support at $79.60 with IWM. Held support or a retest of the $78.30 mark on Thursday. Watch for support to develop before taking any positions. Big bounce Friday, but no follow through on Monday. Watch for the index to regain the leadership role is it is going higher short term.

WATCH: IWM – Tough call on the bounce. $80 potential entry point.

Financials – XLF broke $14.40 support and tested $14.25 last week. Friday it made a move back to $14.70. Held the the move today along with the uptrend line and looks ready to take on a leadership role on the earnings data. Maybe the data isn’t as bad as the pundits want us to believe, and the sector takes on some leadership.

WATCH: XLF – $14.45 entry on Friday. This is a tough sector to own short term.

Energy – The jump off the lows were the result of geopolitical issues in Iran. Fear was the catalyst on geopolitical news for the sector. Now a weaker dollar and what some “hope” is a move to the upside. Demand will be the ultimate deciding vote in time. The inventory data Wednesday will be watched after last weeks showed a draw-down. Thus, the assumption is demand is rising? Watch the price of crude and other energy related commodities.

WATCH: XLE – Test of $64.75 support held and in position to follow through on break through resistance at $66.80 for any trade opportunity.

Commodities:

1)  Crude is above the breakout level on OIL at $20.75 ($21.32 close and rising). 2)  Watch Gasoline was up slightly and holding above $51.20 on UGA. Entry at $52 hit and moving higher. 3)  Watch Natural Gas as it is attempting to break higher above $20 on UNG. 4)  Watch Agriculture Soft Commodities (DBA) are moving higher. Corn (CORN) 4% today and resumed move to new high. 5)  Gold bounced following the test lower on GLD. $148.50 is support. Watch Mining stocks fell 5% last week and no response to move higher in gold on Monday. The commodity sector is finding favor with investors as they look for the volatility to return in the sectors.

Global Markets:

China (FXI) fell and broke through support again at $32.40. Import data was a disappointment. If the US rallies the overlap will move to the global stocks to follow. Europe (IEV) broke support near $32.80, but bounced on euro improving. Watch. Turkey (TUR) remains near the high. Break above $53.10 could get interesting for trade. Singapore is back near the current highs at $12.80. Watch the global markets if the dollar weakens and money begins to rotate again.

What I am watching now?

Yahoo gets new CEO and it helped the stock after hours. With FDN sitting on support of the 200 day moving average could get a bounce in the sector overall.

GE was downgraded and the test of support at $19.50 may be challenged. The Industrials stocks continue to struggle as XLI remains near the bottom of the trading range. This is one of the previous leaders.

More banking news with Citigroup beating estimates, but not getting any upside play off the news. Watch KBE and KRE to break above near term resistance.

Energy stocks broke above resistance on XLE. Watch IEZ reverse head and shoulder pattern to break higher. OIL cleared $21.20 and now ready to move above $21.60.

Semiconductors are testing support again at 353 on the SOX index and the weakness in the growth sector remains. SMH is near the $29.90 low and short play if it moves lower with volume. Watch for follow through and potential downside plays in the sector.

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.