Buyers Put Money to Work

Buyers couldn’t resist the opportunity to buy at the next level of support hit on Monday. Despite more disappointments from the economic data as factory orders fall 1.5% in December, but that was better than the 2% drop expected. Good news in the bad news is how it was interpreted. Tomorrow is the ISM services report and it will be watched closely after the short-fall in the ISM manufacturing data on Monday. And of course, Friday is the infamous jobs report for January and the expectations are to add 190,000 jobs. Everyone is holding their collective breaths, but I am not expecting good news from the report. Overall this is a market that remains in transition and we will watch to see how it plays out the balance of this week.

Natural gas (UNG) jumped again today gaining more than 7% and back near the high set last week on the commodity. Natural gas ETF (FCG) gained 2.9% on the day, but is still lagging the price hike. Scanning the ETF for leadership in the stocks turns up UPL, EQT, KWK, PVA and COG all breaking higher on the recent gain in the commodity. If the sector won’t move we will take the leading stocks as an opportunity short term.

REITs (IYR) bounced back today as well after testing the move higher on Monday. The leadership is coming from rotation of money from higher risk assets to safer havens. CWH, JLL, DRE, CYS, ELS and ESS have been leading the sector higher over the last two weeks. We have discussed the opportunity in the sector for several months now and I continue to like the upside short term.

Utilities (XLU) sold lower for a second day after pushing back to the October high. This is another flight to quality sector as money looks for high levels of safety currently. Dividend plus growth is the mantra of the sector for now. If we test and hold the $38.20 level I am looking to add to the positions going forward. Scanning the sector produces some pattern breaks from nice consolidation patterns near term.

Retail (XRT) has been on a steep delince trajectory the last six to seven weeks. The 12% decline in sector price has been the biggest loser in the S&P 500 index, and shows the lack of confidence in the consumer to continue to spend money. JCP was off more than 10% today as they disappoint Wall Street on what looked to be positive same store sales comps for Q4. On the opposite side of retail Micheal Kors (KORS) was up more than 17% on better than expected sales. Stock picking sector plain an simple.

Volatility index moves back to 18.5 after hitting 21.5 on Monday. The upside move in stocks helped put to rest some the spiking worries expressed by investors the last two weeks. A move back towards the 15 level would give some confidence to the buyers overall.

The previous leadership in Technology (XLK) become laggard with a small upside of 0.3% on Tuesday, and the SOX index was half that. The money flow was towards the more defensive sectors versus growth stocks. The networking (IGN) stocks bounced back 1%, software was up 0.8% and internet gained 1.1%. Still plenty of work to do if the sector is to regain the previous leadership going forward.

The agriculture commodities (DBA) are moving up nicely with coffee and sugar leading the upside. The metals (DBB) continue to struggle, and energy (DBC) is flat. Thus only one leg of the commodity stool is worth our attention short term.

The buying held some promise that support is in for today. How it plays out moving forward is still a giant question mark. Let the market lead the way and don’t assume anything at this stage of the process. We need to see a follow through on the buying today and to restore some confidence to the markets overall.