Buyers Show Up Finally – Watch for Follow Through?

Thursday, November 1st

Buyers finally step in and put money to work. This is what we have been talking about since last Friday. A bounce from the oversold market conditions technically. How long, how high and what sectors are all still undetermined. The desire for the market to bounce was growing along with institutional buying. This is still not a stable market, but it one in bounce mode… at least for now.

Economic data was part of the hope for buyers. Construction spending was better than expected, jobless claims fell more than expected, Consumer Confidence held at 72.2 and ahead of September’s number, and ISM Manufacturing was at 51.7 percent and above expectations. That was a key point from my view on the day. Bottom line, it gave some hope for buyers.

Hurricane clean up giving positive lift to economic picture. At least that is the rumor from some on Wall Street. The reality of that issue will be at the state level more than the national level. The impact to the industrial and material stocks was evident by both climbing 1.8 percent on the day. We will watch to see how this plays out, but it was trade worthy on the day, how it holds up going forward is another issue all together.

Jobless claims at 363,000 and down from last week, and ADP jobs report showed 158,000 new jobs. The challenge with ADP is they change the calculation method causing some confusion on the report. Bottom line, it gave some hope to investors that the job market is improving. Thus adding to the optimism on the day.

Election posturing got some credit as well. The fact the race is too close to call has kept investors engaged versus attempting to pre-determine what the impact will be from a specific victor in the race. The challenge will be how the market responds to the ultimate winner next week. That is just another worry log to toss on the fire.

Europe remaining quite is helping as well. There have been no major disruptions from Spain, Greece, Italy or anyone else. Thus, no new is good news from Europe. The index was up 1.1 percent on the day with EAFE index gaining 1.1 percent as well.

Bottom line is there was enough good news spread around to encourage investors to put money to work in stocks. Following the storm in the northeast many are hanging on the thought… It could always have been worse. The optimism following a major event always steps to the forefront and gives hope… Stocks are no different this week. That said, protect against the downside and negative news events that can still take place.

What am I watching?

Got the bounce we were discussing, now looking for follow through… but, the jobs report is in the morning. Watching the outcome for some additional follow through on the move higher.

McDonald’s testing the June/August lows again. The downtrend remain in play, but a test of support could provide a upside trade short term. Not much help from the move in the broad market. Watching support at $86.

NASDAQ 100 Index on the downside. The break lower is looking for support? Watch the 200 day moving average. Bounced per our wishes… The indicators are reading oversold short term which puts the bounce opportunity in play. Watch QQQ on the upside. $66.10 looks like the number.

KBE – watch the banks to hold support and bounce? So far holding and worth looking at the trade opportunities. Moved on Thursday. Watch for play at $24.

Gasoline – UGA – Bounced off the $53.60 mark as support? Watching the reversal short term for a trade on the upside. Potential trade set up at $55.75.

Apple – (AAPL) Watch the impact of their executive shuffle announcement on the downside of the stock. Test $585 or 200 day? (DID THAT WEDNESDAY) Plenty of rumors, but there are buyers out there for stocks. Trade opportunity? $603 entry is tradable to $635. No go on Thursday? Downside is a possibility if this fails.

Technology – Semiconductors attempted to bounce higher? Watch for trade on the upside. Got the move took the entry on the EGG today.

Watch the AM (Friday morning) for additional play opportunities!

1) US Equities:

S&P 500 Index / Sectors-to-Watch – The index rose more than 1% on the day giving some room between the close and support at the 1400 level. The index made a run towards the 1430 resistance short term. The upside is back for today, but there is the jobs report out tomorrow and as you now news is controlling the direction short term.

The Scatter Graph below has a starting point on 10/17 which is the current pivot point off the recent high. The move lower was in play, but we are watching the bounce attempt off the support. Industrials, Financials and Consumer are leading the attempt at the bounce. Technology put in a solid day on Thursday to help the outlook. These are the sectors to watch short term. The need for leadership is in what we are looking at short term. The downside leadership all bounced as well on Thursday helping the broad index gain 1.1% on the day. Utilities were the only sector to log a loss on the day.

Breaking the Sectors Down:

Financials – The index held support at $15.80 and the 50 day moving average. Earnings were ok for the quarter and the large banks should continue to benefit from QE3 stimulus. Currently the cloud is the government lawsuits for banks. Watch and be patient with the sector.

WATCH: XLF and KBE on the bounce off support. Both bounced today… more?

Energy – Broke support as crude continues to move lower and towards the next level of support. We established the short play on the drop lower. Watch for support to hold, but not much happening even on the bounce Thursday.

WATCH: DUG – short play on the energy sector. Manage the risk of trade. Entry = $21.35 – Stop – $20.84 (HIT STOP)

Healthcare – Bounced off the 200 day moving average as support. Pharma bounced as well, but plenty of damage done. Medical devices (IHI) with an inverse flag, looking for a rebound short term. Healthcare providers bounced 2.2% to lead the upside for the broader index. Biotech bounced with the rest of the sector, still not pretty on the chart. Watch the downside as it develops.

WATCH – Hold support on XLV at 200 day moving average. Got it now we look for a play.

NASDAQ Index – The index has been under pressure from the large cap technology stocks selling, and earnings within the sector didn’t help matters. They bounced today pushing back above the 200 day moving average and gaining 1.4%. Downtrend still in play despite hitting stop short term. Watch for follow through on the bounce or the short play to develop again.

WATCH: – QID hit entry point at $28.90 / $31.05 target / Stop – $29.45. (HIT STOP)

2) Currency:

Dollar – The dollar, like stocks, is being pushed up and down based on the daily sentiment towards Europe and the global economic picture. The downside pressure on the dollar abated as fear has crept back into the global markets. Watch the bounce on the buck.

WATCH: UUP – back to the top end of the range. Resistance at $21.95.

3) Fixed Income:

Treasury Bonds – Another attempt to make break above the downtrend line. Watch to see how this plays out short term with $120.80 support. $124 is back as a potential upside entry. Investors still can’t decide the direction.

WATCH: TLT – Downtrend line off the July high. $124 entry?

4) Commodities: Tough sector to own currently with the rise in volatility across the sub-sectors. The downside shift is in control and the break below the 200 day moving average on DBC is not a good sign overall. Remains a mixed bag of volatility based on the data and speculation.

WATCH: GLD – $167 support broke and short play emerged. GLL breakout. (ETF ONLY MODEL)

WATCH: SLV – Broke lower took out support and open the short play. ZSL breakout. (ETF ONLY MODEL)

WATCH: DBB – The downside or short play of DBB has been the winner! Watch $18 for support and bounce.

WATCH: OIL – The short play in crude has been the play. The break of support at $87.50 and is sitting at the next level of $85.50. Still watching the downside play opportunity after hitting stop last week.

WATCH: UGA – Entry $55.75 if the bounce follows through. Gapped higher and receeded today. Watch and be patient with the entry.

WATCH: UNG – In trading range and patiently working through the lack of direction short term.

5) Global Markets: The global markets are starting to trade in sympathy with the US markets. Watch and let this play out short term. If you have not set your stops it is key to do so.

WATCH: EFA – Testing support at the 50 day moving average.

WATCH: EEM – Testing support at the 200 day moving average.

6) Real Estate (REITS) – The sector tested the recent high and support at $64 (IYR). The sector broke support last week and bounced back this week. The downside is still the play to watch.

WATCH: IYR  – Attempting to break lower through support? Closed below 63.90? Short opportunity (HIT FRIDAY) SRS entry hit at $25.80. Stop 25.49.

WATCH: REM – Downside back in play after the short term bounce. Held $14.45 support.

WATCH – NLY – Downside back in play after the short term bounce. Held $15.70 support.

7) Global Fixed Income – Uncertainty about the sovereign debt issues remain. Thus, the lack of willingness to accept much in the way of risk from this sector.

WATCH: PIMCO Global Advantage Strategy Bond (PAFCX) is hitting new highs and worth watching as a opportunity if we move above the $11.80 which it hit today for an entry. $11.81 Entry – Stop $11.74 (Watch for the stop tomorrow)

WATCH: Emerging market bonds (EMB) – testing the move higher with a pullback.

WATCH: International Corporate Bonds (PICB) – Testing near the highs, watch how it plays out short term.

Watch: International High Yield Bonds (IHY) – Testing and pulling back near the breakout point.

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 downside risk determines your long term results. Trade Smart!