Buyers Show Up In Good Mood

Monday – Notes & Research

Investors return from long weekend in buying mood. The M&A bug had investors looking for the next deal. There was plenty of talk, but little in the way of change for the broad markets. The broad indexes all moved higher on the day and we deal with all the details of importance below.

The uptrend remains intact and we continue to hold going forward.

Economic data was limited today with only the homebuilders index out and it was disappointing. The analyst are still talking positive, but the data is not showing much in terms of growth overall. We remain cautious about the forward looking projections and patiently wait to see how it plays out.

Data Summary

  • Home Builders Index fell to 46 from January’s 47 level. Estimates were for a rise to 49. Disappointing number for the sector. XHB fell 0.4% on the news.
  • Empire State Index roes to 10 from -7.8 in January. Manufacturing for New York accelerated according to the survey and that is a positive for the economic picture.
  • Industrial production fell 0.1% for January and was worse that the up 0.2% expected. Not the best report at this time.
  • University of Michigan Consumer Sentiment rose to 76.3 from 73.8 in February. That is a positive number when you consider higher taxes and higher gasoline prices.

Economy like the market is steadily treading water. The short term outlook remains positive, but just barely. Keep your focus and remain disciplined relative to your stops and exit points.

1) US Equities:

Market Summary:

  • S&P 500 index stayed above resistance of 1515 closing at 1530 today closing up 0.5% on the day.
  • NASDAQ index moved above the 3190 level again, closing at 3208 on the day.
  • Crude bounced back to close at $96.66 and the energy sector posted solid gains as well.
  • The NASDAQ 100 held above the 2760 mark on the day and is still in position to continue higher from the move above resistance.

Leaders:

  • Energy has been the leader, the volatility has risen in the sector, but still on the upside move. Up 1.1%.
  • Alternative Energy is growing and looking stronger on a long term horizon.
  • Consumer Staples made solid move Mondya to push the broad index higher.
  • Consumer Services struggled as the retail sector lost the momentum on worry about the consumer. XRT jumped 1.7% on Monday to resume the move higher.

Laggards:

  • Technology is still attempting to break from the trading range and make a sustained move higher. Still worth watching to hold the move above $29.80 on XLK.
  • Emerging Markets (EEM) have stalled and remain in a consolidation pattern short term.

Short Opportunities:

  • Downside established ¬†in gold (GLD). Hit entry on GLL and monitoring the downside play.
  • Treasury bond yields continue to rise putting TBT in play.
  • Euro weakening on concerns about currency war and economic data. Short euro watch is on.

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test.

Scatter1228

November 15th Pivot Point for current uptrend. Target 1550-1575 short term.

SP500Scatter

VIX Index: Testing lows from January… still no fear building in stocks. SVXY jumped 4.3% on the day.

Tracking Sectors of Interest:

Telecom РiShares Telecom ETF (IYZ) fell week on news the news from Century Link (CTL) to provide the downside leadership for the sector. They cut their dividend 25% and the sellers took over. The test of support at $24.10 is what I am watching now?

WATCH: T – Break above resistance at $35.65 is attractive on the upside, plus the 5.1% dividend.

WATCH: VZ – Looks just like T on the consolidation and resistance $42.85, plus the 4.6% dividend.

Oil Services РiShares Oil Equipment & Services (IEZ) gave up most of the gains from Thursday as the price of crude fell, Today it gained some on the raise in crude. The consolidation pattern setting up will give some answers on the direction short term. Could still offer some upside plays.

Alternative Energy РTAN as suspected made the move higher today gaining 4.7%. The upside opportunity in the sector is a result of solar companies gaining traction. I am not a fan of the ETF as the exposure to China is too high for my taste. However, the two leaders here are WFR and FSLR. Both stocks gained 6% today. I like the idea of a longer term position with some money management around the positions.

Financials РXLF continues to move to the upside short term. Banks (KBE) and regional banks (KRE) both made moves higher again to set the pace. Hold for now and watch the downside risk of the sector if the broad markets shift momentum.

Citigroup (C) broke above the plateau consolidation on Tuesday, holding the move, but no follow through higher as it builds another consolidation similar to the last. Watch for possible trade on the move or test of the break higher.

WATCH: Entry $17.20 XLF. Stop @ $17.20

NASDAQ 100 РQQQ cleared resistance at the $67.30 level. $68.25 is the next hurdle for the sector. Watch the upside confirmation for opportunity. The post in the model is to test the break higher. Still not getting much in the way of a test or upside follow through for the sector.

2) Currency:

Sector Summary:

  • The currency discussion is tabled following the G-20 meeting, but investors are still looking for clues.
  • Yen retesting the lows and the bounce has not materialized yet.
  • Plenty of rumbling about the devaluation process, however no real action showing up currently.
  • TWO EGG Model went long the dollar (UUP) and short the euro (EUO).

Tracking Currency of Interest:

US Dollar РThe close near $21.97 (UUP) and attempting to break above the downtrend line.  Dollar index traded higher at the open and reversed the selling on Wednesday. Watch the dollar/euro trade short term.

WATCH: UUP – Entry $22.05 break from consolidation

Euro РThe euro moved below support at $132.70, but has moved back above closing at $132.83 today. Watch to see how this plays out.

WATCH: EUO: Entry $18.65 short euro against the dollar.

Japanese Yen¬†– Has the yen found the near term low… yet? FXY is testing lower as investors still believe the devaluation will continue. This is putting volatility into the EWJ ETF as stocks react to the new.

3) Fixed Income:

Sector Summary:

  • Yields continue to creep slightly higher. The question is if the market corrects how much will it impact?
  • 30 Year Yield = 3.18% – down 4 basis points — ¬†TLT = $116.80 up 101 cents
  • 10 Year Yield = 2.0% – down 2 basis points — IEF = $106.15 up 46 cents

Tracking Bond Sectors of Interest:

Treasury Bonds РThe current play is short with TBT in the model currently to take advantage of the move lower in prices. The last week the fund has bottomed and started to consolidate. The retest of the lows is a bad sign if it breaks down. Hold TBT for now.

High Yield Bonds РHYG = 6.55% yield. Support is at $92.75, which has held short term and the fund moving off the lows for now. We will watch to see if support holds and then make a determination on the upside play if it evolves.

Corporate Bonds РLQD = 3.8% yield. The price has found short term support ($118.90). Now watching to see if any upside opportunity exist in the bond. The current activity says no, but still holding support.

Municipal Bonds РMUB = 2.8% tax-free yield. The price of the bonds continue to be volatile. Found support and bounced back, but still looking for direction. Willing to wait for the right opportunity on the bonds. Look for a test of the $111.42 mark support.

Convertible Bonds РCVRT = 2.7% yield. Price has been moving higher on the current rally in stocks. Watch for opportunity if the uptrend continues in stocks. Gained 2.3% on move Tuesday.

4) Commodities:

Sector Summary:

  • Crude¬†regains some upside mojo on Tuesday.
  • Gasoline inventory unchanged and UGA flat
  • Coal stocks bouncing off support, but testing the move?
  • BAL tested $52.65 support and is set to break higher for a possible trade. tested lower today.
  • CORN broke below the next level of support at $42.80 – gave back the bounce from Friday bringing the downside back into play.

Tracking Sectors of Interest:

BAL РCotton jumped in mid January nearly 10%, but has stalled since. A trading range of $52.80-54.40 is in play. A break higher would be a continuation of the move off the November lows. One reason for the jump is rising demand from China? They are importing more than analyst expected and that provided the initial bump. Now we look to see if it a true increase going forward. Nice break higher today.

WATCH – BAL – Entry $54.60 hit on break from consolidation Monday. (Watch the low volume)

KOL РCoal ETF caught support at the trendline (ascending triangle) and moving back towards resistance at the $26 level. The upside trade is coming back into favor short term.

WATCH: KOL – Entry $24.45 Watch for follow through on the move.

GSG РHolding near the high as the overall commodity index maintains the modest uptrend in play off the November lows.

WATCH: GSG – $34.45 Entry – watch for break from consolidation.

UNG РDropped 5.2% on the inventory data last week. The inventory data once again shows less demand as inventory is higher than expected. Managed a small bounce today.

OIL РCrude is tested support and bounced as the chart shows short term volatility. Manage the position, but let it have some room to move as volatility has picked up? Manage your stop on OIL at $22.40.

UGA РSome volatility last week from the global concerns. The upside is still in play and is likely to continue near term. Supply is short as refineries maintenance schedules kick in. The upside is still in play. Watch as we test the highs.

WATCH: UGA – SEE ONLY ETF Model.

GLD РDownside follow through on Friday with drop of more than 2% on the metal. This is the accelerated selling we discussed and we will monitor to see how low it will fall.

The world’s central banks bought 534.6 tons of gold in 2012, an increase of 17% over 2011. That was the most since 1964, and it makes the central banks net buyers of gold versus sellers. Despite this fact the price of gold rose only 4% on the year, but saw price swings of more than $200 per ounce. The overall demand fell and that has put pressure on the price of gold¬†currently.

DBB РBase Metals need to clear the $19.70 as they attempted, but failed miserably today.  Watch for the short term reversal.

WATCH: DBB – Entry $19.75 (1/2 normal position)

PALL РPalladium tested $73.60 on some selling last week. The upside is still in play as well as the uptrend. Adjust your stop accordingly and let it continue to run. Traded lower on gold falling protect your gains short term.

PPLT РPlatinum tested lower and is filling the gap left behind on the move to new high. Moving back near the high for now. Traded lower in sympathy with gold. Watch the downside risk short term.

5) Global Markets:

Sector Summary:

  • Spain (EWP) sold on the euro-zone GDP data. Testing near term support.
  • Indonesia (IDX) big move higher over the last week? Follow through on break from consolidation.
  • Japan breaks above $10 on EWJ and testing, watch for more upside going forward.
  • Thailand (THD) made solid move back to highs, watch for the continuation of the upside.
  • Australia (EWA) breaking higher from the current uptrend. Solid gap higher of 2% on Tuesday.

Tracking Sectors of Interest:

EFA РDropped last week on Spain and is still testing as the euro-zone GDP data disappointed. The support levels are key and it is holding above the first level at $58.15. Uptrend remains in play with solid bounce on Tuesday.

IEV¬†– Dropped last week on Spain’s sovereign debt concerns. Testing the first level of support at $40. ¬†Euro-zone GDP data on Thursday didn’t help the situation. My upside target remains $45.50, but the upside may be in¬†jeopardy. Watch and be patient.

FXI¬†– China’s news on spying and using attacks on US corporations in this country. The new impacted the Country ETF selling off 2.1%. The fund had already broke support at the $40.85 support of the trading range. The $39.30 support held short term, and is being tested again. Watch downside on this news.

EEM РStill consolidating sideways and there no clear direction.

6) Real Estate (REITS):

Sector Summary:

  • REITs continue to find buyers and push the upside trend. nice move on Monday.
  • Homebuilders found some resistance near the $29.25 level and we are testing again. Index report today didn’t help the sector. Still holding move higher.
  • REM – Mortgage REIT is breaking above $15 short term play on move higher?
  • NLY- Analy Capital Management finally broke above $15 and could provide some upside.
  • SJT – San Juan Basin Royalty Trust holding move higher. Watch for test and move higher.

Tracking Sectors of Interest:

WATCH РIYR РEntry Р$66.15,  РStop $67 Solid move higher Monday. Watch and manage risk.

7) Global Fixed Income:

Sector Summary:

  • The sovereign debt issues are fading as the global outlook improves. Stocks moving higher prove trouble for the sector overall. We have hit stops as yields impact the price of bonds.

Tracking Sectors of Interest:

EMB РEmerging market bonds have bounced off the low, but has reversed to test again? Dividend of 4.2% is attractive if the volatility subsides.

PCY РEmerging market Sovereign Debt is testing back towards support again. Look for some clarity first and foremost. The dividend yield is 4.7%.

IHY РInternational High Yield Bonds breaking lower similar to US high yield bonds. Watch to see if any opportunities arise in the bonds.

PICB РInternational Corporate bonds support at $29.20 and looking to move lower? Watch

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 risk will limit the downside losses.