Chop returning as stocks consolidate

Tuesday was another day of choppy markets. Those with news moved higher, those playing catch up posted gains and those ahead of themselves produced inside trading days. All of the move validating some consolidation taking place from the solid moves higher of the the April and May lows. For now my view is consolidation and digestion of the move more than any signs of a reversal to the downside. The sellers are being aggressive and the VIX index is still too calm. We stated last night that technically the markets do look extended, but until the sellers are willing to exert themselves the buyers are in control. That remain our view for now.

Remember this is a slow economic data week and until the retail sales numbers on Thursday traders will be left to their own devices for direction… so far choppy. That by itself should make it interesting. The goal is to take what the market offers and to manage the risk in the process.

NO video updates tonight our internet IP was hijacked! Seriously… it should be up and running tomorrow according to the powers that be! I have never heard of such, but then that is why there are criminal minds at work. Added more notes below that I wanted to cover in the video. 

See tomorrow!

Notes to Note:

  • The Volatility or VIX index jumped in early trading, but gave it all back and still cannot make a serious push towards the 12 level and has failed to make any serious move towards the worry side. Today we closed back at 11.2, but still no major concerns from investors.
  • Interest rates on the thirty-year bond is rising again today and now at 3.46% and the ten-year is at 2.63% with both up nearly 20 basis points off the recent lows. That has investors nervous in bonds and it is raising the short interest in TBF and TBX. Adding to the watch list to see how it plays out.
  • Banks as a sector were flat today, but the break higher has added to the upside for the major indexes. Both the large banks (KBE) and the regional banks (KRE) have made solid moves on the upside to lead the financial sector back to a leadership role short term.
  • Small caps are helping the upside in the biotech space and the NASDAQ Composite index versus the NASDAQ 100 index. Stalled early, tested lower and managed to post and inside trading day for the index. Upside remains in play and could make a move back to the March highs near term.
  • The dollar is attempting to break above the 200 DMA on UUP. It would also break from the messy trading range low of the last three months. The cut in rate by ECB has dollar moving higher against the euro. The numbers from Japan have the dollar gaining on the yen. Watch for the follow through on the upside.
  • Emerging market bonds (EMB) tested lower today hitting the 10 DMA, but technically has set up a potential double top. If interest rates in the US are rising it does have some effect on the emerging market bonds. Watch to see if the downside develops further.
  • Commodities (DBC) remain on the weak side of the chart. The downtrend off the April high is still in place and the bounce of the 200 DMA faded on Tuesday. Gold (GLD) attempting to bounce off the support near the $119 level? Base metals (DBB) are bouncing with zinc and steel attempting to move higher. Still not convinced the move has any momentum. Agriculture (DBA) is still hanging at the 100 DMA and looking for a catalyst. patience over all with the sector as the weakness remains for now. Trading opportunities only.
  • REITs (IYR) showing weakness the last two days. Testing support at the $71.30 level and something to watch if the downside gains any momentum. Worry is coming from rates making a push on the upside the last few days. The concern is if they continue rise more than the recent rise. Watch to see and maintain your stops. The short side (SRS) is on my watch list now.
  • Internet (FDN) attempting to make a follow through on the trend reversal started in May. This is one of the growth sectors that created issues short term for the technology sector.
  • Cloud Computing (SKYY), like internet attempting to make a reversal of trend as well. The charts look similar in nature as both were attacked by sellers following the March highs. Watch to see how it unfolds or follows through.

Chart Notes:

The bump in yields on the thirty-year treasury bond has caused some havoc in the sector and the chart below shows the move off the low the last two weeks. A move above the 3.5% yield could be a negative for bonds. As we stated above that puts the short play against the long bond in play potentially.

TYX

The dollar made a bounce off the lows in May as the ECB announced they would offer more stimulus to keep stagflation or deflation from hitting Europe. The euro moved lower and the dollar higher. Since that point the dollar has moved steadily back towards the March high. A break above this level would open the upside for the buck to move back towards the $22 level.

UUP

The choppy moves the last two days would be considered consolidation currently and we are watching to see how it progresses from here. The May sales report will be out on Thursday and could be the next data point of note moving forward. Take what the market gives and keep pushing forward. Manage your stops to control our downside risk.