Thursday, August 16th
S&P 500 hits 1416 today and now the fun begins. Where do we go from here? The test of the high was the objective since the June 4th lows and we have now obtained the goal. We simply tighten our stops and watch for the outcome short term. Cisco was the driver for the NASDAQ and Dow on the day jumping more than 9% after a positive earnings announcement.
Tomorrow will be a key day for the indexes as investors have time to digest the move and determine if the risk appetite remains for owning stocks. Basic Materials, Technology, Industrials, and Energy led the broad markets higher. Thus, no real change in leadership on the day. Financials were higher, but still didn’t provide much upside or leadership. Utilities finished negative on the day along with Telecom.
Economic data was mixed again with the home building cooling in July. Housing starts fell 1.1% versus the 7% increase in June. Building permits on the other hand were up 6.8% showing some positive signs looking forward. Jobless claims were up slightly at the 366,000 mark. The Philly Manufacturing Index remains stuck on the downside at minus 7.1 to follow up a negative 12.9 in July. That was the fourth consecutive negative reading for the region. Tomorrow we get the Michigan Consumer Sentiment Index and the Leading Economic Indicators (LEI).
Sectors below are updated based today’s activity.
1) US Equities:
S&P 500 Sectors-to-Watch – The S&P 500 index……. holds above at the 1400 level and moves to the April highs as test of resistance. The volume was up slightly, but remains on the low end of the scale. This doesn’t mean the move higher is done, just at a decision point again for the uptrend. Thus, be patient and let this play out short term.
The leadership remains in the energy, technology and consumer services sectors. Financials have attempted to put in a push higher, but they have struggled to follow through. Volatility is at the low and sentiment remains hopeful to positive. The following sectors are showing worthy actions to trade or invest.
Telecom – The sector made a solid move higher and consolidated some today on the run to a new high. The uptrend remains in play of the June 4th low and the move higher remains in play and we must manage our stops.
WATCH: IYZ – Entry – 22.40 – Hold and keep your stops at 23.95 (Raise Stop)
Energy – Uptrend remains in play off the June lows. Hold and manage the risk to see how this plays out short term. Oil services (OIH) remains in an uptrend leading the sector higher as the refiners set the pace. Production and exploration (XOP) are breaking from consolidation. Crude moved near $95 as we watch if the break above resistance to carry oil higher. UGA broke from the digestion of gains to a new high on Wednesday and we held those gains today. Raise your stops to protect the gains.
WATCH: XLE – Entry @ 69.25. Stop 70.40
Financials – Holding above $14.80 in the consolidation pattern. The sector hit against resistance at $15 the last week, but has now managed to break above that level today. Look for the breakout to hold the upside if the markets are going higher short term. Raised stop to break even on the trade.
WATCH – XLF – Entry @ 14.55 – Stop 14.60
Healthcare – The sector continues to trade sideways. Hold positions and manage the risk. 50 day moving average is a good stop for now. Need some belief in the Obamacare program short term for the healthcare providers. Still hitting against the resistance at the $38.90 mark.
WATCH – XLV – Entry @ 38.10. Stop 50 DMA
Consumer Staples – The sector has been testing the move higher and continues moving sideways. Uptrend in play and looking for a steady move higher for now.
WATCH – XLP – Entry 35.31 – Stop 34.90
Consumer Services – The consumer has been spending less, but the retail data is showing some growth. This is still a stock picking sector overall. The leaders remain WMT, TGT, KSS, etc. Watch XRT for insight. XLY broke higher on Thursday and is in position to challenge the May highs for the sector.
WATCH: XLY – Entry 44.50 – Stop 44.25 (Raise stops)
Basic Materials – broke above $35.75 resistance to continue the uptrend off the June bottom. Some weakness in the metals and mining stocks on Monday, but made a move higher today. Watch and manage the trade short term.
WATCH: XLB – Entry 35.80 – Stop 35.10
NASDAQ Index – Broke through the 3025 mark today and hitting against the 3065 resistance now. The upside momentum has been as a result of the technology stocks. The NASDAQ 100 index broke above resistance at the 2660 mark and found the upside move easy. The play continues to pan out for now – manage your risk.
WATCH: – QQQ Entry @ 65.25 Friday. Stop 66.50 (Raise stops)
Small Cap Russell 2000 Index – The upside move off the July 30th bottom was positive, but we have now spent the last week trading sideways and testing the move. Took the entry on the move above $79.20 and through the downtrend line. Look for move to continue higher above the $80.50 level. That happened on Thursday with solid gain. Still have to manage the risk of the position.
WATCH: IWM -Entry 79.60 – Stop – 79.30 Raise stop – Manage the risk.
Volatility Index – The index tested the low at 13.7, bounced and is back near the low again. No volume on the indexes is pushing the volatility lower. Without some news or catalyst this could move lower on the downside. Watch for ECB or the Fed to be the tie breaker for the VIX. Earnings are acting as a catalyst to calm investors short term.
WATCH: SVXY – Watch for re-entry on pullback test. VXX – If volatility picks up again.
Dollar – The dollar found support at the $22.55 mark on UUP. The risk for the dollar has been stimulus from the Fed and the ECB. The longer there is no activity in that vein the better it has been for the dollar. For now sideways is the activity and we will be patient to see how this moves.
WATCH: UDN – Entry $26.40. – Stop $26.10
3) Fixed Income:
Treasury Bonds – The bond is selling off as institutions and retail traders dump bonds. The yield has spiked to 2.95% and the thirty year bond pushed lower. The move to 1.83% on the ten year pushed prices lower as well on IEF. TLT moved lower breaking support at $124.60 the break lower is starting to accelerate short term. The short play on bonds is going well and moved above resistance at 16.10 and held the move on Thursday. Raised our stop today.
WATCH: TBT – $14.80 entry. Stop $15.70 (stop on the close)
4) Commodities: Topping formations and a cautionary tone for the asset class short term.
Agriculture – DBA broke the initial support Monday at $29.70, but bounced on Wednesday? The next support is $29. Watch as the stories around the drought are starting to get factual information and it could be a buy on the rumor, sell on the news event. Take profit if you have not already done so and see how it plays out short term. CORN, SOYB, WEAT, etc. are all testing lower end of support currently.
Crude Oil – Moved higher slowly, but is taking out the short term resistance and attempting to move higher short term. Manage risk of the play and mange your stops.
WATCH: OIL – Entry 20.75 – Stop 21.90 (stop on the close) Cleared $23 resistance.
Gasoline – Solid move off the test the last few weeks. The upside is still in play, but watch oil prices. Watching for a test short term on the steep move higher. Don’t be afraid to take some profit off the table short term. Gapped higher on Wednesday gaining 2.4% held with inside day on Thursday.
WATCH: UGA – Entry at 52.75 – Stop 57.10 (raise stop)
Natural Gas – Ther short term break of support led to recommending a short position last week. Analyst have turned negative on the commodity as well keeping the downside in play. Volume jumped in the short ETF KOLD. Took the short ETF play in response to the negative selling.
Thursday inventory data was somewhat positive for the price of natural gas. Watching if support holds near the $18.60 level.
WATCH: KOLD – Entry 27.15 watch and be patient. Raise stop to 27.80 (raise stop)
Coal – Started to benefit from the selling in natural gas, but has been testing the move of late. Watch the $24 level as near term support. Risk remains in the commodities short term, but watch to add to positions on the test of the move if we find support at reasonable level.
WATCH: KOL – Entry $25.20 – Stop $23
Resources and Commodities Strategy (BCX) breaking above resistance to continue higher at $13.92. Test and entry at $13.95. Stop at $13.65 for now on reversal. Attempting to resume the upside move, but the 200 day moving average is just overhead at $14.25.
5) Global Markets: The global markets responded to the ECB and Draghi’s promises to save the EU. The EAFE index has moved higher today on the positive US data on earnings. Watch and manage any opportunities short term. If there is not activity near termfrom the ECB the downside risk will grow for the market.
WATCH: EFA – Entry $50.50 – Stop $51.25 Raise stop.
China -Broke above short term resistance and has stalled. I expect volatility along the way as China decides to push stimulus at the economic picture. Disappointing trade data with the US and impacting the outlook short term. Manage the stops. Broke back below the downtrend line on Thursday? Honor the stop at break even.
WATCH: FXI – Entry $34.20 – Stop $34.20
Mexico – Moved against resistance again and still looking for a break out move on the index. Watch the volatility and manage the position.
WATCH: EWW – Entry $62.25 Friday. Stop $60.30
Singapore – moving back above the high at $13. I still like the country looking forward, but the near term weakness isn’t a positive. Manage the risk of the trade short term.
WATCH: EWS – Entry $12.70, Stop $13.10
Brazil Small Cap (BRF) channel top $37.50 with potential move higher. Posted on Wednesday for the opportunity in the global markets moving higher. Solid move higher on Thursday to follow through on the upside breakout. The entry was at $37.60. Manage the trade and Raise Stop to $37.20.
6) Real Estate (REITS) – The sector remains near the near term highs. Double top (IYR) set up on the downside short term. I like the outlook long term, but short term we remain on hold. Still scanning and looking for the best opportunities.
WATCH: IYR test of support at $63.60 to hold and then bounce.
7) Global Fixed Income – The issues with sovereign debt in Europe keeps us out of the asset class currently. Emerging market bonds (EMB) are overbought and we have put this on a wait and see list short term as the bonds have pulled back to support at $118 short term. Watching for the opportunity. The downside may pick up – look for a confirmation either way.
WATCH: EMB – tested support at $118. Looking for entry opportunity.
What I am watching. 1) The miners (XME) are attempting to pick up some momentum. Worth watching for a move through resistance$42.50 or test of support at $40.50 (hit support today) and bounce higher. 2) Mortgage REITs (REM) bounced off the selling last week and heading back towards the previous high and remain in an uptrend. 3) Consumer Discretionary is attempting to find an upside momentum. Watch FXD currently near $21 and breaking higher. 4) Silver Miners (SIL) attempting to break above $19.50 resistance. 5) Homebuilders (XHB) broke above $22 resistance and March highs. Testing the move higher and worth a trade if it follows through on upside. 6) Dividend stocks continue to move higher as the favored asset class short term. PEY is set to break above the $9.50 top. 7) GDXJ – Junior Gold Minders ETF breaking above the $20.25 resistance… look for upside follow through trade. 8) KOL – Market Vectors Coal ETF broke above the $24.90 resistance and looking for entry point near the $25.25 mark. 9) Soft commodities may be getting soft on some profit taking. DBA watch for short opportunity is the downside accelerates, or a entry point on a test to the move lower. 10) High Yield Bonds (HYG) attempting to take out the high at $92.
Watch the economic data out in the am. Still could help break through resistance.
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.