Complete 180 From Wednesday!

Thursday – Notes & Research

The main headline today reads, “US Stocks Rally on Jobs Data”. I don’t know why the jobless claims dropping is a realistic reason for the rally when yesterday’s ADP report for private sector jobs was awful. Not to mention there are plenty of seasonal adjustments following the Easter holiday. Whatever the reason stocks moved higher… end of story.

Europe was mixed on the ECB cut in rates early, but gave in and rallied with the US markets. IEV was lower then rallied to recapture most of the selling from Wednesday. We are back near the breakout point for the ETF and looking for some type of follow through.

Why the selling response on Wednesday? That is the question we all want answered. 1)  economic indicators pointing to slower growth in April continued. 2)  earnings disappointment from some bellwether companies. 3) global economic data shows continued weakness in China. 4) Valuations are rich and need everything to go according to plan. After posting this comment on Wednesday our advice was to watch and see how Thursday would develop.

Why the buying response on Thursday? That is a question I would like answered, the hell with everyone else. 1) ¬†Everyone slept on the Bernanke/Fed action and came to the conclusion that an engaged Fed is better than no Fed. They came in this morning and bought stocks. 2) ¬†Hope that jobs are improving. ¬†3) ECB cut interest rates and we get more money in the float from another central bank. 4) ¬†Belief the jobs report on Friday will be better than expected. 5) Warren Buffet joined Twitter! The news is driving… that is all there is to it. Watch, set your stops and let it roll.

Sector Moves of Note:

  1. S&P 500 index pushed back to the previous high of 1598 and we are still looking for the catalyst higher. Jobs report tomorrow? Were the jobless claims a setup for the move? We will watch and see. If it is the upside catalyst we will add to SPY @ $160.
  2. Gold opened higher after being down 2% on Wednesday. There is no clear indication on direction based on today’s activity. I am still favoring the downside as this bounce plays out. 1475 resistance and 1430 trade target on the downside. If we move through the $143.50 level the ¬†upside play will be the call. No long term trend leads to the short term trade¬†opportunities
  3. Oil opened up slightly following Wednesday’s selling. As the day progressed it jumped more than 3.6% and returned to resistance near the $94 level. Is it slower economic outlook or growth? Two day and completely opposite opinions driving prices. Again, speculation is driving the price of the commodity. Watch and play according to your risk tolerance. DTO into tomorrow or OIL? It depends on the news.
  4. NASDAQ 100 held up better on Wednesday and followed up with a solid move higher today. I posted in the morning trading notes that a test of the $70 level that held was a good entry signal. $70.50 ish would have been the entry point today for that trade. The technology stocks are providing the leadership for the index. The move off the April 18th low has been vertical… look for a test on the downside as this progress and manage your risk in the trade.
  5. China economic data disappointed, but the upside remain in play. If the ETF breaks support it could set up a trade with FXP. Be patient and let the chart reveal the bias going forward.
  6. Small Caps recovered some of the losses from Wednesday, but not all. This is looking more like a consolidation period developing for the ETF, but we will have to watch how it plays out short term. Upside trade was the play today on the move above $92.40. Watch to see how it progresses from here.
  7. Pattern Set Ups to watch Thursday: 1) ¬†GOOG ‚Äď test of the break above $812 (reversed and moved higher) ¬†2) AMZN ‚Äď broke support at $252.50? short ¬†(rallied back to the $252, no short play) 3) ¬†DDD ‚Äď tested the break higher $35.50? more upside. (gapped and moved higher) ¬†4) ¬†FOSL ‚Äď Double bottom breakout (still working on the upside). ¬†5) ¬†RAX ‚Äď Bottom test and move higher? hold above $48.40. (held and made move higher)
  8. Facebook (FB) moved higher from an overall positive earnings report today. The gain pushed the stock above resistance and closed above the downtrend line. IF you are looking long term, adding the stock on the move higher is  prudent to build the position based on the long term outlook. The current stop would be $24.50

Tomorrow promises to be another day of fun filled data. Selling got everyone’s attention today and we now could see some more data relative to the direction overall near term. Take what this market gives and and manage your risk.

Economic Data:

Jobless claims lowest in five years. A dip of 18,000 to 324,000 and everything is okay for jobs? Disappearing workers from the workforce? Seasonality of the Easter effect? Any number of reasons for the drop… but improved jobs is not one of them. Tomorrow will show what is happening in the jobs report and following the ADP data on Wednesday it is not expected to give much in the way of insight.

Productivity climbs again up 0.7% from January through March, better than the 1.7% decline in the fourth quarter. However, was less than the 1% growth expected for the first quarter. Pressure is building to hire workers as productivity has become choppy over the last year.

Trade Gap Shrinks 11% in March! Oil once again is the reason with imports the lowest in 17 years for oil. A lower trade deficit helps the growth rate (GDP) and this may push the first quarter number higher than the initial report of 2.5%.

ECB cuts rates 25 basis point to 0.5%. Inflation has dropped to 1.2% giving room for the central bank to act. The dollar rose on the news as well as gold.

Economic Events & Calendar 

1) US Equities:

Each test of the high has meet with some selling or resistance. My bias remains to the downside, but trend has held with the buyers stepping in at each buying opportunity. Today was no different as the broad index gained 1% today.  Here we are again! News is driving the market and it is evident in the chart off the April 11th high with the up and down movement. The data continues to show weakness in the economy, but the buyers keep stepping in with the belief it will be better long term. Today the jobless claims were better and that drove the market back to the previous high. I am getting seasick!

The April 11th chart below starts on the high as a potential pivot point lower, but failed to on the downside with a bounce on April 18th low (vertical line). Leaders remain telecom, utilities, and technology. Energy made a solid move off its low on April 17th. ¬†Two concerns remain consumer staples (XLP) and healthcare (XLV). Both have struggled on earnings reports and the test is in play. Today’s buying negates a trend reversal short term. Discipline wins the race.

Scatter 418

Sector Rotation Strategy: 

The February 25th low pivot point remains in play relative to the trend. However, the volatility of the sideways trading is showing in the chart starting on April 11th, thus the chart above. Uptrend still in play, but the continued test leave plenty to worry about.

Scatter 225

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback chart below. The trend has continued to push higher. The trend remains higher, but the short term volatility is picking up. Watch the downside risk and protect your gains appropriately. 

Scatter1228

November 15th Pivot Point is the start of the current uptrend. Target 1550-1575 was attained and now there is pressure to test the move. The trend has overcome two attempted moves lower to maintain the uptrend. Watch the trendline as the support on the current pullback. A break of the uptrend brings downside options back into play for the short term.

SP500Scatter

Sector Rotation of Interest:

Technology (XLK) –¬†Broke above the $30 level again. The key has been to buy the position as it moved and we have added to the S&P 500 as a trade. Solid leadership on the trading day for the sector. Wednesday reversed the move higher from Tuesday and testing the upside. Thursday reversed the selling and closed higher. Target now $31.65.

Consumer Staples (XLP) Рthe downside relative to earnings and warnings from the big cap stocks is and remains a concern. Tighten stops and watch how the trend plays out next week. Started off on positive note, but the sector is still lagging from earnings impact. Watch and manage the downside risk.

Healthcare (XLV) Рthe biotech stall from earnings is weighing on the sector for now. $46.80 support is level I am watching now (hit on Wednesday). Protect the gains is the priority. Large cap biotech took a hit and slowed the progress. Watch to see if we can regain the upside momentum. Tuesday PFE added to the misery downside with disappointing guidance. Exit on break of support. Nice bounce on Wednesday to keep the position in play.

Energy (XLE) Рtesting the move and resistance. Watch for a move above $77.50 as possible buy point on the upside. Need crude to behave and the earnings to be positive in the sector. All positive for now, watching the downside risk. Tested lower on Wednesday watch and protect the downside risk. Moved back near the high of Tuesday. Still like the sector longer term.

Telecom (IYZ) РMoving higher, but consolidating near the high. Still like the uptrend here and consolidating. Set your stops according to risk you will accept short term.

We are still looking for that clearly defined leadership for the broad markets. One day at a time and stay focused on the objective of each position as well as  the overall portfolio.

2) Currency:

Since the high on March 27th the dollar has essentially moved sideways to down. Starting April 23rd the dollar has been steadily declining. The chart below shows the trek lower in the dollar. At the same time the euro (FXE), the yen (FCY), the Krona (FXS) and the Canadian dollar (FXC) have all started to move higher. Looking for a trend to develop short term. UDN is in play from the break of support on the dollar. Today’s bounce was of interest and we just have to watch the trend.

Currency

Sector Watch:

  • FXE¬†– ¬†The euro is attempting to provide some upside leadership short term. FXE $130.75 trade entry. Hit entry Wednesday, but watch the current volatility. reversed course on Thursday, $128.50 exit.

3) Fixed Income:

Sector Summary:

  • 30 Year Yield = 2.82% – ¬†down 2 basis points — ¬†TLT = $123.85 down 16 cents
  • 10 Year Yield = 1.63% – ¬†not change — IEF = $109.05 unchanged

Tracking Bond Sectors of Interest:

Treasury Bonds¬†–¬†Yields on the 30 year Treasury are falling again as fear rises? Concerns? Debt? Whatever the motivation money is flowing into bonds and is a indicator of money leaving risk assets like stocks.

High Yield Bonds РHYG = 6.5% yield. Support remains at $92.75. Move back above the previous highs at the $95 level. Manage the position for the dividend as the growth side is uncertain short term. Use $92.75 as the stop. The risk is rising with each step the fund takes. The spread to treasury bonds continues to shrink and the risk/reward is high. Reversed the selling on Wednesday with buying on Thursday.

Corporate Bonds РLQD = 3.6% yield.  They jump higher again this week as money finds its way to bonds. Use stop at the $120.50 level to protect the upside gains. Otherwise keep collecting the dividend.

Municipal Bonds РMUB = 2.8% tax-free yield. Moving back in an uptrend ever so gradually. Collect your dividends and let it ride for now. Still climbing steadily.

Convertible Bonds РCWB = 3.6% yield. Price had been moving higher on the rally in stocks. Broke to a new high and steady as she goes. Keep and practice dividend collection.

4) Commodities –¬†Sector Summary:

  • The¬†commodity index¬†dumped lower on gold and oil selling Wednesday. Attempted to recover on Thursday, but fell slightly short on the day. This is the reason the sector is a trade… too much short term uncertainty and speculation driving prices. Watch and be patient as any trades will be plain to the eye.
  • Natural Gas¬†– UNG posted a big loss on Thursday… down 6.2% as oil climbed more than 3%. The correlation between the two remain in play. The rise in inventory/supply hit the price of the commodity. We stopped out of our position last week, but still watching to see if there are any trades in the commodity.
  • Crude Oil¬†– Crude moved up 3.3% today reversing the selling earlier in the week. Move above $22 on OIL is of interest.
  • Gold –¬†The metal has bounced to begin filling the gap short term. GLD is moving higher. Watch and see how it plays out short term.

Commodities Rotation Chart:

I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point and gold, oil and precious metals have move higher. Watching for some leadership to develop going forward.

Commodity

5) Global Markets:  

Global markets are trading in tandem with the US. No reason to be moving higher, but content to do so. China, Europe and Australia have taken on the leadership since the 18th of April. Watch and take what the market gives. Today they traded higher with the US markets.

Global Mkt

Country Watch:

  • FXI¬†– See trade set up above.
  • EFA¬†– Held support and broke above the previous high of $60.85. Follow through has been positive. consolidating near the high for now.

6) Real Estate (REITS):

Real Estate Index (REITS) РIYR tested $70.73 support and is now back at the high of $72.50 and breaking higher Tuesday. Gave the gains back on Wednesday? Rose on Thursday? Watch as uptrend is still in play.

Sector Summary:

  • Most of the REITs are extended short term on the upside, thus the test in IYR. Watch and manage your stops. But, let it run as high as it intends to go.
  • Scanning IYR we find the charts look very similar on the upside. SFI (breakout), VNO (at top of range again), PLD (breakout), LXP (broke higher and¬†trekking¬†nicely), FR (breakout and move higher), KRC (break higher today), ARE (nice move breaking above the ¬†top of range) and HST (breakout follow through) . The moves have all followed through over the last two plus weeks on the upside.
  • Mortgage REITs are selling back towards support and worth watching. NLY, REM, IVR, WMC and MBG. Moving slightly higher and allowing investors to collect the dividend.
  • RWO – SPDR Global Real Estate ETF is in a positive uptrend and hit a new high. Watch for test of the move if markets struggle. Solid uptrend remains in play.
  • REITs and MLPs mixed in the same ETF with MDIV is a good alternative to picking through all the choices. This mult-assets income fund pays a 5% dividend.

7) Global Fixed Income:

Sector Summary: Making another move to the upside short term.

  • There are some funds moving in favorable direction of late.
  • PAFCX – Bounced off low with the movement in yields going lower. Holds $11.60 worth owning short term. The bounce remains in an uptrend and the dividend is the play.
  • PICB – hit support traded sideways and broke higher. Entry $28.95 + 3.1% dividend. The upside previous high is now in play. Watch and adjust your stop to $29.15
  • EMB – Big recovery and interesting in watching. 4.3% dividend yield. Entry $120.25. Breaking higher following the consolidation adjust your stop to $120.50 and go forward collecting the dividend.
  • PCY – Big recovery as well off the low for short term play. Entry $30.60. 4.8% dividend yield. Breaking higher as well. Raise stop to $30.70 and collect the dividend.

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 losse