Crude Sets Downside Tone for Energy

Friday – Notes & Research

Blame it all on Wal-Mart! I love it when we can blame it all on one company and make it sound logical. The stock fell 2.6% and weighed down the Dow after Bloomberg reported an email from an executive complaining about the February sales. True or not, the stock reacted. Bigger question… did anyone expect the February sales data to be better than January? Those numbers up 0.1% and from my perspective that was¬†disastrous¬† but other investors had different opinions because the retails stocks have gone higher since. Bottom line, this could get interesting as we move forward.

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

Economic data was overall positive today, but nothing market changing to report. Stay focused and be disciplined in how you approach the current market environment.

Data Summary

  • 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 1523 today closing up slightly on the day.
  • NASDAQ index is testing the 3190 level again closed up slightly on the day.
  • Research¬†Watch List updated today with changes that apply to Entry and Additions. Updated over weekend
  • Crude drops taking energy sector down o the day.
  • 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.
  • Alternative Energy is growing and looking stronger on a long term horizon.
  • Consumer Staples made solid move last week to push the broad index higher. Watch as it test the move.
  • Consumer Services struggled as the retail sector lost the momentum on worry about the consumer. The sales report this week was okay, but still lacking any strong evidence of growth.

Laggards:

  • Technology made a nice move last week and is testing the 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 setting up in gold (GLD). Hit entry on GLL this week.
  • 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.

Tracking Sectors of Interest:

Telecom РiShares Telecom ETF (IYZ) fell 2.8% today? Century Link (CTL) was down 23% to provide the downside leadership for the sector. They cut their dividend 25% and the sellers took over. The SPDR Telecom ETF (XTL) was down only 0.8% due to the avoidance of the smaller cap stocks. This is a sector to find the better performing stocks than own the ETF.

Oil Services РiShares Oil Equipment & Services (IEZ) gave up most of the gains from Thursday as the price of crude fell 1.3%.  No big changes in the outlook, but we have to watch how the selling progresses and if the downside risk rises. We adjusted our stops to account for the move today.

Alternative Energy – TAN has been moving higher of late and offers some upside opportunity as the sector returns to life. 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 have been moving higher. I like the idea of a longer term position with some money management around the positions. We will be adding this to our Watch List as we go forward.

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, yet. 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 wars are still a possibility as the G-20 starts and investors listen 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.

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 closing at $132.38 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. The fund has faced a drop in price this week and hit our stop at $93.75 (HYG). 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¬†– LQD = 3.8% yield. The price has found short term support ($118.90). Now watching to see if any upside opportunity exist in the bond. Wednesday’s 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.

4) Commodities:

Sector Summary:

  • Crude¬†drops more than 2% on Friday.
  • Gasoline inventory unchanged and UGA flat
  • Coal stocks bouncing off support, but trade in sympathy with oil on Friday.
  • 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 – bounced Friday? Watch to see how it plays out.

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.

WATCH – BAL – Entry $54.60 break from consolidation. (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. Commodity is now down more than 9% the last two weeks.

WATCH: FCG РEntry $16.65  РSet stop at $16.30 Stop hit on Friday.

OIL РCrude is tested support at the $95 level as the chart develops a rolling top. Manage the position, but let it have some room to move as volatility picks 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 today.  Watch for the continuation of the play higher.

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) reversed again 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 reversal?
  • Thailand (THD) made solid move back to highs, watch for the continuation of the upside.
  • Australia (EWA) breaking higher from the current uptrend.

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.

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 РChina broke support at the $40.85 support of the trading range. The $39.70 support held short term, and is attempting to climb back to the $40.50 level? Watch for upside play if it breaks.

EEM РBroke lower from the descending triangle of consolidation, but has now bounced back, but still not convinced the direction has been settled short term.

6) Real Estate (REITS):

Sector Summary:

  • REITs continue to find buyers and push the upside trend. Tested on Thursday.
  • Homebuilders found some resistance near the $29.25 level and we are testing again.
  • 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 the last two trading days. Watch as this moves.

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.