Earning start positive with Alcoa… Just the beginning

The bulls want to see the market test in a modest pullback and then launch higher clearing the old highs from September. For the S&P 500 index a nice test back near the 1430 level would be good, potentially allowing the index to then regain some upside momentum and clear the 1470 level. We will see how this plays out, but one thing is certain… it will not happen as orderly as I described. The key is to let the market determine the direction and follow it, not our prognostications.

What are we watching today?

Telecom for one seems to have plenty of activity. On Monday Vodaphone and Verizon were rumored to be in talks to merge. VOD jumped 4% on the rumor and VZ fell 3.5%. The movement in the sector took AT&T down 1.6% as well. Sprint is being out bid for Clearwire by Dish. This creates a problem for Clearwire due to the contractual obligations to Sprint. Look for CLWR to open up 8% today on the after hours offer. IYZ, iShares Telecom ETF fell 1.5% on Tuesday, but held support at $24.50. I like the sector fundamentally and the upside is attractive longer term. The current volatility could offer some upside opportunity going forward.

Technology has pulled back to support of the 200 day moving average and holding. XLK, SPDR Technology ETF shows this move clearly. The next support is $29 and may test with the broad markets if the above scenario unfolds. After breaking above resistance at the 200 day moving average last week the test is filling the gap left on the new year rally. We have discussed this sector over the last two weeks and with the exception of semiconductors (SOXX) remains in a uptrend. The networking (IGN) sector reacted to the noise in telecom Tuesday, but remains positive along with software (IGV) and internet (FDN) sectors. This is another sector to watch on the test or pullback short term.

The emerging markets have accelerated on the upside in response the US markets. The broad based ETF remains in an uptrend, but breaking down some of the specific countries has proven to be even more profitable short term. The Philippines (EPHE), Vietnam (VNM), Mexico (EWW), Peru (EPU) and Thailand (THD), just to name a few continue to accelerate on the upside. This is a sector worth trading and watching going forward.

The Agribusiness (MOO) sector is breaking higher as the chemical stocks gain momentum. Monsanto (MON) was up 2.6% on Tuesday to lead the sector. Scanning the sector shows clearly the break high in the leaders and it is worth the time to filter and determine the best opportunities going forward.

Treasury bond yields continue to creep lower and the price of the bond held support. TLT, iShares 20+ Year Treasury Bond ETF cleared $119 on the day. See the Watch List for the entry currently.

Gold put in a small bounce of support on Tuesday and we are still looking for the downside break to develop. The bulls continue to roam Wall Street calling for the upside to return, but short term the downside pressure is the direction.

This is a good time to be patient and let the noise filter out and the winners emerge. Forcing trades only leads to negative results. One day at a time as the trend unfolds.