Thursday – Notes & Research
The broad indexes turned in a positive day overall as investors continue to put money to work. Buyers are willing to add as we break above the highs from September. This is all positive for now, but the markets are acting extended short term. Manage your stops as this continues to play out.
There were new reports out today on the worst flu season in more than ten years. The virus has now been labeled aggressive. I for one can confirm it is much worse than anything I have experienced. This is expected to continue and impact medical supplies. Not to be crass about this, but it may give a boost to the stocks in the sector.
Tomorrow starts earnings in the bank sector as Wells Fargo kicks things off. There is concern about the slowing in refinancing activity and that may impact the numbers from WFC. The stock closed higher at $35.40 and broke above the short term resistance at $35.05. Declining margins and slowing growth is what this boils down to and the numbers will give plenty of insight into the sector overall.
Still plenty of issues facing the market daily. Take it on day at a time and manage the risk.
1) US Equities:
The index made a solid move to 1472 on the close and remains near the recent highs. So much for a test lower, at least for now. Filtering through the sectors of the index today we find Financials (XLF) cleared the $17 level on the upside to lead the sectors. Healthcare (XLV) broke to new high closing above the $41.78 level. Industrials (XLI) gained 0.5% on the day to push back to a new high. Basic Materials (XLB) closed at a new high. Technology (XLK) held above support at the 200 day moving average. Telecom gained 0.9% to recover from Tuesday’s selling. The balance are treading water near term.
The chart below has a starting point of 11/15 which was the pivot point for the uptrend. Still moving sideways with an upside bias on the week and looking for the leadership on the upside to continue.
The chart below is the 28th of December starting point looking for current leadership on the renewed push higher. Materials, financials, healthcare and industrials are the leaders for the broad index.
The VIX index remains at the lows near 13.50. No signs of anxiety yet.
Click on link above to see the S&P 500 Mode Watch List and Model
Tracking the Indexes and Sectors of Interest:
NASDAQ Index – The index bounced back close to 3110 last week and has continued to hang tough. Watch the large cap technology stocks for clues to the short term direction. We need to clear resistance at the 3110 (did today with close at 3121.). The test is on hold for now with the upside in play.
Dow Jones 30 Index – 13,440 is the level to clear on the upside (cleared today). 13,200 support may come into play short term. Watch for confirmation of the move higher.
Small and Midcap Indexes showed equal moves to the upside after holding support similar to the other major indexes. Small caps are above the previous highs already and holding as well as mid caps? Weigh out the risk factor of buying at these levels currently. Looking for a test of near term support as entry opportunity.
Financials – XLF was one of the stronger sectors during the selling and has moved to a new high at $17.15 on Thursday. A test back towards $16.50 would give better entry point, but we have to go with the trend. Downgrade to BAC Wednesday put downside pressure on the sector, but it bounced back today gain 1.3%. Watch to see how it plays out short term.
Basic Materials – XLB hit a new high and remains one of the leaders. This is another sector to like on the upside. Any test of the move would offer a better entry opportunity. The earnings forecasts for the fourth quarter were cut by as much as 14% for the sector, but it has maintained the upside.
There is some topping patterns developing, but the optimism of the investors remains in play. Watch for a small test of the move short term as we go forward. A 2-4% test on the downside would provide better entry points short term.
Dollar – The dollar made a bounce off the lows as the Fed minutes gave reason to believe that QE funding would stop. today however the buck dropped 1% as the dollar retreated. We have been watching resistance near the $22 level on UUP. The test lower today was a negative for the upside in the greenback.
Euro – The euro was testing lower on the rally in the dollar, but that reversed today with a 1.4% gain in the euro. The support at $129.35 is in play currently and break is the exit point for the play on the euro. Moved back to $131.50 on the day.
WATCH: FXE – $130.80 Entry. IN PLAY
3) Fixed Income:
Treasury Bonds – The yield on the 10 year held at 1.89% and the 30 year to 3.08%. The downside risk in Treasury bonds is in play, but they are poised to bounce short term. TLT is testing support at $118.40 and could provide a buying opportunity. (SEE SECTOR WATCH LIST)
High Yield Bonds – Testing the highs and resistance near $94 on HYG, as the upside in stocks resume. Look for support holding at $92.75.
The commodity sector continues to be a challenge relative to direction short term. They have bounced off the December lows, but lack much in terms of upside conviction. Even the breakout move on Wednesday seems lackluster. The volatility remains very much in play off the recent lows.
UNG – Natural Gas broke support and move lower to $18.70. The short on natural gas seems to be the better opportunity (KOLD). Today the inventory data showed a drop in supply. That was good news finally and the price moved up 2.2% on the day. Winter demand remains mild which is why the downside has been in play.
OIL – Oil has been stuck in trading range, but on Monday moved above the top end of the range and today continued higher towards $93. Still looking for clarity in trading relative to the price of crude. The upside is in play, and the breakout on Monday is confirmed to the upside. The trade is there short term if you are willing to take the risk. ENTRY OIL is $21.70. (STOP $21.45)
UGA – Gasoline fell to the 200 day moving average and has bounce off support. Bounced back to the $58 resistance level and broke higher on Wednesday. Manage risk if you take any trades here. UGA at $58.50 Entry? Watch move higher today to confirm it holds.
GLD – Since September 2011 Gold has not eclipsed any of it’s previous highs. GLD resistance is at $175. We are in the midst of a test of $161 on GLD. The bounce back to $163.50 on Wednesday showed there are still interested buyers, allbeit they were not interested long as give the gains back on Thursday. Sold further intraday, but managed a rally into the close? Downside looks better than the upside in gold.
Silver – SLV gapped higher and is holding above $30. Filled gap and sold back to $29.25.
DBB – Base Metals failed to hold support at $19.10. The sector has struggled to hold the upside, but the still looking for opportunity on upside to continue. Watching for entry. ENTRY $19.25 if holds. Friday failed to hold the support we were looking for, but it is still on my watch list.
Palladium and Platinum remain the better bets on the precious metal side.
5) Global Markets:
The NASDAQ Global Market Index (NQGM) struggling to get above the 200 day moving average. The consolidation near the high is worth watch for a direction indication short term. The global markets remains a positive among investors short term. Money flow into the country ETFs has improved along with the upside gain. Resumed higher today on the cliff resolution.
WATCH: EFA – The uptrend short term continues, following a small test short term the fund has moved back above the previous high. Stick with the uptrend play for now as it holds support.
WATCH: FXI – China has firmly established the uptrend off the November low. However, the test of the move lower has bounced back to the previous highs. The Chinese exports rose 14.1% in December well above the 5% expected and sent the markets higher on the day by 1.3%.
WATCH: IEV – Europe continues to rally as investors believe the worst is over. Why? Simply put the backing of the EU and the ECB (similar to the Fed in the US in 2009). The confidence that there is a back stop has brought investors back to the table. Looking at the daily chart for the last year we can see the break above resistance and the trend higher remains in play. Upside target is $45.50 going forward.
6) Real Estate (REITS):
The sector broke support tested lower and then reversed along with the broad indexes. The fear generated by the fiscal cliff issues sent the sector lower. The reversal is worth trading as the cliff issues are resolved short term.
WATCH: IYR – Look for reasonable entry. $64.90 Gapped open on Wednesday, but still of interest on test of the move. The break above $66.12 is an entry point of the move above the next level of resistance. Continued higher on the day.
ENTRY $66.15, Stop $65
7) Global Fixed Income:
The sovereign debt issues are fading as the global outlook improves. Still plenty to be concerned about relative to growth, but the fixed income side is attractive for now. High yield bonds and corporate bonds are gaining momentum short term.
WATCH: Emerging market bonds (EMB) – testing and moving sideways and held support at $121. HOLD. Watch the volume as money flow picks up in the sector and gives opportunity to add to positions.
WATCH: International High Yield Bonds (IHY) – Tested support at $25.75 and bounced and hit new high. HOLD.
WATCH: PAFCX – bounced off support near the $11.66 mark. Holding the uptrend line and support. HOLD.
WATCH: PICB – International Corporate bonds broke above the top end of the current range and trading higher for now. HOLD.
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.