ECB No-Show for Europe

Thursday, August 2nd

Wednesday we thanked Mr. Bernanke for being a wimp and today we get to thank Mr. Draghi for being a wimp with a big mouth. The difference? Bernanke didn’t make promises, Draghi did and the market reacts by moving lower. The ECB essentially did NOTHING! Talk is cheap and actions speak louder than words. Do we go on? This is what we discussed in the update last night, if he didn’t do something the markets would react in a negative format. The futures were up more than 100 points on the Dow as he began to speak this morning, but by the time he was done they were down more than 120 points. How is that for a reaction to doing nothing when you stated you would? Enough of that, let’s look at what took place and where we stand now.

In my notes this morning I addressed several key support point for the ETFs relating to key sectors. Most of them took out the support levels we were looking to hold and that may change the dynamics of the market short term. The major indexes actually attempted to make a positive out of the negative, but the sellers stepped back in and took them lower. Interestingly enough the buyers never really died in the end there was small move off the low. SPY support was $136.65, it touched $135.58 on the low and amazingly closed at $136.66? Funny how traders know where support is! Thus, tomorrow is the key to these sectors and indexes, rally on the data or sell on the data? We will find out at 8:30 am.

In the ONLY ETF S&P 500 Model we added SH, ProShares Short S&P 500 Index based on the move today. This is a trade based on the technical bottom on the short fund. What started as a technical based trade was spurred to action by news. Thus, we will manage the risk with tighter stops in the event the news reverses.

Economic data was lost in the Drahi stupidity, but factory orders were worse than expected down 0.5% versus up 0.3%. That isn’t good as the orders for non-durable goods dropped 2%. That was the biggest drop since 2009. Factory shipments fell 1.1% and inventories rose 0.1%. Overall a bad number. The jobless claims were up 8,000 to 365,000 and continue to remain at that general level. The jobs report is tomorrow and barring a collapse, I expect the numbers to be in line with expectation. The estimate is for 100,000 new jobs to be added for the month of July. The bottom line with the economic data is it remains mixed. Some positive spots, some flat and some negative. The outlook remains at 1.5-2% growth the balance of the year. That says we have to very selective about finding where the best growth remains.

All the talk about gold moving higher has been silenced by what has become the reality that the ECB is not able to fully act immediately on it’s talk. The reality of the European Union handcuffs on the ECB became reality today and the impact to gold was a break of support at $154.50 on the day. Gold is forecasting weaker to flat stock prices ahead.

Tomorrow is the Jobs Report for July. Not expecting much, but if it is too bad stocks will fall further on the Feds inaction on Wednesday. This puts the Fed in the picture to act in September’s FOMC meeting or more negative will build toward the central banks. Remain mindful of the news and the short term risk it represents. Watch, evaluate and manage your risk.

S&P 500 Sectors-to-Watch:

SPY, SPDRs S&P 500 index has managed to hold above the $136.65 mark as key support short term.

Since the June 4th low there has been a constant rotation of leadership. The obvious result is an inconsistent trend or trading range. The bullish uptrend channel remains in play with the index touching against the top end of the channel last week. This week we managed to establish yet another pivot point at 1385 which is another higher high. What is the rotation bring?

Telecom – The sector accelerated higher off the test lower at $22.10 on IYZ. The sector gained better than 13% off the low before moving lower today with $23.23 the key support to hold for now. The renewed love for Apple has helped the sector as well as the stock, and it has brought buyers back to the sector. Bottom line is the earnings and data have been good and the sector still looks positive.

WATCH: IYZ – Hold and keep your stops at $23.20

Energy – Took on some leadership with the bounce in crude back near the $90 per barrel. The move back above $68.80 on XLE was a positive for the sector short term. Selling on Thursday tested the move higher, but I still like the outlook here short term. Watch the selling as an opportunity to put money to work in the sector.

WATCH: XLE – Entry @ 69.25. Stop 67.80 (Adjusted for the renewed volatility). If you stopped out look for entry at same point $69.25.

Financials – Holding above $14.40, but you are going to have to be patient and accept the volatility to own the sector near term. Hit  against resistance once again and pulled back to test support at $14.40. Looking for a break above the $14.80 mark on XLF.

WATCH – XLF – Entry @ 14.55. Stop 14 (have to use lower stop due to the volatility short term.) Use entry if you missed the trade on the last pullback.

Healthcare – volatility in play more than usual. Hold positions and and managing the risk. 50 day moving average is a good stop for now. Expect the volatility to remain as we go forward.

WATCH – XLV – Entry @ 38.10. Stop 50 DMA

Consumer Staples – The sector has been leading to the upside for the broad index, but pulled back on selling Thursday. Uptrend in play and looking for a steady move higher for now.

WATCH – XLP – Entry $35.31

Consumer Services – The consumer has been spending less, but the retail data showed today it is stock picking sector. The overall move by XLY today was positive based on the data, and it puts a potential bounce of $43 in play.

WATCH: RTH – Entry $$42.70 Worth scanning the individual stocks

OTHER ASSET CLASSES:

Volatility Index – The index bounced back near 19 on Wednesday, but despite the selling early on Thursday fell to 17.7. Even the ECB debacle couldn’t spark a rally in the VIX index. Watch to see what transpires tomorrow.

WATCH: SVXY – Hit $95 on test lower Tuesday. Entry $97.10 if reverses. (HIT ENTRY TODAY)

Dollar – Hits new high last week on renewed concerns in Europe. Sold this week on ECB chatter, but the last two days has rallied back as both central banks do nothing. Still holding support at $22.70 and moving higher?

WATCH: UUP – Watch to see if the upside plays out.

Treasury Bonds – The yield moved up to 1.55% on Friday, but fell to 1.47% today as the ten year bond remains in limbo. Some of the worry was off the table short term, but it is back with the Fed and ECB accomplishing nothing relative to stimulus. Thirty year bond fell to 2.54% Friday, gave some back today at 2.57%. Short trade getting plenty of attention

WATCH: TBT – $14.80 entry. Stop $14.50 (on the close) Manage stop short term.

NASDAQ Index – Bounced off support near 2850. Despite the positive move the index never established a higher high. It does have a sequence now of three lower highs. Not a positive pattern or trend development. There is resistance from the downtrend line at 2965 ish. NASDAQ 100 index tested 2550 support and bounced back. Facing resistance at the 2665 mark or the top end of the range short term. Failed to break above resistance and is testing back again.

WATCH: – QQQ Entry @ $63.70 Friday. Stop $63.10

Small Cap Russell 2000 Index – Tested low today at $76.23? Negative trend in play, but not enough to entertain a short play currently. Watch to see how this plays out versus the other indexes.

WATCH: IWM – Close below $76.23 look for short play.

Commodities: Mixed signals as investors waffle on the reason for the move higher (ECB). Watch for any opportunities as the volatility picks up.

Crude Oil – Crude fell 2.4% Tuesday, gained 1.6% Wednesday and fell 1.7% on Thursday? Talk about confused.  Watch the downside short term as this unfolds. Support is $21.15 and if we fall below 21 into the close exit positions.

WATCH: OIL – Entry $20.75 – Stop $21.00

Gasoline – bounced back last week, and has pushed against the previous high at $54.45. Closed at $54.88 today to establish the new high. Watch for follow through on the upside short term. The upside for the fund still in play, but watch oil prices.

WATCH: UGA – Entry at $52.75 – Stop $53.60

Natural Gas – Big sell off today as analyst talk about prices peaking short term. Sells off 7% on UNG. The trend remains to the upside with selling stepping in short term.

WATCH: $21 is stop on position – Entry $20.50 (HIT STOP TODAY AT $21)

Global Markets: The global markets respond to the lack of action by the ECB on Thursday. The EAFE index had moved higher on the tough talk and action by the ECB, but sold today giving up 2%. Watch and manage any opportunities short term.

WATCH: EFA – Entry $50.50 break above resistance on volume.

China – Tested lower on the European news. The test of the break higher is in play. This has been volatile based on the global economic issues and the economic slowing in China. Watch for a upside move on the improving data this week from China, but expect volatility short term.

WATCH: FXI – Entry $34.20 – Stop $33.50

Mexico – Moved lower after a test of the March highs and bounced on Europe news. Watch the volatility.

WATCH: EWW – Entry $62.25 Friday. Stop $60.30

Singapore – moving back above the high at $13. tested back and bounced off support at $12.50, and we took the entry at $12.70 on Tuesday. Nice follow through to $13.18 and new high. Testing the move on ECB news.

WATCH: EWS – Entry $12.70, Stop $12.88

LEADERSHIP:

Housing – Positive outlook for housing sector and the homebuilders going forward. However the new home sales data didn’t go over well with a 8.4% decline bucking the positive news. The sector is testing support near the $20.80 mark level yet again. A break lower is something to watch short term. The upside is still in play with some stalling short term taking place. Watch and manage the opportunity going forward.

Watch: XHB – testing support at the $20.80 mark. Support at $20.80 — $21.90 entry opportunity on breakout from consolidation.

Energy – Testing the break above the downtrend line at $68. Watch for play opportunity if bounces off support.

Retail – Sector is still not confident enough to push stocks higher overall. That said this is a stock picking sector. AMZN looks solid and earnings were good along with guidance. Pushed to new high on the news and testing currently. EBAY made solid move on earnings as well and equally testing the move. RL ready to break back above the $150 mark? Testing. COST cleared another new high and testing the move. TJX and TGT both in position to break higher as well. Need the consumer if the markets are going to continue the upside trends.

FRIDAY:

Jobs Report at 8:30 am and the final leg of the weeks data reports. None have gone according to plan so far, maybe this report will be in line with expectation and we can end the week peacefully.

Precious metals reacted negative to the FOMC results and negative to the ECB results. That puts the downside on watch. The break of support at $154.50 puts the bottom of the range in view. Be patient and let this develop.

Fixed income showed another reversal with the 30 year bond moving to a yield down to 2.53% down 8 basis points. Watch this as a sign of what is in store looking forward… volatility and a potential retest of the low near 2.46%. Bonds like metals are not confirming relative to the upside to stocks.

S&P 500 Index moving lower to break support of 1365. Next level of support is the 1330 mark where we started this mess before Draghi opened his big mouth!

Dollar was up again on the ECB announcement. No stimulus makes for a stronger dollar. Same as yesterday.

Economic data progresses through the week mixed. Tuesday started the parade with better personal income, higher home prices and improving Chicago PMI. ADP Jobs s data on Wednesday was positive, ISM Manufacturing was disappointing at 49.7%, construction spending was in line with expectations and FOMC produced nothing of interest. Thursday disappointing factory numbers, OK jobless claims and ECB laid a rotten egg. Friday is the jobs report and the ISM Services data. Great way to end the week.

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.