Volatility creates uncertainty and that results in choppy markets. This is the same song the market has been singing all week. No changes today as the markets start higher and shift to selling lower and closes in position to test the trendline and the 1900 level. The Dow Jones Industrial average was the first to win the race to the 200 DMA and closing near it today. NASDAQ composite index is hanging on the 4330 mark for now. The selling volume remains higher than the buying and it isn’t painting a very pretty picture for the outlook short term. The oversold conditions remain technically, but the sellers don’t care about indicators. The markets don’t care what we think or believe, they only follow in the directions of the majority or bias day to day which in turn makes up the trend. We just have to take it as it comes and keep our focus on our discipline.
Running the EGG Scans – First the daily winners…
The short ETF are showing up more and more in the scans and that is a good indicator the downside is gaining momentum of the direction. The positive egg scans results has fallen from 200 plus two weeks ago to 18 tonight. The negative egg scan is only 7 showing indecision from traders. It is also important to note that of the 18 positive results 3 are inverse funds. If we take out the next key level of support the downside is likely to accelerate.
Gold (GLD) was higher again on the day, but still needs some momentum to clear resistance in GLD. $126.50 is the level to break from the current trading range and drive the metal higher.
Gold miners (NUGT) the bump in gold prices helps the miners move higher as well. This is like gold, in need of an upside pop to take the miners higher from the consolidation and trading range.
Volatility index is back on the upside as the VIX gains 2% and moves VXX up more than 2% and UVXY 2x leverage up 4.3%. The upside is gaining some momentum and may allow us to hold the positions for more than a day.
China (FXP) the short China ETF produced a nice move for the second day as the Chinese markets followed through on the downside. I would exercise some patience and take any downside trade as just that, a trade and keep a tight stop.
Natural gas (UNG) move on the upside on Wednesday, but returned to its selling ways. DGAZ was up 4% on the 3x leverage short ETF. Watching the downside again for a follow through to move lower.
I think it is important to note the last couple of days nothing lining up well short term for trading as the EGG. We remain patient and will to see how it unfolds.
Treasury bonds have continued to move higher as rates have fallen. Watching for change currently relative to the Fed stimulus cuts and the rumored interest rate hikes? TLT gained nearly 1% on the yield moving to 3.23% on the thirty-year bond. This puts us back near the low on the bond yield and pushing the highs on the price of the bond. Go with the trend and let it play out.
Coffee (JO) is moving off the lows and testing the breakout again. I like the upside opportunity in the commodity on the speculation around the rising cost based on supply and demand. $34.20 entry point and testing the break higher. Still like the longer term upside as the opportunity, but you will need to deal with the volatility of the commodity short term.
China (FXI or YINN) two days of selling takes out the support at the $40.30 mark. Flag pattern breaks lower, but not much conviction in the selling. The upside remains positive and we may look at adding the position back based on the resilience in the country short term. Watch for the next opportunity in the country ETF if the upside remains in play.
Small Caps (IWM) the short interest rose last week and the ETF tested the $110 support level on Friday. It has been volatile intraday, but has not managed to break back above the $112.50 level or below teh $110 level. Watching for a possible reversal to lead the broad indexes higher, but that has not materialized yet. The good news is it has not sold lower either. Downside in play currently as the trend.
Base Metals (DBB) is developing a trading range with the bouncing around in the metals currently. Still holding in the newly established range and watching for a resolution on direction. $17.56 is support and watching to see how it holds near term. A break below would be the exit point.
On the Downside:
Real Estate (DRN) rolling top pattern broke and tested lower and testing support near the $58.50 mark. This is setting up the sell signal should it break lower. The uptrend line is being challenged and there is plenty to deal with short term. Rising rates are putting pressure on the sector near term. Short side is definitely a trade possibility with a break of support. SRS is the short ETF for the sector.
Utilities (XLU) still showing weakness and tested the 200 DMA. Five days of selling and we broke the $41.50 support level. Today it did bounce off the low to gain 1.1%, but the weakness is still in play. Short side is building interest as the downside take root. SDP (short ETF) broke higher as a result, but no volume to speak of to trade it. Dec Puts on XLU would be best way to trade the downside. Took the short trade (Wednesday) on XLU as the downside accelerated through the 200 DMA. Watch and manage it through this bounce near the 200 DMA. Add to short if the bounce fails.
Short Oil (DTO) reversed the positive gain from Monday in oil as the downside returned. There is a reverse head-and-shoulder pattern in play and the break above $31.20 put the upside in play for the short fund. USO broke the 200 DMA and is in position to continue the downside move. $97.45 support broke Wednesday, but bounced back to close at $97.63 on Thursday.
Emerging Markets (EDC or EEM) – we got the break higher last week in the sector and we again gave up the gains with Argentina weighing on the sector as they default on bonds. Broke the $44.25 support and hit stops. Selling has continued and gets our interest on the downside with a break of the $43.50 level (closed at $43.32 today). EEV is the short ETF for emerging markets $17.35 is the level of entry to watch. Look for confirm tomorrow.
Euro has been dropping on speculation surrounding Russian sanctions. Attempted to find low here near term. Watch to see if the upside follows through or the dollar exerts the upside again. EUO is the trade if downside accelerates.
Semiconductors (SMH or SOXL) fell below the 50 DMA, but attempted a reversal today avoiding more downside movement for semis. The missed earnings have carried some weight pushing the sector lower. Watch how this plays out as it is a key sector to the markets health. Short trades are still the trade of choice until we have a confirmed bottom reversal. $48.50 key support for the sector. Broke support and short trade on semi’s is in play.
NASDAQ 100 index (QQQ) broke the $96 level of support and added QID last week on the move. I am watching how the large cap index responds to the current selling. The downside is in play, but watch for any reversal signs if the buyers return. Sitting on the 50 DMA on the close.
Russia (RUSS) continues to find selling points as the issue with Ukraine continues. It was quiet today and the buyers pushed RBL higher. The sanctions are adding to the pressure on the country ETF. Favoring the downside on the action.
Direction is still like a yo-yo and without some clarity it is a challenge to put money at risk on speculation versus high probability trades. Choppy, Choppy, Choppy. Break of support level on the S&P 500 index helps to set up the short trades, but need to confirm the downside which didn’t happen with the positive reversal off the open. Patience here as we let this unfold. The lack of clarity is keeping the volatility up and the outlook scrambled. Look for a post in AM if we find something worthy in the scans.