EGG Scan for July 24th

Another positive trading day as markets move modestly higher. The news that worried the markets last week doesn’t exist this week. They are not gone nor are they dealt with. They are still on the back burner and they could ignite at any point for any number of reasons. That leaves me cautious about the activity and focused on protecting the gains and risk adverse to broadening my exposure to the markets overall.

The volatility index (VIX) drifted lower to 11.7 on the day and still not showing much in terms of anxiety. The SVXY trade moved lower today despite the drop in volatility. Still watching to see how this unfolds relative to the volatility index.

Country ETFs have been rising as have discussed since Monday. The breaks higher from Brazil (EWZ), Thailand (THD) and Indonesia (EIDO) all made solid moves on the upside. China (FXI) joined with a jump the last two days. INDA, South Africa (EZA), Emerging Markets (EEM) and Turkey (TUR) all posted solid moves higher as well. Russia was under pressure again today losing on the issue in Ukraine and two fighter jets being shot down.

Commodities are helping countries like Australia (EWA) which broke higher on move in base metals (DBB). Canada (EWC) is moving higher on crude price. All are worth watching as the impact of the commodities.

Base metals (DBB) added to the upside and continues in a solid uptrend. Minor test on Wednesday based on metals prices.

It is a good time to be patient and let the noise filter and the charts settle as the anxiety creates disruptions in the trading. Trends are better trading partners than volatility… at least from my perspective. Some growth sectors coming back following the selling¬†as seen in the biotech today.¬†Don’t read too much into the activity and let it continue to unfold and confidence build if the upside is going to materialize.

Running the EGG Scans¬†– First the daily winners…

Biotech (XBI) makes a comeback on positive news in the sector. The 6% jump on the day puts the sector back above the $147.70 level that was previous support and reverses the downtrend off the June high. Also now above the 50 and 200 DMA which is another positive on the move today. Renewed leadership? Watch how it unfolds.

China (FXI or YINN) adds to the upside move we have been waiting for and now has followed through. Looking at the weekly chart the move today pushes through the consolidation wedge and shows a positive move on the upside. Need to close at or above this level on Friday for the breakout to validate on the weekly chart.

NASDAQ 100 (QQQ) adds to the upside as the large cap stocks continue show momentum short term. Hold and adjust your stops on this trade. No signs of stopping near term.

Emerging Markets (EDC or EEM) Рwe got the break higher Tuesday in the sector and we held the move this time around. Watching how this unfolds tomorrow. The BRICS banks is helping the sector gain confidence.

Energy (ERX) made a modest bounce higher as the price of oil continues to rise based on the supply data not meeting expectation, and showing a rise in demand.

Country ETFs continue to add to the upside as stated above and some are worth the risk of the upside trade.

On the Downside:

Semiconductors (SMH or SOXL) been one of the key leaders for the broad markets. The miss by Xilinx was a big anchor on the sector today. We continue to watch how this plays out as it is a key sector to the markets health.

DGAZ РThe downside to natural gas has been documented and the challenge is one commodity to watch for the bottom to be established. The build in supply has not helped the outlook at all. The worries of over supply are building and that is what sent prices down near the $3 level last time this happened. With it currently just under $4 there is still the potential for plenty of downside.

Solar (TAN) – made nice move higher on Tuesday to bounce off the support of the 200 DMA. The sector was down 2.2% today as the selling spread through the majority of the stocks in the sector. Exercise some patience for now.

Patience as we let some of the chop work out of the market short term.

Current EGG:

We posted China (FXI) as the EGG potential last week. It gapped higher, tested, but held the move higher. With the test we added the trade and held into this weeks trading. I still like this trade and we will manage our position and our risk accordingly. The move higher finally materialized today with a gain of 2% Tuesday and 1.4% today. $40.23 is the target for the trade currently and we will evaluate from their. Stay focused and manage your risk on this trade short term. The chart below shows the break above the downtrend line and the December highs which will pose some resistance short term.

FXI