EGG Scan for July 25th

Some mixed trading on the day as tech struggled on earnings, some profit taking in the biotech/healthcare sectors and small caps cannot establish a upside reversal.

Homebuilders were down 3.5% on the negative new home sales data. The 8.1% decline in sales did not sit well with investors who returned to the sell side on the sector. Moved back below the 200 DMA and strong distribution on the day. Short interest is growing in the sector.

The volatility index (VIX) moved up to 11.7 on the day. Not much of a change, and still not showing much in terms of anxiety. The index is reflecting the consolidation that we are seeing in the charts overall.

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. India (INDA), South Africa (EZA), Emerging Markets (EEM) and Turkey (TUR) all posted solid moves higher as well. Money is rotating and this has my attention going forward.

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

Biotech (XBI) made a comeback on positive news in the sector Wednesday with a 6% jump to put the sector back above the $147.70 level that was previous support and reverses the downtrend off the June high. Held the move, but tested with a 1.1% decline on the day. Still looking for renewed leadership from the sector? Watch how it unfolds.

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…

China (FXI or YINN) adds to the upside move we hit the next resistance level today at $40.25. Still need to hold the upside into tomorrows close to confirm the breakout on the weekly chart. Still leading the emerging markets and Asia.

Internet (FDN) gets help from the positive earnings data from Facebook and upside move. $60.75 is the next resistance point to this sector which is the June high. I like the sector and for now it is heading higher and we would adjust the stop to $59.40 on a reversal at this point.

Emerging Markets (EDC or EEM) Рwe got the break higher Tuesday in the sector and we held the move this time around with a nice move on Thursday. Watching how this unfolds to end the week. The BRICS banks is helping the sector gain confidence. BKF broke higher as well.

Base metals (DBB) gained 1.1% and added to the upside momentum in the sector. Great upside trade on the break higher at $16.50 in June. Commodities have struggled overall, but they have offered some good short term trading opportunities.

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 and it is still carrying some negative sentiment today. We continue to watch how this plays out as it is a key sector to the markets health. Short trades are not out of the question either.

Treasury bonds (TLT) fell 0.6%, but the yield finally rose off the new lows. Watching here for the short treasury trade if the this move follows through going forward. TBT is the downside ETF.

Silver (SLV) dumped 2.8% and broke from the consolidation pattern near the $20 level. Closed at the 200 DMA and worth a look at a downside trade on follow through. ZSL was up today.

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 trade 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 nearly 5% on the move the last three days. $40.23 is the target (hit today) for the trade currently and we will evaluate from their. The key now is to manage the stop according to the volatility in the trade. 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.