EGG Scan for July 28th

Markets end the week on a negative note as the chop keeps going on uncertainty overall.  The weekly outlook addresses all of these and I will not bore you by repeating myself here. The challenge currently is a the lack of a micro trend (less than 13 weeks) and news driving the daily activity.

Technology became a concern last week when the semiconductors started breaking down on Wednesday. They broke the first level of support of Thursday and Friday dropped 2% and are now challenging the long term trend line. As this was one of the leading sector we have to take note of the rotation, the cause and the outlook. Definitely one sector to watch this week.

Homebuilders ITB were down 3.5% Thursday on the negative new home sales data. Moved back below the 200 DMA and strong distribution. Down 1.1% on Friday and the shorts are growing in the sector.

The volatility index (VIX) moved up to 12.7 on the day. The change from Thursday is enough to make me watch how we start today. The upside would create more potential selling in stocks. VXX is on my watch list as a hedge for any long positions.

Country ETFs have been rising as have discussed last couple of weeks. The breaks higher from Brazil (EWZ), Thailand (THD) and Indonesia (EIDO) all made solid moves with some testing on Friday. China (FXI) joined with a jump higher last week as well. 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 theeir upside and continues in a solid uptrend with a minor test on Friday volatility in the markets.

There is plenty of noise in the media, the analyst, the daily market moves and just about every other measure. This is a time to practice patience. Buying the dips has been working, but like all good things, the eventually end. Let the move validate, take what the market gives and if the downside gains momentum be willing to step in.

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

Gold minders were higher on Friday with the high move in the metal. Still in consolidation pattern, but watching to see if there is any follow through to start the trading week.

Treasury bonds were higher as the yields dropped yet again to support levels. The nerves relative to stocks is growing and money is moving into the bonds. Watch… trade only not willing to hold.

Coffee (JO) is moving off the lows and I like the upside opportunity in the commodity based on the speculation around the rising cost based on supply and demand.

China (FXI or YINN) was not a leader on Friday, but remains a leader short term.¬†The¬†upside move hit the next resistance level today at $40.25. Still holding¬†the upside broke from the consolidation pattern on the weekly chart on Friday’s close. Still leading the emerging markets and Asia.

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 start 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.

On the Downside:

Natural Gas (UNG) still moving lower and testing the downside support. KOLD or DGAZ is the short ETF.

Small Caps (IWM) down nearly 1% on the day and not looking healthy again as the selling remains a concern for the overall outlook. TZA is short ETF.

Euro has been dropping on speculation surrounding Russian sanctions. EUO is the trade if this accelerates.

Semiconductors (SMH or SOXL) been one of the key leaders for the broad markets. The miss in earnings has carried some weight to end last weeks trading. 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.

NASDAQ 100 index (QQQ) tested the $96 level of support and I am watching how the large cap index responds. This has been the overall leadership for the markets on the last move higher.

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. Some chop on Friday ended with not change and we watch how it trades this week. The momentum or rotation has been global stocks and we will take the gains if they continue. I still like this trade and we will manage our position and our risk accordingly. The move higher has gained nearly 5% on the move last week. $40.23 target was hit and we will manage our risk accordingly. The chart below shows the break above the downtrend line and the December highs which will pose some resistance short term.