EGG Scan for July 29th

Intraday reversal off the lows puts the indexes in good shape or does it? The data kept the market on the downside to open and then… the buyers stepped in to push the indexes off the lows. Is this another buy on the dip and take the market to new highs? That has been the mode of operation for the indexes and why should now be any different. So what if the economic data doesn’t validate the robust growth the Fed is peddling. One day at a time is all we can do for now and as we are seeing in the EGG scans the results are just as mixed relative to the outcome for leadership.

Technology became a concern last week when the semiconductors started breaking down on weakness in the semiconductors. They started weaker today, but reversed early and spent the day moving back to positive territory. They are still being challenged relative to the technical data, but we have to watch how they respond the balance of the week.

Homebuilders (ITB) were down 5%¬†last week and the pending home sales out today didn’t do the sector any favors and they were down another 1.1% on the news. The support is $27.75 and that is where we closed on the day. Not looking good from my perspective and the weak data. Watch for a bounce and then more selling to follow.

The volatility index (VIX) moved up to¬†13.6 in early trading, but managed to move lower as the market found support and buyers closing at 12.6 or near the Friday close.¬†VXX is on my watch list as a hedge for any long positions. Be patient and don’t assume anything.

China added to the move higher as the index added 1.8% on the day. This is the EGG position and it continues to play out according to design for now. The country ETFs in the emerging markets are doing well and the outlook is positive, at least for now. Japan (EWJ)moved back near the recent highs and Indonesia (EIDO) did the same.

Base metals (DBB) added to their upside and continues in a solid uptrend with a minor test on Friday volatility in the markets. Copper and steel continue to be the catalyst on the upside for the sector.

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…

Real Estate (DRN) rebounds from Friday’s selling and the uptrend remains in play for now.

Utilities (XLU) gained 1.5% on the trading day with some rotation to dividends and safety. Helped the broad index on the day.

Gold miners were higher on Friday, but flat on Monday. Still in consolidation pattern, but watching to see if there is any follow through to start the trading week.

Treasury bonds were lower with yields moving higher.

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¬†back on the leader board Monday and we continue to hold the EGG.¬†The¬†upside move hit the next resistance level Friday at $40.25 and gapped higher Monday. 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 last week in the sector and we held the move this time around with a nice move on Thursday. Nice upside follow through on Monday. The BRICS banks is helping the sector gain confidence. BKF broke higher as well.

Base metals (DBB) still gaining in the uptrend. Hold and managing stops.

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 near the $112.20 support 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 lower. We continue downside early on Monday, but managed to bounce back and close flat on the day. 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, but followed through on the upside on Monday. 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 6% on the move thus far. $40.23 target was hit and will make it the stop heading into the trading day. The chart below shows the break above the downtrend line and the December highs which will pose some resistance short term.