EGG Scan for July 31st

GDP is 4% and in line with the Feds expectations for second quarter. Is it me or did the announcement of the GDP just happen to be on the same day as the FOMC meeting? And what about the number being exact to the Feds estimate? Interesting how that all happened in perfect harmony. Okay I am sure there is a perfectly good reason for all that to take place now. Large ticket items and business investment were the two drivers for the growth in Q2. The negatives were a rise in spending on inventory and government spending.  The additional positive was the Q3 and Q4 estimates have been revised higher to 3% growth. Jobs, investing and spending are the reasons for the increased growth outlook. Bottom line, optimism from all, and I hope they are all right.

FOMC meeting ends with similar results… no changes in rates and full speed ahead to cut stimulus to zero by October. The next thing will be the minutes from the meeting today on August 20th. Will they give better insight into the language and outlook for the economy? That will be interesting as it unfolds, but for now no real impact from the meeting on the financials markets.

Semiconductors rose again gaining 1.1% on the day. The weak earnings prompted some profit taking last week and the positive news in the economy sparked buyers to step back in and erase the drop. The global stocks in the sector, ASML, NXPI and ARMH were the primary leaders with AMD, NVDA and ATML helping boost the sector. Looking for a move above $84.60 to confirm the bottom reversal in the sector. Scanning the stocks in the sector still shows weakness… watch for more on the downside if the broad markets fail.

Telecom (IYZ) jumped 3.2% on Tuesday and held those gains today. The cause for the move higher was Windstream announced it was interested in spinning off all its assets into a REIT structure and then leasing them back. This would be done essentially for tax benefits, I mean to free up trapped values of the underlying assets. It will take time to get regulatory approval and thus, will likely create more volatility for the sector going forward. Watching to the ripple effect and opportunities in the sector going forward.

Homebuilders (ITB) are¬†down 10% this month¬†and the pending home sales Monday¬†didn’t do the sector any favors as they test¬†support at¬†$27.75. Not looking good from my perspective with the break below support today. This puts the short side in control of the trend and we will now look to add trading position in the put options or short ITB.¬†No bounced materialized prior to the break lower and that leaves some room for a bounce to still play out short term.

Small Caps (IWM) attempted to put a bounce move together again today, but that failed to a make a substantial move in the sector or hold above the $114 level. We would still like to see a move back above the $114 mark and hold. If support at the $112.20 level fails the short side trade would then be attractive.

FOMC meeting day should have been a plus for yields to rise… Yields and¬†the thirty-year treasury bond move to 3.29% or a gain of 7 basis points on the day. That pushed TLT lower by 1.2% and left the downside outlook as a possibility going forward.¬†This is a one day reaction the proof will be going forward. If investors believe the growth in the economy is here to stay and that the Fed will have to push rates higher in the near term, rates will start to rise naturally. If we are not successful pushing yields higher watch how the equity markets respond. TBT is back on our watch list going forward.

Social Media (SOCL) got a bump higher from the TWTR news. The break above the 200 DMA and to the $20 mark was a positive for the sector short term. YELP, WB, JIVE and LNKD all posted gains above 3% on the day. Throw in the positive funding news from SnapChat today and it was all good.

Volatility index (VIX) is showing signs of rising skepticism about direction. The positive open faded, the positive FOMC bounce faded, and the worries continues to keep the VIX index in the mix. VXX was up 1.5% on the day and it should, by all reasonable standards, been down. We have to keep our eyes on this as we go forward.

All of the up and down movement is only feeding the noise in the media. Analyst equally have been skeptical on the projections and outlook. All said, we remain in a period of transition. What is ironic about this response is we are getting the positive news that many predicted. But, as the old saying goes, buy on the rumor and sell on the news. The news is out and sellers keep attempting to take some control of the direction short term. This is a good time to practice patience. Let any move validate direction before over committing up or down. Take what the market gives and if the downside gains momentum be willing to step in as well.

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

Short Oil (DTO) reverse head-and-shoulder pattern in play and break above $31.20 puts the break higher in play. Worth trading if this negative momentum in oil accelerates.

Biotech (XBI) was back again with a move of 2.8% Tuesday and added to the gain on Wednesday. Still working off the recent lows and I still like the upside going forward. Choppy, but still worth watching as a leader. IBB was up only 1% as the small cap stocks continue to struggle. BIB is the leveraged ETF for trade.

Internet (FDN) up 1.6% on the day as Twitter aided the break above resistance at the $59.65 mark. Positive move off the July lows.

Semiconductors (SMH) nice gain on bottom reversal attempt on Wednesday. Watching for follow through on the move.

Korea (EWY) breaks from trading range with solid gain on the day. Watch for confirmation of the move and more strength in the global markets. got the follow through and upside in play.

Miners (XME) has been stuck in trading range, but managed solid move higher on Tuesday. The move in DBB is helping this sector some, but still no big impact on miners as the disbelief in the outlook for metals remains on the weak side. Move through $42.65 could raise my interest level.

Still Watching: 

Real Estate (DRN)¬†rolling top pattern setting up on the ETF. I am not ready to say sell, but it is on my watch list for rising risk. Interest rates on the upside Wednesday didn’t help. Set stops accordingly and worst case the 50 DMA is a exit point.

Utilities (XLU) so much for the positive bounce on Monday! two days of selling and we are pushing back toward the $41.50 support level. Short side may build some interest if this continues.

Gold miners were higher on Friday and Monday. Still in consolidation pattern, but watching to see if there is any follow through going forward. There is plenty of work to do in the sector.

Treasury bonds continue to have defensive momentum to them from money rotating to safety. Wednesday was the first big bounce in the yield we have seen in several weeks. Still watching to see when investors start to believe that rates will rise. TBT is still on my watch list if yields begin to rise in earnest.

Coffee (JO) is moving off the lows and 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 still rising. Posted to the Pattern Trade List.

China (FXI or YINN) moves lower on Wednesday and we locked in gains on the EGG trade. There is speculation about believing China’s data points, but that has been the easy excuse to not believe in the upside produced in the stocks. The¬†upside move through the resistance level at $40.25. January 2013 high is the next resistance point ($40.95) of which we have stalled currently.¬†Watching to see how this test plays out in the coming days.

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 higher. Argentina is weighing on the sector as the threat of default is in play this week. BRICS nations and banks formation are adding some positives to the sector short term. Watch to see if $44.25 can hold as support.

Social Media (SOCL) cup and handle pattern with the 200 DMA offering the resistance point for the pattern to breakout. Twitter offered the catalyst for the breakout and it held in trading on Wednesday. I like the upside currently.

Base metals (DBB) still gaining in the uptrend. Hold and managing stops. Bounced back Wednesday from the selling on Tuesday. Watching to see how this unfolds. I still like the upside here.

On the Downside:

Short Crude Oil (SCO) was up on the day as well. The downside in crude continues to build some intermediate term interest. The demand has not materialized to the level some were expecting, but it has increased. Some downside will flush out the excess speculation and then give the commodity some direction.

Natural Gas (UNG) still testing support near the $20.75 level and if a bounce starts that could set up a trade opportunity. KOLD or DGAZ is the short ETF. GASL is the leveraged long ETF.

Small Caps (IWM) tested the $112.20 support and held, but still not looking healthy as the selling remains a concern for the overall outlook. TZA is short ETF. A close above $114 would be of interest.

Euro has been dropping on speculation surrounding Russian sanctions. Another downside move in the euro on Wednesday keeps the downtrend alive. EUO is the trade if this accelerates.

Semiconductors (SMH or SOXL) fell below the 50 DMA, but is now attempting a reversal. 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.

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, but is showing signs of topping technically. It has been holding up well despite the negative press.

Russia (RUSS) continues to find selling points as the issue with Ukraine continues. The sanctions are adding to the selling this week and the next resistance point is $14 on the short ETF. Big decline on Wednesday as buyers step in, but still a downside play without some resolution in Ukraine.

Current EGG:

We hit our stops on FXI and locked in a solid gain of more than 7.5%. Today’s scans have not turned up any risk/reward opportunities that I am willing to take. We will run more scans tonight and address this in the AM on the table if this changes. Cash is king for today.