Energy Commodities and Tech Stocks Lead Markets Higher

The NASDAQ wants to take the lead back for the broad markets. The technology stocks are the reason for the jump, but the fundamental data doesn’t support the move currently. It is true technically the sector was oversold, but the erosion is revenue growth was part of the reason for the drop. Semiconductors bounced off the low from March and moved back above the 363 mark on Wednesday and Thursday they follow through on the bounce and pushing back towards the 373 mark short term. The bounce is tech is more relief than realistic based on the outlook. Watch and see how this plays out going forward.

Apple, Google and other large cap stocks were leaders on the upside for the broad markets. These stocks remain the leaders versus the small cap stocks. That said, the small caps did make a move on Wednesday, but failed to follow through today. Thus, you have to go with the momentum of large cap and now energy stocks. Crude oil cleared the $90 mark taking gasoline above $54 intraday and the oil services (OIH) stocks followed through on the upside. This remains a traders market overall.

Earnings are coming fast an furious. Today Morgan Stanley disappointed most with a flat earnings announcement and jobs cuts to go with them. They took the financial sector lower along with the selling in BAC this afternoon. The sector was off nearly 1% and banks lost 1.3%. Watch as the volatility in the sector remains an issue.

Discipline remains the priority! This is not an easy market environment and the outlook remains cloudy at best.

Sectors-to-Watch:

Energy has captured everyone’s attention for now. Crude is running on speculation and inventory data. The sector of stocks is attempting to break through resistance and the 200 day moving average . Is this enough to sustain the move back towards the March highs on the major indexes? I am not convinced despite the belief of many. The splintered earnings and outlook are keeping investors cautious, but traders interested. The swings up and down are attracting trader interest, but making anything else a headache.

The negative and positive twist in the market continues as investors attempt to determine short term direction. The variables between earnings, economic outlook and investor confidence remain volatile and it is keeping money in motion. This is definitely a traders market and anything else is a frustrating game. Keep your focus on your goals and not attempting to determine what is happening or will happen in this short term market gyrations. Sector rotation is alive and well with energy taking on a new role of leadership.

Positive – XLV, XLU, XLP, IYZ, XLE

Negative/Sideways – XLF, XLY, XLK, XLB, XLI

News is driving, earnings have ramped up and they will be the key for this weeks trading.

Volatility Index – The index closed at 16.14 up slightly on the day, but remains near the May lows. I am looking for the index to flatten as the market remains in a distinct trading range short term. There is no real fear or negative showing in the index short term.

WATCH: SVXY was the winner as the market rallied. Closed at $104.55 with our stop now at $100.

Dollar – Heading lower as the euro finds support. Watch as some now believe a weaker dollar is better for the US economy? Bounced back to the top of the trading range, and has been testing lower the last couple of days of trading. The momentum is coming out of the dollar and is assisting the run higher in crude and commodities. Watch the downside.

WATCH: UUP – Support is at the $22.80 short term. Watch resistance the $23 mark. Take exit if we break the $22.75 mark.

Treasury Bonds – The yield is 1.51% on the ten year bond. The mini rally is in response to the move higher in stocks. The trend in the bond remains higher short term with some stall on the market rally the last two weeks.

WATCH: IEF – $108.80 (HIT ENTRY) Stop at $108.30 for now.

S&P 500 Index – The uptrend off the June 4th low remains in play short term. The move above the resistance at 1363 is positive and the move towards 1390 is in play. Nothing has changed, just traders willing to trade the oversold conditions last week. Now we see if the move has any momentum or it is just trading activity.

WATCH: SPY – Looking for follow through move above $137.50. Entry $136.50 / Stop $134.

NASDAQ Index – The technology sector has been a challenge for the broad index, but managed to find some buyers the last couple of days. The news relative to earnings are mixed in the sector, but there may be enough buying to keep the upside in play. The support at 2860 held and we moved back above the 2900 mark closing at 2964 today. What does all this mean for the broad index? The Semiconductors hit a new low intraday and failed to close above 353 mark on the SOX index Tuesday. That reversed with a bounce back to 363 resistance and a gain of 3.5% on Wednesday. Thursday the index followed through with move back to the 370 mark. Watch how this plays going forward for more insight into the sector longer term..

NASDAQ 100 index holds more interest as the large cap stocks are doing better. The QQQ ETF held support and closed above the entry point. Watch, manage and deal with the outlook near term.

WATCH: QQQ – support held at $62.25 – Entry at $63.60 close today on the upside.

Small Cap Russell 2000 Index – Back above support at $79.60 with IWM. Held support or a retest of the $78.30 mark on Thursday. Watch for the support to hold and the upside to develop short term before taking any positions in the sector. Big bounce Friday, finally a follow through on the upside Wednesday. Struggled some on Thursday, but the upside is still in play. Watch for the index to regain the leadership role.

WATCH: IWM – Tough call on the bounce. $80 potential entry point. Entry hit on Wednesday.

Financials – XLF is struggling on earnings data as Morgan Stanley disappoints investors. The news pushed the broad index lower and testing the 14.55 level. BAC sold off more than 5% Wednesday and 3.6% on Thursday as the stock is under pressure from analyst. Watch the selling as an opportunity or adjust your stops to avoid further erosion. Mixed picture based on your view of the earnings data provided.

WATCH: XLF – $14.45 entry on Friday. Stop should be reset to break-even now.

Energy – The jump off the lows were the result of geopolitical issues in Iran. Fear was the catalyst on geopolitical news for the sector. Now a weaker dollar and what some “hope” is a move to the upside. Demand will be the ultimate deciding vote in time. The inventory data Wednesday showed a second draw-down in supply. Thus, the assumption is demand is rising? Watch the price of crude and other energy related commodities.

WATCH: XLE – entry is $66.80 for a trade. Breakeven stop adjusted today.

Commodities:

1) Crude is above the breakout level on OIL at $20.75 ($22.75 close and rising). 2) Watch Gasoline was up in response to crude today closing at $54.55 on UGA. Entry at $52 hit and moving higher – adjust your stops to $53. 3) Watch Natural Gas as it is attempting to break higher above $20 on UNG ($20.12 on Wednesday). Added to the upside today and still looks positive. FCG is ETF for the stocks. 4) Watch Agriculture Soft Commodities (DBA) are moving higher. Corn (CORN) resumed move to new high and testing the new highs. 5) Gold bounced following the test lower on GLD. $148.50 is support. Watch Mining stocks as they drop more than the price of gold. The commodity sector is finding favor with investors as they look for the volatility to return in the sectors.

Global Markets:

The global markets are making a move higher in response to the climb in US stocks. EFA was up nearly 1% today. 1) China (FXI) tested the lows, but is rallying in response to the adjustments in interest rates and stimulus. Upd 2.3% on Tuesday and worth watching for a move higher. Entry $34. 2) Mexico (EWW) has rallied back to the top of the range as well and looking positive for the emerging market countries. 3) Malaysia (EWM) is moving higher, but pulled back the last two days. Watch to see if the turns into na entry opportunity. 4) Europe (IEV) broke support near $32.80, but bounced on euro improving and moved above the $33.40 mark as a breakout. Now heading towards the $34.30 level breakout. 5) Watch Turkey (TUR) which remains near the high in a trading range. Break above $53.10 could get interesting for trade. 6) Singapore (EWS) is back near the current highs at $12.80. 7) Australia (EWA) broke higher in response to crude prices. Watch the global markets if the dollar weakens and money begins to rotate again.

What I am watching now?

Tech gets help from investors again and find momentum to move higher. We need tech to pick up the slack for other lagging indicators. EBAY beat expectations and jumped 8.8% on Thursday. Still watching the upside move in the sector as software, networking and internet join semiconductors on the upside. Take the trade for what it is worth.

Financials ride a mixed day with Bank of America and Morgan Stanley adding to the disappointment on the downside. The sector has been under pressure from analyst and any bad news is going to get punished. American Express fell 3.5% in responded to the revisions and earnings adjustments on Wednesday. The sector could face more selling pressure short term.

Energy stocks broke above resistance as crude pushed higher and the stocks are responding in kind. Watch IEZ reverse head and shoulder pattern to break higher… Got the move higher on Wednesday with a breakout and entry point at $47.70. OIL cleared $21.20 and entry at $21.65. Still a sector to dig in and find the winners.

The key short term is discipline. The trade set ups are beautiful it is the follow through that has left many lacking relative to swing trades and other technical set ups. Follow the money it always heads the direction it is treated the best.

Watch and play according to your risk tolerance. Everyone has different trading styles and you have to find what works for you and your personality. Don’t put yourself in positions you don’t understand or take risk you can’t tolerate. Not every trade results in a profit, but controlling your downside risk determines your long term results. Trade smart.