Energy Keeps Selling From Getting Worse

The Fed minutes were the buzz all day… they didn’t offer any additional insight into the thinking of the Fed. The initial reaction was some selling followed by some buying? Go figure, the market refuses to accept no for an answer from the Fed. They want stimulus and they are not going to stop asking for it! Not will they let stocks retreat any further on the hope and wish of a money giving Fed. It is all to interesting at this point. Thus, when it is all said and done, nothing changed on the day. Another day of indecision to follow up the selling on Tuesday.

Support held at the 1330 level for the S&P 500, NASDAQ failed to hold the 2900 mark and tested 2875 intraday, and the Dow tested below 12,600 support. In the end not pretty and plenty of questions marks still in play.

Financials were up down and sideways on the day.

Keep your discipline intact as the market remain volatile. The data will continue next week, and earnings start!

Sectors-to-Watch:

Another day… another problem! Today was the Fed Minutes relative to the cry for stimulus. The problem was no indication of help on the way short term. The news sent the yield on the 10 year bond down to 1.45% only to close flat at 1.49%. Thus, IEF spiked higher, but closed lower on the day. The dollar jumped higher as well on the news, but closed flat as well. The short term excitement over nothing abated as quickly as it came. The buck is hitting against the high as resistance and the fixed income sector remains a favorable resting place for money.

The inventory data for crude oil was worse than expected and that sent the price up 2.5%. The ripple effect was through the entire energy sector. Stocks climbed 1.4%, services stocks gained 1.4% and gasoline climbed 1.1%. The question is still on the demand side of the equation. Natural gas was up 3.6% and the stocks were up 1.3%. The sectors were all higher on the inventory data from crude.

The negative twist in the market continues as investors attempt to determine short term direction.

Positive – XLV, XLU, XLP, IYZ

Negative – XLF, XLE, XLY, XLK, XLB, XLI

News is driving as earnings start to ramp up this week.

Volatility Index – The index closed at 18 and lower on the day. Watch for the index to flatten if the market continues to push higher or move sideways quietly. Watch to see if VXX comes back into play on the volatility, if not — back to SVXY, $90.70 support tested again?

WATCH: SVXY if positive sentiment returns OR VXX is the play if volatility picks up.

Dollar – Struggles against the euro seem to be over for now. Bounced off support and back to the upper end of the range.

WATCH: UUP – Support is at the $22.40 level. Watch resistance the $23 mark.

Treasury Bonds – The yield is 1.5% on the ten year bond. The economic data sent the bond higher and yield lower last week and the trend has continued this week. The fear factor support was 1.56% short term and we broke that level on Friday, followed through on Monday an took the trade is IEF.

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

S&P 500 Index – Test lower today, but the 1330 level is the one to hold. Don’t assume anything and let this all unfold one day at a time. Shaping up to be a test of the 1300 level short term.

WATCH: SPY – $132.50 Support? Tested lower today and worth watching for a rally higher.

NASDAQ Index – More aggressive selling due to the technology sector. Watch the support at 2860 to hold. It flirted with breaking today. The semiconductors are weighing down the index short term. They broke support at 362 today and set up a negative down turn for the sector.

WATCH: QQQ – Testing the next level of support near $62.25

Small Cap Russell 2000 Index – Broke support at $79.60 with IWM. Now we look for support or a retest of the $78.30 mark (held today). Watch for support to develop before taking any further positions.

WATCH: IWM – Support at the $78.30 mark to hold?

Financials – XLF broke $14.40 support on Tuesday and followed with an inside day today. The sector remains in the uptrend off the June lows and testing support. Our stops are in play as well on our new positions in the sector.

WATCH: XLF – $14.25 entry. Stop at $14.25.

Energy – The jump off the lows were the result of geopolitical issues in Iran. Thus, we now have a premium built into the sector based on fear. Demand will be the ultimate deciding vote in time. The inventory data today was responsible for the bounce higher. Thus, the assumption is demand is rising? No, the drop in supply and confusion is in control of direction. Watch the price of crude and other energy related commodities.

WATCH: XLE – Test of $65.50 failed and now looking to hold the $64.75 (accomplished on Wednesday) for any trade opportunity. Negative sentiment left following the inventory data. That news will be good for the next week. Break back above $66.40 would be of interest short term.

Commodities:

Crude fell 2.5% and back above the breakout level on OIL at $20.75 ($21.07 close). Watch Gasoline was up slightly on the day and holding near $51.20 on UGA. Watch Natural Gas gained 3.6% and back to attempting to break higher above $20 on UNG. Watch Agriculture Soft Commodities were off slightly as Corn and other commodities see some profit taking. Gold bounced following the test lower on GLD. $148.50 is support. Watch Mining stocks fell 5% the last two days. Getting ugly as it breaks support.

Global Markets:

China (FXI) fell and is testing support again at $32.40. Import data was a disappointment. FXP is the play again? Europe (IEV) held support near $32.80 on the day. Watch the downside short term. EPV may become opportunity. Other countries are setting up to move lower as we scan the country ETFs. Watch. Turkey (TUR) remains near the high. Break above $53.10 could get interesting for trade.

What I am watching now?

Earnings have already started and the outlook is hopeful. However, hope is not an investment strategy and we have to be prepared for the worst. 85 of the S&P 500 index stocks have already warned or adjusted earnings for Q2. With the negative sentiment building you have to wonder if it isn’t better to be a contrarian as the announcements begin. Only time will tell, but the negative sentiment could set up some buying opportunities.

Energy stocks and commodities rally back on investor news in the crude oil sector today. Watch the reversal higher short term.

Semiconductors are down again on Wednesday. They broke support at 362 on he index and the weakness in the growth sector remains. SMH broke support at $30.60. Watch for follow through tomorrow and potential downside plays in the sector. SSG is the ETF to play, but there is no volume in the fund. SOXL has volume, but it is the 3X short play. The best play is to short SMH by borrowing the shares. Let the play develop first and use discipline.

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.