Europe weighs in, but stocks hold uptrend

Friday – Notes & Research

Not the best of weeks for stocks as volatility picked up intraday, but failed to mount any serious selling. Friday’s activity showed more on the upside than downside and investors continue to be willing to buy the dips. Thus, all the chatter from analyst about a correction or pullback, for now remains just that, chatter.

The outline below is the same… but the format is different. I am attempting to organize the research to make it easier to access by sector or asset class relative to what I am watching and how things are unfolding. There are plenty of opportunities developing as the markets remain on the upside.

The global markets took the worst of this week as Spain and the ECB were back on center stage. The outcome was some downside in both the developed markets (EFA) and the emerging markets (EEM). We are testing the first levels of support in some areas and some have broken down. We hit some stops on the move and we are not digging and looking for what opportunities may exist going forward.

Economic data was overall positive on the week, but nothing strong enough to garner the attention of investors short term. Stay focused and be disciplined in how you approach the current market environment.

Data Summary

  • Same store sales for January were exceeded the forecast of 2.8% growth reporting 4.5% gains. The news was lost in the rambling over Europe, but this will key for the consumer outlook.
  • Trade deficit was narrow than expected at $38.5 billion, down 20.7%. That was a plus considering the $48.6 billion reported the month prior.
  • Factory orders rose 1.8% in December, but remains below the 2.3% predicted by economist.
  • ISM Services was flat at 55.2%, but still shows expansion in the sector.
  • China’s CPI was up 2% year-over-year, and PPI fell 1.6% year-over-year. In line with expectations.

Plenty of correction talk all week!

1) US Equities:

Market Summary:

  • S&P 500 index was pushed through resistance at 1515 today.
  • NASDAQ index cleared the 3190 resistance today maintaining the uptrend.

The NASDAQ 100 provided the upside leadership today from the major indexes gaining 0.9% on the day. This was an important technical move as the index finally took out the resistance at 2760. This put the QQQ trade back in play on the upside. Large cap technology stocks were the leaders with Apple gaining 2.2% on Friday.

Leadership:

  • Energy continues to set the pace on the upside.
  • Consumer Staples made solid move on the week to push the broad index higher.
  • Consumer Services jumped on the retail sales data to regain some upside momentum.

Laggards:

  • Technology made a nice move this week, but still continues to struggle on the upside and has been moving sideways. Still worth watching on the move above $29.80 on XLK.
  • Basic Materials has been struggling on the China news to start, but the European data this week added some downside pressure as well. Still holding above support for now.

Watch List:

  • XLK – Look for test and go of the breakout on Friday. Entry = $30
  • XLE – Look for continuation move higher from the consolidation near the highs. Entry = $78.60
  • XLF – Look for move through the high at $17.65 to add to positions. Entry = $17.75

November 15th Pivot Point for current uptrend. Target 1550-1575 short term.

Scatter1228

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test.

Scatter1228

VIX Index: Testing lower with close at 13

Tracking Sectors of Interest:

Financials РXLF moved above $17.50 resistance, retraced, and back above it again today. Banks (KBE) and regional banks (KRE) both made moves higher again to set the pace. Hold for now and watch the downside risk of the sector if the broad markets shift momentum.

WATCH: Entry $17.20 XLF. Stop @ $17.20

NASDAQ 100 РQQQ cleared resistance at the $67.30 level. $68.25 is the next hurdle for the sector. Watch the upside confirmation next week for opportunity.

WATCH: QQQ Entry – $68.25 or test of the $67.25 breakout.

2) Currency:

Sector Summary:

  • Draghi comments relative to the ECB and sovereign debt sent the euro lower on the week. Temporary or trend? That is the question of interest going forwards.¬†
  • Japan’s Prime Minister stated the yen had over corrected on Thursday and that sent the yen higher on Friday. Watch how this plays near term. Expect a short term rally in the yen.

Tracking Currency of Interest:

US Dollar РThe close near $21.90 (UUP) is at the downtrend line? Watch to see how this plays going forward and the support now becomes $21.70 level. Watch the bounce for evidence of a continued move higher.

Euro РThe euro moved below support at $132.70 and this bring the short trade to the forefront.

WATCH: EUO – Entry $18.50

Japanese Yen¬†– Has the yen found the near term low… yet? FXY bounced of $104.70 low on Friday after the comments from Prime Minister. Cover short play and look for the upside short term.

3) Fixed Income:

Sector Summary:

  • Yields continue to creep slightly higher. The question is if the market corrects how will it impact¬†
  • 30 Year Yield = 3.16% – unchanged — ¬†TLT = $117.12 up 45 cents
  • 10 Year Yield = 1.95% – unchanged — IEF = $106.28 up 8 cents

Tracking Bond Sectors of Interest:

Treasury Bonds РThe current play is short with TBT in the model currently to take advantage of the move lower in prices. The last week the fund has bottomed and started to consolidate. Watch for a reversal or upside in the bond if stocks start to trend lower.

High Yield Bonds РHYG = 6.55% yield. The fund has faced a drop in price this week and hit our stop at $93.75 (HYG). Support is at $92.75, but the risk in the bond is rising short term. We will watch to see if support holds and then make a determination on the upside play if it evolves.

Corporate Bonds РLQD = 3.8% yield. The price has found short term support ($118.90) as we covered our short play on the bond. Now watching to see if any upside opportunity exist in the bond.

Municipal Bonds – MUB = 2.8% tax-free yield. The price of the bonds continue to be volatile. Found support and bounced back, but still looking for direction. Willing to wait for the right opportunity on the bonds.

Convertible Bonds РCVRT = 2.7% yield. Price is starting to move higher on the current rally in stocks. Watch for opportunity if the uptrend continues in stocks.

4) Commodities:

Sector Summary:

  • Natural gas takes a turn for the worse on the inventory data.
  • Oil supply is high reflecting demand currently. Move higher has been on speculation globally.
  • DBA broke support and headed lower as soft commodities struggle.
  • BAL tested $52.65 support and is set to break higher for a possible trade.

Tracking Sectors of Interest:

GSG – Holding near the high as the overall commodity index maintains the modest uptrend in play off the November lows.

UNG РDropped 5.2% on the inventory data. $18.27 support for the ETF. Volatility is back and not interested in the emotional guessing game currently for the commodity. FCG is worth watching relative to break from the trading range and attempting to move higher.

WATCH: FCG – Entry $16.65 look for test on the entry or $16.85 highest entry point.

OIL РCrude is testing support at the $95 level as the chart develops a rolling top. Watch to see it the downside continues of if this is just a test followed by a move higher? Manage your stop on OIL at $22.40.

UGA РSome volatility last week from the global concerns. The upside is still in play and is likely to continue near term. Supply is short as refineries maintenance schedules kick in. The upside is still in play after the small test last week.

WATCH: UGA – SEE ONLY ETF Model.

GLD РDowntrend line still in play with support at the $160 level. Downside is still looking better than the upside at this point.

DBB РBase Metals need to clear the $19.70 as they attempted on Friday.  Watch for the continuation of the play higher.

WATCH: DBB – Entry $19.75 (1/2 normal position)

PALL – Palladium tested $73.60 on some selling last week. The upside is still in play as well as the uptrend. Adjust your stop accordingly and let it continue to run.

PPLT – Platinum tested lower week and is filling the gap left behind on the move to new high. Support is $167 a break is an exit signal for the metal.

5) Global Markets:

Sector Summary:

  • Draghi comments place a drag on the sector overall.¬†
  • China’s economic data was the cause of the decline in FXI. Watch how it plays out next week.
  • Japan Prime Minister decides yen has moved to low… puts stocks on notice for selling?

Tracking Sectors of Interest:

EFA – Dropped 2.6% for the week to test the uptrend. The support levels are key and it closed above the first level at $58.15 Friday. Uptrend remains in play.

IEV РDropped 4% for the week and test the first level of support at $40.20 Thursday and held the move on Friday. $39.50 support may come into play if the worries escalate relative to the sovereign debt in Spain. My upside target remains $45.50, but the upside may be in jeopardy. Watch to see how this plays out short term.

FXI – China broke support at the $40.85 support of the trading range. The $39.70 support gave way on Thursday, but managed to close back above that level on Friday? Is the downside ready to kick in further? Watch to see how this plays out short term. The drop hit the stop giving the opportunity to play whatever develops short term.

EEM Р$43.85 support was broken on Thursday. The downside is not accelerating and $43 is the next key level to watch going forward. Stopped out of our positions on the move lower and now we watch for the next opportunity.

6) Real Estate (REITS):

Sector Summary:

  • REITs continue to find buyers and push the upside trend.¬†
  • Homebuilders finding some resistance as analyst downgrade the sector.
  • REM, NLY & SJT – all three are in a position to break higher. Struggling with resistance.

Tracking Sectors of Interest:

WATCH РIYR РEntry Р$66.15,  РStop $67

7) Global Fixed Income:

Sector Summary:

  • The sovereign debt issues are fading as the global outlook improves. Stocks moving higher prove trouble for the sector overall. We have hit stops as yields impact the price of bonds.

Tracking Sectors of Interest:

EMB – Emerging market bonds have bounced off the low and could offer some upside short term plus the dividend yield of 4.2%.

PCY – Emerging market Sovereign Debt is finding some support and attempting hold and move higher. The dividend yield is 4.7%.

IHY РInternational High Yield Bonds breaking lower similar to US high yield bonds. Watch to see if any opportunities arise in the bonds.

PICB – International Corporate bonds support at $29.20 and looking to move lower? Watch

Watch and play according to your risk tolerance on any position taken. 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 risk will limit the downside losses.