Flat Day With No Direction

Monday – Notes & Research

Some intraday volatility as investors attempt to digest the move higher from Friday. Oil moved higher and gold reversed intraday from early selling. Short covering was the reason given for the bounce. That very well could be the case as the metal tested the low from April 15th. Look for a test of the $136.90 mark as resistance on the bounce.

The NASDAQ climbs gracefully towards the 3500 level, however there are some concerns with the trendline pattern following the gap on May 3rd. The set up is showing some divergence and that could reverse the trendline. We just have to be patient and let this play out with our stops firmly in place or a defined exit strategy going forward.

Where do we go from here? Forward… cautiously and patiently.

Sector Moves of Note:

  1. Gold managed a big bounce intraday pushing the metal back towards the $1400 level. Was this just short covering or is there a potential bounce brewing. Good question and we will have to watch and see if it there is any follow through tomorrow on the upside.
  2. Gold reversal sent the mining stocks higher as GDX gained 6.5% on the day. Silver reversed also along with the silver miners. Short covering? Watch to see how it plays out tomorrow.
  3. Natural Gas (UNG) Testing bottom of the trading range. Bounced Friday and then attempted to follow through today, but closed back at the $22 level. Watching to see which side wins the battle… up or down?
  4. Oil started lower and reversed to move higher on the day as well. OIL is at the trendline we discussed this morning and looking for the push higher. Took the entry on OIL today from the Watch List.
  5. VIX index picked up today and looking at VXX play tomorrow if it follows through.
  6. Banks are still leading the financials higher. Ratchet up the stop and let them run. Both KBE and KRE are moving to new highs currently.
  7. TAN jumped 8.2% as solar continues to push to the upside. FCG broke higher as the natural gas stocks make a move to the upside. Nothing in moderation short term.

The market continues to grind it out each day as the buyers remain in control. Take it one day at a time and remain disciplined with your stops.

Economic Data:

Not much in terms of data until Wednesday when the Existing Home Sales and FOMC minutes are out. An added bonus is the Bernanke testimony before Congress.

Economic Events & Calendar

1) US Equities:

The S&P 500 index starts the week off in neutral. Low volume and not much changed since the close on Friday. There are plenty of opportunities, but equally there are as many challenges facing investors going forward. Stay the course, manage your exit points, profits and stops.

The volatility index remains in a sideways motion and testing the lows of 12 and high of 13.5 currently. There has been some rise in the volatility over the last week, but not enough to change the personality of the markets short term. A move above the 13.5 level would get my attention short term.

The April 18th chart below is the last low in the test off the April 11th high. Leaders regained  momentum. Financials, Materials, Consumer Services, Industrials, Energy and Technology are leading the upside.  Telecom is still trending higher after a short drop lower. Utilities are still in the cellar with healthcare and consumer staples moving sideways.

Scatter 418

The current trend started on November 15th and has been tested by the the ‘fiscal cliff” issue bottoming on December 28th, The February 25th low pivot point was prompted by FOMC rumor of withdrawing stimulus, Cyprus on March 14th and the April test on economic worries.  The original target for the move was 1550-1575 which has been obtained.The uptrend remain in play, but the extended move has brought equal concern to the current highs.

SP500Scatter

Sector Rotation of Interest:

Technology (XLK) – Break above the $30 level was the entry point and it has followed through nicely on the upside. Getting extended and we need to protect the downside. Target remains $31.65. Hit the target. Holding for now and tightened our stop in response to $31.60.

Consumer Staples (XLP) – Moved to new high and is now testing the break through resistance of the trading range. The last two days we have been testing the breakout and we need to be aware of what is driving the sector. $40.75 is the short term (trading) stop. Some give back on the selling. Watch to see how this unfolds looking forward.

Healthcare (XLV) – The sector broke from the consolidation or trading range to the upside this week. The test is just that for now. Track to see how this plays out short term and mange your stops. IHF – pushing against resistance at the $82 level. XPH is testing with $68.25 support. IBB is testing the $180 support level.

Energy (XLE) – Moved above the $80 level and held. All positive for now, but watching the downside risk. Watch to see if there is any upside follow through as it seems to be happy to consolidate near the $80 level. Moved to $83.30 as positive bias returns to the sector. XOP cleared the $60.75 level and testing the previous high. IEZ  broke above the $59.35 resistance and hit new high on Monday.

Telecom (IYZ) – Moving higher, but consolidating near the high. Still like the uptrend here and we moved above the $26.90 level and now looking for a move on the upside going forward. $26.10 remains the exit point. Uptrend working higher for now.

Utilities (XLU) – breaking down short term on some selling. The fund managed to hold support at the $39.60 and the 50 day moving average. Watch how this plays out short term. If the bounce holds looking to add some shares at this level of the test. Watch as the sector attempts to work through the challenges.

2) Currency:

Since the high on March 27th the dollar has essentially moved sideways to down. Starting April 23rd the dollar steadily declined until bouncing on May 1st. It has accelerated back to the previous high and higher. Small test today following the  new high hit on Friday. The chart below shows the path of the dollar against the other currencies.

Currency

Sector Watch:

  • UUP –  The dollar has been trading sideways and the bounce on April 8th has led to new high. The yen (FXY) and the aussie dollar (FXA) have been pushed lower. The dollar continues to gain upside momentum.

Tracking Bond Sectors of Interest:

Sector Summary:

  • 30 Year Yield = 3.17% – up 1 basis point —  TLT = $116.92 down 14 cents.
  • 10 Year Yield = 1.96% –  up 1 basis point — IEF = $106.85 down 7 cents

Treasury Bonds – Complete reversal on the yield has pushed the bond lower and is in position to test the previous low. Not a place to be other than short the bond. TBT. Hitting against some resistance relative to the yield. Watch and be patient as this plays out. Raise your stops on the TBT or TBF position.

High Yield Bonds – HYG = 6.5% yield. Support at $94.75. Moved up to $96.25 and met with some selling on the shift in yields and risk. Manage the position for the dividend as the growth side is uncertain short term. Use $94.75 as the stop. The last two days move shows the risk in the bonds currently. $95.20 support? Downside risk is growing for the bonds in this sector.

Corporate Bonds – LQD = 3.6% yield.  Bonds have dumped with the rise in rates short term. Hit the stop at $120.80 as the selling accelerated. HIT STOP on Friday. Still moving lower and no interest for now. Is $119.60 support? Watch to see how it plays out.

Municipal Bonds – MUB = 2.8% tax-free yield. Shifting gradually lower as the risk relative rates is in play. Collect your dividends and let it ride for now.

Convertible Bonds – CWB = 3.6% yield. Price had been moving higher on the rally in stocks. Broke to a new high and steady as she goes. Keep and practice dividend collection.

4) Commodities – Sector Summary:

  • Commodity Index (DBC) – Moved back to resistance at $26.50, tested lower and now pushing back on the upside.  Watch and be patient. $25.90 support in play?
  • Natural Gas – (UNG) Moved back to the top side of the trading range near $22. FCG broke higher today as positive sign for the sector overall. Watch for some follow through on the attempted break higher today.
  • Crude Oil – (OIL)  Moved back to the high of $22.50 and wants to climb higher? The questions surrounding demand and other issues has been ignored. Watch for follow through on the break above the downtrendline.
  • Gold – (GLD) Hit stop on GLL on the bounce today. Watching to see if the bounce holds from today off support.
  • Gasoline – (UGA) Resistance is at $56.80 now. Watch to see if it can follow through on the upside move. Made the move now the continuation is worthy of attention.

Commodities Rotation Chart:

I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point. PALL is moving higher and leading the metals. UGA is making move to the upside. OIL back to the near term highs. UNG starting to move higher off the lows. The balance of the sector is vertically challenged. Be patient and let the winners define themselves before going into sector.

Commodity

DBC – PowerShares Commodity Index ETF (click to view) Composite of 14 commodities tracking index.

5) Global Markets: 

Global markets have been trading sideways the last week. The move today puts the upside back into play. Europe, Russia, China and Japan are leading the current bounce. Volatility still in play for the global markets, but watch to see if this bounce has any legs higher.

Global Mkt

EFA – iShares EAFE Index ETF (click to view) 10 Developed Countries making up Europe (66.6%), Australia (8.9%) and Far East (24.5%). (Weighting of fund) Not most balanced, but give indication of global markets.

Country Watch:

  • Most of the country charts have trading sideways to down. EFA is a good barometer for trading the developed markets and VWO for the emerging markets. Attempting to turn higher the last few days and worth tracking for specific opportunities.

6) Real Estate (REITS):

Real Estate Index (REITS) – The sector continues in the uptrend overall. My rating is a HOLD currently. Holding above the 10 DMA for now. Let the trend run its course.

Sector Summary:

  • IYR – Support is $73.50 and our stop is at the same level. Still moving up gradually and we continue to hold and collect our dividend as well. Scan the ETF for the leadership and track.
  • RWO – SPDR Global Real Estate ETF is in a positive uptrend and hit a new high. Manage your stops accordingly.
  • MDIV – First Trust Multi- Asset Income ETF is a good alternative to picking through all the choices of income funds. This multi-assets income fund pays a 5% dividend.

7) Global Fixed Income:

Sector Summary: Complete reversal low and uninteresting in the sector currently.

  • There are some funds moving in favorable direction of late.
  • PAFCX – Broke down aggressively short term and testing support at $11.50.
  • PICB – Breaking aggresively lower short term. 3.1% dividend.
  • EMB – Finding support at the $119.25 level. 4.3% dividend yield.
  • PCY – Gave up support at the $30.30 level. and heading lower. The current dividend yield is 4.8%.

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 downs