Wednesday, August 1st
Thanks for nothing Mr. Bernanke! The FOMC committee elected to not take any actions and changed the language slightly to provide accommodations as needed going forward. They admit the economy is slowing and jobs are growing, but they chose to remain on hold. In fairness to what the Fed can do, would it really have much of an impact on the economy? The answer by many economists remains, not much. Thus, saving what impact they could have for another day may in time play out to be the best action the Fed could have taken.
ADP employment data showed 163,000 new jobs in the private sector. The number was not stellar, but then it was down only 9,000 from June. Again this shows the slowing of the economy as we fail to add new jobs. Friday the jobs report from the government is out and it estimated to add only 100,000 new jobs for July. All the data is showing exactly what many believe to be true, slowing economy, but now awful enough to panic.
The disturbing number on the day was the ISM Manufacturing at 49.8% which shows the sector contracting for the second month in a row. Uncertainty was the buzzword from the survey committee. That is not what you want to hear about a key part of the US economy. Spending cuts from the Federal Government were given as a key reason for the slowing. That is a double edge sword and one that will be a hard debate in the months to come. This is the exact argument that is being made about the austerity programs in Europe. You cut spending by government, you stall the economic growth. In other words, damned if you do, and damned if you don’t. The report also showed export orders dropped 46.5% reflecting the impact of Europe. This export decline was the worst number in three years. Still an area of big concern going forward.
All the talk about gold moving higher has been silenced by what is becoming the reality the ECB is not able to fully act immediately. The reality of the European Union handcuffs on the ECB are setting in and the impact to gold was sharp at the open of trading today. It did manage to bounce back, but reacted again to the non-action by the Fed. As we stated in the notes this morning, lower prices reflect the belief that it will be longer term before the ECB is able to fully act. Gold opened at $154.79 and closed at $155 with some volatility to go with the swings. Gold is forecasting weaker to flat stock prices ahead.
Tomorrow is the ECB news and hopefully it is more insightful than the FOMC meeting. Be mindful of the news and the short term risk it represents. Watch, evaluate and manage your risk.
S&P 500 Sectors-to-Watch:
SPY, SPDRs S&P 500 index has managed to hold above the $136.65 mark as key support short term.
Since the June 4th low there has been a constant rotation of leadership. The obvious result is an inconsistent trend or trading range. The bullish uptrend channel remains in play with the index touching against the top end of the channel this week. The pivot points on the higher highs and higher lows is creating new leaders and losers and that is in play off the July 25th low.
Telecom – The sector continued to add to the upside as IYZ has gained better than 13% off the low last week. The renewed love for Apple has helped the sector as well as the stock, and it has brought buyers back to the sector. Bottom line is the earnings and data have been good and the sector continues to rise.
WATCH: IYZ – Hold and raise your stops to $23.32
Energy – Taking on some leadership with the bounce in crude back near the $90 per barrel.The move back above $69 on XLE on Friday was a positive for the sector and we continue to like the upside opportunity short term. Uptrend off the June low still in play.
WATCH: XLE – Entry @ 69.25. Stop 68.75. WATCH – LINE, FCG for breakout on upside in natural gas.
Financials – Holding above $14.40, but you are going to have to be patient and accept the volatility to own the sector near term. Hitting against the resistance once again and we will see how it plays out. Looking for a break above the $14.80 mark on XLF.
WATCH – XLF – Entry @ 14.55. Stop 14 (have to use lower stop due to the volatility short term.)
Healthcare – Recovered last week and holing near the highs. Hold positions and let it go. 50 day moving average is a good stop for now. Expect the volatility to remain as we go forward.
WATCH – XLV – Entry @ 38.10. Stop 50 DMA
Consumer Staples – The sector has been leading to the upside for the broad index. Uptrend in play and the steady move higher continues for now.
WATCH – XLP – Let it continue to move higher (no positions currently)
OTHER ASSET CLASSES:
Volatility Index – The index bounced back near 19 today as market trades sideways. If the news is holding up and buyers come back to the market, look for the volatility to continue to fall short term, however if the ECB or Fed disappoint look for it to spike higher on selling from disappointed investors.
WATCH: SVXY moved lower again on Tuesday as volatility rises. Hit $95 on test lower. Entry $97.10 if reverses.
Dollar – Hits new high last week on renewed concerns on Europe. Last Thursday the dollar drops big on the news from ECB. What happens from here is up to the ECB from my view. Thus, we exited our positions, but looking for direction on the news later this week.
WATCH: UUP – Watch or UDN – on ECB action
Treasury Bonds – The yield moved up to 1.55% on Friday, but fell to 1.49% today as the ten year bond remains in limbo. Some of the worry is off the table short term is setting the tone for interest rates. Thirty year bond jumped to 2.64% Friday, gave some back today at 2.57%. Still looking for short trade in bonds with TBT or TBF.
WATCH: TBT – $14.80 entry. Stop $14.50 Tested lower on Monday – patience on entry
NASDAQ Index – Bounced last week off support near 2850. Facing resistance from the downtrend line at 2965 ish. Watch the upside to follow through or the news to dive it lower. NASDAQ 100 index tested 2550 support and bounced back. Facing resistance at the 2665 mark or the top end of the range short term. Watching the large cap stocks to take the lead again an move higher. Solid day for Apple on Monday.
WATCH: – QQQ Entry @ $63.70 Friday. Stop $63.10
Small Cap Russell 2000 Index – The downside has been a challenge and the index is still in a downtrend. Watch for move higher if we play this move off the July 23rd low.
WATCH: IWM – Entry $79.10. Still opportunity for the entry. Stop is $77.90.
Commodities: Mixed signals as investors waffle on the reason for the move higher (ECB). Watch for any opportunities as the volatility picks up.
Crude Oil – Crude fell 2.4% Tuesday, gained 1.6% Wednesday and OIL remains above $20.75 breakout mark ($21.68 close). Watch and hold positions for now. Watch the downside short term.
WATCH: OIL – Entry $20.75 – Stop $21.20
Gasoline – bounced back last week, but remains in a push sideways and testing the move. Closed at $52.97. The upside for the fund still in play if oil continues to move or hold near these levels short term.
WATCH: UGA – Entry at $52.75 – Stop $52.75
Natural Gas – Holding above $20 on UNG. The trend remains to the upside with some volatility expected. Solid gain on Monday up more than 5.6%. Up 0.6% on Tuesday. Down 2% on Wednesday. Getting the volatility… manage your stop.
WATCH: $21 is stop on position – Entry $20.50
Precious Metals – Gold fell on the disappointment or realization the stimulus isn’t going to happen according to the speculation. GLD, $148.50 is support. Watch as this short term volatility plays out, but keep your stops in play.
WATCH: GLD – Entry $156 – Stop $155. (HIT STOP TODAY) – WATCH: GDX – Entry $42.60 – Stop $40.60
Global Markets: The global markets moved higher in response to the ECB comments relative to the euro, Spain and Italy. The EAFE index has moved higher on the news and belief something with happen this time around. Watch and manage your risk in the short term.
WATCH: EFA – Entry $34.40 break above resistance on volume.
China – Tested the lows bounced on the European news. Watch the consolidation wedge forming over the last 6-7 weeks and ready to break higher. This has been volatile based on the global economic issues and the economic slowing in China. Watch for a upside move on the improving data this week from China, but expect volatility short term.
WATCH: FXI – Entry $34.20 – Stop $$33.50
Mexico – moved lower after a test of the March highs and bounced on Europe news. Got the bounce off the $60.50 support and closed above the 30 day moving average. Got the follow through and entry point on $62.25 Friday. Watch the volatility relative to the ECB and FOMC news.
WATCH: EWW – Entry $62.25 Friday. Stop $60.30
Singapore – moving back above the high at $13. tested back and bounced off support at $12.50, and we took the entry at $12.70 on Tuesday. Nice follow through to $13.18 and new high.
WATCH: EWS – Entry $12.70, Stop $12.88
Housing – Positive outlook for housing sector and the homebuilders going forward. However the new home sales data didn’t go over well with a 8.4% decline bucking the positive news. The sector is testing support near the $20.80 mark level yet again. A break lower is something to watch short term. The move up in the housing sector could end up being a short lived event if the prices and sales don’t continue to move in a positive direction. The upside is still in play with some stalling short term taking place. Watch and manage the opportunity going forward.
Watch: XHB – testing support at the $20.80 mark. Support at $20.80 — $21.90 entry opportunity on breakout from consolidation.
Energy – See Above – The sector was setting up to take a leadership role short term, but a stall is in play with all the data facts running around this week. Watch an be patient to see how this play out. Crude was up to $88.75 today.
Materials – solid bounce of the bottom of the up trending channel and looking for a move to resistance at $35.75 and then higher if the leadership is to follow through.
Financials – See Above – The volatility in the sector will give you motion sickness, but there is strength. JPM is attempting to break from the consolidation and a move above the $37 level would be positive. BAC bounced off the low and worth watching. WFC retesting the highs $34.40. Follow through break above $14.85 on XLF would be a positive. Watch the sector.
Retail – Sector is still not confident enough to push stocks higher overall. That said this is a stock picking sector. AMZN looks solid and earnings were good along with guidance. Pushed to new high on the news and testing currently. EBAY made solid move on earnings as well and equally testing the move. RL ready to break back above the $150 mark? Testing. COST cleared another new high and testing the move. TJX and TGT both in position to break higher as well. Need the consumer if the markets are going to continue the upside trends.
ECB announcement this morning with the time difference. The action must be enough to validate the comments made last Thursday by Draghi. If they fall short in the view of investors watch for some selling. The response will be more dramatic to this announcement than the Fed.
Precious metals reacted negative to the FOMC results and the anticipation of disappointment from the ECB. Watch the reversal in gold and silver short term.
Fixed income showed another reversal with the 30 year bond moving to a yield of 2.61% up 4 basis points. Watch this as a sign of what is in store looking forward… volatility. Bonds like metals are not confirming relative to the upside to stocks. ECB report tomorrow will lend even further insight to what is in store for the long bond.
S&P 500 Index moving closer to a test of the 1365 support short term. Let it play out as the news continues to create glimpses of volatility for the index.
Dollar was up 0.5% on the FOMC announcement. More stimulus makes for a weaker dollar.
Economic data was better than the expectations Tuesday. Plenty of data this week as July comes to a close. Tuesday started the parade with better personal income, higher home prices and improving Chicago PMI. ADP Jobs s data on Wednesday was positive, ISM Manufacturing was disappointing at 49.7%, construction spending was in line with expectations and FOMC produced nothing of interest. Friday is the jobs report, Factory Order on Thursday. All of the data is keeping it interesting this week.
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.