Investors Becoming Selective Where they Put Money

The ADP report for private sector jobs showed improvement again in December. 238,000 vs 215,000 expected was a good sign for the jobs data due on Friday from the government. The markets reaction was positive to start the day, but most eyes were on the Fed minutes released in the afternoon. Those left most traders without much to argue, cry or sell stocks over. The belief is the benefits were eroding with time and that led to the decision to cut the stimulus starting this month. The projections are for stimulus to be done sometime in the second half of the year. There was some selling following the release and the Dow showing the most weakness on the day down triple digits at one point and off 0.5% for the day. Plenty of anxiety and interest for everyone as the data continues to roll out for December.

Actionable items of interest today…

China (FXI) bounced off the test of the November lows gaining 1.1% on the day. There are plenty of questions relative to the outlook for the economy and financial/banking system, but the bigger question is if the selling is overdone short term? Down more than 10% since hitting the high in December, is it time for a bounce? Worth watching to see how it plays out tomorrow and going forward. I am not a fan of the country, but this is getting interesting fundamentally and technically for the ETF.

Just when bonds were looking attractive to investors again… up go interest rates. As we discussed in our notes the last couple of days, yields have been dropping on comments by Bernanke and others from the Fed relative to the extent of the cuts to stimulus would be. The FOMC minutes released today confirmed the plans to exit QE infinity by the end of the year. That is in line with the original expectations and the yield on the ten year bond rose to 2.99% after pushing above 3% intraday. The 10 year auction of Treasury bonds was over 3% for the first time since 2011. This is not a good sign for bonds and the short play has continue to be the trade of choice. Watch to see how it follows through tomorrow.

Another side effect to the minutes today was the dollar moving higher. We discussed the need for UUP to clear the $21.75 level of resistance if the bottom reversal was going to gain any momentum and complete the double bottom pattern in play. Look for a move to the $21.90 level as the next resistance point. The dollar is gaining strength in modest moves.

NetFlix fell 5.5% on Tuesday as the negative talk about sustainable revenue heats up again. The competition, etc. will be too much for the company to continue to grow revenue and subscribers at the same rate. Pricing strength is eroding due to increased competition, etc. Bottom line can they hold support at the $335 level going forward? A break opens the way for a test of the October low at $282.80. Short sellers are gaining momentum short term and this is worth watching.

Yahoo broke through a five week trading range on a talk delivered by CEO Mayer’s at the CES conference in Vegas today. The uptrend since September has been impressive as well as the turn around in the company. The driver remains the IPO of Alibaba likely to take place later this year. Bigger question is if all of this is already priced into the stock at these levels.

Healthcare gained 1% on Tuesday and added 0.85% today. The push higher today was a follow through on the move above the $55.55 resistance point and a breakout to a new high. The consolidation in the sector went back to the November high. Watch look for the sector to continue the trend.  Medical devices (IHI), healthcare providers (IHF) and biotech (IBB) are leading the sector higher with pharma stocks joining the upside today.

Telecom remains one of the leaders with XTL gaining 1% today. Equipment and chip makers continue to drive higher. Scanning the ETF shows some clear leadership and worth the time to dig in find the winners.

Energy is struggling with crude oil breaking below support at the $93 level today closing at $92.53. The upside is hampered by the outlook for growth in demand. The global economy is not looking great relative growth and that has slowed the upside for now. I like the sector long term, but the short term will have to work through the current issues. UNG is sitting on support at $20.50 and a break would result in a test to the 200 DMA. UGA is testing support at the $56.80 level with gasoline dropping on lower crude prices. Despite the colder weather heating oil (UHN) is testing support at $32. Downside pressure is building on the sector short term.

Bottom line… the market held on to the uptrend, but the sellers are still in the wings watching. The outcome of the jobs report to end the week and the start of earnings next week will be the near term catalyst for the broad markets indexes. We have to exercise some patience currently and let this play out relative to the trend and momentum. The worries in reference to the economy remain a concern and if that grows the downside will become an issue relative to the short term direction. Keep your stops in place and protect the downside risk of your trades.