Investors Looking for Confidence Building Data

The volatility index jumped above 20 on Tuesday only to move back near 19 on Wednesday. Is volatility coming back into the markets along with uncertainty? We all know the market runs better when the outlook has a sense of clarity and hope. The news from Europe, China and Latin America relative to GDP and economic growth raised doubt about what most had perceivedĀ in relationship toĀ the outlook. Thus, the data not matching expectations was met with some selling. On Wednesday the focus shifted back to the US market reports and they were positive. The ADP jobs data was in line with expectations and the hope of a good or positive jobs report on Friday is again the focus of the investor. This is where I started my comments on the week… the catalyst for investors could lie in the jobs report. Thus, all eyes shift to Friday and hopes of the US economy carrying the day. The irony in that comment for me is that Brazil fell nearly 4% on 2.7% GDP data Tuesday, and the market wants to rally on the US growth rate at essentially the same level? It doesn’t have to make sense, it just has to make money?

As we finish the week my focus is shifting to what can or will make a difference in the outcome short term. The first is banks. KBE, SPDR KBW Bank ETF fell below support at $21.80 on Tuesday, but pushed back above that level on Wednesday. This remains a sector that needs to provide leadership for the broad markets. This isĀ a stock pickers sector and we continue to watch WFC, BAC and C as the key leaders in the banks. The regional banks (KRE) are equally important to the sector overall, but have shown more weakness of late than the big banks. Brokers (IAI) have been looking better, but the best of the group are the smaller regional brokers and JP Morgan. Watch how this plays out going forward.

The second difference maker is the technical data has to strengthen for the broad markets to regainĀ it’s mojo. The Russell Small Cap index broke support and turned negative on the charts. The leadership from the sector has been key in the advance of the broad markets and a reversal back to the upside would send a strong message from investors relative to confidence and the risk trade. Semiconductors are equally in the same position relative to the chart and the turn lower techncially. Watch for both sectors to put in a near term low and work back towards the previus uptends.

Transportation is a sector that has lagged as a leading indicator for the broad markest as well. The chart of the transport stocks has changed diretions to the downside topping in February. Thus, some strength is needed in the sector overall to show confidence for the broad markets.

Apple is a stock to watch as well relative to market leadership. Any shift in momentum towards the stock would spell trouble for the NASDAQ 100 index. The exess weighting of the stock to the index will have an impact on the downside equal to the lift it has provided on the upside. The release of the iPad 3 was met with a luke warm response by stock buyers. Today will be interesting to watch from the perspective of buying or selling on the news? The move higher has been in anticipation of this release and what it will provide in terms of revenue potential for the company.

Oil sold back neart the $104.50 mark and the 20 day moving average, which produced a bounce on Wednesday. I expect the price to test the highs near the $110 level again, but the question mark with oil is more the consumer impact than the sectors investment opportunity. There have been many attempts to write this off and rationalize the outcome relative to the consumer, but it does and is having an impact. Watch how this unfolds both fundamentally for the sector, but also the effect on growth going forward for the US economy.

Overall the technical damage done is minor. The ability to repair the confidence can be done. The first step towards the reversal short term is the jobs report on Friday. Be patient and let the data give you the all clear signal. Be disciplined and don’t force trades on assumptions. The trend is your friend and the trend is in transition, looking for the data points to resume the upside or make a reversal.