Investors Losing Confidence and Support Breaks Loom Big

Tough day for investors emotionally more than financially! The downside reversed early morning as it attempted to work its way back toward breakeven on the day. The end result was a 0.5% give up across the market, but still attempting to hold on to the next support levels. The key take away this week has been rising volume on the selling. In other words, we are seeing the selling accelerate, but to the point it is excessively damaging.

Support held at the 1330 level for the S&P 500 (1325 intraday low), NASDAQ failed to hold the 2900 mark and tested 2837 intraday, and the Dow tested below 12,500 intraday. In the end not pretty relative to intraday lows, and that raises plenty of questions relative to the downside near term.

Financials and technology continue to lead the downside off nearly 1% on both sectors today.

Keep your discipline intact as the market remain questionable. The outlook is what is tripping investors currently!

Sectors-to-Watch:

The lack of perceived options from the Fed Minutes was hanging over the markets again today, and the cry for stimulus continues. The news from Wednesday continued to hurt the sentiment and send more investors to the sidelines or in bonds. The yield on the 10 year bond fell to 1.47%. Thus, IEF closed above $109 on the day as a result of the demand. The dollar continued higher as well on the day. The buck is hitting against the high as resistance and the fixed income sector remains a favorable resting place for money short term.

Jobless claims were the bright spot of the morning moving down to 350,000 the lowest level in four years. Import prices fell as well on the lower cost of crude. The data was positive, but the concerns relative to the Fed were bigger on the day.

The negative twist in the market continues as investors attempt to determine short term direction.

Positive – XLV, XLU, XLP, IYZ

Negative – XLF, XLE, XLY, XLK, XLB, XLI

News is driving as earnings start to ramp up this week.

Volatility Index – The index closed at 18.3 up slightly on the day. Watch for the index to flatten if the market continues to push higher or move sideways quietly. Watch to see if VXX comes back into play on the volatility, if not β€” back to SVXY, $90.70 support tested again?

WATCH: SVXY if positive sentiment returns OR VXX is the play if volatility picks up.

Dollar – Heading higher against the euro for now. Bounced off support and back to the top of the trading range. Today it hit a new high on the close.

WATCH: UUP – Support is at the $22.40 level. Watch resistance the $23 mark. (Closed above that level on Thursday)

Treasury Bonds – The yield is 1.5% on the ten year bond. The economic data sent the bond higher and yield lower last week and the trend has continued this week. The fear factor support was 1.56% short term and we broke that level on Friday, followed through on Monday an took the trade is IEF.

WATCH: IEF – $108.80 (HIT ENTRY ON MONDAY) Stop at $108.30 for now.

S&P 500 Index – Test lower today, but the 1330 level is the one to hold. Don’t assume anything and let this all unfold one day at a time. Shaping up to be a test of the 1300 level short term.

WATCH: SPY – $132.50 Support? Tested today and worth watching if break lower short plays?

NASDAQ Index – More aggressive selling due to the technology sector. Watch the support at 2860 to hold. It flirted with breaking today with intraday low at 2837. The semiconductors are weighing down the index short term. They broke support at 362 Wednesday and tested 352 support today which is the June 4th low.

WATCH: QQQ – Testing the next level of support near $62.25

Small Cap Russell 2000 Index – Broke support at $79.60 with IWM. Now we look for support or a retest of the $78.30 mark (held today after spike lower early). Watch for support to develop before taking any positions.

WATCH: IWM – Support at the $78.30 mark to hold?

Financials – XLF broke $14.40 support on Tuesday and followed with move lower today. The sector is breaking the uptrend off the June lows and testing support. Our stops are in play as well on our new positions in the sector.

WATCH: XLF – $14.25 entry. Stop at $14.25. (HIT ON THURSDAY)

Energy – The jump off the lows were the result of geopolitical issues in Iran. Thus, we now have a premium built into the sector based on fear. Demand will be the ultimate deciding vote in time. The inventory data Wednesday was responsible for another bounce higher. Thus, the assumption is demand is rising? No, the drop in supply has to be validated and confusion is in control of direction. Watch the price of crude and other energy related commodities.

WATCH: XLE – Test of $65.50 failed and now looking to hold the $64.75 (accomplished last two days) for any trade opportunity. Negative sentiment is starting to shift and the upside could come back into play. Break back above $66.40 would be of interest short term.

Commodities:

Crude is above the breakout level on OIL at $20.75 ($21 close). Watch Gasoline was up slightly on the day and holding near $51.20 on UGA. Watch Natural Gas gained 1% and back to attempting to break higher above $20 on UNG. Watch Agriculture Soft Commodities are moving higher. Corn and other commodities see some profit taking, but still testing the recent highs. Gold bounced following the test lower on GLD. $148.50 is support. Watch Mining stocks fell 5% the last three days. Getting ugly as it breaks support.

Global Markets:

China (FXI) fell and broke through support again at $32.40. Import data was a disappointment. FXP is the play again with move above $30.20. Europe (IEV) broke support near $32.80 on the day. Watch the downside short term. EPV may become opportunity. Other countries are setting up to move lower as we scan the country ETFs. Watch. Turkey (TUR) remains near the high. Break above $53.10 could get interesting for trade.

What I am watching now?

Earnings have already started and the outlook is hopeful. However, hope is not an investment strategy and we have to be prepared for the worst. 85 of the S&P 500 index stocks have already warned or adjusted earnings for Q2. With the negative sentiment building you have to wonder if it isn’t better to be a contrarian as the announcements begin. Only time will tell, but the negative sentiment could set up some buying opportunities.

The break of support on Thursday is pushing the downside into play. The banking sector news tomorrow from JPM and WFC will play large into how this plays out on the last day of trading. Watch the morning news from both and the reaction.

Energy stocks and commodities rally back on news and inventory data. in the crude oil sector today. Watch the reversal higher short term.

Semiconductors are down again on Wednesday. They broke support at 362 on he index and the weakness in the growth sector remains. SMH broke support at $30.60. Watch for follow through tomorrow and potential downside plays in the sector. SSG is the ETF to play, but there is no volume in the fund. SOXL has volume, but it is the 3X short play. The best play is to short SMH by borrowing the shares. Let the play develop first and use discipline.

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.