Trading Notes for Today – May 7th

The broad market indexes continue their move higher. Nothing has change except the perception of change. Investors believe the second half of the year will be better relative to growth than the first half. That belief is pushing stocks higher. Eventually belief and reality meet. That is when valuations will be adjusted. The anxiety of worrying about the downside risk is as much of a challenge as being overly optimistic about the upside. Striking a balance and trusting your strategy is the key. Part of any good strategy is a defined entry process, risk management during the holding period and a clear exit strategy to protect your money  With that firmly in place you can deal with just about anything the market throws at you.

Apple lead the NASDAQ 100 index higher moving to  $460 and above the downtrend line of the February high. The stock has gained nearly 18% since hitting the low on April 19th. Target remains $475 near term.

Bank of America was up 5.2% leading the banking stocks and posted a new closing high. The settlement with MBIA helped both companies surge higher. The more certainty that builds with BAC from all the settlements the better the stock will perform. If you can stomach volatility this is still an undervalued large bank stock.

Netflix (NFLX) tested lower on Monday and is ready to fill the gap on the break higher from earnings. I wouldn’t expect much more downside than $196, but is set up to follow through on the downside short term.

Sector Moves of Note:

  1. S&P 500 index the move to 1615 on Monday in a dull day of trading. Test back towards the $160 that holds would be of interest for upside trade.
  2. Gold was unchanged at the $142 level on GLD.  If we move through the $143.50 (GLD) level the upside will continue. However, GLL could still develop into the play if gold fails to break to the upside. Watch the sentiment towards gold as an indicator.
  3. Oil is challenging the top side resistance and could test lower barring any more geopolitical issues in Middle East. The move higher has been a catalyst for XLE, IEZ and XOP. Stocks have been positive on the upside and XLE attempting to break above $80.
  4. Utilities are seeing some rotation from the sector the last few trading days. Trading at support of $40.35 mark on XLU. The stop on the position is close. You can exit the position or hedge the downside risk currently if you want to hold longer term. An adjustment of the stop the next level of support adds just over 1% additional downside risk.
  5. China held the move from Friday, but not overly convincing on Monday. $38 entry on FXI?
  6. Bonds continue to struggle as yields are rising and prices are dropping. Added TBF to the Sector Rotation.
  7. Pattern Breakouts – 1) ¬†XHB – homebuilders broke above $30.55 resistance Friday and held Monday. Scanning the ETF holdings for opportunities turns up… 2) ¬†LOW – break from descending triangle and confirmed upside move. 3) ¬†LL – attempting to break higher from flag patter on gap higher two weeks ago. 4) ¬†HD – broke above consolidation near high on Monday. 5) ¬†PHM – cleared resistance above $21.70 6) AAN, LII, WHR, LEN, MAS, MHK, LEG, TPX are all consolidation patterns at the breakout point. This sector continues to be one of the leaders currently.

Market worked on digesting the move from Friday. Still not a big believer in the upside, but willing to take what the market gives as we have added some trading positions to the models. Watch, manage and protect your money as this unfolds.