Thursday – Notes & Research
Markets open on the plus side as jobless claims and housing starts give something to cheer about. Housing starts were the highest in four years and up 37% year-over-year. Evidently land is becoming a issue for builders whom in a survey showed 40% responding that land supply was low. Thus, the good news in housing is one many have been waiting for for years! XHB, SPDR Homebuilders ETF was up 1.4% as a result. Jobless claims fell 37,000 to 335,000 which is a big drop from last week. The question due to the size of the drop, is will the data remain for just move back near the 370,000 mark next week? Worth watching as January unfolds.
Semiconductors were up 2% to lead technology higher. As stated in the video update last night the upside is in play. XLK was up only 0.4% as networking, internet and software were lackluster on the day. Watch the Intel earnings, stated a sharp slump in PC sales (big shock) and demand. There report beat on earnings and was in line with revenue. The stock is down 3.1% in after-market trading. While not a surprise the reality may have a ripple effect to other companies, i.e. Dell.
The issues in Allgeria continue push crude oil higher as we moved through the $95 level today. The hostage situation has shut down production and the political issues are starting to heat up as questions rise relative to the stability of Allgeria’s government. This only adds to the risk-premium due to the middle East and North Africa. Eventually this will impact the consumer if oil continues to rise back towards the $100 level.
Bank of America still managed to make three cents per share after all the settlements totaling in the billions. Most traders today saw the glass as half-empty… I would like to think it is actually half-full. They are improving the balance sheet and the profitability of the their core business. The challenge remains the settlements not sitting well with investors.
Bonds are coming under pressure again. The yield on the 10 year Treasury bond was up five basis points to 1.87% today. IEF, iShares 7-10 year Treasury Bond ETF fell 0.46% as result. The bond sector is under pressure as interest rates have been pushing higher since the low in broad stock market in November. LQD shows the impact on the investment grade corporate bond sector. This could prompt a move from bonds to stocks going forward. Either way, we need to watch how this unfolds short term.
1) US Equities:
The index finally made a move above 1475, but there are still plenty of questions circling the index. Economic data, earnings and housing data combined to help the index move higher. Filtering through the sectors of the index we find Financials (XLF) holding above $17 level as large banks struggle. Regional banks moved higher, thus the offset in the sector. Healthcare (XLV) broke to a new high closing above the $41.60 and finally made a follow through move on Thursday Industrials (XLI) pushed back to a new high and followed through. Basic Materials (XLB) closed at a new high, but still needs to follow through on the upside. Technology (XLK) moved back to support at the 200 day moving average on Apple’s gains. Bottom line… uptrend remains in play and is working its way higher. There is still uncertainty in the markets, but the push higher at least starts the next leg higher.
The chart below has a starting point of 11/15 which was the pivot point for the current uptrend. Still moving sideways, but got a push on the upside bias on the chart and still attempting to make a move towards the goal.
The chart below is the 28th of December starting point looking for current leadership on the renewed push higher. Materials, financials, healthcare, consumer services and industrials are the leaders for the broad index. Energy (XLE) and XLP, consumer staples have made upside moves of late to join the party. Tech, Telecom and Utilities are the laggards with positive moves on Thursday.
The VIX index remains at the lows near 13.50. No signs of anxiety yet.
Click on link above to see the S&P 500 Mode Watch List and Model
Tracking the Indexes and Sectors of Interest:
NASDAQ Index – The index cleared 3110 and made a positive move on Thursday to 3142. The move is holding above 3120 for now with the upside in play. Apple is putting pressure on the index, but has settled for now. Be patient to see who this plays out short term.
Dow Jones 30 Index – 13,440 level on the upside was a positive. Watch for confirmation of the move higher (Got that today with move to previous high at 13,620). DIA is worth a trade if the index continues to gain momentum.
Small Caps jumped 1.2% as they continue to be the leader for the broad markets. and Midcap Indexes showed equal moves gaining 1% to assist on the upside after holding support similar to the other major indexes. Weigh out the risk factor of buying at these levels currently or continuing to hold existing positions.
Financials – XLF held above $17 as Bank of America rattles investor confidence in the sector. The numbers are being made out as bad relative to the settlement payments. That said… they continue to make money. KBE tested lower, but watch for the opportunity to add to positions. KRE broke higher as regional banks make good. One day at a time as we move through earnings on the financials. Closed at $17.16.
We still have to protect against the downside if the news is bad from investor response the balance of the week, but the upside plays are setting up nicely. I would still take the selling as a opportunity to add to positions with a longer term focus. Be disciplined.
Basic Materials – XLB hit a new high and remains one of the leaders. This remains one of the leading sectors on the upside. Watch for any adjustments short term.
Retail – this has been a mixed bag, but Tuesday the Retail Sales Data for December was better than expected and the sector made a move higher from the consolidation range. XRT had pulled back after threatening to break from the trading range, but reversed on the news and is now above $64. The scans from the sector last week turned up some stocks worth watching. PSUN, WAG, CVS, URBN, SVU, TSCO, ANF. We added the position in the ONLY ETF Model today. Watch XLY as well as it continues to move to the upside.
US Dollar – The dollar made a bounce off the lows as the Fed minutes gave reason to believe that QE funding would stop. Thursday and Friday the dollar retreated to support at $21.70 on UUP. The test lower was a negative for the upside short term, but still watching to see how it plays out.
Euro – The euro was testing lower on the rally in the dollar, but that reversed on the dollar weakness and is now above the previous high. Let this play out on the upside. Could add to the position on the test of support at $131.50.
WATCH: FXE – $130.80 Entry. IN PLAY – Stop = $131
Japanese Yen – Has the yen found the near term low? FXY bounced off the $109.60 low and held for now? Watch to see if any opportunities develop in the yen.
3) Fixed Income:
Treasury Bonds – The yield on the 10 year held at 1.87% and the 30 year to 3.06%. The downside risk in Treasury bonds was in play, but they have regained their poise to bounce short term after holding $117.50 support on TLT. Still an upside opportunity in the bond short term. (SEE SECTOR WATCH LIST)
Big jump in the yield Thursday on the positive economic data. Watch the downside risk if this continues.
High Yield Bonds – Testing the highs and resistance near $94 on HYG, as the upside in stocks resume. Look for support holding at $92.75. Continued to creep higher on the week.
Corporate Bonds – LQD, iShares Investment Corporate Bond ETF is struggling to hold support near the $120.40 level. The downtrend started in October and has not settled yet at support. This is worth watching as a short opportunity as well as an indication of the risk being added by investors to portfolios.
The commodity sector continues to be a challenge relative to direction short term. Still a shot in the dark on some, but others are starting to shift and trend higher. Traders sector for now.
UNG – Natural Gas broke support and moved lower on January 2nd. On 1/10 the inventory data showed a drop in supply and the bottom was established. The good news finally pushed the price higher and it is now facing resistance again at the 200 and 50 day moving average? Winter demand remains mild which is why the downside had been in play. The follow through above $19.20 again brings the buyers out? Watch to see if this move holds as demand remains soft near term. (SEE ONLY ETF MODEL)
OIL – Oil has been stuck in trading range, but moved above the top end of the range at $93.50 last week. The political risk is rising again thanks to Allgeria. Still looking for clarity in trading relative to the price of crude, but for now the news is driving it higher. The upside is in play. ENTRY OIL is $21.70. (STOP $22) Gapped to $22.75 on Thursday. Raise stop to Breakeven $21.70. (SEE ONLY ETF MODEL)
UGA – Gasoline broke support at $58 and now looks to $56.80 as the next level to hold. ENTRY: $58 UGA
GLD – Since September 2011 Gold has not eclipsed any of it’s previous highs. GLD resistance is at $175. We tested $159 on GLD and the metal cannot make up its mind short term. The downtrend line was challenged today as the metal moved to $162.65. That clears the way to $165.50 and then up to $174 potentially. The entry for GLD is $163 on the close.
DBB – Base Metals broke support, bounced, and is back at that level again? No follow through on the upside for now. The downside is testing, but the upside remains the direction of choice if the metals find their way. Be patient and let this develop further.
Palladium (PALL) broke above the $69.50 high and heading higher. Platinum (PPLT) remain the better bets on the precious metal side. Platinum gapped higher on Monday and followed it again on Tuesday. The upside is running.
5) Global Markets:
The NASDAQ Global Market Index (NQGM) broke above 970 on the index and has moved to 1015. The global markets remains a positive among investors short term. Money flow into the country ETFs has improved along with the upside gain.
WATCH: EFA – The uptrend short term continues, following a small test short term the fund has moved back above the previous high. Stick with the uptrend play for now as it holds support.
WATCH: IEV – Europe continues to rally as investors believe the worst is over. Why? Simply put the backing of the EU and the ECB (similar to the Fed in the US in 2009). The confidence that there is a back stop has brought investors back to the table. Looking at the daily chart for the last year we can see the break above resistance and the trend higher remains in play. Upside target is $45.50 going forward.
WATCH: FXI – China has firmly established the uptrend off the November low. However, the volatility of the move has picked up on economic data from China. Watch as a consolidation pattern is building on the chart. Breaking above the pattern on Thursday? Watch to add to positions.
WATCH: EEM – Emerging markets have been doing well. The chart shows a consolidation pattern developing similar to FXI, but there are other single country ETFs doing well. EPHE, THD, EPU, EPI, TUR, EWW and others are worth watching. (Consolidation pattern breaking to the upside on Thursday)
6) Real Estate (REITS):
The sector broke support tested lower and then reversed along with the broad indexes. The fear generated by the fiscal cliff issues sent the sector lower. The reversal is worth trading as the cliff issues are resolved short term.
WATCH: IYR – Look for reasonable entry. $64.90. The break above $66.12 was the entry point of the move above resistance. Still moving higher short term. Watch for potential test of support in the move.
ENTRY $66.15, Stop $65.75
WATCH: REM, NLY & SJT – all three are in a position to break higher.
7) Global Fixed Income:
The sovereign debt issues are fading as the global outlook improves. Still plenty to be concerned about relative to growth, but the fixed income side is attractive for now. High yield bonds and corporate bonds are gaining momentum short term.
WATCH: Emerging market bonds (EMB) – Looking for support and an entry opportunity from the selling. Looking for a move above the $122.10 level for the entry.
WATCH: Emerging market Sovereign Debt (PCY) – Testing support near the $31 mark short term. Watch to see if this breaks lower or offers and entry on the bounce. Pays a 4.6% dividend as well.
WATCH: International High Yield Bonds (IHY) – Tested support at $25.75 and bounced and hit new high and still moving up. HOLD.
WATCH: PAFCX – bounced off support near the $11.66 mark. Holding within the trading range for now. HOLD.
WATCH: PICB – International Corporate bonds broke higher and they are testing the current high again. HOLD.
Watch and play according to your risk tolerance on any position taken. 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 risk will limit the downside losses.