Jobs report strong, but response was tempered

Friday – Notes & Research

Very interesting reaction to the Jobs Report on Friday. The initial move was higher, but then some selling and a rally back on the day. That is not a positive for the current upside in play. Watch and protect against the reversal short term, otherwise we continue to go with the trend. Scanning for rotation we did see some interesting developments on the day.

  1. Energy as a sector got a boost from crude oil inching higher to $91.85 to finish the week. Why the boost? The ECB/EU left rates and monetary policy unchanged which signaled that things are okay in Europe. That was at least the story on Thursday. I still like oil on the upside off support short term. We put trades into play on the commodities (Added two to the ONLYETF Model), the stocks we added XLE to the S&P 500 Model. We still have to manage the risk.
  2. 17 Banks passed the stress test… Good news right? It was for now. See Notes from Friday AM.
  3. Consumer Discretionary (XLY) made solid move to the upside today and leading the broad index.
  4. Emerging Markets are attempting to put in a bottom after some selling the last two months. The Developed markets are bouncing nicely as well after the scare produced in Europe. Added to ETF Watch List.
  5. Basic Materials (XLB) continue to climb back to the February highs. Industrials (XLI) added finally to the push higher on Friday as well.
  6. Telecom is slowly moving higher and moved above $24 on Friday. Added to the S&P 5oo Watch List.

It’s the weekend! We have plenty to review and scan to determine the strength of the move higher this week. Bottom line is it finds a way to continue higher, and you go with the trend. Rest up for next week it promises to be fun.

Economic Data:

Today the Jobless Claims and Chain Store Sales were released.

Economic Events & Calendar 

Click link for Calendar.

The jobs report is out tomorrow and will set the tone for the trading day.

1) US Equities:

Market Summary:

  • Dow continues to set new highs as the index advances. The Jobs Report gets credit for Friday’s move higher.
  • Short interest has fallen and margin percentage have risen. Not the best of signs for the buyers.

Sector Rotation Strategy: 

The February 25th low pivot point remains in play this week. The chart below shows the leadership from XLY accelerating to lead the move. XLB playing catch-up after some selling the last two weeks. , XLF regaining some leadership poise. XLU still accelerating higher XLK played into the leadership move on Tuesday. Looking for the upside to regain momentum if the uptrend is to hold short term. (FLAT on Wednesday and Thursday, but still watching the upside. Financials and Basic Materials remain in an upswing.)

SP500Scatter

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test. Watch the bounce of the newly minted low on 2/25. The index moved above the previous high in February erasing the downside move. See chart above for the leadership on this move.

Scatter1228

November 15th Pivot Point for current uptrend. Target 1550-1575. The uptrend off the November low remains in play. The trend has now overcome two attempted moves lower.

SP500Scatter

Tracking Sectors of Interest:

Telecom РThe sector has finally made a bounce off the low and is attempting to head back towards the February highs. Added to the S&P 500 Watch List for entry.

  • Verizon (VZ) and AT&T (T) are both still moving higher from last weeks post.

Technology РThe sector finally made a move above the top side of the trading range. XLK broke above the $30 level and held. The entry point was hit on XLK and IGV. Added to the Sector Rotation Model Portfolio.

  • Google (GOOG) and Hewlett Packard (HPQ) continue to set upside pace short term.

Financials РBanks pass the stress test on Thursday and give the sector a needed boost on the upside.

Energy РThe sector bounced off the low and is heading back towards the February highs. The stronger dollar has been the biggest detractor to the sector overall. Now inventory data is showing a record build of inventory. Despite all the bad implications XLE is making a move back toward the February highs.

  • Added XLE to the S&P 500 Model Portfolio.¬†

Basic Materials РMoved back to resistance at the February highs. As seen on the rotation chart above the gains to the upside have accelerated above the other sectors and it is one of the leader of the Feb. 25th low. Watch for the sector to clear resistance and offer some upside opportunity.

  • Added to the S&P 500 Model Watch List.¬†

Consumer Discretionary – Broke above the $51 resistance on XLY hitting the entry point. The consumers are leading the broader market indexes on the race to the top.

  • Added to the S&P 500 Model Portfolio.¬†

2) Currency:

Sector Watch:

  • Dollar remains in a uptrend despite the¬†constant¬†bashing of a¬†stronger¬†currency.
  • FXB – the British Pound dropped to $150.50 support level and has accelerated lower as a result.
  • FXC – the Canadian Dollar is attempting to hold support at $95.35.
  • FXY – yen is still in bottoming mode. ¬†Hit new low again today! (YCS)
  • FXA – Australian dollar bouncing as equities continue higher in the country. Bottoming watch.

Tracking Currency of Interest:

US Dollar РThe buck rallied in uptrend and held as it closed at $22.56. Watch support at $22.20 level, if it breaks look for the exits. hold for now. (UUP) long dollar play.

Euro¬†– The euro (FXE) Broke support at $129.50 and moved lower? The bounce on the ECB news Wednesday didn’t last and the sellers remain in control. Watch to see if this moves lower still? (EUO short the euro)

3) Fixed Income:

Sector Summary:

  • Yields continue are shifting slightly on the turmoil in stocks. ¬†The question is if the market corrects how much will it impact? We are in the process of finding out now.¬†
  • 30 Year Yield = 3.24% – up 4 basis points — ¬†TLT = $115.00 down 96 cents
  • 10 Year Yield = 2.05% – up 6 basis points — IEF = $105.73 down 46 cents

Tracking Bond Sectors of Interest:

Treasury Bonds РBounce reversing on confidence returning in equities. TBT has been the trade off the bounce in  rates higher. Watch near term resistance on TBT and support on TLT.

High Yield Bonds РHYG = 6.55% yield. Support held at $92.75. Let it run as investors remain in love with junk bonds. I expect the trading range to remain near term.

Corporate Bonds¬†– LQD = 3.8% yield. The price has found short term support ($118.90)… again. If we break lower being short is the opportunity.

Municipal Bonds РMUB = 2.8% tax-free yield. The price of the bonds broke the support at $111.30 mark on Thursday. Big negative for the bond and clear exit signal on the move.

Convertible Bonds РCWB = 3.6% yield. Price had been moving higher on the current rally in stocks. Hold for the ride and raise your stops.

4) Commodities:

Sector Watch:

  • The commodity sub-sectors are finding some signs of life.Watch and play the leadership.
  • UNG (natural gas) made the move higher. The trade entry point was hit. SEE¬†ONLYETF Model Porfolio
  • PALL – Accelerated higher again today and established a new high.
  • Crude tested support at $89.30 this week and closed at $91.85 on the week. The entry point was hit for crude and gasoline on Friday. ONLYETF Model Portfolio
  • The break in Crude goes with the¬†Note posted on Gasoline. The two trades to watch were UGA and UCO. Both have been added off the advance.

Commodities Rotation Chart:

Commodity

Tracking Commodities Sectors of Interest:

BAL РA trading range of $52.80-54.40 is in play. Cleared resistance at the upper end of the range at $54.40 and continues to move higher. Big start on Friday, but ended the day flat. Let it run and keep your stops at $54.50 or break-even.

UGA РTesting support at $60.50 Short play? Look for support and a bounce more than the short side.

WATCH: Testing support at $60.50. Hit entry point today and added to the model portfolio.

5) Global Markets:

Sector Watch:

  • EWW – Mexico broke higher today after test of support. Watch the upside follow through.
  • China remains a country of contradictions. Not willing to trade currently, but the volatility is due to the potential issues in the housing sector. FXI remains in a downtrend short term and support at $37.75. We did get a bounce off the support, but still needs to validate the move higher.
  • Europe bounced and held the last few days – that is the good news. Still looking for some positive momentum to lead the indexes higher. $40.25 resistance and $38.90 support.
  • Japan (EWJ) broke higher, tested, and continued to move higher. Got the move above $10.20 and still moving to the upsiede.
  • Australia (EWA) making a move higher the last week as well. Uptrend accelerating.

Tracking Global Sectors of Interest:

EFA РWatch $56.90 support to hold on the recent test. The long term uptrend remains in play and support has held and the fund has moved back to resistance at the $59.30 level. Watch and trade accordingly if it breaks to new high short term.

6) Real Estate (REITS):

Sector Summary:

  • Homebuilders bounced off support at $27. Watch to see if the upside remains after disappointing news in the housing sector. Housing remains in an uptrend despite the rumors.
  • REM – Mortgage REIT held $14.80 support. At the $15.23 resistance to move higher currently.¬†Attempted to break higher on Monday.
  • NLY- Annaly Capital Management finally broke above $15, and is testing¬†the¬†$15.20 support currently on the upside move.

Tracking Real Estate Sectors of Interest:

Real Estate Index (REITS) РThe pullback test is in play for IYR and $67.25 support held. The break higher above $68.50 was positive for the continuation of the uptrend.  Followed through on the upside. ADDED: Sector Rotation Model & S&P 500 Model.

7) Global Fixed Income:

Sector Summary:

  • The sovereign debt issues had faded, but with Spain in the news again, Italy facing disruptive elections this weekend, and France taxing itself out of existence, too many concerns and the safest play is to avoid the asset class for now.

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.