Market Closes Week on High Note

Friday – Notes & Research

Who knew that 165,000 new jobs was strong growth? The headlines this morning were giddy over the number? Better than expected, but far from strong, and far from the type of jobs that will grow the economy. Whatever… buy stocks. I remember in 1999 thinking the very same things I am thinking now… The fundamentals don’t support the prices. That was after Allen Greenspan flooded the market with excess capital to avoid any issues with Y2K. The money made its way into the equity markets and then in March of 2000 the Fed started withdrawing the money and splat went equities. You just have to ride the horse no matter how fast it wants to run out of the gate. When its over get off.

We will dig in and determine the strength of Friday’s move to new highs and what the opportunities are going forward.

Sector Moves of Note:

  1. S&P 500 index pushed broke above¬†the previous high of 1598 and closed at 1615. Jobs report¬†fictitious or not¬†was the catalyst as we discussed last night. 165,000 new jobs added 1.2% upside to the market? Absolutely… why not. We gapped above the $160 entry on SPY with an open of $161.25. Still watching to see if this move holds and gain momentum next week.
  2. NASDAQ 100 index acted similarly with a gap open to $71.97. Passed on the buy as well. The gain put more pressure on the index to perform. Raise your stop to $70.70 and see how it trade next week.
  3. Gold has stalled at the $142 level on GLD. $1475 resistance in play and 1430 support will be the¬†trade target on the downside if we don’t clear resistance. If we move through the $143.50¬†(GLD) level the¬†upside play will be the call.
  4. Oil became the speculation play of the week pushing crude back above $95 per barrel. No clear reason to have attained this level, but we will look for the downside play heading into next week.
  5. Global markets are move in step with the US as EFA, IEV and EEM all move higher. Downside risk is greater with no reason for the stocks to have moved higher. Watch your downside risk in the global markets.
  6. Small caps (IWM) join the new high party. The sector has struggled the last six weeks to make any upside progress, but that ended with the gain of nearly 2% on Friday.
  7. Pattern Set Ups to watch Friday: 1) ¬†GOOG ‚Äď test of the break above $812 ($821 was entry) Watch today for test and move. (no test, but plenty of upside on the move) ¬†2) EXAR ‚Äď Semi broke from trading range (no test, but move higher) 3) ¬†NFLX ‚Äď Continuation from the consolidation on the break higher.(No¬†interested in moving)¬†¬†4) ¬†KORS ‚Äď Double bottom breakout ¬†(nice move through resistance today for entry)¬† 5) ¬†AMZN ‚Äď Broke from trading range lower, back to bottom of range, look for move back into the range and run to the high $276. (made move through resistance.)

Next week is put up or shut up week for the markets as they broke higher and need to find the buyers to continue to carry the uptrend.

Economic Data:

Jobs Report is better than expected at 165,000 new jobs added in April. From there the controversy started relative to the number reported. Was the report good or really bad? The markets though good writers and analyst thought differently. Links below to a couple of interesting articles.

Dark Side to Jobs Report

US Economy Creates 165,000 jobs in April

Unemployment rate dropped to 7.5%. Plenty of discussion on that drop as well.

ISM Services data reported 53.1% and lower than estimates and well off the 54.4% pace in March.

Economic Events & Calendar 

1) US Equities:

Each test of the high has meet with some selling or resistance. The dip on Wednesday brought out the buyers in force this time. Friday¬†added to the gains on Thursday and keeps everyone on edge about the progress. The upside remains in play and the data is not overwhelmingly positive by any stretch, but investors and traders are taking what they get and generating upside to the market. You have to roll with and keep your stops reasonable. Some downside options on SPX or NDX wouldn’t hurt as a hedge looking forward. This is the nose bleed section and you want to keep handkerchief nearby, just in case.

The April 11th chart below starts on the high as a potential pivot point lower, but failed on the downside with a bounce on April 18th low (vertical line) and created the current micro trend higher. Leaders remain telecom, utilities and a recent move up from technology, financials, and consumer discretionary. The energy industrials and materials have pushed off the recent lows. from technology. Energy made a solid move off its low on April 17th. Still need upside confirmation to the move Friday.

Scatter 411

Sector Rotation Strategy: 

The February 25th low pivot point remains in play relative to the trend. However, the volatility of the sideways trading is showing in the chart starting on April 11th, thus the chart above. Uptrend still in play, but the continued test leave plenty to worry about.

Scatter 225

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback chart below. The trend has continued to push higher. The trend remains higher, but the short term volatility is picking up. Watch the downside risk and protect your gains appropriately.

Scatter 225

November 15th Pivot Point is the start of the current uptrend. Target 1550-1575 was attained and now there is pressure to test the move. The trend has overcome two attempted moves lower to maintain the uptrend. Watch the trendline as the support on the current pullback. A break of the uptrend brings downside options back into play for the short term.

SP500Scatter

Sector Rotation of Interest:

Technology (XLK) –¬†Break above the $30 level again was the entry point and it has followed through nicely on the upside. Getting extended and we need to protect the downside.¬†Target¬†remains $31.65.

Consumer Staples (XLP) Рthe downside relative to earnings and warnings from the big cap stocks is and remains a concern. Even with the solid gains on the week for broad index, the sector struggled. Keep your stop tight and watch how the trend plays out next week.

Healthcare (XLV) Рthe biotech stall from earnings weighed on the sector. $46.80 support level held and solid bounce to end the week. Protecting the gain is the priority. Keep stops at the $46.80 mark and let it go for now.

Energy (XLE) РMoved back above the $78.25 level, but still has to conquer the $80 mark. All positive for now, but watching the downside risk. The price of crude jumping back near the $95 mark has helped the push higher this week.

Telecom (IYZ) РMoving higher, but consolidating near the high. Still like the uptrend here and if we can move above the $26.90 level it would be a big positive for the sector going forward. consolidating. $26.10 remains the exit point.

2) Currency:

Since the high on March 27th the dollar has essentially moved sideways to down. Starting April 23rd the dollar steadily declined. The chart below shows the path of the dollar almost sideways. At the same time the euro (FXE), the yen (FCY), the Krona (FXS) and the Canadian dollar (FXC) have all started to move higher. Looking for a trend to develop short term. No trend worth owning at this point.

Currency

Sector Watch:

  • FXE¬†– ¬†The euro is attempting to provide some upside leadership short term. FXE $130.75 trade entry.¬†$128.50 trade¬†exit.

3) Fixed Income:

Sector Summary:

  • 30 Year Yield = 2.82% – ¬†down 2 basis points — ¬†TLT = $123.85 down 16 cents
  • 10 Year Yield = 1.63% – ¬†not change — IEF = $109.05 unchanged

Tracking Bond Sectors of Interest:

Treasury Bonds¬†–¬†Yields on the 30 year Treasury¬†was falling again as money rotated towards the bonds. There are concerns, but also money flow into the US Treasury bonds from the international markets looking for safety and yields. Watch as this continues to be a leading indicator for equities. Friday relieved some of the pressure¬†with yields rising and prices declining.

High Yield Bonds РHYG = 6.5% yield. Support remains at $92.75. Move back above the previous highs at the $95 level. Manage the position for the dividend as the growth side is uncertain short term. Use $92.75 as the stop ($95.20 short term trades). The risk is rising with each step the fund takes. The spread to treasury bonds continues to shrink and the risk/reward is high. Reversed the selling on Wednesday with buying on Thursday.

Corporate Bonds РLQD = 3.6% yield.  They jump higher again this week as money finds its way to bonds. Use stop at the $120.50 level to protect the upside gains. Otherwise keep collecting the dividend.

Municipal Bonds РMUB = 2.8% tax-free yield. Moving back in an uptrend ever so gradually. Collect your dividends and let it ride for now. Still climbing steadily.

Convertible Bonds РCWB = 3.6% yield. Price had been moving higher on the rally in stocks. Broke to a new high and steady as she goes. Keep and practice dividend collection.

4) Commodities –¬†Sector Summary:

  • Commodity Index¬†(DBC) – Moved back to resistance at $26.50. Need a break higher to play the sector overall.
  • Natural Gas¬†– (UNG) posted a big loss on Thursday… down 6.2% as oil climbed more than 3%. $21.17 support. No play currently. Watching for support to catch.
  • Crude Oil¬†– (OIL) Crude moved up 3.3%¬†Thursday reversing the selling earlier in the week. Move above $22 on OIL is of interest. Gapped to $22.10 passed. This has moved on speculation and the downside will be the next opportunity. Crude¬†above $95? NOT!
  • Gold –¬†(GLD) Fill the gap was the plan and it is¬†still working on the plan. Downside is where I am looking with GLL. Willing to wait and le the play develop for now.
  • Gasoline – (UGA) Resistance is at $56. Worth a trade on a break high if crude holds these levels.

Commodities Rotation Chart:

I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point. 1) UNG Рdumped lower the last four days. short? 2)  DBB accelerated off the low? $17.25 entry level for trade. 3)  JJC Рcopper jumped on positive economic data. 4)  OIL -jumped on economic data. 5)  UGA РGasoline moved with oil finally? This is getting interesting for some short term trades posted above.

Commodity

DBC РPowerShares Commodity Index ETF (click to view) Composite of 14 commodities tracking index.

5) Global Markets:  

Global markets are trading in tandem with the US. No reason to be moving higher, but content to do so. China, Europe and Australia have taken on the leadership since the 18th of April. Watch and take what the market gives. Today they traded higher with the US markets. EFA broke higher in tandem with the US markets. Sweden (EWD), Germany (EWG) and France (EWQ) are leading the country ETFs higher.

Global Mkt

EFA РiShares EAFE Index ETF (click to view) 10 Developed Countries making up Europe (66.6%), Australia (8.9%) and Far East (24.5%). (Weighting of fund) Not most balanced, but give indication of global markets.

Country Watch:

  • Most of the country charts are starting to group together. They are tracking along with the US markets of late. EFA is a good barometer for trading the developed markets and VWO for the emerging markets.

6) Real Estate (REITS):

Real Estate Index (REITS) РThe sector continues in the uptrend overall. My rating is a HOLD currently.

Sector Summary:

  • IYR – Support is $70.50 and our stop is at the same level. Still moving up gradually and we continue to hold and collect our dividend as well.
  • This weeks scan of IYR has turned up… 1)¬† JOE – building a base and looks ready to break the downtrend. 2)¬† FCH – trading range near the high. Look for continuation of the uptrend. 3)¬† JLL – sideways consolidation with resistance at $100. 4)¬† RYN – consolidation near the high move above $59.75.¬†5)¬† VNO – consolidation near the high $88 breakout level. 6)¬† BMR – consolidation near the high $22.70 breakout above resistance.
  • REM – Mortgage REIT continue to struggle.¬†The downside remains a concern and we continue to look for the opportunities, but not interested currently in owning the sector.
  • RWO – SPDR Global Real Estate ETF is in a positive uptrend and hit a new high. Manage your stops accordingly.
  • MDIV – First Trust Multi- Asset Income ETF is a good alternative to picking through all the choices of income funds. This multi-assets income fund pays a 5% dividend.

7) Global Fixed Income:

Sector Summary: Making another move to the upside short term.

  • There are some funds moving in favorable direction of late.
  • PAFCX – Bounced off low with the movement in yields going lower. Holds $11.60 worth owning short term. The bounce remains in an uptrend and the dividend is the play.
  • PICB – hit support traded sideways and broke higher. Entry $28.95 + 3.1% dividend. The upside previous high is now in play. Watch and adjust your stop to $29.15
  • EMB – Big recovery and interesting in watching. 4.3% dividend yield. Entry $120.25. Breaking higher following the consolidation adjust your stop to $120.50 and go forward collecting the dividend.
  • PCY – Big recovery as well off the low for short term play. Entry $30.60. 4.8% dividend yield. Breaking higher as well. Raise stop to $30.70 and collect the dividend.

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 losse