Market coast sideways heading towards jobs report

Thursday – Notes & Research

No big changes relative to the major indexes today as they ended in positive territory. 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 $91.42 up 1% on the day. 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 the day. I still like oil on the upside off support short term. This is setting up a trading opportunity that was posted on the Notes this morning along with the two trade opportunities on ONLY ETF Watch List. 
  2. 17 Banks passed the stress test… Good news right? It was for today. KBE broke above resistance and hit a new high on the day. The move is an acceleration of the uptrend and keeps the banks and financials in play for now. KRE established a new high as well showing further upside short term. CIT, FHN, BAC, KEY, RF, HBAN, JPM, WFC, ZION and BBT all made solid moves to the upside with most hitting new highs.
  3. Currency showed the dollar turning lower and the yen moving lower again. The euro bounced on the ECB data and that is shifting to the top of our watch list relative to the trend reversal on a micro timeline.
  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.
  5. Interest rates are rising again showing the renewed confidence in terms of the equity market. This has brought the short play back to the forefront with TBT.

Tomorrow is jobs Friday. The news will be out prior to the open and that will likely set the tone for the markets trading day. I am looking for a optimistic report! If not, hopefully not one that is disappointing to investors. Maintain your focus and your discipline.

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:

  • Major indexes essentially unchanged on the day. Good day to digest the upside move and keep looking forward not backwards.
  • 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 DJ US Telecom index has pulled back, but the defensive nature of the stocks offers some opportunities at the stock level. We have been tracking both AT&T and Verizon as a dividend/growth idea.

  • WATCH: T – Break above resistance at $35.65 is attractive on the upside, plus the 5.1% dividend.
  • WATCH: VZ – Looks just like T on the consolidation and resistance $42.85, plus the 4.6% dividend. The stock has broken above resistance at the $44.80 level and moved higher.
  • Both stocks have moved higher with VZ showing the strongest move. Watch the risk of the trade.

Technology РThe trading range remains in play and holding support. XLK broke above the $30 level and held. The entry point was hit on XLK and IGV. FDN and SOXX are both in position to move higher as well.

  • WATCH: GOOG – some consolidation at the high. Watch for move higher short term. Got the move Monday to break higher and has continued to do so. Raise your stops to $810.
  • WATCH: HPQ – in our model and moved higher on earnings. Raise stop and manage the risk of the trade short term. The test of support at $19 held and has now continued higher.
  • WATCH: SOXX – the semiconductors need to lead the sector. $57.30 support needs to hold. Moving back towards the current high. Solid gains on Tuesday… look for follow through.

Financials РStruggled of late to hold support and maintain the current uptrend, but it has now made it to the previous high with banks ready to break higher. KBE, KRE, IAI, KIE all are ready or did eclipse the February highs short term. Watch and manage your risk.

  • WATCH: KBE – banks are being driven by those with extensions into the brokerage business. BAC, C, MS, JPM and GS. Attempting to bounce back, but still have to watch how it plays out short term.
  • WATCH: IAI – sub-sector play on the brokers.

Energy РThe sector remains under pressure from the decline in crude oil prices. The stronger dollar along with increases supply and storage has been the biggest detractor to the sector overall. XLE tested lower and we are looking for upside opportunity to return if the prices settle. Moving above the $78.20 resistance for now.

Basic Materials РMoved back to resistance at $39.15. As seen on the rotation chart above the gains to the upside have accelerated above the others and the sector is the leader of the Feb. 25th low. Watch for the sector to clear resistance and offer some upside opportunity.

2) Currency:

Sector Watch:

  • The currency landscape is shifting short term to dollar strength. Watch UUP as it tests support near the $22.35 mark currently. Upside remains in play with big test today.
  • FXB – the British Pound dropped to $150.50 support level and failed Friday to hold. Small bounce on Monday and Tuesday… could offer some upside play… no, back to selling on Wednesday.
  • FXC – the Canadian Dollar continued lower as well heading towards support at $95.35.
  • FXY – yen is still in bottoming mode. hit new low today!
  • FXA – Australian dollar bouncing as equities continue higher in the country.

Tracking Currency of Interest:

US Dollar РThe buck rallied in uptrend and held as it closed at $22.36. Watch support at $22.20 level, if it breaks look for the exits. hold for now.

Euro РThe euro (FXE) Broke support at $129.50 and moved lower? The bounce today came from the ECB news on rates holding steady. Watch to see if this move last or move lower still?

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 = 3.2% – up 6 basis points — ¬†TLT = $115.96 down 90 cents
  • 10 Year Yield = 1.99% – up 6 basis points — IEF = $106.19 down 41 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.

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 РLQD = 3.8% yield. The price has found short term support ($118.90). The move above $120 has reversed on the move higher in rates. Setting up for another test of support.

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:

  • UNG (natural gas) Tested the move higher. Watch the upside for potential trade?¬†WATCH: 19.65 Entry. Ht the entry point today. looking for confirmation tomorrow to trade. SEE ONLYETF Watch List
  • PALL – Bounce off support and potential trade.¬†WATCH: 73.60 Entry. Gapped above entry – Watch
  • Crude tested support at $90 on Friday and closed at $91.02 Tuesday. moved to $89.50 on test lower Wednesday. You guessed it $91.55 on Thursday. Establishing a move off the low as seen in chart below. Adding to the ONLYETF Watch List¬†– Hit entry on UCO.
  • The break in Crude goes with the Note posted today on Gasoline. The two trades to watch were UGA and UCO.

Commodities Rotation Chart:

Commodity

Tracking Commodities Sectors of Interest:

BAL РA trading range of $52.80-54.40 is in play. A break higher would be a continuation of the move off the November lows. Stalled and trading sideways. Watch and see it this can break higher. Tested lower again on Monday and back near the high on Wednesday? Thursday closed at the break out point watch for trade going forward. Confirmation to the break from consolidation last week. Testing off the high today raise your stops.

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. Holds look for trade above $61 (volume has dried up use limit orders only/AON) Got the trade opportunity on Tuesday on the upside. Test on Wednesday with the selling. Willing to wait for a clear bottom and opportunity on the upside or downside. (Entry Point $62.20)

5) Global Markets:

Sector Watch:

  • 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. Exercise some patience here as this plays out going forward.
  • 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 running for now.
  • 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 to this point. Patience for the trade to develop. Moved back to resistance at the $59.10 level. Watch and trade accordingly.

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.