Market Continue Higher With NASDAQ 100

Monday – Notes & Research

The broad market indexes end the day higher, but the S&P 500 index struggled early in the trading day as the economic data and earnings disappointed. Existing home sales were lower than expected and that put some early selling pressure on the major indexes before reversing and gradually trading higher on the day.

Earnings were at the forefront to start the day, but Caterpillar missed and Halliburton beat on expectations. In the end however, CAT was up 2.8% bouncing off support at $79.50. HAL gained 5.5% helping lift the Oil services sector as well. Industrials were up slightly on the news and Energy gained 1% with oil services up 1.8% on the news. Watch to see how energy play tomorrow. If this is just a bounce then we will ignore any upside plays, but if it manages to follow through we will look for the leadership to take the sector higher.

Sector Moves of Note:

    1. Crude oil gained 1.1% on the day closing at $89.22 on the day. The volatility in the commodity remains, but the bounce off the low remains aft three trading days. Look for a trade if crude attempts to fill the gap lower. The higher prices along with Halliburton’s earnings result pushed the oil services (OIH) sector
      higher (+1.8%) on the day as well. After the strong selling last week this is a sector worth trading if the upside gains some momentum.
    2. Natural Gas continued to trade opposite of crude oil again today. The drop of 3.1% is a test of the break above the high at $23.12. Watch to see how it plays out, but a tight stop is advised from here.
    3. Gold gapped higher at the open and never really moved in either direction from there. The close at $1421 puts the metal back above the $1400 level and quiets the bears for now. The downside risk is still in play, but let the upside play out short term. Silver was up 0.9%, but remains near the lows and building a based short term.
    4. TAN – The Solar ETF jumped 5% today. SOL, WFR, CSUN and FSLR were the leaders within the ETF. This puts the fund back at resistance at the $18.12 mark, Watch to see how this plays out tomorrow.
    5. Transports are still showing some short term weakness, but have held support above the $104.70 level. The sector is a barometer for the economy going forward. Today the ETF (IYT)bounced back to the resistance at $107.50. Still tracking for now.
    6. Financials moved back above the $18.08 level after testing support at $17.80 last week. No momentum from banks, insurance or brokers today. Downside risk still applies here.
    7. VIX index fell back to 14 to start the week. The volatility is in a vacuum and any upside spike has been met with buyers on the other side to take the volatility out of the markets short term. SVXY was the trade today on the intraday bounce off the low in the S&P 500 index.

Europe is testing the support at $39 on IEV. EWI (Italy) was up 2.4% and a move above $12.70 could get¬†interesting¬†on a upside break above resistance. EWP (Spain) made a similar move, but at this point Italy looks better technically.¬†I am still scanning and digging into today’s activity. Earnings mixed… AGAIN! Yet, the buyers stepped into the technology large cap stocks with Microsoft and Intel leading the NASDAQ 100 higher. The balance of the market was mixed.

EACH MORNING I WILL POST AN UPDATE TO THE RESEARCH PAGE TITLED TRADING NOTES FOR TODAY! This is will take the evening notes and post what I am looking for in the trading day. They will be posted by 7 am to give you time to establish what you would like to do with the notes. .

Economic Data:

The exiting home sales were disappointing and again pointing to some slowing in the sector. We continue to watch the homebuilders (XHB) as they attempt to hold support. The new home sales are out tomorrow and that will have an impact on the sector.

Economic Events & Calendar 

1) US Equities:

The fundamentals are not supporting the charts plain and simple. That said, the deflationary activity of the data is impacting the markets on the upside. At some point this will all come together and the direction will be better defined than the last six weeks. We have maintained our three pivot points on the charts below until the uptrend off the November low is broken.

Sector Rotation Strategy: 

The February 25th low pivot point remains in play. However, the volatility of the sideways trading is making crazy. The index was at 1563 on August 14th and it closed at 1550 today.

Scatter 225

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback chart below. The trend has continued to push higher after the February 25th test. With today’s developments we have to protect against the downside and look to lock in gains if our positions are short term. Longer term holdings will be managed accordingly.

Scatter1228

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. The move on Monday now makes it four attempts to break lower. 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:

Semiconductors – held support and we are watching for a boost from the sector on the upside to continue to push technology stocks higher. Some rotation towards the growth sectors is needed if the index is are going to make another run higher. SMH is moving back to key resistance at $35.60. Watch to see if their is any gas left in the tank to run higher.

Consumer Staples continues to defy gravity and moves higher. The 10 day moving average is the trailing the uptrend for the sector and we hold and watch for now.

Utilities are in the same mode. Remember the current theme is deflation and that favors the defensive sectors. They continue in an uptrend and we maintain our positions with the trend.

Telecom is building a flag pattern off the vertical move higher. Hold and add to positions if we can clear the $26.10 level on IYZ.

The other seven sectors of the S&P 500 index are on the watch and see list.

2) Currency:

Sector Watch:

  • UUP¬†– The Dollar broke the support at $22.35 mark on the downside Tuesday and reversed on worries in Europe again. Still willing to watch and see how it holds up short term.
  • FXB¬†– the British Pound jumped two weeks ago, held¬†the¬†move at the $149 level. The currency is now in an uptrend off the low and moving through the current resistance at $151.50. Wednesday it sold back near the support at $150.50. For now we just have to be patient and let the pound work through the directional challenge it was facing. Took the entry on the move and the target is $152.50. $150.40 stop in place on the trade.
  • FXE¬†– ¬†The euro made gains on the week against the dollar and is in position to break higher. ¬†We were looking for an entry on the upside, but for now we will just watch to see how the short term volatility plays out.

3) Fixed Income:

Sector Summary:

  • 30 Year Yield = 2.88% – ¬†down 1 basis points — ¬†TLT = $122.92 up 9 cents
  • 10 Year Yield = 1.69% – down 1 basis points — IEF = $108.64 up 6 cents

Tracking Bond Sectors of Interest:

Treasury Bonds¬†–¬†Yields on the 30 year Treasury is finally flattening out. The economic data, flight to safety, or many other reasons have pushed money back into the bond short term. If the volatility in stocks returns look for more rotation into bonds short term. For now be patient and let this play out.

High Yield Bonds РHYG = 6.5% yield. Support remains at $92.75. Move back towards the previous highs near the $95 level. Manage the position for the dividend as the growth side is uncertain short term. I expect the trading range to remain near term. Use $92.75 as the stop. OR TBF to hedge your position when volatility picks up on the downside.

Corporate Bonds РLQD = 3.6% yield.  The jump higher was in response to the rotation of assets towards safety or defensive to the stock market. This is not likely a new trend for the bond, but it starting to act like one. Use stop at the $120.50 level to protect the upside gains.

Municipal Bonds РMUB = 2.8% tax-free yield. The price of the bonds found a bottom built a small base and produced a upside trade opportunity. Watch the current resistance at the $110 level. Moving back towards the resistance at the $111.50 mark. This is a tax-free dividend play with limited upside from growth.

Convertible Bonds РCWB = 3.6% yield. Price had been moving higher on the rally in stocks. Tested the highs last week and this week we are testing support? Trading range and dividend collection.

4) Commodities –¬†Sector Summary:

  • The¬†commodity index¬†continued holding above the $25.50 level with oil attempting to bounce and base metals testing lows again. The downside for the sector remains and until it defines support it doesn’t make sense. DBC broke support and attempting to build support closing at 25.79 today. ¬†Without any good news… the downside remained in play.
  • Natural Gas¬†– UNG fell 3% on Monday. For now the commodity is trending higher with the test of the big move from last week. Watch, manage your stops and let this play out.
  • Crude Oil¬†– Crude broke lower and is still looking to establish support. Small bounce on Monday, but still willing to stay on the sidelines for now.
  • Gold –¬†The metal has tried to bounce, but each move stalls. GLD gapped higher today to clear $136.85 and start to fill the gap. The trade was up and sideways not offering much relative to the intraday. Watch and see how it plays out short term.

Commodities Rotation Chart:

Commodity

 5) Global Markets:  

Global markets drop on slower economic data in China, Europe and the US. They tested lower on the news in Europe and China keep the markets in check. Scanning our watch list of Country ETFs there are some interesting moves to watch.

THD, broke higher from consolidation.  EWT, bounced back toward the recent highs. EPHE, followed through to break to new high again. INDY, moved above $24.20 resistance. IDX, consolidation and break higher? EIDO, consolidation and break higher? 

Global Mkt

Country Watch:

  • FXI¬†– Big bounce on Friday off the support levels near $34.75. A move above $36.63 would be of interest for a trade opportunity, but still plenty of uncertainty relative to the outlook for China. Use that level as a guide for any trades on the upside short term.
  • EFA¬†– Tested lower last week as the global markets continue to show anxiety similar to the US markets. Still not interested in the risk exposure and we will track for some clarity moving forward. Holding support off the $58.50 level is a positive for now.

6) Real Estate (REITS):

Real Estate Index¬†(REITS) – IYR tested $70.73 support on Wednesday. VNQI and AMJ both gains from Friday’s trading.

Sector Summary:

  • Most of the REITs are extended short term on the upside, thus the test in IYR. Watch and manage your stops.
  • Scanning IYR we find the charts look very similar on the upside. SFI, VNO, PLD, LXP, FR, KRC, ARE and HST show some consolidation and potential upside worth putting on a watch list short term and find the opportunities.
  • Mortgage REITs are selling back towards support and worth watching. NLY, REM, IVR, WMC and MBG.
  • RWO – SPDR Global Real Estate ETF is in a positive uptrend and hit a new high. Watch for test of the move if markets struggle.
  • REITs and MLPs mixed in the same ETF with MDIV is a good alternative to picking through all the choices. This mult-assets income fund pays a 5% dividend.

7) Global Fixed Income:

Sector Summary: Tested lower on Monday with the rest of the world markets.

  • The sovereign debt issues are fading again and opening the upside potential as the issues find relief. This offers some short term trading opportunities, but you still have to be¬†aggressive¬†in managing your exposure.
  • 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.
  • PICB – hit support traded sideways and now breaking higher. Entry $28.95 + 3.1% dividend.
  • EMB – Big recovery and interesting in watching. 4.3% dividend yield. Entry $120.25
  • PCY – Big recovery as well off the low for short term play. Entry $30.60. 4.8% dividend yield.

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.