Market End Week Positive, but Down Slightly on Friday

Friday – Notes & Research

This was a frustrating week in many ways as the market continues to defy gravity of the fundamental data. As I continue to say, you have to go¬†with¬†what brought you to the dance, but at some point you can’t help thinking the music is going to stop. That aside the major indexes ended the week with small amount of give back on low volume. The S&P 500 index did make an attempt to move above the 1590, but retreated to end near the 1580 mark.

When you see Barron’s with Bull riding a Pogo Stick predicting a jump to 16,000 on the Dow Jones Industrial Average (last Saturday’s edition) it is probably time to worry about what is around the corner for the markets. Bold predictions have a way turning out to be a bad omen for the market indexes.

There were some interesting twists to go with the upside on the day as commodities sparked interest in industrial and basic material stocks. Nice bounce in both sector to help with the leadership. Earnings were perceived to be better than expected in the technology sector and not so hot in the financials. Some surprises in the healthcare/biotech sector on the downside as well. In all it was a mixed data week, but investors remained focused on buying.

As we look to next week earnings will remain the primary focus, but the economic outlook is still a big question mark hanging over the markets. That leaves us with the technical side of tracking the trend and staying focused on what risk we face relative to the current holdings. One day at a time, one trade at a time, that is all we can do. Speculating on what could, should, or might happen isn’t worth the energy.

Below are our revised notes relative to the trading outlook from the watch list, and what I saw of interest for next week.

Sector Moves of Note:

  1. S&P 500 index move to support at 1578 on Friday. Not much of a test and we will see how this plays on Monday. The question is will it make a further test or more buyers step back into the market?
  2. The NASDAQ moved to 3270 on the day and is in the same boat as the S&P 500 index. Will the buyers come back to take the index to a new high. The consensus among the street is yes. I have seen crazier and more irrational moves in my career, but we will watch to see how it plays out.
  3. Telecom continues to be the sector with the drive higher. IYZ cleared resistance and is hold the gains on the upside. VZ, CCI, LUK, AMT, IDT and NIHD remain the leaders for the sector. Look for the opportunities in the stocks more than the ETF.
  4. Crude oil remains a commodity of interest, and we held our position into next week. The intraday volatility of oil was a brief sell off met by buying. The chart for oil reflects the broader market as it could not make a commitment intraday on direction. UCO was the posted trade at $26.80 and we added the position to the ONLYETF Model. Raised stop and want to watch as the trading week opens to determine if hold or sell.
  5. Gold opened higher Friday and made a move near the target and then promptly sold off. The goal was to fill the gap left behind from the selling. $143.43 was the low on the close that created the gap. The high on Friday was $143.43? Interesting that the selling started there. Watching to see how this plays out next week.

Economic Data:

Q1 GDP disappoints on the low side, but it wasn’t enough to discourage investors. Buy the dip is still the motto.

Economic Events & Calendar 

1) US Equities:

We are testing the previous highs on the major indexes. My bias is to the downside, but that is why we watch the charts and go with the trend. The data continues to show weakness in the economy, but the buyers keep stepping in with the belief it will be better long term. That may very well be true and we will all see how it unfolds one day at a time.

The April 11th chart below starts on the high as a potential pivot point lower, but has failed to accomplish any further downside after the April 18th low. That shifts my interest to what is leading off the the low versus the previous high for the current opportunities. The shift of the charts shows basic materials (test lower on Friday), financials (test lower on Friday), Telecom (test lower on Friday), energy (side ways to end week), consumer discretionary (test lower on Friday)  and industrial (flat to end the week). No real losers, but the laggards are technology, utilities, consumer staples and healthcare. No clear indication on direction overall or by sector in the chart below. Thus, be patient as we start the trading week.

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 making me crazy. The bounce in telecom, industrial, basic materials and energy changed the bottom side of the chart to be more positive overall. 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 tredn remains higher, but the short term volatility is picking up. Watch the downside risk and protect your gains appropriately.

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. 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) –¬†Flirting with the $30 level again. Amazon vs Apple on Friday kept the sector in check. If the upside continues this is one sector that like to lead. See S&P 500 Model Watch List.

Consumer Staples (XLP) – the downside relative to earnings and warnings from the big cap stock this week is a concern. Tighten stops and watch how the trend plays out next week.

Healthcare (XLV) – the biotech stall from earnings is weighing on the sector for now. $46.80 support is level I am watching now. protect the gains.

Industrial (XLI) – got a bounce from earnings this week and now at resistance near the $41.50 level. A break higher would be worth trading short term. Shift in commodities is the reason for the move. Watch the commodity emphasis on the sector. If fades pass, if it builds buy.

Energy (XLE) – testing the move and resistance. Watch for a move above $77.50 as possible buy point on the upside. Need crude to behave and the earnings to be positive in the sector.

Telecom (IYZ) РMoving higher, but test on Friday with an inside trading day. Still like the uptrend here.

April 18th low is where I am focused currently for new positions. On Friday they looked confused. We need clear leadership off this low if the broad index is going to take a step higher. Energy, materials, industrial, financial, technology, consumer discretionary are the initial leaders and need to follow through on the upside. Watch and digest the move.

March 14th point of interest shows that telecom, utilities, healthcare and consumer staples are the clear leaders. Note the rotation difference in the two time frames. This is why there is confusion currently in the broader index. Patience as this plays out.

2) Currency:

Since the high on March 27th the dollar has essentially moved sideways. The chart below shows no one currency is leading. Only FCY led to the downside, but is gaining of late. Nothing of interest now expect the British Pound (FXB) which bounced on economic data this week.

Currency

Sector Watch:

  • UUP¬†– The Dollar still trading sideways¬†essentially¬†and don’t expect much change short term.
  • FXB¬†– the British Pound jumped higher to $152.43 on Thursday. The currency is in an uptrend off the low and moving through the current resistance. For now we just have to be patient and let the pound work through the directional challenge day-to-day and continue in the uptrend currently in play. Took the entry on the move and the target is $152.50. $150.40 stop in place on the trade.
  • FXE¬†– ¬†The euro is like the dollar, in a state of confusion and looking for direction short term off support.

3) Fixed Income:

Sector Summary:

  • 30 Year Yield = 2.86% – ¬†down4 basis point — ¬†TLT = $123.39 up $1.12
  • 10 Year Yield = 1.66% – down 5 basis points — IEF = $108.90 up 40 cents

Tracking Bond Sectors of Interest:

Treasury Bonds¬†–¬†Yields on the 30 year Treasury was flattening out, but jumped on Friday after the GDP data. Didn’t seem to bother investors in stocks, but rattled somebodies cage as money moved into bonds again. Watch to see how this unfolds next week.

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. The fund broke to a new high and uptrend remains in progress.

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.

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:

  • The¬†commodity index¬†continued holding above the $25.50 level with oil attempting to bounce. The sector gained 1.3% as the move in oil, gold and base metals push the sector along. Don’t get overly excited this is a challenging sector near term. Watch and be patient as any trades will be plain to the eye.
  • Natural Gas¬†– UNG continues to trade opposite of oil. (exited trade as hit stop on Wednesday)
  • Crude Oil¬†– Crude broke higher and followed through with more positive buying today. Manage the UCO play ¬†short term.
  • Gold –¬†The metal has bounced to begin filling the gap short term. GLD is moving higher. Watch and see how it plays out short term.

Commodities Rotation Chart:

I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point and gold, oil and precious metals have move higher. Watching for some leadership to develop going forward.

Commodity

5) Global Markets:  

Global markets struggle with the slower economic data in China, Europe and the US. But, the EAFE index has started to bounce in response to the US markets this week and EFA hit the high from earlier in April today. The bounce is no indication of things improving, but trading in tandem with the US markets.  

Global Mkt

Country Watch:

  • FXI¬†– Follow through on the bounce off the recent lows. The 2.8% gain breaks the downtrend line again and now needs to follow through on the upside. There is a trade, but the risk is high. Watch and see how this develops.
  • EFA¬†– Held support and is now back at the previous high of $60.85. Watch to see how it plays out.
  • EWI¬†(Italy) was up 2.4% Monday off the lows and followed up Tuesday with a gain of 2.5%. The move above $12.60 was the entry and where we added the trade to the ONLYETF Model on a upside break above resistance. Still moving higher and we will manage the play going forward. Wednesday held the gains and continued slightly higher on day.

6) Real Estate (REITS):

Real Estate Index (REITS) РIYR tested $70.73 support and is now back at the high of $72.50. VNQI and AMJ continue in the current uptrend.

Sector Summary:

  • Most of the REITs are extended short term on the upside, thus the test in IYR. Watch and manage your stops. But, let it run as high as it intends to go.
  • Scanning IYR we find the charts look very similar on the upside. SFI (breakout), VNO, PLD (breakout and retraced), LXP, FR (breakout), KRC, ARE and HST show some consolidation and some have broken higher since we posted here last Friday.
  • Mortgage REITs are selling back towards support and worth watching. NLY, REM, IVR, WMC and MBG. Moving slightly higher and allowing investors to collect the dividend.
  • 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.