Market fights of negative start to close higher

Back to a day of watching paint dry as the market did find a way to turn lemons into lemonade. Jobless claims fell to 300k again… good new? Q1 GDP fell to minus one percent and that was worse than expected. How we believe that Q2 is better is beyond me, I am sure the numbers will improve, but not to 4% as expected. Enough said. Pending home sales up 0.4% down from 3.4% growth in March. Not great numbers for the housing market. Of course the retort now is interest rates are back below 4% on a 30 year mortgage… and now the buyers will be aggressive again. Of course they will. All said, the investors are still ignoring the fundamentals buying on the hope things will improve in the second half of  the year. Hope isn’t a great investment strategy.

In terms of the broad market it did manage to fight off a very sluggish and negative start to end the day higher. Materials, energy, consumer staples and healthcare were the leaders, but technology wasn’t far behind. Small caps held their gains and the global markets were up slightly overall. Low volume, low interest type activity and that leaves concerns, but we take what it gives, manage our stops and keep moving forward.

Notes to Note:

  • Headlines were full of prophets call for a summer correction. Regardless of what upside momentum generated by stocks the doom-and-gloom keeps hitting the headlines. No one knows for sure you just have to let the markets story unfold one day at a time. Daily Trading Notes have the current three phases of the market’s story laid out today.
  • The Volatility or VIX index remain without a pulse and below 12. I am in the camp of let it play out… attempting to pick a bottom or top of anything is a dangerous proposition. If it starts to move back above 12 I will get interested, until then just watching.
  • Interest rates remained near the low at 3.3% on the thirty-year bond and 2.44% on the ten-year bond. The divergence between yields and stocks is obvious and suggests something more is up or potentially wrong. Patience is needed… hold still on bonds.
  • Apple closes the deal to buy Beats for $3 billion! Nice payday for the owners, but the shareholders of Apple are wandering what it does for the stock. Dropped slightly on the news Wednesday, but the buyers showed up today gaining more than $11 to $635. All is well in Apple land — raise our stops today.
  • Talks of tablet sales dropping in 2014 have some worries about the stocks in the space losing momentum and potentially turning negative based on the research findings. This is a story worth watching in the technology space.
  • ITB – homebuilders chart published last week on the break of the downtrend line near $23.75. Stalled at the 100 DMA and worth tracking short term to get through this level or test the break higher.
  • IWM – small caps chart posted last week made move to the 50 DMA and broke downtrend line, but has stalled as well. Still looking for follow through higher or test.
  • SOXX – semiconductors moved higher and hit new high today. Tech continues to provide the leadership off the low and money is willing to move back towards growth sector and risk. Monitor stops and manage risk.
  • Remember there are two sides to every trade… someone will always be wrong, but the transaction is done with both sides believing they are. Only the market determines direction both short term and long term. Don’t be so convinced you right that you take big losses.

Chart Notes:

Regional bank (KRE) have struggled and tested support near hte $37 level and bounced. However, technically the 200 DMA is giving some resistance as seen below, and fundamentally the challenge is on the bottom line growth in profits. Interest rates are a challenge for the regional banks as they are more dependent spreads to make money. The chart shows the bounce attempt in play, but the downside risk has not been erased. Watching to see which side wins near term.

KRE

Consumer Discretionary (XLY) made a move through resistance at the $64.75 level and making progress the last week. There is plenty of negative being published about the consumer and the great divide between the have’s and the have not’s. Despite the consensus they consumer is dead the sector continues to find ways to gain some upside momentum. Break should contribute to a move near the previous high of $67.75 short term. Worth tracking as well as the part that make up the sector. NFLX, TRIP and MAR have set the pace of late on the upside.

XLY

Breakouts are slowing last two days. Watch you downside risk and stick to your discipline.