Market Finally Finds Some Positives To Trade Higher

The broad market on Monday found some buyers willing to step in and lead the broad index to a gain on the day. The leader on Monday was Healthcare gaining 1.4%. Pharmaceuticals were the leading sub-sector up 1.3%. Looking at a chart of IHE, iShares Pharmaceutical Index ETF we find the move pushes the close back near the high end of the consolidation range. Watch for a break to the upside and some leadership to assist the healthcare sector overall break higher.

The leader on the downside has been semiconductors. They finally bounced off support to gain 1.4% on Monday. This is something to watch this week. If we can establish some near term support and bounce, it could offer some relief to the rest of the technology sector. XLK, SPDR Technology ETF broke support last week at $30.25 and a move back above that level could provide some confidence to the broad markets. The networking, software and internet sub-sectors have not looked good the last two weeks and are not helping overall. Watch to see how this plays out going forward.

Financials managed to bounce back from the beating on Friday in the banks. The sector fell 3.5% as investors took profits off the table, and the short interest rose on earnings news from Wells Fargo and JP Morgan. The reversal on Monday came from the earnings news from Citigroup. They beat bottom line numbers, but fell short on the top line revenue numbers. Investors still liked what the report stated about the bank and the shares jumped 5.5% on the day. That helped JP Morgan gain 1.8% and Goldman Sachs was up 3.3%. Bank of America reports later this week and was up 3.5% on Monday. This is still a sector to watch for upside on earnings going forward. The financials have been one of the key leaders for the move higher off the June lows. Insurance (KIE) stocks have been the top preforming sub-sector and are moving back towards the September highs.

Retail sales data for September was better than expected gaining 1.1%. Even when you extract energy and food the gain was 0.9%. Two positive parts of that piece of data, first the price of food and energy flattened out in September, and second, the consumer spent more than expected. XRT, SPDR Retail ETF only gained 0.5% on the news, but there were stocks that responded much better to the data. Wal-Mart was up 1.7% and broke from the three month trading range. There is still struggling in the consumer services sector to gain upside momentum. Watch to see how this plays out in the short term.

Precious metals responded negative Monday in a delayed reaction to the PPI data from Friday. The core showed no inflation to speak of for September as the price of oil and food flattened or peaked during the month. This isn’t good news for gold as the run higher had been on the speculation that the Fed’s quantitative easing would be inflationary along with all the stimulus being offered in Europe and China. If that isn’t true the price of gold is likely to decline. The metal fell more than 1% and silver fell 3.2% on Monday. They both broke key support levels and open the downside risk looking forward. Short plays could develop in the metals if the break is confirmed.

The VIX index drops back to 15.2 and the downtrend remains in play. That is a positive for stocks near term. There are some who believe the markets are setting up to move sideways and consolidate while the direction is defined. The VIX would lend some credibility to that analysis. However, I believe their is too much going on in the markets both domestically and internationally for the markets to sit still and move sideways. Earnings will set the tone for the market short term and if we are going to regain any upside momentum it will take a positive bump short term from earnings.

Unfortunately we will have to be patient and let this unfold one day at a time. Don’t force trades… let them develop.