Market Finds Buyers Again?

Tuesday – Notes & Research

Economic data takes center stage and the market puts Cyprus on the back burner. Home prices rose last month and the durable goods orders were very good. That translate into a move higher and nothing to worry about on the day. The bump in the indexes all came in early trading with a drift sideways the balance of the day. The trend remain to the upside off the November lows and we continue forward one day at a time.

Scanning the sectors for rotation we continue to see developments that are warnings in the making.

  1. S&P 500¬†index closes 2 points from the record high! Strike up the band ¬†as this will change how investors see the market looking forward… NOT! We will see how it plays out, but one day at a time for now is the goal.
  2. Oil moved to $96.21 up 1.4% and 4% in three days. The breakout move from the consolidation on Monday followed through today on the upside. We will raise our stops to protect the gains. If the challenges in Europe continue this will not stay at these levels short term and we have to manage the potential downside risk.
  3. Volatility index fell to 12.7. No worries… Be Happy! Cyprus is a thing of the past for today.
  4. Retail stocks (Consumer Discretionary) continues to lead the way and may be the leadership for this leg higher. Watching XRT and the discounters like DG, DLTR and BBY.
  5. Gold started the trek higher on the Cyprus catalyst. Resistance came into play at the $156.50 level and the retreat continued today as speculators turn to other opportunities. The downside risk is back in play as this unfolds with a retest of $152 low.
  6. Interest rates were flat again today? The 30 year bond is at 3.13% and doesn’t seem to buying into the markets optimism. This is an area to watch for clues on how investors really feel about stocks.

The focus remains on Europe and the ripple effect of Cyprus. There is no real way of predicting the outcome to this mess. We have to stay focused. The rotation of money towards the other sectors has not materialized to this point. Watch the downside risk as it is in play should things not pan out the way everyone wants.

Economic Data:

Big week for data in store. Durable goods orders (good on Tuesday), home prices (best increase in years reported on Tuesday), home sales, pending home sales, GDP 4th quarter, personal income and consumer spending. The data should make it interesting.

Economic Events & Calendar 

1) US Equities:

The yo-yo syndrome continues as investors want to buy stocks without the fear of Europe. That they did on Tuesday and the index pulled even with where we closed on March 14th. New game new attitude and hopefully a different result going forward. All eyes are on the 1565 level for the S&P 500 index to hit a new high. The real challenge will come on the other side of that move. Is there enough momentum for the index to travel higher?

Sector Rotation Strategy: 

The February 25th low pivot point remains in play. We added the March 14th high as the next potential pivot point on the downside. The move today pulled the index even with the close on the 14th keeping the downside at bay short term. The current trend is sideways. The early bounce turned to sideways grind for the balance of the day. The consumer discretionary (XLY) and financials (XLF) remain the leadership short term. Stay focused and protect the downside risk.

225 Scatter 500

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test. The trend has continued to push higher after the February 25th test. See above.

1228 Scatter 500

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 to maintain the uptrend.

500 Scatter Rot

Sector Rotation of Interest:

Technology РBecoming volatile short term and the downside pressure is building. Watch support at $30 on XLK. Closed at $29.97 and the 30 DMA.

  • Semiconductors (SOXX) Tested the bottom end of the up trending channel. Watch $58.80 as trade on upside and $57.50-57.25 on the downside.

Financials РThe Cyprus initiative is pushing the sector back towards support at $17.90. Watch the outcome short term and manage your stops accordingly.

Energy РThe sector hit resistance at the $80 level and tested lower. Watch for support to hold at 50 DMA. Volatility in play, but the uptrend is holding for now.

Consumer Discretionary РBroke above the $51 resistance on XLY. Made a nice move on the upside and has stalled off the $53 high. The stall is in concert with the broad markets, patience short term.

2) Currency:

Sector Watch:

  • Dollar was back near the high on euro news. Rallied on fear from Cyprus deal. UUP closed at $22.57. Still watching support at the $22.35 mark on the downside. Manage your stops.
  • FXB¬†– the British Pound jumped last week and held¬†the¬†move. We progressed above the $150 level on Friday, but faded today on the news. Took the entry on the move and the target is $150.25. $149 stop in place on the trade.
  • FXC¬†– the Canadian Dollar is attempting to hold support at $95.35. Bounced nicely to breakout, retraced to the consolidation zone and heading higher again. $98.50 is the level to watch.
  • FXY¬†– yen is still in bottoming mode. ¬†Watch for a base to build short term if the direction is to switch. $104.50 is the level to watch for a upside play on the bounce.
  • FXA¬†– Australian dollar bouncing as stocks continue higher leading the way. ¬†ONLY ETF MODEL.
  • FXE¬†– ¬†The euro is testing support on the downside again? Broke support at the $128.15 level and closed below the ¬†200 DMA. Watch the downside risk of the euro in play. EUO broke higher today.

3) Fixed Income:

Sector Summary:

  • Yields continue are shifting slightly higher as stocks hold gains. ¬†The question is if the market corrects how much will it impact? Patience as the downside in bonds continues.
  • 30 Year Yield = 3.13% – no change — ¬†TLT = $117.36 up 12 cents
  • 10 Year Yield =1.90% – down 1 basis point — IEF = $107.08 up 11 cents

Tracking Bond Sectors of Interest:

Treasury Bonds РThe volatility in the bond sector has risen short term and it is causing grief for investors. Watch and protect on the downside. Estimates are for 2.75% on the 10 year bond by year end? Bounce in motion for the bond off the lows for now. Volatility is back.

High Yield Bonds РHYG = 6.55% yield. Support held at $92.75. heading to the previous highs near $95 Let it run as investors remain in love with junk bonds. I expect the trading range to remain near term.

Corporate Bonds¬†– LQD = 3.8% yield. The price has found short term support ($118.90)… again. Downtrend line remains in play. Patience as this plays out.

Municipal Bonds РMUB = 2.8% tax-free yield. The price of the bonds broke support and the chart is attempting to bottom or build a base. The downside risk remains and this is a sector of the bond market to avoid for now.

Convertible Bonds РCWB = 3.6% yield. Price had been moving higher on the current rally in stocks. Starting to see some selling off the highs. Watch stops and protect your gains.

4) Commodities:

Sector Summary:

  • The commodity sub-sectors are finding some signs of life along with volatility in the sectors. Watch and play the leadership. GSG attempting to build a base on the parts moving. Hitting the 200 day moving average as short term resistance? Not for the faint of heart.
  • UNG (natural gas) made the big move higher breaking out and following through on the upside. Hit resistance and fell 1.8% on Monday, only to recover and gain 2.5% on Tuesday. SEE¬†ONLYETF Model Portfolio
  • Crude tested support at $89.30 last week and closed at $96.34¬†for the day.¬†ONLYETF Model Portfolio¬†The upside is still in play. Cleared the $22 resistance on OIL – watch to see if it holds the move.
  • GLD – Gold gained on the alternative asset choice relative to Cyprus, Europe, China or any other worry. The gain put the metal back near the $156.25 level and now at $154.72. Downside is still the outlook, as it declined today. GLL added to ONLYETF Model.

Commodities Rotation Chart:  

commodity

5) Global Markets:  

Global markets tested lower on the Cyprus news Monday and volatility rose, but all is well on Tuesday as the global markets bounce back. We are a long way from being out of the woods on this issue. Take the positive today for what is… a move higher following some selling. Patience as this all plays out short term.

country rotation

Country Watch:

  • FXI¬†– China continues to lead the downside relative to the global markets. Watch the base that is building short term. Downtrend in play… news not enough to change direction short term.
  • Japan (EWJ) broke higher, tested, and continued to move higher. Got the move above $10.60 and still moving to the¬†upside. Getting extended, protect your gains.
  • EFA¬†– The long term uptrend remains in play and support has held, but the sideways motion remains in play. The ¬†30 DMA is the support to watch. Watch the ripple effect of Europe short term as this plays out.
  • EEM¬†– emerging markets continue to struggle. Small bounce of the lows on Tuesday, but still questionable on any move to the upside.

6) Real Estate (REITS):

Real Estate Index (REITS) РSettling into a trading range near the high of $68.50-69.25. Sector Rotation Model

Sector Summary:

  • XHB – Homebuilders moved to new high on the housing starts Wednesday, retraced some today, but still remains a positive sector. Be patient and manage your stops if the downside resumes.
  • REM – Mortgage REIT continues to push higher in the trend – let it run is the only thing to do with trailing stop.
  • NLY- Annaly Capital Management – continues the upside trek with some daily volatility. gained 2.5% on Friday to clear the 200 DMA. Hold and let it run.

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.
  • Some basing is starting to take place and we continue to scan and look for opportunities in the sector.

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.