Market gaining positive mojo back?

Notes from Wednesday’s Trading: 

Positive news in biotech (XBI) sends the sector up 6% on the day as the data shows that the pontificating relative to the sector valuation may be wrong. Biogen and Intuitive Surgical beat expectations on earning sending both stocks up more than 12%. Facebook will announce after-hours and address the other concern… the social media stocks. These two leaders (biotech and social media) have faded nearly 8% on valuation comments from not the least of which, Ms. Yellen. The push helped the broad indexes again post a positive day, but they are also challenging the previous highs. The S&P 500 index and the NASDAQ 100 index have both move above the July 3rd high. The bigger question for me is how they progress moving forward.

More data from the oil sector relative to inventories today. For 7 of the last 8 weeks the inventories have declined more than expected. This shows demand is on the rise slightly, but enough to have refineries producing at 93.8% of capacity. The production is the highest level since the recovery started in 2009. Thus, the energy sector remains a positive looking forward and produced a modest gain today. Watching to see how they unfold as well.

The global country ETFs have been coming to life again and show solid upside this week. This has been developing for several months and now with the break to new highs in several of the ETFs investors are starting to take note of the money rotation into the global markets. The developed countries are lagging behind the emerging markets in this move. They are worth tracking and managing the moves short term.

Positive day for all and we will see how it all unfolds tomorrow.

Chart Notes:

The chart below is of SPDR S&P Biotech ETF. It clearly shows the roller coaster ride the sector has been on relative to the many comments made about the sectors valuation being too high or even referred to as a bubble sector. The 30% decline from the February highs to the April/May lows rattle many investors, but the rise of 30% off the lows was equally impressive for investors. The test of support near the $134 level met with some positive buying and then the solid follow through today. Cleared the $148 mark and has the $158 previous high clearly in site. Earnings were the driver today and we now look to see if it follows through.


Notes to Note:

  • Treasury bonds yields remain near the low of 3.25%. Watching for a bounce to show the rotation away from safety of assets has run its current course.
  • Volatility moved slightly lower and shows the lack of worry the last few days despite all that is happening in the world.
  • Gold was slightly lower and oil slightly higher, but neither making a substantial move today. The outlook for both has been based on speculation, but the supply data for oil is starting to substatiate a rise in demand and that could become a lasting catalyst going forward.
  • Natural gas fell 0.3% on the day, modest compared to the nearly 21% decline since the June high. Higher inventories remains the issue (new data out tomorrow). The consumption levels are not growing and evidently production is, creating a surplus in inventory. This was the challenge last time natural gas fell to $3 per btu.  The decline has pushed the price lower and could remain this way for the foreseeable future. Short trades (KOLD) in the commodity have done nicely. FCG has now pushed back to the May levels of support. If price continues to decline this sector will struggle as well.
  • Coffee (JO) is working off the lows of last week and attempting to make a positive upside move. Watching to see if this limited to coffee or if the agriculture commodities (DBA) join in to make a move higher. It did manage to close back above the 200 DMA on the day.
  • Biotech (XBI) gain 6% on the day and leads the broad sector higher. IBB was up just 2% as the small cap stocks didn’t have the big earnings the large cap sector produced today.

Practice Patience and Protect Principle.