Market Grind Out Another Day of Trading

Wednesday – Notes & Research

Hold on to your hats the Retail Sales Report for January showed growth of 0.1%! That must be the growth they are talking about in Washington… glad we cleared that up. One headline said, “it could have been worse!” Now that is reassuring. The concern was for a bigger pullback in spending related to the tax increase. The challenge with this type of data is determining if the glass is half-full or half-empty.

Today amounted to another lifeless day in the market.

Economic data was overall positive today, but nothing market changing to report. Stay focused and be disciplined in how you approach the current market environment.

Data Summary

  • January Sales Report showed 0.1% growth! Strike up the band! Ex-auto up 0.2%.
  • Import price index was up 0.6% in line with expectation, but that is a bit on the inflationary side.

The correction talk has been subdued as the media turned it’s attention to the State of the Union speech. I did not watch the speech, but I did scan the transcripts (that takes out the theatrics). One question… where is all the growth that was expressed, and how much pressure do we add to the small business with those plans?

Good news upside remains in play and we stick with the trend for now.

1) US Equities:

Market Summary:

  • S&P 500 index stayed above resistance at 1520 today closing up slightly on the day.
  • NASDAQ index is testing the 3190 resistance today closing down slightly on the day.
  • Research Watch List hit entry points on UGA, PBD, FCG, IGE, XLY, CGW, IYR, EWS, GLL

The NASDAQ 100 held above the 2760 mark on the day and is still in position to continue higher from the move above resistance. The move put the QQQ trade back in play on the upside with a test and go on the move. That makes tomorrow key on the upside opportunity.  Large cap technology stocks remain the answer to the upside for the index. Apple tested recent moves higher putting some pressure on the sector.

Leadership:

  • Energy has been the leader, the volatility has risen in the sector, but still on the upside move.
  • Consumer Staples made solid move last week to push the broad index higher. Watch as it test the move.
  • Consumer Services struggled as the retail sector lost the momentum on worry about the consumer. The sales report today was okay, but still lacking any strong evidence of growth.
  • Utilities have made a solid run higher and continue to look solid on the upside short term.
  • Healthcare (XLV), Financials (XLF) and Telecom (IYZ) looking for a catalyst to the upside.

Laggards:

  • Technology made a nice move last week and is testing the move higher. Still worth watching to hold the move above $29.80 on XLK.
  • Basic Materials has been struggling on the China news to start, but the European data and has added some downside pressure on the sector. Still holding above support for now. Made move above the downtrend line. Watch for the upside to follow through.
  • Industrials were on our Research Watch List and the S&P 500 Model, broke higher Tuesday and we added to the model on the move. Nice follow through today.

Watch List:

  • XLE – Look for continuation move higher from the short term consolidation. Entry = $78.60 (HIT TODAY)
  • XLF – Look for move through the high at $17.65 to add to positions. Entry = $17.75 Hit Tuesday.
  • XLI – Hit the entry point tuesday at $40.75 and climbing.
  • Adjusting stops on holdings to account for risk short term.

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test.

Scatter1228

November 15th Pivot Point for current uptrend. Target 1550-1575 short term.

SP500Scatter

VIX Index: Testing lower with close near 13.

Tracking Sectors of Interest:

Financials РXLF moved above $17.50 resistance, retraced, and back above it again. Banks (KBE) and regional banks (KRE) both made moves higher again to set the pace. Hold for now and watch the downside risk of the sector if the broad markets shift momentum.

Citigroup (C) broke above the plateau consolidation on Tuesday, held today. Watch for possible trade at the $43.50 entry on a test of the move.

WATCH: Entry $17.20 XLF. Stop @ $17.20

NASDAQ 100 РQQQ cleared resistance at the $67.30 level. $68.25 is the next hurdle for the sector. Watch the upside confirmation for opportunity. The post in the model is to test the break higher. Still not getting much in the way of a test or upside follow through for the sector.

2) Currency:

Sector Summary:

  • The currency wars are still a possibility as the G-7 keeps stepping on their tongues to explain nothing. Watch the yen as this unfolds. There could be a bounce in store.
  • G-20 meeting starts soon and it is likely to just add to the issues. Short euro into the meeting and cover after the meeting? My speculation of the situation.

Tracking Currency of Interest:

US Dollar РThe close near $21.88 (UUP) is at the downtrend line? Watch to see how this plays going forward and the support now becomes $21.70 level. Watch the bounce for evidence of a continued move higher.

Euro РThe euro moved below support at $132.70, but has moved back closing at $133.36 today. Watch to see how this plays out.

Japanese Yen¬†– Has the yen found the near term low… yet? FXY bounced of $104.70 low on Friday after the comments from Prime Minister. Downside back today as call for Japanese stocks to move higher. Watch the stocks for the upside trade on EWJ.

3) Fixed Income:

Sector Summary:

  • Yields continue to creep slightly higher. The question is if the market corrects how much will it impact?
  • 30 Year Yield = 3.22% – up 3 basis points — ¬†TLT = $115.79 down 95 cents
  • 10 Year Yield = 2.02% – up 4 basis points — IEF = $105.69 down 37 cents

Tracking Bond Sectors of Interest:

Treasury Bonds РThe current play is short with TBT in the model currently to take advantage of the move lower in prices. The last week the fund has bottomed and started to consolidate. The retest of the lows is a bad sign if it breaks down. Hold TBT for now.

High Yield Bonds РHYG = 6.55% yield. The fund has faced a drop in price this week and hit our stop at $93.75 (HYG). Support is at $92.75, which has held short term and the fund moving off the lows for now. We will watch to see if support holds and then make a determination on the upside play if it evolves.

Corporate Bonds¬†– LQD = 3.8% yield. The price has found short term support ($118.90). Now watching to see if any upside opportunity exist in the bond. Wednesday’s activity says no, but still holding support.

Municipal Bonds РMUB = 2.8% tax-free yield. The price of the bonds continue to be volatile. Found support and bounced back, but still looking for direction. Willing to wait for the right opportunity on the bonds. Look for a test of the $111.42 mark support.

Convertible Bonds РCVRT = 2.7% yield. Price has been moving higher on the current rally in stocks. Watch for opportunity if the uptrend continues in stocks.

4) Commodities:

Sector Summary:

  • Oil is down at $97.17 today, but still not clear on direction following the test of the $95 support level.
  • Gasoline supplies fell and price rose? go figure.
  • DBA broke support and headed lower as soft commodities struggle.
  • BAL tested $52.65 support and is set to break higher for a possible trade. tested lower today.
  • CORN is testing the next level of support at $42.80 – break opens short play opportunity.

Tracking Sectors of Interest:

GSG РHolding near the high as the overall commodity index maintains the modest uptrend in play off the November lows.

UNG РDropped 5.2% on the inventory data last week. $18.27 support for the ETF was tested intraday, but closed above that level on Monday. Volatility is back and not interested in the emotional guessing game currently for the commodity. FCG is worth watching relative to break from the trading range and attempting to move higher. Got the test today and held support. Watch to see how this plays out tomorrow.

WATCH: FCG РEntry $16.65  РSet stop at $16.30

OIL РCrude is tested support at the $95 level as the chart develops a rolling top. Manage the position, but let it have some room to move as volatility picks up? Manage your stop on OIL at $22.40.

UGA РSome volatility last week from the global concerns. The upside is still in play and is likely to continue near term. Supply is short as refineries maintenance schedules kick in. The upside is still in play. Watch as we test the highs.

WATCH: UGA – SEE ONLY ETF Model.

GLD РDowntrend line still in play with support at the $160 level. Broke below $160 on Monday and put the downside in play again. Watch the uncertainty around currency and economic growth globally. The talk about the G-7 nations to avert a currency war sent the metal lower on Monday. This is all speculation once again driving price. Wednesday we are in position to break lower. $159.05 on close?

DBB РBase Metals need to clear the $19.70 as they attempted today.  Watch for the continuation of the play higher.

WATCH: DBB – Entry $19.75 (1/2 normal position)

PALL РPalladium tested $73.60 on some selling last week. The upside is still in play as well as the uptrend. Adjust your stop accordingly and let it continue to run.

PPLT РPlatinum tested lower and is filling the gap left behind on the move to new high. Moving back near the high for now.

5) Global Markets:

Sector Summary:

  • Spain (EWP) recovering from the selling and still looking positive for now.
  • Indonesia (IDX) big move higher over the last week? Follow through on break from consolidation.
  • Japan breaks above $10 on EWJ and holds for now. watch for reversal?
  • Thailand (THD) made solid 2% gain on the day. Watch for the continuation of the upside.
  • Sweden (EWD) gapped higher gaining 2% as well on the day.

Tracking Sectors of Interest:

EFA РDropped 2.6% last week to test the uptrend. The support levels are key and it closed above the first level at $58.15. Uptrend remains in play. Nice bounce Рwatch.

IEV РDropped 4% for the week and is testing the first level of support at $40.  The challenge is worries escalating relative to the sovereign debt in Spain. My upside target remains $45.50, but the upside may be in jeopardy. Nice bounce on Tuesday and Wednesday Рwatch. Spain up nicely to help the case.

FXI РChina broke support at the $40.85 support of the trading range. The $39.70 support is the level to watch short term? Slowly pushing back towards resistance at $40.50? Watch for upside play if it breaks.

EEM Р$43.85 support was broken, but bounced back and sitting at that level. The downside is not accelerating and we will watch to see how this unfolds. Attempting to bounce higher and through the downtrend line short term.

6) Real Estate (REITS):

Sector Summary:

  • REITs continue to find buyers and push the upside trend. Let the trend play out.
  • Homebuilders finding some resistance as analyst downgrade the sector… However, Tuesday produced a big gain of 3% in the sector.
  • REM – Mortgage REIT is breaking above $15 short term play?
  • NLY- Analy Capital Management finally broke above $15 as well and could provide some upside.
  • SJT – San Juan Basin Royalty Trust holding move higher. Watch for test and move higher.

Tracking Sectors of Interest:

WATCH РIYR РEntry Р$66.15,  РStop $67 Solid move higher the last two trading days. Watch as this moves.

7) Global Fixed Income:

Sector Summary:

  • The sovereign debt issues are fading as the global outlook improves. Stocks moving higher prove trouble for the sector overall. We have hit stops as yields impact the price of bonds.

Tracking Sectors of Interest:

EMB РEmerging market bonds have bounced off the low and could offer some upside short term plus the dividend yield of 4.2%.

PCY РEmerging market Sovereign Debt is finding some support and attempting hold and move higher. The dividend yield is 4.7%.

IHY РInternational High Yield Bonds breaking lower similar to US high yield bonds. Watch to see if any opportunities arise in the bonds.

PICB РInternational Corporate bonds support at $29.20 and looking to move lower? Watch

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.