Market Holds Move Higher

Monday, August 6th

The first Monday in ten weeks to close higher on the day, but still bumping against some resistance. Technology asserts itself with the leadership on the day. The fear subsiding in Europe remains the primary catalyst. I find that amusing from the standpoint that nothing has been done other than talk about a willingness to do whatever it takes. Outside of that nothing has changed. I guess we don’t ask why at time like this we just hold on for the ride.

Short squeeze in the European markets are getting the credit for the rally in the global markets. IEV, EWP and EWI all have jumped higher on the buying. The short covering started on Friday and with the move higher today, it accelerated with volume more than double the average. Draghi gets credit for pulling a rabbit out of his hat and getting the focus away from the yield on the ten year bonds and more towards the two year bonds which he believes the ECB will be able to help. Plenty of talk, but in the end there will have to be action taken in order to improve the longer term outlook.

There was some late day selling from what would be attributed to program trading. Regardless the market ended the day higher when it was all said and done. Still plenty happening around the world, but for now the focus has shifted to positive.

S&P 500 Sectors-to-Watch:

SPY, SPDRs S&P 500 index has managed to hold the $136.65 mark as key support. The index closed above the 1390 level target we set when this adventure began. The momentum remains anticipation of stimulus coming from the central banks in September. The carrot continues to dangle and investors continue to believe that is a solution to the growth problems facing the US and global economies. Not buying it, but we have to honor the direction and the momentum of the index.

The rotation in leadership continues with each pivot point. Currently Energy and Telecom are the two sectors on top. Today Technology stepped into the leadership role. Additional moves higher from Tech would benefit the broad markets in this move. Financials and Healthcare are attempting to put in a push higher, but they are following the broader index currently along with Consumer Staples and Industrials. Utilities, Basic Materials and Consumer Services are lagging the index. The volatility has picked up and the sentiment continues to shift almost daily. Follow the leaders below for the upside in the index.

Telecom – The sector accelerated higher off the test lower at $22.10 on IYZ. The sector gained better than 13% off the low and doing its best to hand on to the profits near term. The uptrend remains in play of the June 4th low and the outlook remains positive. Hold and manage your stops.

WATCH: IYZ – Hold and keep your stops at $23.20

Energy – Big test back towards the down trendline held on Thursday and the upside follow through on Friday and Monday helped the uptrend. Hold manage the risk and see how this plays out short term.

WATCH: XLE – Entry @ 69.25. Stop 67.80 (Adjusted for the renewed volatility).

Financials – Holding above $14.40, and so far the patient is paying off. We still have to accept the volatility in owning the sector. Hit  against resistance at $14.80 and broke through on Monday. Watch for follow through which will give the opportunity to add to our current positions.

WATCH – XLF – Entry @ 14.55. Stop 14 (Leaving room for volatility)

Healthcare – Volatility in play more than usual. Hold positions and manage the risk. 50 day moving average is a good stop for now. Expect the volatility to remain as we go forward with the providers struggling on news. Still hitting against the resistance at the $38.90 mark.

WATCH – XLV – Entry @ 38.10. Stop 50 DMA

Consumer Staples – The sector has been leading to the upside for the broad index, but pulled back on selling Thursday. Uptrend in play and looking for a steady move higher for now.

WATCH – XLP – Entry $35.31 (gapped higher on the open Friday) Watch for test.

Consumer Services – The consumer has been spending less, but the retail data showed today it is stock picking sector. The gap open on Friday left the pullback opportunity or the move above $44.50. The later is the opportunity for now. The close at the entry point is the level to watch on Tuesday.

WATCH: XLY – Entry $42.70 (Gapped higher on Friday) Watch for break above $44.50 as play.

OTHER ASSET CLASSES:

Volatility Index – The index below 16 on Friday and rested at that level today. Wit the calm in Europe and the willingness of investor to push money into stocks is obvious short term. Unless some news shifts short term the trend is higher for stocks currently.

WATCH: SVXY – Hit $95 on test lower Tuesday. Entry $97.10. (HIT ENTRY THURSDAY) Stop $106 (raise the stop)

Dollar – The dollar has picked up volatility as Europe believes the ECB is coming to the rescue. Watch the downside play opportunity in the dollar if the strength continues in the euro.

WATCH: UDN – watch for confirm of break above $26.40. Entry.

Treasury Bonds – This is another area of increased volatility based on the ECB and Fed issues. Stimulus or not is creating the movement. We took a short position against the bond this week and it has been volatile.  TBT closed higher, but we had to manage our stops relative to the volatility. The 10 year is back at 1.56% again, and 30 year at 2.64% again.

WATCH: TBT – $14.80 entry. Stop $14.50 (stop on the close) Manage stop short term relative to volatility.

NASDAQ Index – Tested 2900 support and bounced. The index is at resistance and needs to find the catalyst higher. The NASDAQ 100 index on the other hand has broke above resistance and moved above 2660 mark and found the upside finally. Looking to add to our position on the move next week. You could have added to the play on the follow through today. We passed and help our base allocation.

WATCH: – QQQ Entry @ $65.25 Friday. Stop $64.75

Small Cap Russell 2000 Index – Tested low at $76.23 and bounced back.  Negative trend in play and the index has to take that out of play in order to take the entry. Watch for move above $79.20 and through the downtrend line off the July high. Watch for entry play tomorrow on follow through.

WATCH: IWM – Close above $79.20 would be of interest. (Closed on it today. follow through higher is the entry tomorrow.)

Commodities: Mixed signals as investors waffle on the reason for the move higher (ECB). Watch for any opportunities as the volatility picks up. Still plenty of volatility in the sector short term.

Crude Oil – Crude fell 2.4% Tuesday, gained 1.6% Wednesday, fell 1.7% on Thursday, gained 4.7% on Friday, and added 1% on Monday? Talk about confused.  Still plenty of confusion over the last week for oil. The upside is attempting to exert itself short term.

WATCH: OIL – Entry $20.75 – Stop $21.00 (stop on the close)

Gasoline – Bounced back and pushed against the previous high at $54.45. Closed at $56.04 today and held the move higher from last week. The move has bee significant off the lows and gives reason to manage the risk of the position. The upside for the fund still in play, but watch oil prices.

WATCH: UGA – Entry at $52.75 – Stop $54.75 (negate the breakout)

Natural Gas – Big sell off last week as analyst make comments of weaker prices going forward? Watch for the opportunity as we find support with the commodity. Today it tested lower again, but finally bounced off $19.40 support.

WATCH: UNG – $19.40 support – if holds look for entry on the bounce. Got a bounce today… watch to tomorrow.

Global Markets: The global markets respond to the ECB last week as Draghi makes further promises to do whatever he could to save the EU. The EAFE index had moved higher on the tough talk and lack of action by the ECB. Watch and manage any opportunities short term.

WATCH: EFA – Entry $50.50 break above resistance on volume. (HIT ON FRIDAY) Stop $49.50.

China – Tested lower on the European news held and continued higher on ECB comments about Europe. This has been volatile based on the global economic issues and the economic slowing in China. Watch for a upside move on the improving outlook for China? Europe? US? Expect volatility short term.

WATCH: FXI – Entry $34.20 – Stop $33.50

Mexico – Moved against resistance again and still looking for a break out move on the index. Watch the volatility and manage the position.

WATCH: EWW – Entry $62.25 Friday. Stop $60.30

Singapore – moving back above the high at $13. I still like the country looking forward.  Need a follow through to new high. Manage the risk of the trade short term.

WATCH: EWS – Entry $12.70, Stop $13

LEADERSHIP:

Housing – Positive outlook for housing sector and the homebuilders going forward. The bounce back in new home sales is helping the sector, but the volatility has picked up. The sector tested support near the $20.80 mark again. Bounced back near the high the last tow days. Still need to break from the trading range on the upside to maintain the leadership short term.

Watch: XHB – testing support at the $20.80 mark. Support at $20.80 — $21.90 entry opportunity on breakout from consolidation.

Energy – Bounced off the support Thursday and followed through on Friday.

Retail – Same store sales were up 4.4% and better than expected. The sector remains one set to lead if the upside resumes for the broader markets. That said this is a stock picking sector. AMZN looks solid and earnings were good along with guidance. EBAY made solid move on earnings as well and equally testing the move. COST cleared another new high and testing the move. TJX and TGT both in position to break higher as well.

Technology – Followed through on the move above $29.25 and heading higher. Solid move on Monday with above average volume. This is a positive for the broad indexes as the sector takes on a leadership role. Earnings continue to be positive from the sector this quarter.

MONDAY:

1400 mark on the S&P 500 index short term and then 1420?

Watch the Treasury yields as clue relative to market direction overall.

Dollar remains are wreck on the up and down movement with the ECB and Fed actions.

Europe gaining on the upside and break above resistance short term.

Follow through on the leadership from technology and consumer services.

Watch and play according to your risk tolerance. 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 downside risk determines your long term results. Trade smart.