Market Opens Higher and Then Fades Into the Close

Markets start higher and close lower, but holds the 1800 level on the S&P 500 index. The only economic data today came from the pending home sales report which declined 0.6%, but was better than the 4.6% drop last month. Tomorrow we have the housing starts, permits and home price index to add to the housing sector. Speaking of which, remains in a trading range for both ITB and XHB. I have been looking for a continued move to the upside, but for now the stall is taking root.

Social networking stocks were off today with Yelp down 6.7% and Facebook off 4%. This sector has been under pressure of late and the downside risk is growing short term. Both stocks broke below key support levels opening the way for short selling. Twitter and Linkedin were down nearly 4% as well on the day. This is something to watch moving forward as rumors and analyst are starting to make comments about high momentum stocks leading the downside correction many are pontificating will start soon.

A major winter storm is heading to the east coast and the question is what impact will it have, if any, relative to markets now and going forward? This is making its way to my watch list for the coming week.

The black Friday shopping predictions are coming in and with the sales actually starting on Thursday night, it will be important to get off to a good start for the retail stocks to continue to benefit.

Expect slower trading as we move towards the Thursday holiday and half trading day on Friday.

Trend of the Market:

The trend of the market remain on the upside both short term and long term. The micro term (13 weeks or less) is where investors remain focused currently. Why? The media and analyst feeding the concerns about the current valuation of the market overall versus buyers appetite for risk. The VIX index shows the worry factor as low at this point, and reversed the volatility on today’s move higher in the broader index. We have all voiced our concerns about the movement of the market near term, but we have to let it play out versus speculating on direction.

Dow Industrial Index (DIA) – Holding 16,000 and climbing as the index maintains it’s leadership role. Caterpillar up 1.8% and Merck up 1.5% were the leaders on the day. Goldman Sachs and American Express were up nicely as well showing the strength in the financials currently.  10 DMA is the level to watch short term.

S&P 500 Index (SPY) – Closed down 2 points at 1802. No real changes in the index overall and the leadership remains in the financials, healthcare and industrials. Utilities and telecom continue to be the drag on the index with both closing lower today. The pressure from rising interest rates gets most of the credit and we will watch going forward. The broader index remains in a positive trend.

NASDAQ Index (QQQ) –  The index brushed close to the 4000 level on the day, but failed to hold on as it closed up 3 at 3995. Google, up 1.4% today, was one of the key leaders to help keep the index in positive territory. Biotech (IBB) continued to add to the upside gaining 1% today as well. Holding the uptrend and still watching.

Russell 2000 Small Cap Index (IWM) –  Held above the 1120 level on the day, but gave up the gains forged throughout the trading day, the index closed flat or unchanged essentially. Looking for the end of year rally or January effect from the sector moving forward.

Sectors of Interest:

Financials (XLF) was one of the four leaders we were watching this week for leadership. The banks have been leading the way the last two weeks and that continue with Citigroup up 1.7% and breaking through resistance. Bank of America was up 1.1% as well. The regional banks  and insurance sub-sectors have added to the upside as well.

Consumer Discretionary (XLY) is another of the leaders coming into the week. The sector started the week flat, but JC Penny’s gained 3.5% and Macy’s was up 2% on the day. Retail continues to push the upside in the sector and worth filtering through for opportunities heading into the holidays.

Healthcare (XLV) is another of the leaders and they continued higher today. The biotech and pharma sub-sectors have been key movers for the sector short term. The index continues to accelerate to the upside following the break above the $53.40 level.

Treasury Bonds (TLT) – The yield spike last week pushed the bonds lower, but they are holding steady with the calming impact of interest rates. The risk is in the Fed cutting stimulus sooner rather than later. The market is attempting to price in the impact of that happening.

What to Watch Tomorrow:

Trading Notes tomorrow morning to set the tone for the trading day. Don’t get them? Send and email to don@jimsnotes.com to find out how to try them free.