Markets Coast Higher…

Tuesday – Notes & Research

Dow closes above the 15,000 level – strike up the band and let’s all have a party. The headline are full of comments relative to new highs and runs in the market currently. However, there is precious little on the facts surrounding the move and how it fits with the current fundamental and economic growth data. Just keep buying and we will worry about the details later? This reminds me of the person on the phone asking, “what do you mean I can’t pay my Visa bill with my Mastercard?”

Another day on the upside and no closer to a test than when we closed yesterday. Oh well, all things in due time, my mother always told me! I will be patient and manage what I can control… my stops.

Sector Moves of Note:

  1. S&P 500 index the move to 1625 with an across the broad move in the sectors. No need to test any moves higher as investors are blind with belief that all is good and there is no stopping this momentum. The close now moves above the trendline by 4%. That puts the close at the top of the up trending channel off the November low. If you put Bollinger bands on the chart it is breaking through the upside of the bands. Or simply put… overvalued.
  2. I posted yesterday I would like to build a hedge position against the portfolio in the event all the bulls are wrong. SPX (S&P 500 Index) put options are the simple way to do this. You purchase the amount needed to protect the portfolio for no more exposure than the premium paid for the options. Click this link for CBOE Explanation.
  3. NASDAQ 100 index was off slightly as the large cap technology stocks moved down, led by Apple. Watch to see how this plays out tomorrow.
  4. Gold was down 1.2% closing at $140.38 on GLD.  The downside is still the direction we have been focused on short term. A retest of the $1350 level near term. Watch to see how it plays out. Added GLL to the watch list.
  5. Oil became the speculation play as crude climbed above $96 per barrel. Still see no logical reason for the move, but that doesn’t stop the speculation. The price moved to resistance and tested lower. Looking for a potential downside play on crude if we fail to hold near term support. ONLY ETF Watch List
  6. Agribusiness ETF hit the entry today on the ONLY ETF Model.
  7. Utilities bounced off support gaining nearly 1% on the day. We discussed the exit plan on this yesterday, but the bounce give some breathing room. Watch to see how it plays out moving forwards. Patience with the upside.
  8. China held the move higher from last week, but not overly convincing day. patient with adding any new positions.
  9. Financials followed through on the upside and holding the break higher. Bank stocks move higher to lead the way with both KBE & KRE up more than 1.2%. Still positive looking forward.
  10. XLE (energy) extended the move above the $80 resistance mark. Was higher intraday, but remains in position to move higher short term. This gets interesting with crude hitting resistance as well on the upside.
  11. Bonds continue to struggle as yields rose to 3% on the 30 year bond.  I expect some resistance at this level currently. Be patient and let this all play out.

The market continues to grind higher, but still looking for that sign of conviction from the buyers. Take it one day at a time and remain disciplined with your stops.

Economic Data:

No data today as investors are left to trade on their own thoughts… again.

Economic Events & Calendar 

1) US Equities:

The broad indexes hold the move higher from Friday and the upside remains in play.

The April 18th chart below is the last low in the test off the April 11th high. Leaders are materials, technology, energy and financials off this pivot point. Consumer services and industrials are adding to the upside as well. The laggards are consumer staples, healthcare and utilities. The defensive stocks are selling as money rotates to the hotter sectors currently.

Scatter 418

Sector Rotation Strategy: 

The February 25th low pivot point remains in play relative to the trend. However, the volatility of the sideways trading is showing in the chart starting on April 11th, thus the chart above. Uptrend still in play, but the continued test leave plenty to worry about.

Scatter 225

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback chart below. The trend has continued to push higher. The trend remains higher, but the short term volatility is picking up. Watch the downside risk and protect your gains appropriately.

Scatter1228

November 15th Pivot Point is the start of the current uptrend. Target 1550-1575 was attained and now there is pressure to test the move. The trend has overcome two attempted moves lower to maintain the uptrend. Watch the trendline as the support on the current pullback. A break of the uptrend brings downside options back into play for the short term.

SP500Scatter

Sector Rotation of Interest:

Technology (XLK) –¬†Break above the $30 level again was the entry point and it has followed through nicely on the upside. Getting extended and we need to protect the downside.¬†Target¬†remains $31.65.

Consumer Staples (XLP) Рthe downside relative to earnings and warnings from the big cap stocks is and remains a concern. Even with the solid gains on the week for broad index, the sector struggled. Keep your stop tight and watch how the trend plays out next week. $40.75 is the short term perspective stop.

Healthcare (XLV) Рthe biotech and pharmaceuticals stall from earnings are weighing on the sector. $46.80 support level held and solid bounce, but still showing some weakness. Protecting the gain is the priority. Keep stops at the $46.80 mark and let it go for now.

Energy (XLE) РMoved back above the $78.25 level, but still has to conquer the $80 mark. All positive for now, but watching the downside risk. The price of crude is back near the $95 mark  and has helped the push higher.

Telecom (IYZ) РMoving higher, but consolidating near the high. Still like the uptrend here and if we can move above the $26.90 level it would be a big positive for the sector going forward. Consolidating. $26.10 remains the exit point.

2) Currency:

Since the high on March 27th the dollar has essentially moved sideways to down. Starting April 23rd the dollar steadily declined until bouncing on May 1st. The chart below shows the path of the dollar almost sideways. At the same time the euro (FXE), the yen (FCY), the Krona (FXS) and the Canadian dollar (FXC) have all attempted to move higher, but still move the direction of the dollar, sideways. Looking for a trend to develop short term. No trend worth owning at this point.

Currency

Sector Watch:

  • UUP¬†– ¬†The dollar remains sideways and the balance of the currency has accomplished¬†essentially¬†the same.

3) Fixed Income:

Sector Summary:

  • 30 Year Yield = 3.00% – ¬†up 2 basis points — ¬†TLT = $120.16 down 47 cents
  • 10 Year Yield = 1.78% – ¬†up 1 basis point — IEF = $107.83 down 15 cents

Tracking Bond Sectors of Interest:

Treasury Bonds¬†–¬†Yields on the 30 year Treasury¬†was falling again as money rotated towards the bonds. There are concerns, but also money flow into the US Treasury bonds from the international markets looking for safety and yields. Watch as this continues to be a leading indicator for equities. Last two days have relieved some of the pressure¬†with yields rising and prices declining.

High Yield Bonds РHYG = 6.5% yield. Support remains at $92.75. Move back above the previous highs at the $95 level. Manage the position for the dividend as the growth side is uncertain short term. Use $92.75 as the stop ($95.20 short term trades). The risk is rising with each step the fund takes.

Corporate Bonds РLQD = 3.6% yield.  Bonds have dumped with the rise in rates short term. Hold with stop at $120.80.

Municipal Bonds РMUB = 2.8% tax-free yield. Moving back in an uptrend ever so gradually. Collect your dividends and let it ride for now. Still climbing steadily.

Convertible Bonds РCWB = 3.6% yield. Price had been moving higher on the rally in stocks. Broke to a new high and steady as she goes. Keep and practice dividend collection.

4) Commodities –¬†Sector Summary:

  • Commodity Index¬†(DBC) – Moved back to resistance at $26.50. Need a break higher to play the sector overall.
  • Natural Gas¬†– (UNG) posted a big loss on Thursday… down 6.2% as oil climbed more than 3%. $21.17 support. No play currently. Watching for support to catch.
  • Crude Oil¬†– (OIL) Crude moved up on speculation of improving economy? Yes, that is called speculation. Watching the downside opportunity on the move. .
  • Gold –¬†(GLD) Fill the gap was the plan and it is¬†still working on the plan. Downside is where I am looking with GLL. Willing to wait and le the play develop for now. Dropped 1.2% on Tuesday? Watch the entry.
  • Gasoline¬†– (UGA) Resistance is at $56. Made it through that level today and worth a trade on a break higher with crude holding steady for now. Testing the break higher Tuesday.

Commodities Rotation Chart:

I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point. 1) UNG Рdumped lower the last week. and continues to support.  Watch $21.25 support? maybe a short setup  2)  DBB accelerated off the low? $17.25 entry level for trade.  3)  JJC Рcopper jumped on positive economic data. 4)  OIL -jumped on economic data. 5)  UGA РGasoline moved with oil finally? This is getting interesting for some short term trades posted above.

Commodity

DBC –¬†PowerShares Commodity Index ETF¬†(click to view) Composite of 14 commodities tracking index.

5) Global Markets:  

Global markets are trading in tandem with the US. No reason to be moving higher, but content to do so. China, Europe and Australia have taken on the leadership since the 18th of April. Watch and take what the market gives. Today they traded higher with the US markets. EFA broke higher in tandem with the US markets. Sweden (EWD), Germany (EWG) and France (EWQ) are leading the country ETFs higher.

Global Mkt

EFA –¬†iShares EAFE Index ETF¬†(click to view) 10 Developed Countries making up Europe (66.6%), Australia (8.9%)¬†and Far East (24.5%). (Weighting of fund) Not most balanced, but give indication of global markets.

Country Watch:

  • Most of the country charts are starting to group together. They are tracking along with the US markets of late. EFA is a good barometer for trading the developed markets and VWO for the emerging markets.

6) Real Estate (REITS):

Real Estate Index (REITS) РThe sector continues in the uptrend overall. My rating is a HOLD currently.

Sector Summary:

  • IYR – Support is $70.50 and our stop is at the same level. Still moving up gradually and we continue to hold and collect our dividend as well.
  • This weeks scan of IYR has turned up… 1)¬† JOE – building a base and looks ready to break the downtrend. 2)¬† FCH – trading range near the high. Look for continuation of the uptrend. 3)¬† JLL – sideways consolidation with resistance at $100. 4)¬† RYN – consolidation near the high move above $59.75.¬†5)¬† VNO – consolidation near the high $88 breakout level. 6)¬† BMR – consolidation near the high $22.70 breakout above resistance.
  • REM – Mortgage REIT continue to struggle.¬†The downside remains a concern and we continue to look for the opportunities, but not interested currently in owning the sector.
  • RWO –¬†SPDR Global Real Estate ETF¬†is in a positive uptrend and hit a new high. Manage your stops accordingly.
  • MDIV –¬†First Trust Multi- Asset Income ETF¬†is a good alternative to picking through all the choices of income funds. This multi-assets income fund pays a 5% dividend.

7) Global Fixed Income:

Sector Summary: Making another move to the upside short term.

  • There are some funds moving in favorable direction of late.
  • PAFCX – Bounced off low with the movement in yields going lower. Holds $11.60 worth owning short term. The bounce remains in an uptrend and the dividend is the play.
  • PICB – hit support traded sideways and broke higher. Entry $28.95 + 3.1% dividend. The upside previous high is now in play. Watch and adjust your stop to $29.15
  • EMB – Big recovery and interesting in watching. 4.3% dividend yield. Entry $120.25. Breaking higher following the consolidation adjust your stop to $120.50 and go forward collecting the dividend.
  • PCY – Big recovery as well off the low for short term play. Entry $30.60. 4.8% dividend yield. Breaking higher as well. Raise stop to $30.70 and collect the dividend.

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 losse