Tuesday – Notes & Research
Netflix got the credit for positive earnings sparking a rally on Wall Street. The 1% gains pushed the S&P 500 index back into the previous uptrend and everything is good. There remains a hint of skepticism relative to the move or at least that is what the volume data shows. Today’s volume was skewed by the false tweet about the White House where there was a spike in selling and buying on the news or should we say false news. The NASDAQ helped lead the broad markets to the upside with a 1.1% gain and a move back to the 3270 resistance point.
Earnings remain the challenge and none bigger than tonight with Apple. They reported a drop in earnings of 18% from the year ago quarter, but revenue beat estimates and earnings were in line. The lower revenue forecast and margins on products was my concern, but evidently I am alone on that one. The use of capital is where the meat was for the report, at least for after hours traders. They are going to use $100 billion of the cash on hand to buy back shares and increased dividend payments. When it was all said and done… smoke and mirrors. They still need to innovate and create new products or the picture gets worse going forward.
The big global companies maintained their guidance today as part of their earnings report. This is putting some wind in the sail of XLI or the industrial machinery sector, look for a move above $40.85. There was weakness in China’s PMI data today, but based on the reports it was ignored everywhere but China. FXI was lower on the day. Global markets were looking better overall on the day, but still plenty of worries hanging over the street.
Sector Moves of Note:
- Crude oil opened lower on the day trading down to $87.80, but managed to recover to end positive on the day at $89.18. The volatility in the commodity remains, but the bounce off the low remains after three trading days. Look for a trade if crude attempts to fill the gap left on the move lower. The higher prices along with Halliburton’s earnings result pushed the oil services (OIH) sector higher (+1.8%) on the day as well. After the strong selling last week this is a sector worth trading if the upside gains some momentum.
- Natural Gas continued to trade opposite of crude oil again today. Look at the intrday chart of natural gas and it traded higher when oil was lower and lower when oil moved higher. Still holding the uptrend for now and we will look at taking our profit if the move flattens out or turns lower for now. Natural gas stocks remain sideways as well without much helping push the stock up. $22.47 support for UNG.
- Gold opened lower today and tested the entry point we outlined on the Watch List. I posted a note early in the trading day that we were testing the entry level and if it held and bounced take the trade with a max entry of $136.50. The comments from Goldman Sachs today to cover the short plays were of interest as well. Watch for the upside to be a trade to fill the gap on the move lower last week.
- Europe is testing the support at $39 on IEV. That level has held and now moved up to $40.22 as the next resistance. The rally was in response to the US markets predominantly, but the upside is worth watching for a break higher from the consolidation.
- EWI (Italy) was up 2.4% Monday off the lows and followed up today with a gain of 2.5%. The move above $12.70 was the entry and where we added the trade to the ONLYETF Model on a upside break above resistance.
- EWP (Spain) made a similar move, but at this point Italy looks better technically. But, the chart broke the downtrend short term. Both country moves aided the move in IEV.
- VIX index fell back to 13 today as the market continued higher with no worries in sight. The volatility is in a vacuum and any downside spike has been met with buyers on the other side to take the volatility out of the markets short term. SVXY was the trade again today on the continued move higher in the S&P 500 index.
Earnings mixed… AGAIN! But, all eyes are on Apple in after-hours trading. The real proof will come in trading tomorrow. The buyers stepped into the technology large cap stocks with Microsoft and Intel leading the NASDAQ 100 higher. Netflix and other are adding to the euphoria short term. Take what the market offers, but remember the music will stop and everyone will scramble for a chair eventually. Protect against the downside risk.
EACH MORNING I WILL POST AN UPDATE TO THE RESEARCH PAGE TITLED TRADING NOTES FOR TODAY! This is will take the evening notes and post what I am looking for in the trading day. They will be posted by 7 am to give you time to establish what you would like to do with the notes. .
The new home sales were positive and that helped push the homebuilders higher on the move. XHB was up 2.5% on the news.
1) US Equities:
The fundamentals are not supporting the charts plain and simple. That said, the deflationary activity of the data is impacting the markets on the upside. At some point this will all come together and the direction will be better defined than the last six weeks. We have maintained our three pivot points on the charts below until the uptrend off the November low is broken.
Sector Rotation Strategy:
The February 25th low pivot point remains in play. However, the volatility of the sideways trading is making crazy. The index was at 1563 on August 14th and it closed at 1578 today. All of the previous leaders are reestablishing their positions again on the chart. Watch XLV, XLP, XLY, IYZ, and XLU as the leaders. Watch XLF as financials attempt to move higher again.
December 28th Pivot Point for uptrend following the Fiscal Cliff pullback chart below. The trend has continued to push higher after the February 25th test. With today’s developments we have to protect against the downside and look to lock in gains if our positions are short term. Longer term holdings will be managed accordingly.
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. The move on Monday now makes it four attempts to break lower. 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.
Sector Rotation of Interest:
Semiconductors – held support and we are watching for a boost from the sector on the upside to continue to push technology stocks higher. Some rotation towards the growth sectors is needed if the index is are going to make another run higher. SMH is moving back to key resistance at $35.60. Watch to see if their is any gas left in the tank to run higher. Nice move higher on Tuesday as SMH tests the previous high at $36. Watch for a break higher now.
Consumer Staples continues to defy gravity and moves higher. The 10 day moving average is the trailing the uptrend for the sector and we hold and watch for now.
Utilities are in the same mode. Remember the current theme is deflation and that favors the defensive sectors. They continue in an uptrend and we maintain our positions with the trend.
Telecom is building a flag pattern off the vertical move higher. Hold and add to positions if we can clear the $26.10 level on IYZ. Tuesday broke higher and the positive continues. Watch tomorrow as AT&T is trading lower after-hours on earnings.
TAN – The Solar ETF jumped 5% today. SOL, WFR, CSUN and FSLR were the leaders within the ETF. This puts the fund back at resistance at the $18.12 mark and it cleared it on Tuesday. Upside remained in play.
Financials moved back above the $18.08 level Monday after testing support at $17.80 last week. No momentum from banks, insurance or brokers, but that changed slightly on Tuesday. XLF followed through on the upside and hit $18.42, KBE up 1.2% to $26.09 and KIE jumped back to $52.18 up 1.8% on the day. Some life in the sector again, finally.
- UUP – The Dollar broke the support at $22.35 mark on the downside and reversed on worries in Europe again. Still willing to watch and see how it holds up short term. Pushing back to the upside.
- FXB – the British Pound jumped two weeks ago, held the move at the $149 level. The currency is now in an uptrend off the low and moving through the current resistance at $151.50. Wednesday it sold back near the support at $150.50. For now we just have to be patient and let the pound work through the directional challenge it was facing. Took the entry on the move and the target is $152.50. $150.40 stop in place on the trade.
- FXE – The euro made gains on the week against the dollar and is in position to break higher. We were looking for an entry on the upside, but for now we will just watch to see how the short term volatility plays out.
3) Fixed Income:
- 30 Year Yield = 2.88% – up 1 basis point — TLT = $122.49 down 43 cents
- 10 Year Yield = 1.69% – down 1 basis points — IEF = $108.57 up 7 cents
Tracking Bond Sectors of Interest:
Treasury Bonds – Yields on the 30 year Treasury is finally flattening out. The economic data, flight to safety, or many other reasons have pushed money back into the bond short term. If the volatility in stocks returns look for more rotation into bonds short term. For now be patient and let this play out.
High Yield Bonds – HYG = 6.5% yield. Support remains at $92.75. Move back towards the previous highs near the $95 level. Manage the position for the dividend as the growth side is uncertain short term. I expect the trading range to remain near term. Use $92.75 as the stop. OR TBF to hedge your position when volatility picks up on the downside.
Corporate Bonds – LQD = 3.6% yield. The jump higher was in response to the rotation of assets towards safety or defensive to the stock market. This is not likely a new trend for the bond, but it starting to act like one. Use stop at the $120.50 level to protect the upside gains.
Municipal Bonds – MUB = 2.8% tax-free yield. The price of the bonds found a bottom built a small base and produced a upside trade opportunity. Watch the current resistance at the $110 level. Moving back towards the resistance at the $111.50 mark. This is a tax-free dividend play with limited upside from growth.
Convertible Bonds – CWB = 3.6% yield. Price had been moving higher on the rally in stocks. Tested the highs last week and this week we are testing support? Trading range and dividend collection.
4) Commodities – Sector Summary:
- The commodity index continued holding above the $25.50 level with oil attempting to bounce and base metals testing lows again. The downside for the sector remains and until it defines support it doesn’t make sense. DBC broke support and attempting to build support closing at 25.79 today. Without any good news… the downside remained in play.
- Natural Gas – UNG fell 3% on Monday. For now the commodity is trending higher with the test of the big move from last week. Watch, manage your stops and let this play out.
- Crude Oil – Crude broke lower and is still looking to establish support. Small bounce on Monday, but still willing to stay on the sidelines for now.
- Gold – The metal has tried to bounce, but each move stalls. GLD gapped higher today to clear $136.85 and start to fill the gap. The trade was up and sideways not offering much relative to the intraday. Watch and see how it plays out short term.
Commodities Rotation Chart:
5) Global Markets:
Global markets drop on slower economic data in China, Europe and the US. They tested lower on the news in Europe and China keep the markets in check. Scanning our watch list of Country ETFs there are some interesting moves to watch.
THD, broke higher from consolidation. EWT, bounced back toward the recent highs. EPHE, followed through to break to new high again. INDY, moved above $24.20 resistance. IDX, consolidation and break higher? EIDO, consolidation and break higher?
- FXI – Big bounce on Friday off the support levels near $34.75. A move above $36.63 would be of interest for a trade opportunity, but still plenty of uncertainty relative to the outlook for China. Use that level as a guide for any trades on the upside short term.
- EFA – Tested lower last week as the global markets continue to show anxiety similar to the US markets. Still not interested in the risk exposure and we will track for some clarity moving forward. Holding support off the $58.50 level is a positive for now.
6) Real Estate (REITS):
Real Estate Index (REITS) – IYR tested $70.73 support on Wednesday. VNQI and AMJ both gains from Friday’s trading.
- Most of the REITs are extended short term on the upside, thus the test in IYR. Watch and manage your stops.
- Scanning IYR we find the charts look very similar on the upside. SFI, VNO, PLD, LXP, FR, KRC, ARE and HST show some consolidation and potential upside worth putting on a watch list short term and find the opportunities.
- Mortgage REITs are selling back towards support and worth watching. NLY, REM, IVR, WMC and MBG.
- RWO – SPDR Global Real Estate ETF is in a positive uptrend and hit a new high. Watch for test of the move if markets struggle.
- REITs and MLPs mixed in the same ETF with MDIV is a good alternative to picking through all the choices. This mult-assets income fund pays a 5% dividend.
7) Global Fixed Income:
Sector Summary: Tested lower on Monday with the rest of the world markets.
- The sovereign debt issues are fading again and opening the upside potential as the issues find relief. This offers some short term trading opportunities, but you still have to be aggressive in managing your exposure.
- 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.
- PICB – hit support traded sideways and now breaking higher. Entry $28.95 + 3.1% dividend.
- EMB – Big recovery and interesting in watching. 4.3% dividend yield. Entry $120.25
- PCY – Big recovery as well off the low for short term play. Entry $30.60. 4.8% dividend yield.
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.