Markets Continue the Move Higher

Wednesday – Notes & Research

Because of travel posting the essentials tonight…

Sector Moves of Note:

  1. S&P 500 index closed at 1658 gaining 0.5% and breaking above the current consolidation. The trend remains in play on the upside and the worries are fading again.  The volatility moves to the upside and the break higher is positive.
  2. The dollar moved to new highs this week and continued higher today. Watch for the upside to continue as the central banks around the world continue to focus on devaluation.
  3. Biotech which has been leading the healthcare sector higher tested the move down 1.5%. Watch for the upside to continue… if it breaks down could get interesting short term for the healthcare sector.
  4. Consumer staples (XLP) broke from the consolidation range and has jumped higher the last two days following through on the upside move. Consumer services (XLY) has equally moved to the upside as the consumer data remains positive.
  5. Banks have been moving the financials and the upside remains in play, but the stops need to be tightened up to protect the gains on trade positions. Long term holdings can give more room for volatility.
  6. Utilities sold lower last week, but managed to bounce off support Tuesday and climbed higher today gaining 1%. Watch for the upside off the low to follow through.
  7. Technology continues to lag this week on the upside gains. XLK remains near the highs and looking for upside momentum if the leadership from this sector is to resume.
  8. Bonds yields have been rising, but took a break today as TLT found some support at the $116.50 level. Watch how this settles and tighten stops on TBF.

The market continues to grind it out each day we shifted back to the that mode on Wednesday. Take it one day at a time and remain disciplined with your stops.

Economic Data:

Plenty of data out today as PPI was in line with expectations, Empire State disappoints, industrial production was lower than expected and homebuilders index was disappointing.

Economic Events & Calendar

1) US Equities:

The broad indexes hold the move higher this week 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 regaining some momentum. Financials, Materials, Consumer Services, Industrials and Technology are leading the upside.  Telecom and energy have been steady, but teh healthcare and consumer staples have reversed off the recent selling and heading higher. Still some rotation in process, but that has slowed as the outlook gets focused on the Fed.

0418 SP

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.

0225 SP

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.

1228 SP

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.

SP Scatter

Sector Rotation of Interest:

Technology (XLK) – Break above the $30 level 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. Hit the target intraday and testing the upside. Adjust your stops and remain focused. Didn’t get the big participation on the upside today?

Consumer Staples (XLP) – the 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. The upside continuation play today with a gain of 1% is  a positive for the broad markets.

Healthcare (XLV) – the biotech and pharmaceuticals stalled from earnings and weighed on the sector. $46.80 support level held and solid bounce, but still showing some weakness. Keep stops at the $46.80 mark and let it go for now. Friday moved to the top end of the range again and broke higher. Monday it did follow through and break higher with the help of the biotech stocks. Tuesday and Wednesday added to the upside acceleration.

Energy (XLE) – Moved above the $80 level and held into to end the week. All positive for now, but watching the downside risk. Watch to see if there is any upside follow through as it is happy to consolidate near the $80 level. Nice follow through on Tuesday pushing above the $81 level.

Telecom (IYZ) – Moving higher, but consolidating near the high. Still like the uptrend here and we moved above the $26.90 level and now looking for a move on the upside going forward. $26.10 remains the exit point. Uptrend working higher for now.

Utilities (XLU) – breaking down short term on some selling. The fund managed to hold support at the $39.60 and the 50 day moving average. Watch how this plays out short term. If the bounce holds looking to add some shares at this level of the test. Got the bounce on Tuesday and follow through on Wednesday.

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. It has not accelerated back to the previous high and looks ready to move higher. The chart below shows the path of the dollar. Solid break higher on Tuesday watch for the trend to extend higher.


Sector Watch:

  • UUP –  The dollar has been trading sideways and the bounce the last four trading days, breaks to new high. The balance of the currency market has accomplished sideways to downside moves.

Sector Summary:

  • 30 Year Yield = 3.16% – no change in basis points —  TLT = $117.34 up 78 cents
  • 10 Year Yield = 1.94% –  no change in  basis points — IEF = $106..99 up 28 cents

Tracking Bond Sectors of Interest:

Treasury Bonds – Complete reversal on the yield has pushed the bond lower and is in position to test the previous low. Not a place to be other than short the bond. TBT. Small bounce for the bonds on Wednesday and watching to see if that unfolds.

High Yield Bonds – HYG = 6.5% yield. Support at $94.75. Moved up to $96.25 and met with some selling on the shift in yields and risk. Manage the position for the dividend as the growth side is uncertain short term. Use $94.75 as the stop. The last two days move shows the risk in the bonds currently. $95.20 support?

Corporate Bonds – LQD = 3.6% yield.  Bonds have dumped with the rise in rates short term. Hit the stop at $120.80 as the selling accelerated. HIT STOP on Friday. Still moving lower and no interest for now. Is $119.60 support? Watch to see how it plays out.

Municipal Bonds – MUB = 2.8% tax-free yield. Shifting gradually lower as the risk relative rates is in play. Collect your dividends and let it ride for now.

Convertible Bonds – CWB = 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. Not holding the move. Watch and be patient. $25.90 support in play?
  • Natural Gas – (UNG) posted a big loss last week and still no bounce. $21.17 support. No play currently. Watching for support to catch. So far so good? Move above $22 could develop a long play short term.
  • Crude Oil – (OIL) Crude moved up on speculation of improving economy? Yes, that is called speculation. Watching the downside opportunity on the move. Closed below support at $94 on Tuesday, tested intraday to the 200 DMA and bounced back to close at the $94.40 mark. Volatile, but no clear entry for now.
  • Gold – (GLD) Big break lower on Wednesday confirms the downside again in play. GLL
  • Gasoline – (UGA) Resistance is at $56.80 now. Watch to see if it can follow through on the upside move. Tested again on Monday, but still upside if the commodity decides to run.

Commodities Rotation Chart:

I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point. 1) UNG – dumped lower found some support and is attempting to move higher.  2)  PALL is moving back towards the high as the driver in the sector 3)  JJC – copper jumped only to reverse and move lower. 4)  OIL -jumped on economic data, but looking toppy short term setting up short. 5)  UGA – Gasoline moved with oil finally? This is getting interesting for some short term trades posted above.

DBC rotat

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

5) Global Markets: 

Global markets have been trading in tandem with the US, but the downside in the global markets has been worthy of note the last couple of days. Japan is still moving higher in the chart below, but the others are drifting in line with the US and some are falling like India and China. Still high level of risk in the global markets short term.

EFA Rotation

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) – The sector continues in the uptrend overall. My rating is a HOLD currently. Holding above the 10 DMA for now. Let the trend run its course.

Sector Summary:

  • IYR – Support is $73.50 and our stop is at the same level. Still moving up gradually and we continue to hold and collect our dividend as well.
  • 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. Monday broke support at $15.10 and now at the 200 DMA.
  • 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. Sharp turn lower on Friday with stop at $11.60.
  • PICB – hit support traded sideways and broke higher. Entry $28.95 + 3.1% dividend. Turned lower as the money rotates out of the sector.
  • EMB – Big recovery and interesting in watching. 4.3% dividend yield. Hit stop on reversal lower at $120.25.
  • 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. Hit stop on Monday.

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 downs