Markets Experience Late Day Selling

Monday, September 10th

The positive momentum from last week did not carry over to today. The selling started late in the trading day as the short interest and profit taking worked to push the NASDAQ down 1% on the day. Technology was the leader on the downside with the SOX index dropping more than 1.8% on the day. Intel was the challenge as they withdrew their guidance in light of the challenges in the PC sector. This is definitely not a good sign going forward for the sector.

Financials gave back 0.8% led lower by the broker-dealers. Morgan Stanly was off 2.7% on the day as investors took some profit from the move last week. Banks were lower as 2.5% giving up some of the gains as well. What started out as a market content to move sideways through most of the day ended with a flurry of selling.

The old adage of you can’t fight the Fed has played out well since the June low. However, if the Fed doesn’t follow through on stimulus you may not have to worry about fighting them, investors are likely to gang up on the downside until the Fed does take some action relative to stimulus. This remains a stimulus driven trend.

Below we discuss all the moves that were made today and the impact and importance to each sector.

1)  US Equities:

S&P 500 Sectors-to-Watch – The index fell back to 1429 on the close as investors remain timid towards the outcome of the current market environment. Weakness in the leaders today pushed the broad index lower and in a position to test the move higher. 1420 is a test of the breakout move from last week and then 1395 comes back into play as support. The stimulus remains the driving factor short term and everyone is watching to see how it plays out.

WATCH: Entry $142.50 – Stop $141.30

Energy РUncertainty would be one word for what has been happening to the price of crude oil and the sector overall. The selling in XLE tested support at the $70.40 level and held. The bounce on Thursday and Friday put the ETF back above the $73 resistance for now. The move  needs to confirm the break as we start a new week of trading. UNG fell 3.74% the last two days and tested support again, but jumped more than 5% on Monday??? UGA gained is at a new high Рtighten your stops on the play. OIL was flat on the day. The mixed results are all swirling around the demand versus hope of higher demand. The numbers are what we will ultimately trade off of, but the emotions are in play for now. We have to be patient and let the uncertainty play out short term.

WATCH: HES – Entry $51 – Stop $51.20 (Raised Stop)

Financials РThe sector pulled back from the move higher today. The trend higher remains in play and we are digesting the move higher. The relief relative to Europe helped push the sector higher. Banks and brokers have been leading the move higher, but we need to watch the response on Monday in the sectors.

WATCH – XLF – Entry @ 14.55 – Stop 15.35 (on the close) — WATCH: KBE – Entry – 22.80 – Stop – 22.90

Healthcare РThe sector has been trading sideways. We dropped to support at $38.40 and held. Moved up to $39 and stalled, but we finally move through the resistance and pushed higher.  IHF moved up nicely off the lows and and hitting new highs. XPH moved off the lows as well, but stalled near the $61 mark on Friday.

WATCH – XLV – Entry @ 38.10 & $39 — Stop $38.80 (Raise Stop)

Biotech – The sector broke from the consolidation and was worth the trade on the upside play. The sector is helping drive the healthcare higher as well. Solid move to the upside and we have raised our stop to protect the gains.

WATCH РXBI РEntry at $89  РStop $90.40

Consumer Services – The consumer services sector has the retail stocks support relative to the trend higher. XLY and XRT are both moving higher short term. Digging in and looking for the leaders has been the best play. JC Penny’s broke above our entry point and continues higher with the sector overall. Take the upside, but protect against the downside short term. Adjusted stop today on the late day selling.

WATCH: XLY – Entry 44.50 – Stop 46.20 (Raise Stop) / JCP – Entry 25.50 – Stop 27.30 (Raise Stop)

Semiconductors – The sector has been testing lower and the downside leadership has been from Intel. The sector remains weaker,¬†and the bounce in the broad index didn’t hold and the sellers are back. Watch and manage the play short term. SMH hit our stop and we took the exit. Intel reversed again on Friday and the downside play is working. The announcement to withdraw their earnings guidance pushed the stock even lower.

WATCH: Short Intel (INTC) – 24.55 – Stop – 24 / WATCH: SMH – $30.30 Entry – Stop $32.60 (HIT STOP)

NASDAQ Index – Moved back near the 3045 support reversed and has now moved through the 3090 resistance. The upside momentum has been as a result of the technology stocks, but the downside risk in in the semiconductor stocks. The momentum is shifting to the downside. The trend is up for now, but manage your risk.

WATCH: – QQQ Entry @ 65.25 Friday. Stop 68.25 Watch the move lower on Monday.

Small Cap Russell 2000 Index – The upside move off the July 30th bottom was positive, but we struggled with resistance at the $81.75 level. Moved above $82 on Tuesday… held,¬† and we are now moving forward.¬† The key is to protect the gains we have and see how this plays out short term.

WATCH: IWM -Entry 79.60 – Stop – 83.20 (Raise Stop)

Volatility Index – The index broke low lower last week, but returned with some attitude to start the week. The VIX should move lower if the rally is going to continue, but the recent volatility increase my have different plans short term.

WATCH: VXX – looking for a reversal.

2)  Currency:

Dollar РThe dollar started lower on the FOMC rumors and the ECB stimulus is helping push the dollar lower as well. The risk for the dollar has been stimulus from the Fed and the ECB. We remain short the dollar and the bump lower Friday sets up for further downside.

WATCH: UDN – Entry $26.40. – Stop $26.40 break-even.

3)  Fixed Income:

Treasury Bonds – The bond had reversed course on the stimulus from the Fed short term. Breaking support again at the $124.50 level again. Watch TBF for a short play.

WATCH: TBF – 29.35 Entry

4)  Commodities:

Crude Oil – Testing near the move higher as the fear factor steps up on the stimulus packages not materializing. The risk trades are coming off and that is impacting the commodities. Manage risk of the play and mange your stops.

WATCH: OIL – Entry 20.75 – Stop 22.95 (stop on the close)

Gasoline – Can’t decide as it trades near the high… up or down? The upside is still in play, but watch oil prices and if they stall at resistance. Watching for a test short term on the steep move higher. Made move back above the $60 mark on Thursday again… Watch and manage your stops.

WATCH: UGA – Entry at 52.75 – Stop 58.50 (Stop on the close)

5)  Global Markets: The global markets responded to the ECB stimulus anticipation. The EAFE index has rolled over and is testing support near term. The gain of 2.5% on Thursday came from the ECB news. Small give back on Monday, but we have to be aware of the downside risks.

WATCH: EFA – Entry 52 – Stop – $52 (raise stop break-even)

Brazil Small Cap – Bought on the move to the channel top at $37.50 with potential move higher. Solid move and follow through on the upside breakout prompted the entry at $37.60. Manage the trade and Raise Stop to $39.40 on move higher.

WATCH: BRF – Entry 37.60 – Stop – 39.40 (Raise Stop)

6)  Real Estate (REITS) РThe sector remains near the current highs. I like the outlook long term, and short term we have made a move back to the top end of the trading range. IYR made the move through the top end of the trading range and hit a new high. Still scanning and looking for the best opportunities.  Mortgage REITs (REM) bounced off the selling and headed back to a new high. The uptrend remains in play. Yield on the fund is above 11% currently.

WATCH: IYR – Entry $65.30 – Stop $65.30 (Raise Stop)

7)  Global Fixed Income РThe issues with sovereign debt in Europe keeps us out of the asset class currently. Emerging market bonds (EMB) tested lower and bounced off support to move higher. Passed on the opportunity due to risk/reward. International Corporate Bonds (PICB) and International High Yield Bonds (IHY) remain in a long term uptrend and moved higher on Friday. Hold positions and manage your downside risk.

MONDAY:

Tomorrow is the beginning of the FOMC meeting and stimulus hopefuls. There will be plenty fo speculation over the next two days as to what action if any the Fed will take. Key to the week is the outcome.

Watch the downside risk as the events on the week will have either a positive outlook or more selling will come itno play.

China (FXI) big reversal off the jump higher on Friday. Indecision relative to the outlook short term.

What am I watching:   1) MSFT РBreak above $31 would be a break from the consolidation pattern. Hit on Thursday, but pulled back into the consolidation. 2) Facebook (FB) is approaching our target of $15. Bounced 7% last week.  Watch the upside for a lift and entry opportunity. The move back to the upside is going to take some conviction to buy. 3)  Financials to provide the key leadership higher. BAC, C, MS, JPM, etc are on my watch list. 4) DBB Рthe base metals have picked up in response to the stimulus from China? They have run fast and may want to wait for a test on entry. 5) TBT РShort Treasury play is attempting to break higher as yields fall. If the Fed acts on the stimulus it could be an issue. Watch for possible move higher short term.

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.