First, let us be clear the market followed through on the bounce started Friday off support. This was one of the two options we discussed in the weekend update and today was another push in that direction. Second, crude oil fell to $106.20, but the issues in Iraq are far from over and disruption in the production of oil from Iraq will have an impact price and supply chains and that is not good for the global consumer. Third, investors are willing to add risk back to their portfolio as seen by the rise in small caps, biotech and technology stocks. That bodes well for the current bounce and uptrend.
Tomorrow the FOMC meeting concludes and many are watching to see what if anything new comes from the Fed, good or bad. Not much in terms of change is expected, but you always have to be aware of the what the Fed wants and what direction they are stirring the ship.
On a side note, the SEC stated they were virtually done looking at 2008 financial crisis. Wow, only six years to investigate and find essentially nothing, punish no one and pass new regulations that are ineffective in preventing it from happening again. The good news, they are able to focus on other areas now and create new regulations and compliance requirements. How many billions did that cost the taxpayers?
Notes to Note:
- Volatility? What volatility? VIX is back at 12.2 and all is well.
- Oil moves to $106.20, but the issues in Iraq are still on the table and no resolution in sight.
- Interest rates on the thirty-year bond rise back to 3.44% and the ten-year is at 2.65%. The crisis is over and the yield is ready to rise again? Watching this and TBT for trading opportunities.
- Small caps (IWM) followed through to $117 and $118.50 is the next level to attain. Move above $117 would be a continuation of the upside and follow through to the breakout from consolidation above $113.
- BBN jumped 2.5% on comments from Bill Gross. The break from the consolidation spiked on four times average volume. Held the move on similar volume after early test lower.
- TAN breaks through resistance as the alternative energy space benefits from the rise in crude prices. SCTY up 17.6% on the day with YGE up 11.2% and JASO up 9.5%. PBW broke from a bottom reversal test on Monday and strong follow through today with 3.3% gain as we suggested last night.
- QCLN – Clean Edge Liquid Series ETF jumped 3.4% today as the alternative/clean energy benefits from the rise in crude prices. If the issues in Iraq worsen in the view of investors the sector will continue rise.
- MLPs have been pushing to new highs as well. They are benefiting from the move in the energy sector and oil prices. NGL hitting new highs. FEI joined with 2% gain on the day.
- DBB bounced for the third day off the test of the trendline. Steel (AKS) and Copper (JJC) both added again to the move on off recent lows.
- India was back on the upside today after testing lower. PIN gained 2% and worth our attention if the reversal holds the upside.
- Banks (KRE & KBE) made solid moves on the upside today after testing lower. Watching to see if the uptrend resumes and any opportunities arise. OZRK up 2.3% today. NTRS broke from consolidation today with 2.6% gain.
The chart below is a comparison chart of the largest holding in Guggenheim Solar ETF. We discuss the use of comparison charts in our webinars and use them in our research for a visual tool in sectors that are accelerating to find the leadership. As you can see there has been plenty of movement from the current pivot point on May 20th. Expect volatility as this all plays out short term.
TAN – Solar Energy ETF broke higher and followed through at the sector continues to benefit from move higher in crude oil. Scanning the sector today showed solid moves in all the stocks. JA Solar ads was up 9.5%, but also broke the downtrend line and moved from the trading range to reverse the trend back to the upside, it is clear on the chart below.
Small caps have broken the downtrend line tested the move higher twice and now have held the $115 support on IWM. The upside break through $117 and towards $118.50 is the next trick for the sector. A push back to the previous high of $120 is not out of the question either. This we added as a trade on the move above $111.50 and has played out well along with some volatility. Stop at $114.80 currently and watching to see if the upside continues to provide the needed leadership.
Choppy is still in play, but the bounce off support is gaining some momentum short term. We have to take what the market delivers short term and manage the risk of our longer term positions as well. Don’t let the short term volatility confuse the uptrend in play longer term. The long term trends are still in the upward direction and their is plenty of room between the current close and those trend lines on the downside. Manage your risk relative to your time frame and remain patient.