Markets Like Economic Data End Week on High

Friday – Notes & Research

S&P 500 index jumps higher on economic data pointing to a happy consumers. Another case of take what you like and push stocks higher? The buyers are willing to step in and do what needs to be done at this point. The shorts are getting squeezed and it could cause even more of a push on the upside short term.

The NASDAQ climbs gracefully towards the 3500 level. The technology stocks have helped with solid moves on the upside the last two days. The only thing I can offer looking at the chart is to manage your stops in the event of a reversal short term.

The market confirms the trek higher and we go with the trend until it stops. All tables and watch lists will be updated by Sunday evening for next weeks trading.

Sector Moves of Note:

  1. S&P 500 index closed at 1650 giving back the gain from Wednesday.  The trend remains in play on the upside, but volatility seems to picking up slightly. We will see how the VIX index plays out on Friday.
  2. Gold and Goldminers continue to struggle on the downside. Gold is testing the $131.70 support level again. The downside is in play and a break of this level opens the downside further. We added GLL this week and look to hold and manage the position near term.
  3. Natural Gas (UNG) Testing bottom of the trading range. Watching to see if it breaks below the trading range for a potential short play.  KOLD is the 2X short ETF.
  4. Biotech testing the the upside breakout. Watch the $107.35 support level. Held and bounced on Friday? This has been the key leader for the healthcare sector and thus, we need to watch to see if the upside materializes or there is a reversal going forward.
  5. Banks have been moving the financials and the upside remains in play, and we recommended tightening  stops to protect the gains on trade positions. Long term holdings can give more room for volatility. Good move on Friday following the test on Thursday.
  6. Utilities are still testing the downside move short term. The bounce off support is holding, but we still have to aware of the downside risk. SDP is short utilities ETF (low volume).
  7. Technology (XLK) cleared the $31.70 resistance and looks ready to make a move higher? We did get a follow through on Friday, but still watching here as the sector looks overextended. Adjust stop to the $31.60 level on trading positions. Longer term adjust to your risk/volatility tolerance.
  8. Bonds yields have been rising, but stalled Thursday only to resume on Friday. The yield is 3.14% and poised to move back towards the 3.27%. Doesn’t sound like much, but it would be nearly a 50 basis points move off the low at 2.8% just three weeks ago. TBF or TBT remain the play and¬†bounced¬†back today from the selling on Thursday. A move below 3.075% yield would be the exit point from the short play.

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:

Consumer sentiment jumps to new high with a reading of 83.7 up from the 76.4 reading in April and well ahead of expectations. Falling gasoline, rising stocks and a recovering housing market were the catalyst behind the number.

Leading Economic Indicators were up 0.6% and double the expectations. That is a seen as a positive as it is a forward looking number versus historical.

Economic Events & Calendar

1) US Equities:

Another up week for the broad index. The S&P 500 index managed to hit yet another high and the buyer continue to step in and buy at each opportunity. There are plenty of opportunities, but equally there are as many challenges facing investors going forward. Stay the course, manage your exit points, profits and stops.

The volatility index remains in a sideways motion and testing the lows of 12 and high of 13.5 currently. This leaves the buyers firmly in control of the trend and the upside for the index.

The April 18th chart below is the last low in the test off the April 11th high. Leaders regained  momentum. Financials, Materials, Consumer Services, Industrials, Energy and Technology are leading the upside.  Telecom is still trending higher after a short dop lower. Utilities are still in the cellar with healthcare and consumer staples moving sideways.

Scatter 418

The current trend started on November 15th and has been tested by the the ‘fiscal cliff” issue bottoming on December 28th, The February 25th low pivot point was prompted by FOMC rumor of withdrawing stimulus, Cyprus on March 14th and the April test on economic worries. ¬†The¬†original¬†target for the move was 1550-1575 which has been obtained.The uptrend remain in play, but the extended move has brought equal concern to the current highs.

SP500Scatter

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. Holding for now and tightened our stop in response to $31.60.

Consumer Staples (XLP) РMoved to new high and is now testing the break through resistance of the trading range. The last two days we have been testing the breakout and we need to be aware of what is driving the sector. $40.75 is the short term (trading) stop. Some give back on the selling today. Watch to see how this unfolds looking forward.

Healthcare (XLV) РThe sector broke from the consolidation or trading range to the upside this week. The test on Thursday is just that for now. Track to see how this plays out short term and mange your stops. IHF Рpushing against resistance at the $82 level. XPH is testing with $68.25 support. IBB is testing the $180 support level.

Energy (XLE) РMoved above the $80 level and held. All positive for now, but watching the downside risk. Watch to see if there is any upside follow through as it seems to be happy to consolidate near the $80 level. Moved to $81.75 on Friday as positive bias returns to the sector. XOP clearing the $60.75 level currently. IEZ  is breaking above the $59.35 resistance.

Telecom (IYZ) РMoving 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) Рbreaking 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. Work through the challenges this week.

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 accelerated back to the previous high and higher. One small test this week, but hit a new high on Friday. The chart below shows the path of the dollar against the other currencies.

Currency

Sector Watch:

  • UUP¬†–¬† The dollar has been trading sideways and the bounce on April 8th has led to new high. The yen (FXY) and the aussie dollar (FXA) have been pushed lower. The dollar continues to gain upside¬†momentum.

Tracking Bond Sectors of Interest:

Sector Summary:

  • 30 Year Yield = 3.16% – up 8 basis points —¬† TLT = $117.17 down$1.39
  • 10 Year Yield = 1.95% –¬† up 9 basis points — IEF = $106.93 down 57¬†cents

Treasury Bonds РComplete 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 Thursday and watching to see if that unfolds. short is still  the side for now.

High Yield Bonds РHYG = 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 РLQD = 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 РMUB = 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 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. Not holding the move. Watch and be patient. $25.90 support in play?
  • Natural Gas¬†– (UNG) Gave up three days of gains back to support and looks ready to break lower? Dropped more than 3% on Thursday. KOLD Short play with break below $21.15. Friday bounce midday back to the top side of the current range? Watching for direction.
  • Crude Oil¬†– (OIL) ¬†Moved back to the high of $22.50 and wants to climb higher on economic data? Yes, I didn’t say it, analyst did. Not getting the outlook, but still watching what happens going forward.
  • 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. Made the move now the continuation is worthy of attention.

Commodities Rotation Chart:

I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point. PALL is moving higher and leading the metals. UGA is making move to the upside. OIL back to the near term highs. The balance of the sector is vertically challenged. Be patient and let the winners define themselves before going into sector.

Commodity

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. Still high level of risk in the global markets short term.

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 have trading sideways to down. 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. 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. Scan the ETF for the leadership and track.
  • 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: Complete reversal low and uninteresting in the sector currently.

  • There are some funds moving in favorable direction of late.
  • PAFCX – Broke down aggressively short term and testing support at $11.50.
  • PICB – Breaking aggresively lower short term. 3.1% dividend.
  • EMB – Finding support at the $119.25 level. 4.3% dividend yield.
  • PCY – Finding support at the $30.30 level. 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 downs