Markets Move Higher on Economic Data

Friday, October 5th

114,000 new jobs for September and in line with the expectations. However, the unemployment rate fell to 7.8%????? Wow, I though last months tap dancing was good, this month was a Broadway show! I am not even going to attempt to repeat the explanation I read on this, just leave to say it was creative. If you are bullish about the markets the top line number gave you what you needed, a number lower enough to keep the Fed involved, buy high enough not spook investors. Thus, the market moved higher on the news.

The psycho commodity oil was back below the $90 level and I believe we may be heading towards the $80 level based on teh data and sentiment. We did add a position in the short oil ETF on Friday in the ETF ONLY portfolio. There is risk in the sector and I still like the trade set up for the downside move.

Technology remains a laggard in this rally. Semiconductors continue to struggle They did manage to post a gain on Fridy, but they are still in a micro downtrend of sideways sector. If the markets are to make stronger advances they will need the sector to perk up. I am not expecting much in the earnings department to help this sector near term.

Overall a good week for the broad indexes, healthcare, financials, consumer services, industrials and consumer staples. There is still plenty of work to do and worries to conquer for the indexes to climb higher, not to mention we start earnings reports next week.

What am I watching for Friday? Updated for Friday’s action.

Retail – XRT – Hold above $63.50. If we hold look for entry and trade to target of $65.25 — Nice gap higher for the sector on Friday and held the gains. The target is still in sight looking forward.

Crude Oil – OIL – Hold the move off the low or a short play set up. — Got the short play set up on Friday and took the play in DTO as we look for more downside in crude.

Gasoline – UGA – Hitting against resistance again $61.40 watch the upside on a breakout. The refiners are part of this move as well. Looking to see if any of them reverse the short term test over last two weeks. — Gapped higher at the open and retraced its steps as crude fell lower on the day. Watch to see how this sets up on Monday.

Energy – XOM – In position to break above the $92.35 level of resistance. — cleared the entry point early in trading for the break above resistance.

Yahoo – YHOO – Break from trading range. $16.25 is the catalyst.

Precious Metals – Silver (SLV) brokeout on Thursay and the miners aren’t far behind. SIL opporunity to buy on breakout.

Below we address the sectors looking forward:

1)  US Equities:

S&P 500 Sectors-to-Watch РThe index has picked up directional volatility, but has turned back to the upside on economic data this week. We remain above the 1430 support level and we tested the previous high at 1465. The wedge pattern consolidation was the pattern to watch and the index broke to the upside on the positive move this week in the index. The catalyst was economic data which makes the move more sustainable into the face of earnings next week.

The Scatter Graph below is run from a starting point of the high on 9/13 following the FOMC meeting to provide stimulus and the markets rallied. As you can see we drifted lower from the highs, but the ten sectors of the index have scattered. The leaders are the defensive sectors with Healthcare, Telecom, Consumer Staples and Consumer Services outperforming the index and the growth sectors are lagging, but made a turn back to the upside.

The last week Healthcare, Consumer Staples, Utilities, Consumer Services, Industrial and Financials have been the clear leaders off the low on Monday. We are adding to our S&P 500 Model allocation based on these moves. The outlook is still questionable, but the technical moves are worth trading short term.

Financials – Bounced off support at $15.45 and moving higher again. We held support and took the entry on the upside to lead the broad markets. Monitor your stops closely. Nice move higher again today as the banks move. KBE broke above resistance as well and heading back towards the previous highs.

WATCH: XLF – $15.75 Entry – Added on Monday – Stop $15.85 (Raise Stop)

Energy –¬† Broke below $73 support with crude moving below the $90 support on Wednesday. Moved back to $73.99 on Friday. Crude broke lower and back below the $90 per¬†barrel level yet again.¬†Thus, we are still looking at how this is going to play out. Maintain your stops and let’s see what happens short term.

WATCH: XLE – $73.98 Entry – Added on Monday – Stop $72.50

Telecom – The leadership of the market tested lower again, but the uptrend is still in effect. Looking for the opportunity to put the trade on for a continuation of the uptrend following the test of support. Watch the 25.22 level of support to hold. The parts are moving and they are a equal opportunity.

WATCH: IYZ – $25.75 Entry (HIT ENTRY FRIDAY)

Healthcare – The sector continues to push gradually higher, but is testing the move higher. IHF hit at new high on Wednesday and is providing some leadership for the sector. Pharma is still struggling and XPH is at key support near $59. Hold positions and manage the stops.

WATCH – XLV – Entry @ 38.10 & $39 — Stop $40.40 (Raised Stop)

NASDAQ Index – The index has been under pressure from the large cap technology stocks selling. The bounce has followed through and set up a test of resistance. Let the test play out and then look for entry point if the upside resumes.

WATCH: – QQQ – $69.50 is next resistance. Gapped above the resistance and then move lower on the day following.

Transportation Index – The transports are key indicator for the health of the economy. We are tracking this to see how it compares first, with how the market is doing relative to the sector. Second, to see if the sector is reflecting the economic data. IYT, iShares Transportation ETF is testing the key support level at $86.75 and this is the number to watch short term to confirm a move below support. Thus currently we see the index reflecting the economic data more than the market overall. Important to note the bounce this week on the positive economic data. Watch to see how this holds up next week.

WATCH: Added IYT as the EGG Model Play

2)  Currency:

Dollar – The dollar, like stocks, is being pushed up and down based on the daily sentiment towards Europe. The downside pressure on the dollar has met support currently and any hope of the dollar rising is tied to Europe continue to provide a fear factor. We got the bounce off support and UUP is hitting against resistance at the $21.92 mark. It reversed lower Wednesday on positive sentiment in Europe. This puts the short dollar play back on the table.

WATCH: UDN – downside play on the dollar. Entry: $27.40 (HIT ENTRY FRIDAY)

3)  Fixed Income:

Treasury Bonds – TLT sold to $118.25 on the Feds stimulus announcement and we took the short term trade. We raised the stop last week and hit it today. We added the Watch on the short play if this broke lower Yesterday. Hit the entry on the move lower in the bond today. Watch and manage your stop.

WATCH: TLT – Entry $122.50 / Stop – $123.50 (HIT STOP Thursday)

WATCH: TBF РEntry  $29.20 Р(HIT ENTRY) Stop Р$29.35. (Raised STOP)

Question: Is there are bubble in the High Yield Bond Sector? HYG recently tumbled from $94 to support at $91.60. While the decline was only 2.5%, the show of volatility and risk relative to the price of these bonds was made abundantly clear. Is the party over in the sector or is this a buying opportunity? A break of the near term support would be a exit now and ask questions later event. We have bounced the last three days, but still a concern for the bond class. $91 Stop is good.

4)  Commodities: Gold snapped back and held. The break lower was temporary, and we have to watch and see how it plays from here. Broke above $172.50 today and wants to move higher short term based on the chart action. Gold miners bounced back from the selling as well. Silver held support on the bounce back also.

WATCH: SLV – $33.80 Entry. Stops $32.50

WATCH: DBB – Entry – $20.10 Tested support at $19.44 with wedge pattern? Look for breakout on upside.

WATCH: OIL – Broke below $90 again and we entered a short play with DTO.

5)  Global Markets: The global markets bounced last week off the low at $53 on EFA. Direction is still a big question short term. The reversal and break of the selling off the Septemer high was a positive for now on the long side with EFA?

WATCH: EFA – watch for follow through on move Friday.

6)  Real Estate (REITS) РThe sector tested the recent high and support is holding at $64.20 (IYR). Watch your downside risk if you still own this sector. We are looking for upside play if support holds. Testing without any conviction for now.

WATCH: URE – watch for entry / WATCH: SRS – short REIT play.

WATHC: REM – Entry $15.20 – Shift in sentiment within the sector over Hybrid Mortgage REITs versus Agency REITs. Thus weakness is hitting the latter like Annaly (NLY). Dividend is 10.2% currently for REM.

7)  Global Fixed Income РUncertainty about the sovereign debt issues remain. Thus, the lack of willingness to accept much in the way of risk from this sector.

WATCH: PIMCO Global Advantage Strategy Bond (PAFCX) is hitting new highs and worth watching as a opportunity if we move above the $11.80.

WATCH: Emerging market bonds (EMB) – they continue to move steadily higher.

WATCH: International Corporate Bonds (PICB) – hit breakout today from the consolidation at the $28.95 mark. Watch for test and entry near the $29 level.

Watch: International High Yield Bonds (IHY) – Testing near term support on minor pullback. $26 Entry on bounce.

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 downside risk determines your long term results. Trade Smart!