Markets remain flat as investors are cautious

No glitches in the economic reports today, but the $15 minimum wage law in Seattle raised a few eyebrows and dominated the headlines. The good news was US factory orders rose for the third straight month. This confirms the strength seen in the manufacturing sector the last two months. It was helped along by the strong auto sales numbers as well. Despite all that the markets never really got out of neutral today?

European Central Bank meets tomorrow and it is expected they will cut rates… that is in contrast to the Federal Reserve in the US cutting stimulus activity. How will the world markets respond if the ECB follows through? That is one item on my agenda to watch on Wednesday.

Short Treasury bonds (TBF),¬†Semiconductors (SOXX), Silver, (SIL) China (FXI) and Natural Gas (FCG) stocks were the leaders on the day. Leadership from the technology sectors continues, China has been positive and broke through resistance setting the pace globally of late and natural gas commodity has been moving higher and that is pushing the stocks… at least today. Plenty of movement, but little in terms of conviction and trends short term.

I am traveling the next couple of days and will not post a recording per usual. The text and trading reports will be posted as usual. Thank you for your understanding.

Notes to Note:

  • Treasury bonds continued their decline today with rates creeping higher. Are investors starting to believe in the growth picture and willing to rotate from bonds? I would not go that far, but it is something to watch going forward. Both the 10 and 30 year bond gained 6 basis points on the day. TBT gained 2.3% on the day a move above the $63 mark gets interesting.
  • Inflation data in the EU¬†showed another decline reinforcing the belief that Draghi (ECB) will cut interest rates at the meeting tomorrow. Stocks were lower? IEV is testing the 10 DMA on the news. Watch tomorrow for follow through action?
  • Gold stopped the downside move, but still not looking healthy enough to rally yet. I still like the downside near term.
  • The Volatility or VIX index tried for the second day to push above the¬†12 level, but fails to make any serious move towards the worry side. I remain in the camp of let it play out… attempting to pick a bottom or top of anything is a dangerous proposition. If it starts to move back above 12 I will get interested, until then just watching.
  • IWM – small caps¬†for the second day attempts to break below the $111 support and bounce back near the $112 mark and holding above the 200 DMA.
  • Banks made solid move to the upside on the day. Watching to see if the regional and money center banks can advance the sectors higher. The did on Tuesday and the move above the $32.25 mark is a plus for the sector. The entry was at $32.25 for trade.

Chart Notes:

The banks made solid move Monday despite the ISM manufacturing data and made a break through resistance on Tuesday to set the pace off the low and break the short term downtrend. Worth watching to see how the banks play out from here short term. The chart for the regional banks (KRE) looks similar, but the money center banks are showing more strength currently.

KBE

Treasury yields have been rising the last two days? Is this in response to the positive (better than expected) economic data of late? Or is there concern about the ECB cutting rates while the US market is looking raising rates? Worth our attention as money looks to be exiting the bonds. This may be fast money chasing the next big thing, thus be cautious in how you trade this going forward. Broke through the downtrend line in place from January?

TBT

Plenty of consolidation and testing in sectors, but we have not seen any real attempt from the sellers to push this market lower. Still have to be cautious and let this play out for now.