Markets Remain in Uptrend, But Mixed

Tuesday – Notes & Research

The economic data was no help to stock today. Consumer confidence fell to 58.6 and well below the expectation at 64.3. That was quite a drop from the 66.7 level in December. In contrast to the confidence data the sales and retail sector still shows positive upside. Still the numbers are reflective of what the consumer thinks not necessarily how they act.

Home prices rose 5.4% year-over-year for January. If you are a home owner that is good news. If you are looking to buy, that number is not so good. Take into consideration that the 30 year Treasury yield has risen to 3.16% as well pushing mortgage rates higher. This is a trend to watch going forward relative to impact on the housing and homebuilders sector.

Energy jumped another 1.6% and pushed through resistance on the upside today. The oil services and exploration stocks were higher as well. Crude rose above the $97 level and remain positive overall. As a consumer this is not good news, but remember you have to buy the stocks and the commodity in order to afford the higher prices.

NASDAQ got the wish for Apple to bounce, but then the other stocks start to struggle. Amazon was down 5.6% during the trading day as it faced earnings after-hours. There earnings showed a jump in operating income that boosted the stock nearly 9% after hours. However, Broadcom disappointed on forward guidance for revenue being below expectations. The stocks was lower by 1.5% after-hours. We are looking for the index to clear resistance that the 3160 level.

The questions continue to rise relative to the upside move and sustainability. If money is rotating towards risk and away from safety the upside has plenty of room to run. However, if the fear factor heats up the downside comes back into play short term, we need to have our stops safely in place. The key is short term. If the buyers believe in the longer term rotation, they will step in again on the dip or pullback short term. The key is to be disciplined and understand your objective for you put money at risk.

1) US Equities:

S&P 500 Index / Sectors-to-Watch

The index continued higher today clearing the 1500 level yet again after a test on Monday. The uptrend remains in play and the number of analyst calling for a test, pullback or correction continue to grow. Yes, technically the index remains overbought. However, we cannot assume anything and must allow the move to take place without our negative bias. Stops should be managed to the level we are willing to risk on the pullback and be patient as it plays out.

The  leadership looks is shifting as we filter through the sectors of the S&P 500  index. We find Energy in accelerating to take the lead along with Healthcare. Rotation is healthy for the broad index and keeps the uptrend in play. Consumer Services (XLY) tested lower today, Industrials (XLI) remains near the top. The Financials (XLF) are pushing higher as well, but Basic Materials (XLB) are struggling to regain their momentum near term.  Utilities (XLU) accelerated last week and they broke above resistance today. Technology (XLK) is struggling period on mixed earnings data. The bottom line for the broad market is the uptrend remains in play and we go with the trend.

The chart below has a starting point of 11/15 which was the pivot point for the current uptrend. Still drifting or melting to the upside on the chart and still attempting to make a move towards the target of 1550-1575 short term.

SP500Scatter

The chart below is the 28th of December starting point. The leadership is similar to the chart above but, you can see the acceleration of the Energy and Healthcare sector clearly over the last week plus. The Consumer Services moved lower the last two days, Utilities and Telecom have overtaken Technology on the upside. Technology is the one sector that remain negative or sideways at this time. Basic Materials has moved down and sideways the last couple of days as well. The key is a continuation of the uptrend short term overall.

SP500Scatter

The VIX index closed at 13 after attempting to break higher early in the trading day. This is the first sign of a move higher in three weeks. It may be nothing or the start of some volatility in stocks short term. Still worth watching as this unfolds.

Click on link above to see the S&P 500 Mode Watch List and Model

Tracking the Indexes and Sectors of Interest:

NASDAQ Index РThe index caught the Apple Flu last week, but found some stability as Apple bounced. 3130 held support and we moved back to 3153 on the day.  3160 is the resistance level we need to rise above. The NASDAQ 100 index attempted to break above the 2750 resistance, but retreated again into the close. I still like the upside for the index short term.

WATCH: QQQ – clear $67.30 resistance on the close. Entry $67.50

Dow Jones 30 Index Р13,954 on the close today and the infamous 14,000 level is near again.  Be patient for now with the trend and manage your exit points.

Small Caps jumped $87.50 on IWM to continue to lead the broad markets. And, Midcap Indexes showed equal moves above the $105 level on IJH. Watching the exhaustion building in both, but they continue to hold the move higher. Weigh out the risk factor at these levels currently and continuing to hold existing positions.

Financials РXLF moved above $17.20 and continues to test the move higher. Banks (KBE) and regional banks (KRE) both tested the moves higher and are holding near the high. Hold for now and watch the downside risk of the sector if the broad markets shift momentum.

WATCH: Entry $17.20 XLF. Stop @ $17

Basic Materials РXLB  hit a new high and is still in a strong uptrend. This remains one of the leading sectors on the upside, but we are seeing some consolidation near the high. Watch for any adjustments short term. We could see a test of support short term before any move higher.

Retail РXRT had pushed to the $65.60 resistance or new high. We continue to watch the leadership and protect against the downside risk. One stock to watch near term is JCP to move back above the $19.50 and higher as the upside still looks ready to be in favor fundamentally. (The stock broke higher today gaining more than 9% on the return of sales) No not revenue sales, but discounts on merchandise. That was loved by all and investors jumped into the stock.

2) Currency:

US Dollar РThe dollar remains volatile on a daily basis. The buck retreated to support at $21.70 on UUP again. The test lower is a negative short term, but we are still watching to see the $21.70 support holds short term?

Euro РThe euro was testing lower on the rally in the dollar, but that reversed on the dollar weakness and is now above the previous high. Let this play out on the upside. Could add to the position on the test of support at $131.50. Nice move to new high at $133.86 today.

WATCH: FXE – $130.80 Entry. IN PLAY – Stop = $131.75 Raise Stop

Japanese Yen¬†– Has the yen found the near term low… yest? FXY moved to a new low at $107.80 and is holding for now. I am not convinced the bottom is in yet for the yen. The devaluation is an attempt to stimulate exports for Japan. Still volatile, but the downside still wants to continue based on this move? Short Yen anyone? (YCS)

3) Fixed Income:

Treasury Bonds РThe yield on the 10 year jumped Friday to 1.98% and the 30 year to 3.16%. The downside risk in Treasury bonds is in play as the talk shifts to rising rates with the Fed stepping out of the way as unemployment data improves along with the housing market. TBT is in the model currently to take advantage of the move lower.

High Yield Bonds РTesting the highs and resistance near $95 on HYG, with the upside continuing to melt higher for now. Look for support holding at $92.75. Continued to creep higher. manage your exit points should the bond reverse lower.

Corporate Bonds РLQD, iShares Investment Corporate Bond ETF is struggling to hold support near the $120.40 level (broke the last two days and sitting on the 200 day moving average). The downtrend started in October and has not settled yet again at support. Short play on LQD hit entry on Friday and them pushed lower to close down on the day. Downside pressure is building.

WATCH: LQD РShort @ 120.25 Entry.  Stop Р$120.40

4) Commodities:

The commodity sector continues to be a challenge relative to direction short term. There are sub-sectors attempting to make moves to the upside, but you have to manage your risk. This remains a traders sector for now.

UNG РMore downside today as the selling continued off the inventory data from last week. The drop of 6% the last two days was aided by investors jumping out of the commodity quickly.  The bottom line for natural gas is volatility based on news and speculation.

OIL¬†– Crude broke from the short term consolidation and continued the upside. The close at $97.34 is positive for the commodity. Watch the downside risk relative to an emotional reaction from investors and the speculation on demand… I like what we got today, but the risk is still in play short term. Manage your stop.

WATCH: ENTRY OIL is $21.70. Raise stop to 22.45.

UGA РGasoline tested support $56.80 held and has moved higher and breaking above resistance  at the $59.35. The inventory data fell unexpectedly last week pushing the price higher. As we stated the news could spark a move toward the $62 target short term. It did just that with the close at $62.36 today.

WATCH: ENTRY: $58 UGA – Stop = $60.75 Raise stop.

GLD РDowngrade from Goldman Sachs sent the metal lower last week. Hit support at $160.20 Monday and small bounce today. We are still watching the downside to see if it develops. GLL is coming into the play on the short side.  Watch as the miners (GDX) have fallen more than 7% and testing the low.

WATCH: GLD – Entry $163 – Stop $160.

DBB РBase Metals broke support, tested $18.60 low and now is attempting to move to the upside. A move through the $19.25 level would be the key short term. Be patient as the ETF has decided to test the support levels one more time?

Palladium (PALL) broke above the $69.50 high and heading higher. Cleared the $71.80 resistance and now at new high of $73,64.

Platinum (PPLT) remain the better bet on the precious metal side. Platinum is testing the consolidation pattern on the upside. Need to break above $167.

5) Global Markets:

The NASDAQ Global Market Index (NQGM) broke above 970 on the index and has moved to 1025. The global markets remains a positive among investors short term. Money flow into the country ETFs has improved along with the upside gain.

WATCH: EFA РThe uptrend short term continues, following a small test short term the fund has moved back above the previous high. Stick with the uptrend play for now as it holds support. $58.25 support for now. Still tracking higher.

WATCH: IEV – Europe continues to rally as investors believe the worst is over. Why? Simply put the backing of the EU and the ECB (similar to the Fed in the US in 2009). The confidence that there is a back stop has brought investors back to the table. Looking at the daily chart for the last year we can see the break above resistance and the trend higher remains in play. Upside target is $45.50 going forward.

WATCH: FXI – China has firmly established the uptrend off the November low. However, the volatility of the move has picked up on economic data from China. Watch as a consolidation pattern is building on the chart. Test of support at $40.85 is in play and bounced today. Watch to add to position on pullback test and bounce if it develops.

ENTRY: $42 FXI – Stop = $40.

WATCH: EEM – Emerging markets have been doing well. The chart shows a consolidation pattern that is breaking lower as we closed below the 30 DMA. $43.50 is the support level to watch for now. Bounced on Tuesday with a 1.1% gain.

6) Real Estate (REITS):

The sector broke support tested lower and then reversed along with the broad indexes. The fear generated by the fiscal cliff issues sent the sector lower. The reversal is worth trading as the cliff issues are resolved short term.

WATCH: IYR – Look for reasonable entry. $64.90. The break above $66.12 was the entry point of the move above resistance. Still moving higher short term. Watch for potential test of support in the move.

ENTRY $66.15, Stop $67

WATCH: REM, NLY & SJT – all three are in a position to break higher.

7) Global Fixed Income:

The sovereign debt issues are fading as the global outlook improves. Still plenty to be concerned about relative to growth, but the fixed income side is attractive for now. High yield bonds and corporate bonds are gaining momentum short term.

WATCH: Emerging market bonds (EMB) – Exited play on Monday’s break of support.

WATCH: Emerging market Sovereign Debt (PCY) – Exited play on Monday on break of support.

WATCH: International High Yield Bonds (IHY) – Tested support at $25.75 and bounced and hit new high and still moving up. HOLD.

WATCH: PAFCX – bounced off support near the $11.66 mark. Holding within the trading range for now. HOLD.

WATCH: PICB – International Corporate bonds are testing the support at $29.20. HOLD.

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 downside losses.