Markets Remain in Uptrend, but Watch the Downside

Thursday – Notes & Research

Late flight home, but I am here!! The markets traded lower on the S&P and Dow, with the NASDAQ managing to get into positive territory on the heels of Cisco’s earnings report. Plenty of random news across the markets today which explains the mixed results overall. XLK was up 0.5% to lead the major indexes, and breaks higher finally on an overall negative day. The other nine sectors ended in the red.

Some blame is going to the Fed today as the rumors are getting louder of a slowdown in QE infinity. All of the chatter is putting some pressure on stocks and the uncertainty it is creating for investors.

Gold remains in selling mode down 6% over the last week. Olik remains uncertain closing higher and the dollar gave up some ground on the day. Nothing overly negative on the day as we move to the last trading day of the week.

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. Natural Gas (UNG) fell 3.1% today. The move erased the gains of the last three days. A break of support opens the door for another short trade on the commodity. KOLD is the 2X short ETF.
  3. Biotech testing the the upside breakout. Watch the $107.35 support level.
  4. Consumer staples (XLP) broke from the consolidation range and jumped higher followed by a test on the downside today, watch to see how that plays out. Consumer services (XLY) erased the last two days of gains today and is testing support at the $56.75 level.
  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.
  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.
  7. I stated last night that Technology continued to lag this week on the upside gains. XLK cleared the $31.70 resistance and looks ready to make a move higher? Watch to see how this plays out tomorrow. Cisco was up 12% on the day helping the index move higher.
  8. Bonds yields have been rising, but stalled yesterday and moved lower today, dropping 7 basis points. TLT found some support at the $116.50 level on Wednesday and bounced today. Watch how this settles and tighten stops on TBF.

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:

Jobless claims were the topic of discussion this morning jumping 30k to 360,000. Housing starts were way off and the Philly Fed was awful. Back to disappointing economic data.

Economic Events & Calendar

1) US Equities:

The broad indexes hold the move higher this week and the upside remains in play. CPI in line and

The April 18th chart below is the last low in the test off the April 11th high. Leaders are regaining some momentum. Financials, Materials, Consumer Services, Industrials and Technology are leading the upside.  Telecom and energy have been steady, but teh healthcare and consumer staples have reversed off the recent selling and heading higher. Still some rotation in process, but that has slowed as the outlook gets focused on the Fed.

10 Sectors

Sector Rotation Strategy:

The February 25th low pivot point remains in play relative to the trend. However, the volatility of the sideways trading is showing in the chart starting on April 11th, thus the chart above. Uptrend still in play, but the continued test leave plenty to worry about.

10 Sectors

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback chart below. The trend has continued to push higher. The trend remains higher, but the short term volatility is picking up. Watch the downside risk and protect your gains appropriately.

10 Sectors

November 15th Pivot Point is the start of the current uptrend. Target 1550-1575 was attained and now there is pressure to test the move. The trend has overcome two attempted moves lower to maintain the uptrend. Watch the trendline as the support on the current pullback. A break of the uptrend brings downside options back into play for the short term.

10 Sectors

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 intraday and testing the upside. Adjust your stops and remain focused. Finally got a move to the upside thanks to CSCO.

Consumer Staples (XLP) Рthe downside relative to earnings and warnings from the big cap stocks is and remains a concern. Even with the solid gains on the week for broad index, the sector struggled. Keep your stop tight and watch how the trend plays out next week. $40.75 is the short term perspective 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.

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 is happy to consolidate near the $80 level.

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. Got the bounce on Tuesday and follow through on Wednesday, test on Thursday.

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. Test on Thursday of the move, but looks ready to move higher. The chart below shows the path of the dollar. Solid break higher on Tuesday watch for the trend to extend higher.

10 currency

Sector Watch:

  • UUP¬†–¬† The dollar has been trading sideways and the bounce the last four trading days, breaks to new high. The balance of the currency market has accomplished sideways to downside moves.

Sector Summary:

  • 30 Year Yield = 3.08% – down 8 basis points —¬† TLT = $118.56 up $1.22
  • 10 Year Yield = 1.86% –¬† down 8 basis points — IEF = $107.50 up 51¬†cents

Tracking Bond Sectors of Interest:

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 Wednesday and watching to see if that unfolds.

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.
  • Crude Oil¬†– (OIL) ¬†Watching the downside opportunity on the move. Closed below support at $94 on Tuesday, tested intraday to the 200 DMA and bounced back to close at the $95.25 mark. Volatile, but no clear entry for now.
  • 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. Tested to break higher today… watch for play tomorrow on move above $56.90.

Commodities Rotation Chart:

I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point. Nothing showing much promise other than UGA have a push back towards the high. Keep your money out of harms way for now as this sector decides where the opportunity is.

10 Commodities

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 and some are falling like India and China. Still high level of risk in the global markets short term.

10 Country

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 been grouping together and now the top countries have all turned lower matching the broad index. 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.
  • REM – Mortgage REIT continue to struggle. The downside remains a concern and we continue to look for the opportunities, but not interested currently in owning the sector. Monday broke support at $15.10 and now at the 200 DMA.
  • 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: Making another move to the upside short term.

  • There are some funds moving in favorable direction of late.
  • PAFCX – Bounced off low with the movement in yields going lower. Holds $11.60 worth owning short term. Sharp turn lower on Friday with stop at $11.60.
  • PICB – hit support traded sideways and broke higher. Entry $28.95 + 3.1% dividend. Turned lower as the money rotates out of the sector.
  • EMB – Big recovery and interesting in watching. 4.3% dividend yield. Hit stop on reversal lower at $120.25.
  • PCY – Big recovery as well off the low for short term play. Entry $30.60. 4.8% dividend yield. Breaking higher as well. Raise stop to $30.70 and collect the dividend. Hit stop on Monday.

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