Markets Remain Mixed & Looking for Direction

Tuesday, December 4th – Notes & Research

In the latest ‘cliff’ saga the President says no deal without taxes on the wealthy. He believes the proposal needs to add up? Since when does that matter? We have been running a spending deficit of more than 1.3 trillion dollars each year for the last four. I am not attempting to be political, but what about any of this makes any sense what-so-ever? Maybe the expiration of the Bush tax cuts, and all the other issues set to expire in December, would be better than the lack of action that is likely to take place in any compromise. Another day gone and nothing to discuss yet.

The markets continue to churn in place without much downside pressure. Those looking for a test of the current move higher may have to continue to be patient as this unfolds. What’s holding the market up?

  • A deal on the fiscal cliff issues for one. Despite all the posturing and talk by those in Washington, many believe the deal will be done by Christmas. Thus, the hope of this solution is keeping money put for now. The bantering hasn’t been bad enough yet to push much money to the sidelines.
  • $40 billion per month from the Federal Reserve to keep the system drowning in money. QE3 remains in place and the Fed continues to keep rates low and attempt to push the housing market as well as the job market.
  • Employment reports due out on Friday. While not the attention grabber it was, it still demands respect from investors. The interesting issue for November is the estimate is half the number of jobs added in October. ADP is out tomorrow to start the string of reports.
Bottom line is hope! Last time I looked that isn’t a good investment strategy. Thus, we continue to look for the trading opportunities as holding assets longer term holds too many uncertainties. We have updated the tables and Watch Lists based on the move this week.
Remain disciplined and focused going forward.

1) US Equities:

S&P 500 Index / Sectors-to-Watch 

The index moved lower in early trading, but managed to work its way back to flat on the day. When it was all said and done the index closed at the same level we opened. The Scatter Graph below has a starting point of 11/15 which was the pivot point for the recent uptrend. As you can see at the end of the chart the sideways movement depicts the lack of interest from investors. We remain patient for now as this all unfolds.

The leadership for the move on the 15th low has come from Consumer Services, Consumer Durable, Industrials, Technology and recently Healthcare. Utilities made a move off the lows, but has returned to the downside the last couple of days. Now we are looking for some solution to the fiscal cliff and the economy to keep the upside trend alive. We need some clarity going forward, thus be patient for now and take what the market gives short term.

VIX index is rising and worth watching as the sideways movement looks for direction up or down?

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

Tracking the Indexes and Sectors of Interest:

NASDAQ Index РTested lower bounced to close above the 200 day moving average. The NASDAQ 100 index showed the same promise on the upside move. Took the entry on the QQQ move and the play is held in the Sector Rotator Model. Manage your risk.

EGG MODEL hit stop on the QQQ trade today.

WATCH: QQQ – 65.10 entry (Wednesday) Stop – 64.75.

Dow Jones 30 Index¬†– The bounce back to the 200 day moving average is a positive, but now we need to make a move above this level short term. Patience with the entry as the index has struggled with volatility and consistency short term. The selling today wasn’t critical, but did get our attention

WATCH: DIA – See Sector Rotation Watch List.

S&P 400 Midcap Index РThe bounce off the low has now returned to the top end of the previous trading range. A break above the 1000 mark on the index would a positive and a opportunity to trade the sector. Be patient with the entry as this unfolds.

WATCH: IJH – See Sector Rotation Watch List.

2) Currency:

Dollar РThe dollar sold lower and broke support at the $21.95 level on UUP. The dollar index (DXY) pulled back to support at 80 on Monday and broke lower today. The downside is firmly establish for now on the buck.

WATCH: UDN – Entry $27.25 – Stop $27.05

Euro РFXE is poised to move above the $129 mark and challenge the $130.60 mark. Got the follow through on the upside to confirm the downside play for the dollar Monday. This produced a short dollar and long euro trade opportunity for about 1.5% ROI short term. We are only short the dollar as a result of the gap higher on FXE.

Yen РFXY tested support again at $119 and bounced the last two days. This could bring upside bounce play.

WATCH: FXY – entry $119.90 – patience as the bounce plays out.

3) Fixed Income: 

Treasury Bonds РReversal short term with yields up on the 10 year to 1.61% and the 30 year to 2.78%. Watch as the yields move lower and test support short term. The drop results in a push higher in the price of the bonds, and the upside trade with it. Stocks have floundered, but the bonds are reacting as if they sold off again.

WATCH: TLT – Gapped lower and then retraced it all. Wedge pattern setup. Watch for the directional break from the setup to give guidance on the trade. A break lower would set up the short play in TBT.

High Yield Bonds РBig bounce on stocks moving higher with stocks. Interesting bounce.

WATCH: HYG – 92.75 entry. Watch as the upside may be limited on any trade.

4) Commodities:

 The commodity sector continues to be a challenge relative to direction short term. The volatility remains very much in play off the recent lows. The best course of action is to take the trading opportunities presented short term.

WATCH: SLV – Entry $31.50 (See ONLY ETF Model) Testing the upside move and . Holding near $33 resistance, but need some follow through or look to lock in gain and see how it plays out.

WATCH: OIL – Cleared $21 again on the break higher, but failed to hold the move above $21.50. The entry was $21 for a upside trade and that is in play for now. Target is $22.50 and the stop would $20.85 on the trade.

WATCH: UGA – Entry $56.25 / Stop $56.25- Watch and manage the volatility. 50 day moving average is acting as overhead.

WATCH: GLD –¬†Since September 2011 Gold has not eclipsed any of it’s previous highs. GLD resistance is at $175. Volume is declining showing loss of interest over the last fifteen months.Look for a test of $161 on GLD and break below is a clear short signal for the metal. Patience as this all unfolds.

5) Global Markets: 

The NASDAQ Global Market Index (NQGM) broke above the 200 day moving average and the V-bottom is still in play on the upside. 967 is the level to break above on the index currently. The move is reflective of the positive push in the US and it is nothing more than a trade short term with tight stops to protect against any reversal short term.

WATCH: EFA – Back at the highs of $55.20 and in position to break from the trading range for a trade set up. The jump back to this level has been quick and may test before continuing higher. Be patient and see how it play to start the week. ONLY ETF Model.

WATCH: DXJ – Japan total dividend ETF broke higher, tested the 200 day moving average and has moved higher again. The break from the trading range is a positive with a trade entry at $33.25. Consolidating near the current high. Manage your risk and raise stop to $32.85.

WATCH: FXI – China is testing the gap higher and watch for the $36.65 level to hold as possible entry play short term. The economic challenges facing China moving forward are many, but investor are willing to look past that and believe in the trend. The PMI data was positive on Monday, but the move was lower? Watch for trade on the break from the consolidation.

WATCH: TUR – 59.20 support held and solid bounce to maintain the uptrend. Look for trade entry on test of the move near the $62.40 mark for now. Monday and Tuesday produced the move higher and looks ready for a continued move short term.

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 if the cliff issues remain at bay short term.

WATCH: IYR – moved above the 200 day moving average. Entry 63.40 (HIT ON FRIDAY) – Stop $63.25

7) Global Fixed Income:

Uncertainty about the sovereign debt issues remain. Thus, the lack of willingness to accept much in the way of risk from this sector. Greece back on the table along with Europe despite the resolution to give more money. All of the charts have bounced off the low and continued their respective uptrends. Watch and protect the downside risk in the sector near term.

WATCH: Emerging market bonds (EMB) – testing and moving sideways and attempting to hold support at $121.. Broke on Friday… watch to see how it plays this week.

WATCH: International High Yield Bonds (IHY) – Testing support? Break of $25.81 exit point.

WATCH: PAFCX – bounced off support near the $11.66 mark. Held the uptrend line and held the support for now. Still looking for entry opportunity on the play at $11.74.

WATCH: PICB – International Corporate bonds are breaking above the top end of the current range. 29.15 entry point?

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.