Markets Remain Weak on Worry

Thursday, November 15th

The crash headlines started today and they are generally an indicator of a near term low being established. When the doom-and-gloom starts it gets interesting. The markets didn’t accomplish much on the day with the indexes ending the day basically flat. There was some continued selling in the semiconductors, telecom and basic materials. The downside is still in play with no real signs of a bounce today.

The scan list of the more than 1300 ETFs are only turning up 73 funds today that meet our simple criteria. The one with the greatest impact on the scan is that price must be above the 50 day moving average. This shows the downtrend is taking root as the short ETFs are the one populating the scan. Thus, we see the sellers remain in control of the overall market direction for now.

Risk/reward as we discussed is the key. The risk of being long is too high currently and the short side has gained clarity with the move lower on the broad indexes.  We remain patient with the sellers firmly in control as we continue to take what the market gives.

What am I watching?

Break of support on the NASDAQ index below 2858… next up 2835? YES! Hit the next level on the day and 2796 up next?

Oil remains in the current narrow range. Still looking for a move lower barring any unforeseen events happening in the Middle East with Israel.

Treasury bonds are getting nervous on the Fed minutes from Wednesday. Watch to see if the bonds continue to move higher and yields lower? Raise stops and let this play out.

Muni  bonds have increased volatility in correlation with the potential tax law changes from the Obama administration. Watch for opportunities as this unfolds. MUB.

The volatility index pushed towards the recent highs again today, but still not accelerating. VXX could come back into play as a trade short term. Watching tomorrow for a move above the entry point on the ETF model.

We have been adding short plays to the Rotator model as well and we have a to watch the downside short term and manage our risk as well as targets.

1) US Equities:

S&P 500 Index / Sectors-to-Watch 

The index broke the 200 day moving average Tuesday and confirmed the next leg lower. Now we have to manage our downside trade for what it will do from here. We discussed yesterday the break of the 200 day could accelerate the downside and thus far we have continued lower. 1357 broke and now we watch 1335 as support.

Volume returned on the selling today with above average selling. The VIX index accelerated higher as well and is still within the current trading range. A break above the 18.80 level would be another negative for the broad index.

The Scatter Graph below has a starting point of 10/17 which is the current pivot point off the most recent high. The move lower turned sideways for two weeks and then renewed the trek lower. The downside leadership has been in Utilities and Telecom, but technology, basic materials and energy have joined the party. The majority of sectors are selling lower and the downside is accelerating. If we move the pivot point close to 11/6 the financials are in the picture on the downside as a leader along with industrials. That reflects those two sectors catching up with the others. They are all point down currently.


ProShares Short S&P 500 index ETF is the trade to hold for now relative to the index. Entry $35.20 on the break above resistance on the chart. Stop $34.80 on a reversal short term. Took the entry 11/9. Manage the risk and expect some volatility in the trade.

Breaking the Sectors Down:

Financials – Fell below $15.50 support on XLF. Downside accelerated today as sellers stepped up the pace. Watch and manage the risk of the trade.

WATCH: SKF – (11/9) Entry 37.85 – Stop 36.90 Mange the leverage volatility.

XLU – Support at $34.15 is the level to watch for now.

XLK – No support yet. Watching the $28 level to hold? Failed Wednesday $27.52 Then $27?

XLV – 38.75 support level to watch. Break lower negative, bounce opportunity? closed on it Wednesday.

XLB – 34.77 support level to watch. Global picture is adding to the impact on the sector.

IYZ – 200 day moving average support level to watch. Dividend tax rumors hitting the sector.

XLE – 68.24 support level to watch. Broke 200 day and demand story pushing sector lower.

XLI – 35.18 as it broke through the bottom of the trading range support at 36. Watch and let this play out short term.

XLP – 34.10 after breaking below the 200 day moving average.

XLY – 200 day moving average support level to watch.

On my Watch List looking forward:

Short opportunities are building in each of the sectors, but we are technically oversold. Thus, we have to be cautious how we build any short positions. We have discussed all the data and negative outlook for fundamentals. They have validated those issues the last two quarters, but now the fiscal cliff and the election results are coming together to provide the catalyst on the downside. Manage the short plays as they tend to move faster and end sooner than the upside plays.

The VIX index (S&P 500 Volatility Index) signal some fear today? And it was enough to catch the attention of investors. Watch the fear factor… acceleration is a negative for the overall markets.

NASDAQ Index – Confirmation on the break below 2660 raising short interest. QQQ support was $63.15 and was taken out on Tuesday with a confirmation of the move on Wednesday? A break lower was good for adding a small position in QID.

WATCH: – QID – Entry $31.45 / Stop $32.40 – (11/9) Manage the volatility of the play.

2) Currency:

Dollar – The dollar bounce continues as the weaker outlook in Europe is hitting the euro. The play continues on the upside short term for the buck.

WATCH: UUP – Entry – $22.05 – Stop $21.90 Creeping higher day by day on fear in Europe.

Euro – Watching for the oversold conditions to produce a bounce and the dollar to potentially decline as the “fiscal cliff” issue gains momentum. Watch for a play to develop in the euro near term. $127 Entry – held support level short term.

3) Fixed Income: Yields are dropping.. Again! There was a big shift on the 30 year bond down to 2.274% and the 10 year bond fell to 1.58%. We are moving back towards the summer lows as the fear factor jumps… money moves to higher ground.

Treasury Bonds – TLT break above the downtrend line as bond rally. Watch to see how this plays out short term with $120.80 support. $124.60 is resistance (broke well above on fear rally). Investors have not been able to decide on direction, but the fear generated put the bonds back in play short term.

WATCH: TLT – $123.60 entry (11/7) – Stop $125.15

Emerging Market Bonds – the reversal off the high has reached short term support at $120.80. A move below the 50 day moving average would be a negative technically. Watch for the downside opportunity or a bounce off support as a trading opportunity.

WATCH: Tested support again at $120.80 and bounced (11/12). Entry $121.15 / Stop $120.70

High Yield Bonds – We discussed the downside risk several months ago, but the rally negated any entry points to be short the bonds. However, we hit the point of exit on the bonds with the break of $91.80 on HYG. Watch for a confirmation on the downside, and at $91.50 short the sector (HYG or JNK). Broke the 200 day moving average today.

WATCH: HYG – short play at $91.50 (11/9). Entry $91.50 / Stop $$92.25

4) Commodities: The commodity sector continues to be a challenge and not clear leadership. Natural gas held the move higher from Tuesday. PALL moved higher on the day and worth watching further. PTM was higher on the day as well reversing the selling. Metals offering some upside short term.

WATCH: GLD –¬†Broke¬†the $167 support.¬† What happens from here? Watch tor tst of the October lower?

WATCH: SLV – Entry $31.50 / Stop $31 – Looking for upside momentum through resistance.

WATCH: DBB – Selling gave way to hope with a bounce off the near term lows. Sitting on support. ENTRY – $18.25 (Tuesday)

WATCH: OIL – Cleared $21 entry on the bounce last week, but failed to follow through. Watch for follow through…

WATCH: UGA – Entry $56.25 / Stop $54.80 – Fell again today to support.

WATCH: UNG – Held move higher. Testing $21.50 breakout?

5) Global Markets: The NASDAQ Global Market Index broke below the 200 day moving average last week and the downside has accelerated losing another 2% on Wednesday. The EAFE index broke support of the 200 day, ASIA is holding up thanks in part to the rally in China and Latin America continues to trade near the low from the summer. Still no clear direction in the global markets as the risk remains high.

WATCH: EFA – Broke support at the 200 day moving average. Broke $53 support – short set up in play. EFU – Entry $19.85 / Stop $$19.70 Watch the volatility in the global markets.

WATCH: EEM – Testing support at the 200 day moving average, but broke support today. EEV – Entry is $25.80 / Stop $25.50. Emerging markets broke lower from the sideways channel for the entry.

6) Real Estate (REITS) – The sector tested support at $64 (IYR). We broke support last week and took out the 200 day moving average. The downside is in play for now. The downside accelerated in NLY and REM as well. Short is the play.

WATCH: Volatility within the trading range (broke lower added position 11/9). SRS – Entry 26.35 / Stop 26.60

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. 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..

WATCH: International Corporate Bonds (PICB) – Testing and moved below the 50 day moving average.

Watch: International High Yield Bonds (IHY) – Testing support? Break of $25.81 exit 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 of your portfolio.