Tuesday – Notes & Research
Markets started lower, but it didn’t last more than forty minutes. The reversal was steady and pushed higher throughout the day. No economic data reported today, but that all changes tomorrow as the Fed takes center stage to determine what changes if any will take place in the coming months.
Worry about the Fed tapering off on the quantitative easing got credit for the early selling, but the speeches from the Fed President reassured that the Fed was not done yet. Thus, the rally back as the day progressed. This worry isn’t going away anytime soon and with the Bernanke testimony tomorrow to Congress, there will be plenty to digest on the topic.
Healthcare was the leader up 1% as the bounce higher continues to push the leadership roll for the sector. Consumer discretionary woke up again with a solid gain on the day and attempting to push above the week of consolidation near the high. Financials, industrials, telecom and energy all pushed higher as well. Technology was the only sector to close the day in the red. No big changes overall, just another day of melting higher.
Home Construction (ITB) fell 1% as Beazer Homes (BZR) was downgraded. Something to watch going forward as the chart could test back to support at $24.80.
Sector Moves of Note:
- Gold fell back to the bottom of the range in early trading and never really recovered losing 1.6% today. Still looking for clarity relative to the future of gold prices.
- Natural Gas (UNG) tested the bottom of the trading range, bounced Friday and then attempted to follow through on the upside Monday, but closed back at the $22 level. Today we were looking for direction and the upside prevailed with a solid 2.5% gain on the day. $22.65 is of interest for an entry and trade on UNG. $52.50 if you like leverage (BOIL) is the ProShares ETF.
- Crude struggled all day to make a follow through move relative to the downtrend line. Pressure from the dollar and lower gasoline prices didn’t help. Still looking for a follow through on the upside move. Inventory data is out in the morning and expectations are for a drop based on increased refinery production for the peak driving season.
- VIX index picked stayed at the top end of the range today. Still looking at the VXX play tomorrow if it follows through on the upside.
- Banks are still leading the financials higher. Ratchet up the stop and let them run. Both KBE and KRE are moving to new highs currently.
- TAN jumped 8.2% on Monday and attempted to follow through today, but forfeited all the gains into the close. JA Solar and Yingli Green both pushed higher. FSLR continues to hit new highs as well.
- Stay the course and take what the market gives, one day at a time. You don’t want to fight the Fed or the trend.
The market continues to grind it out each day as the buyers remain in control. Take it one day at a time and remain disciplined with your stops.
Not much in terms of data until Wednesday when the Existing Home Sales and FOMC minutes are out. An added bonus is the Bernanke testimony before Congress.
1) US Equities:
The S&P 500 index starts the week off in neutral. Low volume and not much changed since the close on Friday. There are plenty of opportunities, but equally there are as many challenges facing investors going forward. Stay the course, manage your exit points, profits and stops.
The volatility index remains in a sideways motion and testing the lows of 12 and high of 13.5 currently. There has been some rise in the volatility over the last week, but not enough to change the personality of the markets short term. A move above the 13.5 level would get my attention short term.
The April 18th chart below is the last low in the test off the April 11th high. Leaders regained momentum. Financials, Materials, Consumer Services, Industrials, Energy and Technology are leading the upside. Telecom is still trending higher after a short drop lower. Utilities are still in the cellar with healthcare and consumer staples moving sideways.
The current trend started on November 15th and has been tested by the the ‘fiscal cliff” issue bottoming on December 28th, The February 25th low pivot point was prompted by FOMC rumor of withdrawing stimulus, Cyprus on March 14th and the April test on economic worries. The original target for the move was 1550-1575 which has been obtained.The uptrend remain in play, but the extended move has brought equal concern to the current highs.
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. Holding for now and tightened our stop in response to $31.60.
Consumer Staples (XLP) – Moved to new high and is now testing the break through resistance of the trading range. The last two days we have been testing the breakout and we need to be aware of what is driving the sector. $40.75 is the short term (trading) stop. Some give back on the selling. Watch to see how this unfolds looking forward.
Healthcare (XLV) – The sector broke from the consolidation or trading range to the upside this week. The test is just that for now. Track to see how this plays out short term and mange your stops. IHF – pushing against resistance at the $82 level. XPH is testing with $68.25 support. IBB is testing the $180 support level.
Energy (XLE) – Moved 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 seems to be happy to consolidate near the $80 level. Moved to $83.30 as positive bias returns to the sector. XOP cleared the $60.75 level and testing the previous high. IEZ broke above the $59.35 resistance and hit new high on Monday.
Telecom (IYZ) – Moving 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) – breaking 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. Watch as the sector attempts to work through the challenges.
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. Small test today following the new high hit on Friday. The chart below shows the path of the dollar against the other currencies.
- UUP – The dollar has been trading sideways and the bounce on April 8th has led to new high. The yen (FXY) and the aussie dollar (FXA) have been pushed lower. The dollar continues to gain upside momentum.
Tracking Bond Sectors of Interest:
- 30 Year Yield = 3.15% – down 2 basis points — TLT = $117.32 up 40 cents.
- 10 Year Yield = 1.94% – down 2 basis point — IEF = $106.98 up 14 cents
Treasury Bonds – Complete 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. Hitting against some resistance relative to the yield. Watch and be patient as this plays out. Raise your stops on the TBT or TBF position.
High Yield Bonds – HYG = 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? Downside risk is growing for the bonds in this sector.
Corporate Bonds – LQD = 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 – MUB = 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 – CWB = 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, tested lower and now pushing back on the upside. Watch and be patient. $25.90 support in play?
- Natural Gas – (UNG) Moved back to the top side of the trading range near $22. FCG broke higher today as positive sign for the sector overall. Watch for some follow through on the attempted break higher today.
- Crude Oil – (OIL) Moved back to the high of $22.50 and wants to climb higher? The questions surrounding demand and other issues has been ignored. Watch for follow through on the break above the downtrendline.
- Gold – (GLD) Hit stop on GLL on the bounce today. Watching to see if the bounce holds from today off support.
- Gasoline – (UGA) Resistance is at $56.80 now. Watch to see if it can follow through on the upside move. Made the move now the continuation is worthy of attention.
Commodities Rotation Chart:
I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point. PALL is moving higher and leading the metals. UGA is making move to the upside. OIL back to the near term highs. UNG starting to move higher off the lows. The balance of the sector is vertically challenged. Be patient and let the winners define themselves before going into sector.
DBC – PowerShares Commodity Index ETF (click to view) Composite of 14 commodities tracking index.
5) Global Markets:
Global markets have been trading sideways the last week. The move today puts the upside back into play. Europe, Russia, China and Japan are leading the current bounce. Volatility still in play for the global markets, but watch to see if this bounce has any legs higher.
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.
- Most of the country charts have trading sideways to down. EFA is a good barometer for trading the developed markets and VWO for the emerging markets. Attempting to turn higher the last few days and worth tracking for specific opportunities.
6) Real Estate (REITS):
Real Estate Index (REITS) – The 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.
- 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. Scan the ETF for the leadership and track.
- 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: Complete reversal low and uninteresting in the sector currently.
- There are some funds moving in favorable direction of late.
- PAFCX – Broke down aggressively short term and testing support at $11.50.
- PICB – Breaking aggresively lower short term. 3.1% dividend.
- EMB – Finding support at the $119.25 level. 4.3% dividend yield.
- PCY – Gave up support at the $30.30 level. and heading lower. The current dividend yield is 4.8%.
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.