Markets Rise on Consumer Confidence

Tuesday – Notes & Research

As suspected the buyers are not done! The major indexes were up better than 1% to start the day and held on to close up 0.7% in the end. Financials, energy and healthcare led the charge higher. We can discuss all the headlines, but the bottom line is the buyers have control still of the direction. Tomorrow is another day.

Consumer confidence moves higher and takes stocks with the report.

Sector Moves of Note:

  1. Open higher, but working on the S&P 500 model we added XLB, XLP and XLF. The other posts were not aligned on the entry and the price intraday.
  2. Small caps were attempting to break higher and lead the major indexes. Closed up 1.3% and near the previous high on the close. Watching to see if it produces some leadership.
  3. Bond yields jump again as 30 year moves to 3.29% and the 10 year is at 2.13%. Short bonds is still the play for now.
  4. LQD, MUB and HYG all dropped enough to break trends, support and raise plenty of questions looking forward.
  5. Healthcare remains in a small trading range near the high and gaining 1% on the day. The upside is still in play.
  6. Real Estate and Utilities are both under pressure as rates continue to rise. The impact is being felt to all interest sensitive assets. Stops were hit, but we continue to watch the outcome as well as the next opportunities in the sectors near term.

The move today validated the buyers are still in play

Economic Data:

Housing data was positive for the new homes sales today helping keep some positive data in front of investors. Jobless claims were in line with expectations. Market flash PMI fell to 51.9. Overall positive economic data on the week.

Economic Events & Calendar

1) US Equities:

Major market indexes drop at the open, but find a way to rally back. We still have to watch to see how this will work tomorrow. No need to speculate, just let it play out one day at a time.

The April 18th chart below is the last low in the test off the April 11th high. You can see the selling impact at the end of the chart and who the biggest losers were. We have to be patient and let this play out going forward. Added line on the high for April 21st to track as the current high or pivot point if the downside continues.

Scatter 418

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 as seen in Trading on Wednesday.

SP500Scatter

Sector Rotation of Interest:

Technology (XLK) –¬†The pullback from the move higher tested $31.40 as support and held for now. HPQ was up 17% ¬†Thursday to lead the sector. If support holds $31.45 looking for a trade on the upside. Otherwise the shorts will be looking for the opportunity.

Consumer Staples (XLP) РMoved to new high and tested support or breakout point for the trading range. The move holding on the close the breakout level of $41.35 gives hope to the upside continuing.  Watch to see if holds or prompts more selling. $40.75 is the short term (trading) stop. Patience.

Healthcare (XLV) РThe sector broke from the consolidation or trading range to the upside. The test is just that for now. After hitting new highs Wednesday in early trading the sector reversed and gave up all the gains closing flat. Today the open was lower, but reversed to close again flat on the day. Holding the move higher and looking for a continuation on the upside as this fear issue subsides. Track to see how this plays out short term and mange your stops.

Energy (XLE) РMoved above the $80 level and has now tested the breakout level. All positive for now, but watching the downside risk. Still in uptrend and still in play. XOP and IEZ  both tested lower, but seem to hold the near term moves higher. Manage your risk and let this play out.

Telecom (IYZ) РBig test lower losing 2.4% on Wednesday.The upside is attempting to hold on to trend, but the sellers are attempting to push the sector lower. Remain patient and let it play out.

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. Small test today following the  new high hit last Friday. The chart below shows the path of the dollar against the other currencies.

Currency

Sector Watch:

  • UUP¬†–¬† The dollar has been trading sideways and the bounce on April 8th has led to new high. The move back to the highs on Wednesday was a plus for the dollar and negative for commodities. Most of the currencies gained ground on the dollar today.

Tracking Bond Sectors of Interest:

Sector Summary:

  • 30 Year Yield = 3.29% – up 12 basis points —¬† TLT = $113.84 down $2.96.
  • 10 Year Yield = 2.13% –¬† up 12 basis points — IEF = $105.17 down $1.17.

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. 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 РHYG = 6.5% yield. Support at $94.75 broke and out of the position.

Corporate Bonds РLQD = 3.6% yield. No positions currently. Downside risk in play.

Municipal Bonds РMUB = 2.8% tax-free yield. No positions currently. Downside risk in play.

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. Watch for stop placement to protect the gains near the $44 mark. (HIT on Thursday and willing to bank the profit for now.)

4) Commodities –¬†Sector Summary:

  • Commodity Index¬†(DBC) – Moved back to resistance at $26.50, tested lower and can’t seem to regain the upside fr now. ¬†Watch and be patient as the sector tests near term support.
  • Natural Gas¬†– (UNG) Moved back to the top side of the trading range near $22 and followed through on the upside to $22.50. Nice follow through on the upside today. FCG held the $16.85 support and bounced.
  • Crude Oil¬†– (OIL) ¬†Reversed on the stronger dollar. Broke support at the $22 mark as crude moves back below the $95 level again. Supply data was in line with expectations, but didn’t help the cause. Tested lower today and bounced back towards resistance now at $22? Attempted to break on Tuesday… Watch.
  • Gold –¬†(GLD) Cooked in a squat. Can make up its mind up or down.
  • Palladium¬†– PALL – Move above $73.70 is worth a trade on the continuation of the upside. $72.65 stop, $$77 target. Some selling on Friday — watch to see if it continues?

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. The balance of the sector is vertically challenged. Be patient and let the winners define themselves before going into sector.

Commodity

DBC –¬†PowerShares Commodity Index ETF¬†(click to view) Composite of 14 commodities tracking index.

5) Global Markets: 

Global markets have shifted to the downside on selling in Japan and China. The Asian connection is hurting the overall index. The chart below shows the shift over the last two days on the downside. We don’t own any positions in the global markets and for now I am still willing to sit on the sidelines.

Global Mkt

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 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) РThe sector broke the uptrend and signaled exits today. We will have to step back evaluate and determine how to deal with the sector from here. Moved to Cash on balance on positions.

Sector Summary:

  • IYR – Hit our stop at $73.50 and has continued to move lower. Out for now.
  • RWO –¬†SPDR Global Real Estate ETF¬†hit stop and watching for now.
  • 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. Watch the downside currently in play with rising rates.

7) Global Fixed Income:

Sector Summary: Complete reversal low and uninterested in the sector currently.

  • Watching these funds for a bottom.
  • PAFCX – Spike to the downside.
  • PICB – Breaking aggressively lower short term. 3.1% dividend.
  • EMB – Breaking lower still no support. 4.3% dividend yield.
  • PCY – Big downside move and break of support. 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.¬†