Thursday, August 30th
No more waiting as investors react to the delays from both the Federal Reserve and the European Central Bank. Or was it the economic confidence data in Europe falling to a three year low. Were investors surprised by the data? Some say yes, but really? Maybe the statement by Slovac Prime Minister Robert Fico who suggested there is a 50% chance of a euro breakup, or the IMF stating they see major challenges with implementing measures for Greece.
Economic data continues to show some signs of hope? The American consumer did what they do best… spend. The August sales data was better than expected. The back-to-school season is rated the second most important behind the ‘winter holidays’, formerly know as Christmas and Hanukkah. Consumer Confidence data last week fell to its lowest number since November 2011, but the retail data shows a different story. The data is not bad and that could keep the Fed at bay on the stimulus for awhile.
The technology sector is all about smartphones these days. However, one question is when the iPhone 5 will be released? September 12th? Isn’t that the same day of the next FOMC meeting? Coincidence? Microsoft Windows Phone is due to release new phones as well as Google. New Android phones from Samsung, Sony, Nokia and Motorola Mobility are due for release in the coming month. Thus, the fourth quarter is expected to see a big bump in the sales.
Amazon released today that they are sold out of Kindle Fire. September 6th they are due to launch a new version of the Kindle Fire and some rumors of their own smartphone. The stock continues to be a leader in the technology sector.
Risk assets were hit the hardest today as the crude, gold, silver and the euro all moved lower on the day.
Sectors were volatile today with sellers stepping in to test the downside, we updated the data below based on the results.
1) US Equities:
S&P 500 Sectors-to-Watch – The index moved below 1400 intrday and near support at the 1395 level. This remains our first level of support to watch short term. The uptrend remains in play, thus the selling is a continued test of the uptrend off the June 4th low. As we have disucssed uptrends don’t die easily as the last two weeks validates. We still have to respect the downside risk and depending on the outcome of the Bernanke speech on Friday, need to adjust our stops and look at taking profit off the table.
We have adjusted our stops, sold some positions and we are being patient to see how this plays out short term. There is plenty of news and data swirling around the world, but thus far we are holding support above 1395.
Energy – Uptrend broke lower on Thursday with the selling in crude. The break of short term support hit the stops on positions. We will continue to watch how the sector unfolds from here. Oil services (OIH) Hit stops as well taking the exit. Crude tested the trend closing at $94.40. UGA hit resistance at the March highs near $60 and testing support.
WATCH: XLE – Entry @ 69.25. Stop 71.30 (HIT STOP) —– OIH – Entry $41.50 Stop – $40.20 (HIT STOP)
Financials – The sector pulled back from the move higher and tested support at $15. The move has challenged the current trend higher and we have to manage the risk short term. Any concerns with the sovereign debt issues will weigh on the sector as today with Europe.
WATCH – XLF – Entry @ 14.55 – Stop 14.95 (on the close)
Healthcare – The sector continues to trade sideways. We dropped to support at $38.40 and held. Hold positions and manage the risk. IHF moved up nicely off the lows and and back to the previous highs. XPH moved off the lows as well, but stalled near the $59 mark. Looking to add to our positions if the support holds and the upside continues.
WATCH – XLV – Entry @ 38.10. Stop $38.20 (Add to position at $39)
Biotech – The sector broke from the consolidation and was worth a trade on the upside play. This was posted in my daily watch list below on Monday. The sector is driving the healthcare higher as well.
WATCH – Entry at $89 short term. (HIT ENTRY WEDNESDAY) – Stop $87
Consumer Services – The consumer services sector has the retail stocks support relative to the trend higher. Dig into the ETF for the leaders. Broke above $45.50 and still near the highs.
WATCH: XLY – Entry 44.50 – Stop 44.50
NASDAQ Index – Moved back near the 3045 support? Watch for the index to hold or a test of 3000 next. The upside momentum has been as a result of the technology stocks. However, the accelerated run higher has been slowing. The play continues up for now, but manage your risk.
WATCH: – QQQ Entry @ 65.25 Friday. Stop 67.40
Small Cap Russell 2000 Index – The upside move off the July 30th bottom was positive, but we starting to give the move back as the downside gains momentum for small caps.
WATCH: IWM -Entry 79.60 – Stop – 80.30
Volatility Index – The index is establishing a short term trend higher. A move above the 16.50 mark brings VXX into play short term today. The lower volatility has given way to some speculation in the broad index. Watch for ECB or the Fed to be the tie breaker for the VIX. It may be by lack of follow through versus any action taken. See today’s news.
WATCH: SVXY – Reversing on the volatility. VXX – $11.85 Entry hit on Thursday.
Dollar – The dollar got thumped on the FOMC stimulus grab. The risk for the dollar has been stimulus from the Fed and the ECB. The lack of activity from the central banks has been better for the dollar, and today showed what the inaction by the Fed will lead to. We remain short the dollar, but if the upside starts to accelerate on fear we will head for the exits.
WATCH: UDN – Entry $26.40. – Stop $26.40 break-even.
3) Fixed Income:
Treasury Bonds – The bond has reversed course on the stimulus from the Fed short term. The yield has moved to 2.73% on the thirty year bond, pushing prices higher on the bond. The move to 1.62% on the ten year pushed prices higher as IEF and TLT both bounced off the lows. TLT cleared $124.40 for the entry point.
WATCH: TLT $125 Entry. Stop 123.50
Crude Oil – Testing near the move higher as the fear factor steps up on the stimulus packages not materializing. The risk trades are coming off and that is impacting the commodities. Manage risk of the play and mange your stops.
WATCH: OIL – Entry 20.75 – Stop 22.95 (stop on the close)
Gasoline – Can’t decide as it trades near the high… up or down? The upside is still in play, but watch oil prices and if they stall at resistance. Watching for a test short term on the steep move higher. Held move above the $59 level today.
WATCH: UGA – Entry at 52.75 – Stop 58
Resources and Commodities Strategy – Turned sideways for now, watch and honor the stop.
WATCH: BCX – Entry $13.95 Stop $13.95. (HIT STOP TODAY)
5) Global Markets: The global markets responded to the ECB stimulus anticipation on Tuesday. The EAFE index was attempting to hold the gains, but some the negative sentiment from no action stimulus has given in along with euro comments. Hit stops today and took the exit on the play.
WATCH: EFA – Entry $50.50 – Stop $51.75 (HIT STOP TODAY)
Brazil Small Cap – channel top $37.50 with potential move higher. Posted on last week for the opportunity in the global markets moving higher. Solid move higher and follow through on the upside breakout prompted the entry at $37.60. Manage the trade and Raise Stop to $38.10 on move higher.
WATCH: BRF – Entry 37.60 – Stop – 38.10
6) Real Estate (REITS) – The sector remains near the current highs. Double top (IYR) set up on the downside short term. I like the outlook long term, but short term we remain on hold. Still scanning and looking for the best opportunities. Mortgage REITs (REM) bounced off the selling and headed back towards the previous high and remain in an uptrend test of the move. The move above $14.80 on Monday is a new high and worth watching for entry and long term play in the ETF. Yield on the fund is above 11% currently.
WATCH: IYR test of support at $63.60 let the opportunity develop. Entry $65.30 – Stop $64.20
7) Global Fixed Income – The issues with sovereign debt in Europe keeps us out of the asset class currently. Emerging market bonds (EMB) tested lower and bounced off support to move higher. Passed on the opportunity due to risk/reward. International Corporate Bonds (PICB) and International High Yield Bonds (IHY) remain in a long term uptrend.
What am I watching: 1) Downside risk in the broad indexes. SH, Proshares short S&P 500 index ETF is holding lows near $34.75, and entry would be a move above $35 at $35.15. (HIT THIS ENTRY TODAY) 2) INTC is testing the low at $24.70? Broke to support by three cents, but the short play is the side to watch tomorrow. (HIT THE ENTRY TODAY ON SHORT AT 24.55) 3) HES – Breaking higher from the consolidation with $51 entry point. 4) BX – Blackstone Group is making a move higher $14.15 entry on move above resistance. 5) MSFT – Break above $31 would be a break from the consolidation pattern. 6) JCP – breaking through resistance at $25 with entry at same level. (Took the entry at $25.50 on Wednesday).
From the Morning Notes: 1) TLT – looking to hold the move above $125.50 as entry play. (FOLLOWED THROUGH ON THURSDAY) 2) EWG – 21.50 breakout point for the ETF to move higher as the picture gains clarity. Big sell off on Thursday as the Europe markets react to the lack of follow thorough by the ECB. 3) VXX – a push higher in the volatility index short term as trade. $11.80 entry. (HIT ENTRY ON THURSDAY)
The broad market has become fixated on the stimulus package from the Fed or the ECB. Without some type of announcement near term the market may react on the downside. Be patient as this all plays out short term.
Friday is finally here and on Thursday the markets reacted in the direction they believe the speech will go. The continued challenge for market is direction from the central banks on what they will or will not do near term. The outcome is dependent on what is said. It good we go higher, if bad we move lower. Either way you have to be focused on protecting the downside and looking for the resulting opportunities.
Watch and play according to your risk tolerance. 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 downside risk determines your long term results. Trade smart.