Monday – Notes & Research
Welcome back! The markets were interesting today as we started a new trading week. Financials were the leader gaining more than 1% with banks leading the push higher. Energy continued the upside as well up 0.7% and industrials broke above resistance to a new high gaining 0.6%. The balance of the sectors reflected the broader indexes.
Concerns were with Utilities down 1.4%, Consumer Staples down 0.7% and healthcare down 0.6%. These are the three sectors we covered last week following disappointing earnings. XLU closed at support of $40.30, while XLP and XLV both held above support for now. Watch to see how this unfold going forward.
Apple lead the NASDAQ 100 index higher gaining 2.4% to close at $460 and above the downtrend line of the February high. The stock has gained nearly 18% since hitting the low on April 19th.
Bank of America was up 5.2% leading the banking stocks on the day and posted a new closing high.
There is plenty to like on the upside and there is equally as much to worry about on the downside. For now the buyers have control and the trend continues to the upside. One day at a time is all we need to know and practice for now.
Sector Moves of Note:
- S&P 500 index the move to 1615 on Monday in a dull day of trading. No test of the move and no opportunity to add the sector to the model. Tomorrow is another day.
- Still would like to build a hedge position against the portfolio in the event all the bulls are wrong. I am looking at the August 1625 SPX Puts @ $59. More to come on this.
- NASDAQ 100 index was higher thanks to Apple stock jumping another 2.5% on Monday. Raise your stop to $70.70 and we will see how tomorrow trades.
- Gold was unchanged at the $142 level on GLD. Still lack clarity on moving higher or lower. Watch tomorrow.
- Oil became the speculation play last week as crude climbs above $96 per barrel. Still see no logical reason for the move, but it has. The price moved to $97 overnight which is resistance. The selling started and tested $95 today. watching for a downside play on the commodity. Oil services and production (XOP & IEZ) are attractive on the upside as well if the trend continues.
- Industrials cleared resistance at $42.15 on XLI to clear the upside resistance. Added to the S&P 500 Model.
- Utilities are seeing some rotation from the sector the last few trading days. Down 1.2% today and near support at the $40.35 mark on XLU. Watch to see how it plays out moving forwards. Short term trade positions are near the stop. Watch and take the action accordingly.
- China held the move from Friday, but not overly convincing day. $38 entry on FXI?
- Financials followed through on the upside gaining more than 1% on the day and holding the break higher. Bank stocks move higher to lead the way with both KBE & KRE up more than 1.2%. BAC gained more than 5% on the day. C hit entry on the Sector Rotation Model.
- XLE (energy) close on the $80 resistance mark. Was higher intraday, but remains in position to break from the sideways trading of late. This gets interesting with crude hitting resistance as well on the upside.
- Bonds continue to struggle as yields are rising and prices are dropping. Added TBF to the Sector Rotation Model.
- Pattern Set Ups to watch Friday: 1) IGV – Break above resistance and down trendline. Test of $68.75 entry (no test, but follow through to the breakout). 2) RAX – break above resistance $48.85, test in play for follow through (holding, but need more buying) 3) NFLX – Continuation from the consolidation on the break higher. (moved lower intraday?) 4) KORS – Double bottom breakout – follow through on move (tested lower today?)
It is put up or shut up week for the markets as they broke higher and need to find the buyers to continue to carry the uptrend. Today was mixed, but positive overall.
No data out today as investors are left to trade on their own thoughts.
1) US Equities:
The broad indexes hold the move higher from Friday and the upside remains in play.
The April 18th chart below is the last low in the test off the April 11th high. Leaders are materials, technology, energy and financials off this pivot point. Consumer services and industrials are adding to the upside as well. The laggards are consumer staples, healthcare and utilities. The defensive stocks are selling as money rotates to the hotter sectors currently.
Sector Rotation Strategy:
The February 25th low pivot point remains in play relative to the trend. However, the volatility of the sideways trading is showing in the chart starting on April 11th, thus the chart above. Uptrend still in play, but the continued test leave plenty to worry about.
December 28th Pivot Point for uptrend following the Fiscal Cliff pullback chart below. The trend has continued to push higher. The trend remains higher, but the short term volatility is picking up. Watch the downside risk and protect your gains appropriately.
November 15th Pivot Point is the start of the current uptrend. Target 1550-1575 was attained and now there is pressure to test the move. The trend has overcome two attempted moves lower to maintain the uptrend. Watch the trendline as the support on the current pullback. A break of the uptrend brings downside options back into play for the short term.
Sector Rotation of Interest:
Technology (XLK) – Break above the $30 level again 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.
Consumer Staples (XLP) – the downside relative to earnings and warnings from the big cap stocks is and remains a concern. Even with the solid gains on the week for broad index, the sector struggled. Keep your stop tight and watch how the trend plays out next week. $40.75 is the short term perspective stop.
Healthcare (XLV) – the biotech and pharmaceuticals stall from earnings are weighing on the sector. $46.80 support level held and solid bounce, but still showing some weakness. Protecting the gain is the priority. Keep stops at the $46.80 mark and let it go for now.
Energy (XLE) – Moved back above the $78.25 level, but still has to conquer the $80 mark. All positive for now, but watching the downside risk. The price of crude jumping back near the $95 mark has helped the push higher.
Telecom (IYZ) – Moving higher, but consolidating near the high. Still like the uptrend here and if we can move above the $26.90 level it would be a big positive for the sector going forward. consolidating. $26.10 remains the exit point.
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. The chart below shows the path of the dollar almost sideways. At the same time the euro (FXE), the yen (FCY), the Krona (FXS) and the Canadian dollar (FXC) have all attempted to move higher, but still move the direction of the dollar, sideways. Looking for a trend to develop short term. No trend worth owning at this point.
- FXE – The euro is attempting to provide some upside leadership short term. FXE $130.75 trade entry. $128.50 trade exit.
3) Fixed Income:
- 30 Year Yield = 2.98% – up 2 basis points — TLT = $120.63 down 30 cents
- 10 Year Yield = 1.77% – up 2 basis points — IEF = $107.98 down 14 cents
Tracking Bond Sectors of Interest:
Treasury Bonds – Yields on the 30 year Treasury was falling again as money rotated towards the bonds. There are concerns, but also money flow into the US Treasury bonds from the international markets looking for safety and yields. Watch as this continues to be a leading indicator for equities. Last two days have relieved some of the pressure with yields rising and prices declining.
High Yield Bonds – HYG = 6.5% yield. Support remains at $92.75. Move back above the previous highs at the $95 level. Manage the position for the dividend as the growth side is uncertain short term. Use $92.75 as the stop ($95.20 short term trades). The risk is rising with each step the fund takes.
Corporate Bonds – LQD = 3.6% yield. Bonds have dumped with the rise in rates short term. Hold with stop at $120.80.
Municipal Bonds – MUB = 2.8% tax-free yield. Moving back in an uptrend ever so gradually. Collect your dividends and let it ride for now. Still climbing steadily.
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. Need a break higher to play the sector overall.
- Natural Gas – (UNG) posted a big loss on Thursday… down 6.2% as oil climbed more than 3%. $21.17 support. No play currently. Watching for support to catch.
- Crude Oil – (OIL) Crude moved up on speculation of improving economy? Yes, that is called speculation. Watching the downside opportunity on the move. .
- Gold – (GLD) Fill the gap was the plan and it is still working on the plan. Downside is where I am looking with GLL. Willing to wait and le the play develop for now.
- Gasoline – (UGA) Resistance is at $56. Made it through that level today and worth a trade on a break higher with crude holding steady for now.
Commodities Rotation Chart:
I have moved the starting point forward on the chart. DBC has moved sideways since April 15th start point. 1) UNG – dumped lower the last week. short? Watch $21.25 support? 2) DBB accelerated off the low? $17.25 entry level for trade. 3) JJC – copper jumped on positive economic data. 4) OIL -jumped on economic data. 5) UGA – Gasoline moved with oil finally? This is getting interesting for some short term trades posted above.
DBC – PowerShares Commodity Index ETF (click to view) Composite of 14 commodities tracking index.
5) Global Markets:
Global markets are trading in tandem with the US. No reason to be moving higher, but content to do so. China, Europe and Australia have taken on the leadership since the 18th of April. Watch and take what the market gives. Today they traded higher with the US markets. EFA broke higher in tandem with the US markets. Sweden (EWD), Germany (EWG) and France (EWQ) are leading the country ETFs 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 are starting to group together. They are tracking along with the US markets of late. EFA is a good barometer for trading the developed markets and VWO for the emerging markets.
6) Real Estate (REITS):
Real Estate Index (REITS) – The sector continues in the uptrend overall. My rating is a HOLD currently.
- IYR – Support is $70.50 and our stop is at the same level. Still moving up gradually and we continue to hold and collect our dividend as well.
- This weeks scan of IYR has turned up… 1) JOE – building a base and looks ready to break the downtrend. 2) FCH – trading range near the high. Look for continuation of the uptrend. 3) JLL – sideways consolidation with resistance at $100. 4) RYN – consolidation near the high move above $59.75. 5) VNO – consolidation near the high $88 breakout level. 6) BMR – consolidation near the high $22.70 breakout above resistance.
- REM – Mortgage REIT continue to struggle. The downside remains a concern and we continue to look for the opportunities, but not interested currently in owning the sector.
- 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: Making another move to the upside short term.
- There are some funds moving in favorable direction of late.
- PAFCX – Bounced off low with the movement in yields going lower. Holds $11.60 worth owning short term. The bounce remains in an uptrend and the dividend is the play.
- PICB – hit support traded sideways and broke higher. Entry $28.95 + 3.1% dividend. The upside previous high is now in play. Watch and adjust your stop to $29.15
- EMB – Big recovery and interesting in watching. 4.3% dividend yield. Entry $120.25. Breaking higher following the consolidation adjust your stop to $120.50 and go forward collecting the dividend.
- PCY – Big recovery as well off the low for short term play. Entry $30.60. 4.8% dividend yield. Breaking higher as well. Raise stop to $30.70 and collect the dividend.
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 losse