More Challenges Building for Investors

The broad market indexes calmed in Thursday’s trading with lower intraday volatility and less concerns over Europe. Facing a long weekend helped as investors looked to start their vacation early. I want to go with them at this point. We are effectively out of the market and willing to sit this out over the weekend. I don’t expect much in the way of activity today and the futures are slightly higher on Germany’s economic data and consumer confidence. We will focus our day on research and the opportunities on the horizon. The notes from from yesterday offer the best opportunities near term and sectors to monitor.

The dollar broke higher and is poised to move up another 2-3% based on the charts and activity in Europe. That is a negative to commodities, but a plus for consumers. In our webinar last night we covered how to track this and what opportunities there are as a result. If you would like the workspace we used in the video join my FREE club over at TC2000.com/JimFarrish and you will find it under workspaces.

Banks are back in the news with Facebook IPO mess. Morgan Stanley and others are working to fix the fiasco that was last Friday. Personally I am already tired of the coverage on this issue, but it is likely hit earnings again in the sector as many of the firms write down the losses from the offering and trading. This makes me look at IAI, iShares Broker Dealer Index ETF as a possible short play as this unfolds. I don’t like trading news, but this is news that has a lasting impact on the bottom line of these companies and earnings are only 6-7 weeks away for many of them. The chart shows some consolidation near the $20.70 mark and a break lower would make for an interesting short. The target at $19.40 and a stop of $21.20. This is a high risk trade based on the building storm in the brokerage sectors, but one worth watching.

Technology is another sector that has my attention on the downside. Dell’s forward guidance on earnings Wednesday night lacked clarity. The stock was punished for the news losing more than 15%. That has been a ripple effect into areas of technology that have been stable during the current pullback. The concern being that Dell is echoing the report delivered by Cisco relative to corporate spending. Dell went so far as to say they would not have guidance about the next quarter until August. That pushed stocks in the technology sector lower as NTAP, CSCO and EMC all moved lower. XLK, SPDR Technology ETF only lost 0.6%, but the bear pennant pattern could develop into more selling on this news. Short the sector is looking like the play than long on any bounce in the broad indexes. IGN, iShares Networking Index ETF was down 2.5% on the day as well. On the radar for a downside play currently.

As you can see there is plenty of information on the downside to concern investors. The current bounce off support from Monday is still in play, but the momentum in the sectors above are going to act as a big headwind for any follow through on the upside. We will spend plenty of time this weekend developing our watch list looking forward. There are opportunities on the upside as we discussed in yesterday’s notes and there are opportunities on the downside as discussed above. Stay focused and disciplined as we move forward. The trend short term remains lower off the April high and it will take something positive to turn the ship back to the upside. Take what the market gives one day at a time.

Have  great holiday weekend — relax you are going to need your rest.