Thursday, November 29th
Congressman Boehner set the tone for the Washington two-step today, and the markets reacted initially, but recovered to close positive on the day. This is getting interesting as the talks are going nowhere fast. Depending on which side is speaking the other is the problem, and that unto itself is the problem. Another day down and 32 to go until the end of the year.
Positive day for the economic data and we will watch to see how that impacts the broad markets looking forward. 2.7% GDP growth for Q3? Better than expected and the housing permits were up. This could be the key catalyst for the market going forward. We remain patient and take a positive bias on the market overall. The trend is shifting to the upside and we will are looking a the swing trade opportunities for now.
What am I watching?
Silver up 1.5% and closed above $33 on SLV. Watch for the opportunity on the upside. We own the position, but may want to add on the follow through.
Natural gas is testing support at the $20.65 mark on UNG. A break lower will open the short opportunities further. The uptrend line is in play as well off the June low. Watch for the potential downside trade.
Retail is playing Yo-Yo with the move higher. Off 0.7% on an up day? Watch to see tomorrows response?
Utilities bounced off the lows and through resistance. I like the upside follow through and the potential to hold the position longer term and collect the 4% dividend.
Watch TLT at $125.50 if the bounce off the support follows through. Too much short term volatility, but the move still wants to go higher? Fear really in play or not?
1) US Equities:
The index rallied on the hope of resolution to the fiscal cliff , but the back and forth rhetoric being thrown around Washington is keeping a lid on the upside. The Scatter Graph below has a starting point of 11/15 which was the pivot point for the recent uptrend. We have eliminated the downtrend chart with today’s move establishing the next pivot point as the one to play.
The leadership for the move on the 15th low has come from Consumer Services, Consumer Durable, Industrials, Technology and Basic Materials. Utilities made a move off the lows on Monday and has been positive all week. We still need some clarity going forward, thus be patient for now and take what the market gives short term. Positive bias is in play for now.
Breaking the Sectors Down:
Financials – Bounce in play with the cleared $15.45 resistance. Struggling against the $15.85 level for now, but the upside is the direction to play. Still looking to the banks (KBE) for the leadership on the upside.
WATCH: XLF – $15.72 Entry – Stop $15.40
Utilities – bounced off the lows and building a base to move higher. We have added this sector to the S&P 500 model and we continue like the upside as well as the dividend opportunity short term. Expect volatility in the trade, but keep your outlook 6-12 months.
Telecom – the sector is in position to break higher short term. IYZ made a move above resistance and gained 1.3% on the day. Scanning the sector to look at the stocks versus the ETF. There are some clear leaders and some clear losers in the sector. Respect the risk of the trades in any of these stocks and manage your risk accordingly.
WATCH: FTR, VZ ($43.75 entry), CBB ($5.28 entry), T ($34.30 entry), HLIT (4.55 entry), JNPR
S&P 500 Model Watch List has been put to work and the positions are being monitored in the Model. Added Basic Materials, Consumer Durable and Telecom at entry points.
NASDAQ Index – Tested lower bounced to close above the 200 day moving average. The NASDAQ 100 index showed the same promise on the upside move. Took the entry on the QQQ move as posted here. The play is held in the Sector Rotator Model. Added some on the upside today. Manage your risk.
WATCH: QQQ – 65.10 entry (Wednesday) Stop – 64.75.
Dow Jones 30 Index – The bounce back to the 200 day moving average is a positive, but now we need to make a move above this level short term. Patience with the entry as the index has struggled with volatility and consistency short term.
WATCH: DIA – See Sector Rotation Watch List. IN PLAY Today.
On my Watch List looking forward:
Housing – The housing sector has turned the corner just in time to see a train coming head on. The sales have improved and inventories drawn down, not to mention the homebuilder stocks have climbed better than 45% during the year. Why the train comment? The budget issues facing the country need income to feed the deficit. Thus, what better place to go than the interest deduction for interest on a home loans. If the rumors are true, that change could derail any continued recovery in the housing market short term. XHB is testing support near the $24.35 level. The economic data relative to housing continues to improve this week. Existing home sales were better than expected, builders index was up over October and housing starts were better than expected. Impact on XHB… not much. The upside continues to struggle with the overhang of the current fiscal cliff issues and taxes. Watch for downside risk to risk on a pullback in the broad markets.
Short opportunities are not over… we did get the bounce we were looking for and now it is matter of sustainability? I am not inclined at this time to believe that exists. The oversold snap back was just that for now. This could and should based on what we know, produce a short opportunity on the rally and an opportunity to take money out of positions that have been lagging overall.
The VIX index (S&P 500 Volatility Index) remains low and not showing any elevated fear from investors. This remains interesting to me short term, and we will continue to watch how this plays out. Tested the lows on Monday, but has bounced back towards 16 as some uncertainty on the budget negotiations has rattled some. Watch VXX opportunity it the volatility picks up. SVXY if the volatility remain mute.
Dollar – The dollar sold lower, but held support at the $21.95 level on UUP. The dollar index (DXY) pulled back to support at 80.20 as well. Watch if this holds for a bounce or upside play.
Euro – We were looking for a play to develop in the euro of a support test. That happened, but it was a gap higher on Monday leaving us unable to take the trade. Some testing early on Wednesday, but then rallied back. Not willing to chase this based on the current data.
WATCH: FXE – Gapped above the entry – looking for test of the move.
3) Fixed Income: Yields becoming fragile short term. The move lower on Monday rattled some investors relative to the opportunities in stocks. Key to be patient with the move lower in bonds
Treasury Bonds – Reversal short term as yields falling again on the 10 year to 1.61% and the 30 year to 2.77%. Watch the yields to reverse if the rally on Wednesday in stocks is to take root.
WATCH: TLT – Gapped higher and then retraced it all. TBT maybe the trade if stocks follow through on upside.
High Yield Bonds – Big bounce on stocks moving higher. Watch the downside to return as the high yield bonds tend to trade more in tandem with stocks.
WATCH: HYG – 92.75 resistance?
4) Commodities: The commodity sector continues to be a challenge without clear leadership. The volatility remains very much in play off the recent lows. Gold had more than a $30 swing on the downside on Wednesday expanding on the volatility in commodities.
WATCH: SLV – Entry $31.50 / Stop $31.50 – Looking for upside momentum through resistance. Holding near $33 resistance, but need some follow through or look to lock in gain and see how it plays out.
WATCH: UGA – Entry $56.25 / Stop $56.25- Watch and manage the volatility. 50 day moving average is acting as overhead.
5) Global Markets: The NASDAQ Global Market Index (NQGM) broke below the 200 day moving average and the downside accelerated similar to the US markets overall. Likewise it rallied or bounced off the lows last week and a move above 930 was positive. The EAFE index (EFA) moved back above the $53 level and is looking for a follow through on the move higher short term. Still no clear direction in the global markets as the risk remains high in the asset class. Watching for upside follow through.
WATCH: THD – Breaking above the downtrend line and move above $76.40 would be positive entry point.
WATCH: DXJ – Japan total dividend ETF is breaking higher on the rally in Japan. The break from the trading range is a positive with a trade entry at $33.25. Crazy trading day Wednesday with the intraday volatility. Raise stop to $32.85.
WATCH: FXI – China is testing the gap higher and watch for the $36.65 level to hold as possible entry play short term.
WATCH: TUR – 59.20 support held and solid bounce to maintain the uptrend. Look for trade entry on test of the move near the $60 mark for now.
6) Real Estate (REITS) – The sector broke support at $64 (IYR), and tested the $61 support for the recent bounce. Should see some stability, but limited upside for the near term. Resistance at the 200 day for the move off the recent lows.
WATCH: IYR at the 200 day moving average. Entry 63.40.
7) Global Fixed Income – Uncertainty about the sovereign debt issues remain. Thus, the lack of willingness to accept much in the way of risk from this sector. Greece back on the table along with Europe. Watch and protect the downside risk in the sector near term.
WATCH: Emerging market bonds (EMB) – testing and moving sideways and attempting to hold support at $121.. Broke on Friday… watch to see how it plays this week.
WATCH: International High Yield Bonds (IHY) – Testing support? Break of $25.81 exit point.
WATCH: PAFCX – bounced off support near the $11.66 mark. Held the uptrend line and held the support for now. Still looking for entry opportunity on the play at $11.74.
WATCH: PICB – International Corporate bonds are breaking above the top end of the current range. 29.15 entry point?
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.