More Consolidating As Investors Look for Catalyst

Wednesday, August 15th

Another day of wandering in the wilderness. We continue with the question of who will drive the direction of the market? Buyers? Sellers? Who will take a stand on their conviction and drive the trend short term? For now no one wants to take control of the direction, but as will all periods of indecision there will be a catalyst good or bad shortly.

After hours Cisco beats estimates and hikes their dividend 75% to 14 cents from 8. That puts the yield near 3% on the after market price of $18.20. Technology should like that going into tomorrows trading day. Watch IGN to respond to the news.

Economic data was mixed again CPI was in line with expectation as the higher price of oil/gasoline and food have not hit the consumer prices… YET! Empire State Index showed negative 5.9 for manufacturing and well off the 6 expected. The number in June was up 7.4, thus July saw a significant drop. Industrial production grew at a 0.6% increase well ahead of June’s 0.1% increase. Home Builders Index was positive with a solid increase to 37 versus the 35 in June. Thus, still on the positive side, but not enough to stimulate buyers into believing the outlook is getting stronger.

Tomorrow will have the housing starts, jobless claims and Philly Fed before the open.

Sectors below are updated based today’s activity.

1)  US Equities:

S&P 500 Sectors-to-Watch – The S&P 500 index……. holds above at the 1400 level. It is a broken record! The attempts to move to hithger is still hitting resistance at the 1405 mark. The volume remains on the low end of the scale and the chart looks tired. That doesn’t mean the move higher is done, just at a decision point. Thus, be patient and let this play out short term.

The interesting news on Wednesday is the analyst predicting no stimulus in September. The data is good enough to hold the Fed off until first quarter is the projection. True or not this could have a negative impact on the broad markets if investors get restless with the other stimulus anticipation from the ECB, China, etc.

The leadership remains in the energy, technology and consumer services sectors. Financials have attempted to put in a push higher, but they have struggled to follow through. Volatility is at the low and sentiment remains hopeful to positive. The following sectors are showing worthy actions to trade or invest.

Telecom – The sector made a solid move higher on Wednesday gaining 1.1%. The uptrend remains in play of the June 4th low and the move higher remains in play and we must manage our stops.

WATCH: IYZ – Entry – 22.40 – Hold and keep your stops at 23.95 (Raise Stop)

Energy – Uptrend remains in play off the June lows. Hold and manage the risk to see how this plays out short term. Oil services (OIH) remains in an uptrend leading the sector higher as the refiners set the pace. Production and exploration (XOP) are breaking from consolidation. Crude moved above $94 watch the break above resistance to carry oil higher. UGA broke from the digestion of gains up more than 2% on the day. Raise your stops to protect the gains. All remains positive for now, but watch the consolidation.

WATCH: XLE – Entry @ 69.25. Stop 70.40

Financials – Holding above $14.80 in the consolidation pattern. The sector hit against resistance at $15 on lower volume. Look for a breakout to the upside is the markets are going higher short term. Raised stop to break even on the trade.

WATCH – XLF – Entry @ 14.55 – Stop 14.60

Healthcare – The sector continues to trade sideways. Hold positions and manage the risk. 50 day moving average is a good stop for now. Need some belief in the Obamacare program short term for the healthcare providers. Still hitting against the resistance at the $38.90 mark.

WATCH – XLV – Entry @ 38.10. Stop 50 DMA

Consumer Staples – The sector has been testing the move higher and continues moving sideways. Uptrend in play and looking for a steady move higher for now.

WATCH – XLP – Entry 35.31 – Stop 34.90

Consumer Services – The consumer has been spending less, but the retail data is showing some growth. This is still a stock picking sector overall. The leaders remain WMT, TGT, KSS, etc. Watch XRT for insight.

WATCH: XLY – Entry 44.50 – Stop 43.90

Basic Materials – broke above $35.75 resistance to continue the uptrend off the June bottom. Some weakness in the metals and mining stocks on Monday, but still holding up for now. Watch and manage the trade short term.

WATCH: XLB – Entry 35.80 – Stop 35.10

NASDAQ Index – Broke through the 3000 mark and holding. The upside momentum has been as a result of the technology stocks. The NASDAQ 100 index broke above resistance at the 2660 mark and found the upside move easy. The play continues to pan out for now – manage your risk.

WATCH: – QQQ Entry @ 65.25 Friday. Stop 65.20 (Watch CSCO impact tomorrow)

Small Cap Russell 2000 Index – The upside move off the July 30th bottom was positive, but we have now spent the last week trading sideways and testing the move. Took the entry on the move above $79.20 and through the downtrend line. Look for move to continue higher above the $80.50 level.

WATCH: IWM -Entry 79.60 – Stop – 78.30 Manage the risk.

Volatility Index – The index tested the low at 13.7, but bounced back near 15 for now. No volume on the indexes is pushing the volatility lower. Without some news or catalyst this could move lower on the downside. Watch for ECB or the Fed to be the tie breaker for the VIX.

WATCH: SVXY – Watch for re-entry on pullback test. VXX – Made move off the low on Tuesday, watch for entry near $12 if continues.

2)  Currency:

Dollar – The dollar found support at the $22.55 mark on UUP. The risk for the dollar has been stimulus from the Fed and the ECB. The longer there is no activity in that vein the better it has been for the dollar. For now sideways is the activity and we will be patient to see how this moves.

WATCH: UDN – Entry $26.40. – Stop $26.15

3)  Fixed Income:

Treasury Bonds – The bond is selling off as institutions and retail traders dump bonds. The yield has spiked to 2.91%  and the thirty year bond pushed lower. The move to 1.8% on the ten year pushed prices lower as well on IEF. TLT moved lower breaking support at $124.60 the break lower is starting to accelerate short term. The short play on bonds is going well and moved above resistance at 16.10 on Wednesday on TBT.

WATCH: TBT – $14.80 entry. Stop $15.35 (stop on the close)

4)  Commodities: Topping formations and a cautionary tone for the asset class short term.

Agriculture – DBA broke the initial support Monday at $29.70, but bounced on Wednesday?  The next support is $29. Watch as the stories around the drought are starting to get factual information and it could be a buy on the rumor, sell on the news event. Take profit if you have not already done so and see how it plays out short term.

Crude Oil – Moved higher to resistance at $23 and testing the move currently. Manage risk of the play and let it run.

WATCH: OIL – Entry 20.75 – Stop 21.90 (stop on the close) Watch for move higher on crude above $94 Wednesday.

Gasoline – Solid move off the test the last few weeks. The upside is still in play, but watch oil prices. Watching for a test short term on the steep move higher. Don’t be afraid to take some profit off the table short term. Gapped higher on Wednesday gaining 2.4%.

WATCH: UGA – Entry at 52.75 – Stop 57.10 (raise stop)

Natural Gas –  Ther short term break of support led to recommending a short position last week. Analyst have turned negative on the commodity as well keeping the downside in play.  Volume jumped in the short ETF KOLD. Took the short ETF play in response to the negative selling.

WATCH: KOLD – Entry 27.15 watch and be patient. Raise stop to 27.05

Coal – The rotation has benefited from the selling in natural gas. However, it reversed off the run higher on Monday. The 2% sell off is worth watching short term. Still risk in the commodities short term, but watch to add to positions on the test of the move.

WATCH: KOL – Entry $25.20 – Stop $23

Resources and Commodities Strategy (BCX) breaking above resistance to continue higher at $13.92. Test and entry at $13.95. Stop at $13.65 for now on reversal. Flag pattern in play, look for upside move short term.

5)  Global Markets: The global markets continue to respond to the ECB and Draghi’s promises to save the EU. The EAFE index has moved higher on the tough talk, but the lack of action by the ECB is holding the index at bay. Watch and manage any opportunities short term. If there is not activity near term the downside risk will grow for the market.

WATCH: EFA – Entry $50.50 – Stop $50.50.

China -Broke above short term resistance and has stalled. I expect volatility along the way as China decides to push stimulus at the economic picture. Disappointing trade data with the US and impacting the outlook short term. Manage the stops.

WATCH: FXI – Entry $34.20 – Stop $34.20

Mexico – Moved against resistance again and still looking for a break out move on the index. Watch the volatility and manage the position.

WATCH: EWW – Entry $62.25 Friday. Stop $60.30

Singapore – moving back above the high at $13. I still like the country looking forward, but the near term weakness isn’t a positive. Manage the risk of the trade short term.

WATCH: EWS – Entry $12.70, Stop $13.10

Brazil Small Cap (BRF) channel top $37.50 with potential move higher. Posted on Wednesday for the opportunity in the global markets moving higher. The entry was hit at $37.60. Manage the trade and set stop at $36.80.

6)  Real Estate (REITS) – The sector remains near the near term 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.

WATCH: IYR test of support at $63.60 to hold and then bounce.

7)  Global Fixed Income – The issues with sovereign debt in Europe keeps us out of the asset class currently. Emerging market bonds (EMB) are overbought and we have put this on a wait and see list short term as the bonds have pulled back to support at $118 short term. Watching for the opportunity. The downside may pick up – look for a confirmation either way.

WATCH: EMB – tested support at $118. Looking for entry opportunity.

THURSDAY:

What I am watching.  1) The miners (XME) are attempting to pick up some momentum. Worth watching for a move through resistance$42.50 or test of support at $40.50 (hit support today) and bounce higher. 2) Mortgage REITs (REM) bounced off the selling last week and heading back towards the previous high and remain in an uptrend.  3)  Consumer Discretionary is attempting to find an upside momentum. Watch FXD currently near $21 and breaking higher. 4)  Silver Miners (SIL) attempting to break above $19.50 resistance. 5)  Homebuilders (XHB) broke above $22 resistance and March highs. Testing the move higher and worth a trade if it follows through on upside. 6)  Dividend stocks continue to move higher as the favored asset class short term. PEY is set to break above the $9.50 top. 7) GDXJ – Junior Gold Minders ETF breaking above the $20.25 resistance… look for upside follow through trade.  8)  KOL – Market Vectors Coal ETF broke above the $24.90 resistance and looking for entry point near the $25.25 mark. 9)  Soft commodities may be getting soft on some profit taking. DBA watch for short opportunity is the downside accelerates, or a entry point on a test to the move lower. 10)  High Yield Bonds (HYG) attempting to take out the high at $92.

Watch the economic data out in the am. Still could help break through resistance.

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.