More Positive News Pushes Index Higher

Thursday, October 4th

Retail Sales for September are raising some concerns about the holiday season this year. The numbers showed an increase of 0.8% for the month, but that was short of the 1.6% estimates. Basically half of those reporting sales data missed estimates. Drug store sales were the weakest sub-sector, in fact, taking those out of the consensus report sales actually rose 3.6% well ahead of the 0% gain expected. Looking at XRT, SPDR Retail ETF it gained 1.3% on the day. A move above the $63.50 mark would be a positive for the sector overall. XLY, SPDR Consumer Discretionary ETF was up 0.8% on the day as well showing a positive response in the sector. The consumer continues to stay in the game and the ETFs are worth watching for trading opportunities.

Speaking of retail, gasoline jumped 5% on the day to regain the losses from Wednesday plus some. The pressure on prices at the pump will impact consumer looking forward. Thus, the above comments are something we have to watch even closer in light of the prices at the pump. Our best defense has been to own UGA to make enough money to afford the increases.

Oil climbed back above $90 to close at $91.74 per barrel. Crude climbed 4% and in doing so helped the energy sector move off the lows from Wednesday. XLE moved back near the $74 mark as we look for the sector to hold support at $72.80 and make a move back towards the previous high at $76.80. Exxon Mobil is bumping against resistance at$ 92.35, and a break through this level would end the five we consolidation for the stock. The services stocks were up 1.5%, but the micro downtrend is still in play.

What am I watching for Friday? 

Retail – XRT – Hold above $63.50. If we hold look for entry and trade to target of $65.25

Crude Oil – OIL – Hold the move off the low or a short play set up.

Gasoline – UGA – Hitting against resistance again $61.40 watch the upside on a breakout. The refiners are part of this move as well. Looking to see if any of them reverse the short term test over last two weeks.

Energy – XOM – In position to break above the $92.35 level of resistance.

Yahoo – YHOO – Break from trading range. $16.25 is the catalyst.

Precious Metals – Silver (SLV) brokeout on Thursay and the miners aren’t far behind. SIL opporunity to buy on breakout.

Below we address the sectors looking forward:

1)  US Equities:

S&P 500 Sectors-to-Watch РThe index has picked up directional volatility, but has turned back to the upside on economic data. We remain above the 1430 support level and we are now in position to test the previous high at 1465. The wedge pattern consolidation is still in play and no break to the upside despite the positive move this week in the index. What is going to be the catalyst for the market going forward? That is the primary question and we will have to be patient and let it unfold.

The Scatter Graph below is run from a different starting point of the high on 9/13 following the FOMC meeting to provide stimulus and the markets rallied. As you can see we drifted lower from the highs, but the ten sectors of the index have scattered. The leaders are the defensive sectors with Healthcare, Telecom, Consumer Staples and Utilities outperforming the index and the growth sectors are lagging.

The last week Healthcare, Consumer Staples, Utilities, Consumer Services, Industrial and Financials have been the clear leaders off the low on Monday. We are adding to our S&P 500 Model allocation based on these moves. The outlook is still questionable, but the technical moves are worth trading short term.

 

Financials РBounced off support at $15.45 and moving higher again. We held support and took the entry on the upside to lead the broad markets. Monitor your stops closely. Nice move higher again today as the banks move. KBE broke above resistance as well.

WATCH: XLF – $15.75 Entry – Added on Monday – Stop $15.85 (Raise Stop)

Energy –¬† Broke below $73 support with crude moving below the $90 support on Wednesday. Moved back to $73.73 on Thursday as crude move back above $91 per barrel? Thus, we are still looking at how this is¬†going to play out. Maintain your stops and let’s¬†see what¬†happens short term.

WATCH: XLE – $73.98 Entry – Added on Monday – Stop $72.50

Telecom РThe leadership of the market tested lower again, but the uptrend is still in effect. Looking for the opportunity to put the trade on for a continuation of the uptrend following the test of support. Watch the 25.22 level of support to hold. The parts are moving and they are a equal opportunity. Still not enough to push through the entry point.

WATCH: IYZ – $25.75 Entry

Healthcare – The sector continues to push gradually higher, but is testing the move higher. IHF hit at new high on Wednesday and is providing some leadership for the sector. Pharma is still struggling and XPH is at key support near $59. Hold positions and manage the stops.

WATCH – XLV – Entry @ 38.10 & $39 — Stop $40.40 (Raised Stop)

NASDAQ Index – The index has been under pressure from the large cap technology stocks selling. The bounce has followed through and set up a test of resistance.

WATCH: – QQQ – $69.50 is next resistance. Watch for breakout or retest of recent low.

Transportation Index – The transports are key indicator for the health of the economy. We are tracking this to see how it compares first, with how the market is doing relative to the sector. Second, to see if the sector is reflecting the economic data. IYT, iShares Transportation ETF is testing the key support level at $86.75 and this is the number to watch short term to confirm a move below support. Thus currently we see the index reflecting the economic data more than the market overall. Negative sign for stocks. Bounced on Wednesday with the improved economic reports.

WATCH: Added IYT as the EGG Model Play today.

2)  Currency:

Dollar – The dollar, like stocks, is being pushed up and down based on the daily sentiment towards Europe. The downside pressure on the dollar has met support currently and any hope of the dollar rising is tied to Europe continue to provide a fear factor. We got the bounce off support and UUP is hitting against resistance at the $21.92 mark. It reversed lower today on positive sentiment in Europe. This puts the short dollar play back on the table.

WATCH: UDN – downside play on the dollar. Entry: $27.40

3)  Fixed Income:

Treasury Bonds РTLT sold to $118.25 on the Feds stimulus announcement and we took the short term trade. We raised the stop last week and hit it today. We added the Watch on the short play if this broke lower Yesterday. Hit the entry on the move lower in the bond today. Watch and manage your stop.

WATCH: TLT РEntry $122.50 / Stop Р$123.50 (HIT STOP)

WATCH: TBF РEntry  $29.20 Р(HIT ENTRY) Stop Р$29.05.

Question: Is there are bubble in the High Yield Bond Sector? HYG recently tumbled from $94 to support at $91.60. While the decline was only 2.5%, the show of volatility and risk relative to the price of these bonds was made abundantly clear. Is the party over in the sector or is this a buying opportunity? A break of the near term support would be a exit now and ask questions later event. We have bounced the last two days, but still a concern for the bond class.

4)  Commodities: Gold snapped back and held. The break lower was temporary, and we have to watch and see how it play out at resistance. Broke above $172.50 today and wants to move higher short term. Gold miners bounced back from the selling as well. Silver held support on the bounce back also.

WATCH: SLV – $33.80 Entry. Stops $32.50

WATCH: DBB РEntry Р$20.10 Tested support at $19.44 with wedge pattern? Look for breakout on upside.

WATCH: OIL – Broke support and bounced back. Looking for some clarity in direction.

5)  Global Markets: The global markets resumed selling on the worries in Spain and Greece. They bounced last week off the low at $53 on EFA. Direction is still a big question short term. Reversal on the test is a play on the long side with EFA?

WATCH: EFU – Entry $19.80 – Watch for downside short opportunity.

6)  Real Estate (REITS) РThe sector tested the recent high and support is holding at $64.20 (IYR). Watch your downside risk if you still own this sector. We are looking for upside play if support holds. Testing without any conviction for now.

WATCH: URE – watch for entry / WATCH: SRS – short REIT play.

WATHC: REM РEntry $15.20 РShift in sentiment within the sector over Hybrid Mortgage REITs versus Agency REITs. Thus weakness is hitting the latter like Annaly (NLY). Dividend is 10.2% currently for REM.

7)  Global Fixed Income РUncertainty about the sovereign debt issues remain. Thus, the lack of willingness to accept much in the way of risk from this sector.

WATCH: PIMCO Global Advantage Strategy Bond (PAFCX) is hitting new highs and worth watching as a opportunity if we move above the $11.80.

WATCH: Emerging market bonds (EMB) – they continue to move steadily higher.

WATCH: International Corporate Bonds (PICB) – hit breakout today from the consolidation at the $28.95 mark. Watch for test and entry near the $29 level.

Watch: International High Yield Bonds (IHY) – Testing near term support on minor pullback. $26 Entry on bounce.

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 downside risk determines your long term results. Trade smart!