Thursday – Notes & Research
Markets started slightly lower on the euro-zone lower than expected GDP. That reversed and move to the even level on the day and stayed. The markets continue to struggle for clarity of direction and catalyst to take stocks higher, or one to take them lower.
Earnings from the oil services sector sparked some upside overall for the sector which gained 3.1% on the day. XLE was up 0.8% and continues to set the upside pace for the broad index.
A dividend cut by Century Link pushed the telecom sector down more than 2% on the day. The sector has been struggling to break above resistance and this news sent it lower on the day.
Orbitz (OWW) beat earnings this morning and the stock jumped 16.6%, and Agilent on the reverse fell 8.5% after hours on an earnings miss. Both are examples of the rewards for doing well and the pain for missing in this market environment.
The uptrend remains intact and we continue to hold going forward.
Economic data was overall positive today, but nothing market changing to report. Stay focused and be disciplined in how you approach the current market environment.
- Jobless Claims fell 29k! Some speculation relative to the snow storm impacting numbers? We will see next week if the data holds.
- RealtyTrac showed January foreclosure filing fell 28% year-over-year, or they were down 7% from December! Florida still leads the way when it comes to foreclosures. 1 in every 300 homes had a foreclosure notice in January.
- Euro-zone economy worse than expected in the fourth quarter. GDP dropped 0.6% versus the forecast of declining 0.4%. The euro declined against the dollar and stocks retreated on the news.
Economy like the market is steadily treading water. The short term outlook remains positive, but just barely. Keep your focus and remain disciplined relative to your stops and exit points.
1) US Equities:
- S&P 500 index stayed above resistance at 1520 today closing up slightly on the day.
- NASDAQ index is testing the 3190 level again today closing up slightly on the day.
- Research Watch List updated today with changes that apply to Entry and Additions.
- Energy continues to lead as IEZ, IEO, EOP and others break higher.
- The NASDAQ 100 held above the 2760 mark on the day and is still in position to continue higher from the move above resistance.
- Energy has been the leader, the volatility has risen in the sector, but still on the upside move.
- Consumer Staples made solid move last week to push the broad index higher. Watch as it test the move.
- Consumer Services struggled as the retail sector lost the momentum on worry about the consumer. The sales report today was okay, but still lacking any strong evidence of growth.
- Utilities have made a solid run higher and continue to look solid on the upside short term.
- Technology made a nice move last week and is testing the move higher. Still worth watching to hold the move above $29.80 on XLK.
- Emerging Markets (EEM) have stalled and remain in a consolidation pattern short term.
- Downside setting up in gold (GLD). Hit entry on GLL this week.
- Added XLI on the move through $40.75.
- XLY – looking for a move through $50.95 for a continuation of the uptrend.
- XLE – followed through on the move higher with solid gain today.
- XLV – in position to break above the $43.40 level to add to position.
- Research Watch List added entries on FCN, KOL UUP and FXE.
December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test.
November 15th Pivot Point for current uptrend. Target 1550-1575 short term.
VIX Index: Testing lower with close near 13.
Tracking Sectors of Interest:
Telecom – iShares Telecom ETF (IYZ) fell 2.8% today? Century Link (CTL) was down 23% to provide the downside leadership for the sector. They cut their dividend 25% and the sellers took over. The SPDR Telecom ETF (XTL) was down only 0.8% due to the avoidance of the smaller cap stocks. This is a sector to find the better performing stocks than own the ETF.
Oil Services – iShares Oil Equipment & Services (IEZ) gained 2.9% today? Pioneer Energy Services (PES) beat earning and revenue pushing the stock up more than 12% to lead the sector. Lufkin Industries (LUFK) also beat earnings gaining 5.5%. The positive data in the sector continues which points to upside looking forward.
The energy sector was the leader today with upside moves in IGE, IEO, XLE, IEZ, UGA. See Research Picks
Financials – XLF continues to move to the upside short term. Banks (KBE) and regional banks (KRE) both made moves higher again to set the pace. Hold for now and watch the downside risk of the sector if the broad markets shift momentum.
Citigroup (C) broke above the plateau consolidation on Tuesday, holding the move, but no follow through higher, yet. Watch for possible trade on the move or test of the break higher.
WATCH: Entry $17.20 XLF. Stop @ $17.20
NASDAQ 100 – QQQ cleared resistance at the $67.30 level. $68.25 is the next hurdle for the sector. Watch the upside confirmation for opportunity. The post in the model is to test the break higher. Still not getting much in the way of a test or upside follow through for the sector.
- The currency wars are still a possibility as the G-7 keeps stepping on their tongues to explain nothing. Watch the yen as this unfolds. There could be a bounce in store.
- G-20 meeting starts soon and it is likely to just add to the issues. Short euro into the meeting and cover after the meeting? My speculation of the situation.
Tracking Currency of Interest:
US Dollar – The close near $21.97 (UUP) and attempting to break above the downtrend line. Dollar index traded higher at the open and reversed the selling on Wednesday. Watch the dollar/euro trade short term.
WATCH: UUP – Entry $22.05 break from consolidation
Euro – The euro moved below support at $132.70, but has moved back closing at $132.38 today. Watch to see how this plays out.
WATCH: EUO: Entry $18.65 short euro against the dollar.
Japanese Yen – Has the yen found the near term low… yet? FXY bounced of $104.70 low on Friday after the comments from Prime Minister. Downside back today as call for Japanese stocks to move higher. Watch the stocks for the upside trade on EWJ.
3) Fixed Income:
- Yields continue to creep slightly higher. The question is if the market corrects how much will it impact?
- 30 Year Yield = 3.18% – down 4 basis points — TLT = $116.80 up 101 cents
- 10 Year Yield = 2.0% – down 2 basis points — IEF = $106.15 up 46 cents
Tracking Bond Sectors of Interest:
Treasury Bonds – The current play is short with TBT in the model currently to take advantage of the move lower in prices. The last week the fund has bottomed and started to consolidate. The retest of the lows is a bad sign if it breaks down. Hold TBT for now.
High Yield Bonds – HYG = 6.55% yield. The fund has faced a drop in price this week and hit our stop at $93.75 (HYG). Support is at $92.75, which has held short term and the fund moving off the lows for now. We will watch to see if support holds and then make a determination on the upside play if it evolves.
Corporate Bonds – LQD = 3.8% yield. The price has found short term support ($118.90). Now watching to see if any upside opportunity exist in the bond. Wednesday’s activity says no, but still holding support.
Municipal Bonds – MUB = 2.8% tax-free yield. The price of the bonds continue to be volatile. Found support and bounced back, but still looking for direction. Willing to wait for the right opportunity on the bonds. Look for a test of the $111.42 mark support.
Convertible Bonds – CVRT = 2.7% yield. Price has been moving higher on the current rally in stocks. Watch for opportunity if the uptrend continues in stocks.
- Crude started lower on weak euro-zone news, but rebounded back into positive territory.
- Natural Gas declined 4% today on inventory data.
- Coal stocks bouncing off support.
- BAL tested $52.65 support and is set to break higher for a possible trade. tested lower today.
- CORN broke below the next level of support at $42.80 – break opens short play opportunity.
Tracking Sectors of Interest:
BAL – Cotton jumped in mid January nearly 10%, but has stalled since. A trading range of $52.80-54.40 is in play. A break higher would be a continuation of the move off the November lows. One reason for the jump is rising demand from China? They are importing more than analyst expected and that provided the initial bump. Now we look to see if it a true increase going forward.
WATCH – BAL – Entry $54.60 break from consolidation. (Watch the low volume)
KOL – Coal ETF caught support at the trendline (ascending triangle) and moving back towards resistance at the $26 level. The upside trade is coming back into favor short term.
WATCH: KOL – Entry $24.45 Watch for follow through on the move.
GSG – Holding near the high as the overall commodity index maintains the modest uptrend in play off the November lows.
WATCH: GSG – $34.45 Entry – watch for break from consolidation.
UNG – Dropped 5.2% on the inventory data last week. $18.27 support for the ETF was tested intraday, but closed above that level on Monday. The inventory data once again shows less demand as inventory is higher than expected. It is now down more than 9% the last two weeks.
WATCH: FCG – Entry $16.65 – Set stop at $16.30
OIL – Crude is tested support at the $95 level as the chart develops a rolling top. Manage the position, but let it have some room to move as volatility picks up? Manage your stop on OIL at $22.40.
UGA – Some volatility last week from the global concerns. The upside is still in play and is likely to continue near term. Supply is short as refineries maintenance schedules kick in. The upside is still in play. Watch as we test the highs.
WATCH: UGA – SEE ONLY ETF Model.
GLD – Downtrend line still in play with support at the $159 level. Watch the uncertainty around currency and economic growth globally. The talk about the G-7 nations to avert a currency war sent the metal lower on Monday. This is all speculation once again driving price. Watch the short play opportunity if we break the key support levels currently.
The world’s central banks bought 534.6 tons of gold in 2012, an increase of 17% over 2011. That was the most since 1964, and it makes the central banks net buyers of gold versus sellers. Despite this fact the price of gold rose only 4% on the year, but saw price swings of more than $200 per ounce. The overall demand fell and that has put pressure on the price of gold currently.
DBB – Base Metals need to clear the $19.70 as they attempted today. Watch for the continuation of the play higher.
WATCH: DBB – Entry $19.75 (1/2 normal position)
PALL – Palladium tested $73.60 on some selling last week. The upside is still in play as well as the uptrend. Adjust your stop accordingly and let it continue to run.
PPLT – Platinum tested lower and is filling the gap left behind on the move to new high. Moving back near the high for now.
5) Global Markets:
- Spain (EWP) reversed again on the euro-zone GDP data. Dropped 1.3% today.
- Indonesia (IDX) big move higher over the last week? Follow through on break from consolidation.
- Japan breaks above $10 on EWJ and testing, watch for reversal?
- Thailand (THD) made solid 2% gain on the day. Watch for the continuation of the upside.
- Australia (EWA) breaking higher from the current uptrend.
Tracking Sectors of Interest:
EFA – Dropped last week on Spain and is still testing as the euro-zone GDP data disappointed. The support levels are key and it is holding above the first level at $58.15. Uptrend remains in play.
IEV – Dropped last week on Spain’s sovereign debt concerns. Testing the first level of support at $40. Euro-zone GDP data on Thursday didn’t help the situation. My upside target remains $45.50, but the upside may be in jeopardy. Watch and be patient.
FXI – China broke support at the $40.85 support of the trading range. The $39.70 support held short term, and is attempting to climb back to the $40.50 level? Watch for upside play if it breaks.
EEM – Broke lower from the descending triangle of consolidation, but has now bounced back, but still not convinced the direction has been settled short term.
6) Real Estate (REITS):
- REITs continue to find buyers and push the upside trend. Tested on Thursday.
- Homebuilders found some resistance near the $29.25 level and we are testing again.
- REM – Mortgage REIT is breaking above $15 short term play on move higher?
- NLY- Analy Capital Management finally broke above $15 and could provide some upside.
- SJT – San Juan Basin Royalty Trust holding move higher. Watch for test and move higher.
Tracking Sectors of Interest:
WATCH – IYR – Entry – $66.15, – Stop $67 Solid move higher the last two trading days. Watch as this moves.
7) Global Fixed Income:
- The sovereign debt issues are fading as the global outlook improves. Stocks moving higher prove trouble for the sector overall. We have hit stops as yields impact the price of bonds.
Tracking Sectors of Interest:
EMB – Emerging market bonds have bounced off the low, but has reversed to test again? Dividend of 4.2% is attractive if the volatility subsides.
PCY – Emerging market Sovereign Debt is testing back towards support again. Look for some clarity first and foremost. The dividend yield is 4.7%.
IHY – International High Yield Bonds breaking lower similar to US high yield bonds. Watch to see if any opportunities arise in the bonds.
PICB – International Corporate bonds support at $29.20 and looking to move lower? Watch
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.