No Answers On Direction – Patience Required

Monday, November 26th

The bounce on Friday left the charts with mini breakouts and V-bottoms. Monday some held the moves others tested. Where does this leave us relative to the broad markets? Still in limbo as everyone seems to have worries over one thing or another. In the end the NASDAQ 100 index made a follow through move closing at 2651 and near resistance. The gain of 12 point or 0.4% on the day was the leading index. Both the Dow and the S&P 5oo indexes had inside days and leave the upside in play. Watch tomorrow for a follow through on the upside.

The challenges remain the same old issues facing investors. Greece? Fiscal Cliff? Economic Growth? Etc. How does this all unfold and how much conviction do traders/investors have looking forward? As always we default to the charts for the answers.

Global markets gave back some of the gains with Europe down across the board. Japan continues to rally on a weaker yen and the emerging markets are attempting to move back to the top end of the trading range.

Still plenty of opportunities unfolding on the upside, but the downside overall is still the direction of most trendlines short term. We have to be cautious and take this one day at a time.

What am I watching?

Natural gas made a move lower dropping 3.5% on the day. Still watching the uptrend as it remains in play.

DXJ – Japan’s Dividend ETF made a move above the 200 day and top of the current trading range to break higher. Watch for entry opportunity on the move. Tested the move today as the yen tests support with FXY at $119.

Retail gets checked with XRT dropping 1% on the day? Downtrend line is the level to watch.

Tech still pushing higher as XLK runs to $23 resistance on the close.

Utilities finally bounce off the lows gaining more than 1% on the day. Looking for move above $34.70 as potential entry point and play opportunity.

TBT is the trade on the upside was dinged today as yields dropped.  Watch and protect the position as the bonds have been equally volatile on price.

IHF, healthcare providers ETF was down 1.3% as a result of downgrades on Monday. The concern is the delay in the roll out of the medical exchange networks for the states. Thus, to grow multiples and push stock prices higher the transition needs to be more seamless and progressive. Watch the downside risk here and maybe even a short play develop.

1) US Equities:

S&P 500 Index / Sectors-to-Watch 

The index rallied on the hope of resolution to the fiscal cliff last week. We start the week out with a test of resistance and test of conviction from investors. The test was on lower volume and not much changed overall. The Scatter Graph below has a starting point of 10/17 which was the pivot point for the recent downtrend. The move lower turned back to the upside on the 15th bounce off the recent lows establishing the next pivot point and uptrend potential. Thus the bottom chart is the new leadership on the move off the low.

The leadership for the move on the 15th low has come from Consumer Services, Financials, Consumer Durables and Basic Materials. Utilities made a move off the lows on Monday. Technology was the only of the leaders to continue higher on Monday. The shift off Friday’s high is a worth watching to see if the pivot point holds on the recovery. Still need some clarity going forward, thus be patient for now.

Breaking the Sectors Down:

Financials – Bounce in play. cleared $15.45 resistance on the move today. Watch for confirmation and follow through on the bounce. Got some movement today as we watch for the follow through upside on the bounce move.

WATCH: XLF – $15.72 Entry (Friday) on the move back towards the top end of the trading range.

Review the Watch List on S&P 500 Model – Updated 11/25

NASDAQ Index – Have we found support? Intraday reversal on Friday gave some hope, follow through provided a opportunity on the upside for a high risk trade. Gap open was a challenge and now we look for test of the push higher. We will watch and be patient to see how it plays short term.

Watch: QQQ – V-bottom formation 65.10 entry possible on follow through or test of 63.90?

Plenty of charts setting up and we outline them below. For now no clear leadership off the November 15th low. Broad based rally that looks more like a trade than a potential move higher. Patience as the chart unfolds and the opportunities present themselves.

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 homebuilders stocks have 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.

Transports – IYT has bounced off the bottom of the current trading range and is moving back towards the top of the range. Does that lend confidence to the bounce off the recent lows? The index has done virtually nothing over the last year. Plenty of thoughts surrounding this sector, but if it mounts a rally through resistance the upside follow through is worthy of our attention. Scanning the 19 stocks in the index it is easy to see the rails are picking up along with trucking. The airlines are the drag of late, but that could improve if fuel costs remain lower. One for our watch list as we move forward.

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. Moved even lower Monday on the rally with the index moving back towards the 14 level.

2) Currency:

Dollar – The dollar bounce still in play, but volatility is rising short term. We will take the trend as the key and hold with our stop in place. The big drop on Friday was interesting considering the data surrounding Europe. Watch and see how this unfolds to start the week.

WATCH: UUP – Entry – $22.05 – Stop $22.05 HIT STOP FRIDAY

Euro – Watch for a play to develop in the euro near term as support tested and the oversold conditions bring buyers in. Big bounce on Monday. $127.30 is the entry target for now. Gap open passed, but this is interesting development for Europe in light of Greece.

WATCH: FXE – Entry – $127.50 Gapped above the entry -passed 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 climb on the 10 year to 1.68% and the 30 year to 2.82%. Watch the downside to play out short term with TBT is the yields continue to rise.

WATCH: TBT – Entry $60.25 / Stop – $60

High Yield Bonds – Big bounce on Monday with stocks moving higher. Watch the downside to return as the bonds tend to trade more in tandem with stocks.

WATCH: HYG – $91.70 short play <OR> SJB – Entry $33.25 (ProShares short high yield ETF)

4) Commodities: The commodity sector continues to be a challenge without clear leadership. The volatility remains very much in play off the recent lows.

WATCH: SLV – Entry $31.50 / Stop $31 – Looking for upside momentum through resistance. Hasn’t materialized and looking to exit if we don’t move higher on Monday. Got the move higher and we watch to see how it progresses.

WATCH: OIL – $21 Entry – Gapped higher on Monday, tested the move on Tuesday. Middle East issues playing havoc with the futures market. Testing the $21 entry level without success thus far.

WATCH: UGA – Entry $56.25 / Stop $56.25- Watch and manage the volatility. Move above $57 positive.

5) Global Markets: The NASDAQ Global Market Index (NQGM) broke below the 200 day moving average and the downside has accelerated similar to the US markets overall. Likewise it rallied or bounced off the lows this week and a move above 930 would be positive… accomplished on Friday and held on Monday. The EAFE index (EFA) moved back above the $53 level and is looking ready to move higher short term. Solid bounce back in China (FXI) after testing support. Still no clear direction in the global markets as the risk remains high in the asset class. Watching for upside follow through.

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. Raise stop to $32.85.

WATCH: FXI – China is bouncing off support and a move above the $36.70 level would be a reasonable entry point for short term trade.

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.

WATCH ; EIDO Рbreaking from the current trading range. Watch 31.30 for possible buy point and entry short term.

WATCH: EWD – Sweden is moving through the downtrend line off the September high. Cleared the 200 day moving average and looks positive short term. 28.45 entry on the trade.

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