No Solution on Direction, But Trading Resumed Today

Monday, October 31st

Welcome back! After an extended weekend for the markets due to hurricane Sandy, the markets resumed what we will call normal trading. It was a quite day relative to volume, but the intraday swing was produced that move higher, tested support and rallied into the close. The NASDAQ index resumed the downside leadership dropping 12 points on the day. We were looking for some upside movement on the day which never really materialized. All said, it was a successful day for the markets as investors get back in the saddle.

The earning parade continued without much fanfare. More focus on the recovery plans in the northeast and who will be the financial benefactors. There was plenty of speculation about the winners and losers, but it is still to early to call what or who will benefit. Home Depot (HD) was the only simple call on the day that actualy worked well. The materials could be a longer term benefactor as well with the rebuilding process. We will watch and move with the trend.

The economic data resumed today as well showing Chicago PMI flat, employment cost index up 0.4%, personal income was up 0.4% and consumer spending rose 0.8%. Nothing profound or lifting to stocks. Jobs report on Friday and ISM manufacturing data out tomorrow. The end of the month data will be watched for changes… good or bad.

Apple reacts lower on the shuffling of key executives. The test of support at $588 held and now the question is the upside? Is there any gas in the tank? Did they do enough to motivate investors and the revenue? We will continue to watch the stock with a potential trade on the upside if the bounce has enough momentum to trade.

Oil moved above $86 today holding support on the belief the bottom is in for both the commodity and the pullback test for stocks. Time will tell on both fronts near term.

I am holding on to the thought that things could still get worse before they get better.  We are still concerned about the downside risk near term, but I still expect a bounce from the broad indexes. The intraday reversal last Friday was repeated today… watch to see if the bounce materializes. Be disciplined and manage your risk.

What am I watching?

Still looking for some level of support to hold and a bounce in the broad markets. Earnings have kept the bounce from taking place, but look for a bounce off the lows. The continuation of the move lower should follow as the economic and fundamental data are not improving enough to shift the confidence factor for investors.

Telecom was one of the leaders prior to the selling. Watching to see if their is any leadership left in the sector moving forward. T, VZ, QCOM and IEZ all worth watching going forward.

McDonald’s testing the June/August lows again. The downtrend remain in play, but a test of support could provide a upside trade short term.

NASDAQ 100 Index on the downside. The break lower is looking for support? Watch the 200 day moving average. The indicators are reading oversold short term which puts the bounce opportunity in play. Watch QQQ on the upside.

China has been moving higher as investors like the outlook. Watch for a test of the $36 level currently. If we hold, establishing a position is the goal. Thus, far no follow through test on the downside, but looks ready to move higher.

KBE – watch the banks to hold support and bounce? So far holding and worth looking at the trade opportunities.

Gasoline – UGA – Bounced off the $53.60 mark as support? Watching the reversal short term for a trade on the upside. Potential trade set up at $55.75.

Apple – (AAPL) Watch the impact of their executive shuffle announcement on the downside of the stock. Test $585 or 200 day? (DID THAT TODAY) Plenty of rumors, but there are buyers out there for stocks. Trade opportunity? $603 entry is tradable to $635.

Technology – Semiconductors attempted to bounce higher? Watch for trade on the upside.

1) US Equities:

S&P 500 Index / Sectors-to-Watch – Small bounce to open, but the end result was the same… no clarity in direction as we hold above the 1400 level for now. Waiting on the jobs report or more economic data? Right now we are just waiting following a two day delay due to the storm. Finanicals were up 0.5%, Utilities up 0.8% and Consumer up 0.2%. The balance were negative on the day led lower by Healthcare off 0.7%.

The Scatter Graph below has a starting point on 10/17 which is the current pivot point off the recent high. The move lower is in play. Utilities, Industrials and Consumer is attempting to bounce. They are the sectors to watch short term. We need some leadership from somewhere, up or down and we will look for these to follow through on the upside. The downside leadership is Basic Materials, Technology and Telecom. The leaders and the losers are split with about the same impact to the index overall. Let the leadership develop either side then add positions.

Breaking the Sectors Down:

Financials – The index is attempting to hold the uptrend and support at $15.80. The 50 day moving average is just below for support as well. Earnings were ok for the quarter and the large banks should continue to benefit from QE3 stimulus. Currently the cloud is the government lawsuits for banks. Watch and be patient with the sector.

WATCH: XLF and KBE on the bounce off support.

Energy – Broke support as crude continues to move lower and towards the next level of support. We established the short play on the drop lower.

WATCH: DUG – short play on the energy sector. Manage the risk of trade. Entry = $21.35 – Stop – $20.84

Healthcare – Sitting on the 200 day moving average as support. Pharma fell 2.1% on day leading the sector lower. Medical devices holding at the 200 day as well. Healthcare providers are moving lower without much in term of support. Biotech was off 2.2% on the day as well adding to the downside pressure. Watch the downside as it develops. RXD moved through resistance showing interest in the short side of the trade.

WATCH – Hold support on XLV at 200 day moving average

NASDAQ Index – The index has been under pressure from the large cap technology stocks selling, and earnings within the sector didn’t help matters. The shift lower brought the QID trade back into the picture on Friday at break of $66.60 on QQQ. Manage your stop on the downside play. The index caught some support on the 200 day moving average. Watch for the upside bounce potential if the buyers step in.

WATCH: – QID hit entry point at $28.90 / $31.05 target / Stop – $29.45.

2) Currency:

Dollar – The dollar, like stocks, is being pushed up and down based on the daily sentiment towards Europe and the global economic picture. The downside pressure on the dollar abated as fear has crept back into the global markets. Watch the bounce on the buck.

WATCH: UUP – back to the top end of the range. Resistance at $21.95.

3) Fixed Income:

Treasury Bonds – Another attempt to make break above the downtrend line. Watch to see how this plays out short term with $120.80 support. $124 is back as a potential upside entry. Investors still can’t decide the direction.

WATCH: TLT – Downtrend line off the July high. $124 entry?

4) Commodities: Tough sector to own currently with the rise in volatility across the sub-sectors. The downside shift is in control and the break below the 200 day moving average on DBC is not a good sign overall. Remains a mixed bag of volatility based on the data and speculation.

WATCH: GLD – $167 support broke and short play emerged. GLL breakout. (ETF ONLY MODEL)

WATCH: SLV – Broke lower took out support and open the short play. ZSL breakout. (ETF ONLY MODEL)

WATCH: DBB – The downside or short play of DBB has been the winner! Watch $18 for support and bounce.

WATCH: OIL – The short play in crude has been the play. The break of support at $87.50 and is sitting at the next level of $85.50. Still watching the downside play opportunity after hitting stop last week.

WATCH: UGA – Entry $55.75 if the bounce follows through. Gapped higher and receeded today. Watch and be patient with the entry.

WATCH: UNG – In trading range and patiently working through the lack of direction short term.

5) Global Markets: The global markets are starting to trade in sympathy with the US markets. Watch and let this play out short term. If you have not set your stops it is key to do so.

WATCH: EFA – Testing support at the 50 day moving average.

WATCH: EEM – Testing support at the 200 day moving average.

6) Real Estate (REITS) – The sector tested the recent high and support at $64 (IYR). The sector broke support last week and bounced back this week. The downside is still the play to watch.

WATCH: IYR  – Attempting to break lower through support? Closed below 63.90? Short opportunity (HIT FRIDAY) SRS entry hit at $25.80. Stop 25.49.

WATCH: REM – Downside back in play after the short term bounce. Held $14.45 support.

WATCH – NLY – Downside back in play after the short term bounce. Held $15.70 support.

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.

WATCH: PIMCO Global Advantage Strategy Bond (PAFCX) is hitting new highs and worth watching as a opportunity if we move above the $11.80 which it hit today for an entry. $11.81 Entry – Stop $11.74 (Watch for the stop tomorrow)

WATCH: Emerging market bonds (EMB) – testing the move higher with a pullback.

WATCH: International Corporate Bonds (PICB) – Testing near the highs, watch how it plays out short term.

Watch: International High Yield Bonds (IHY) – Testing and pulling back near the breakout 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 downside risk determines your long term results. Trade Smart!