Notes for Today, March 26th

Jim’s Market Notes:

As stated in the notes last night the worries are back and the selling commenced. After two days of testing the sellers took their shot on Wednesday and they did so with stronger volume. Technically the damage to the charts from a micro term view were a challenge for investors. The short term trendline off the October lows are still intact, but they are equally being challenged currently. Below I address each of the major indexes relative to where we are now.

Transports have been lagging as we have discussed below and the durable goods numbers out on Wednesday just added to the downside move. IYT broke the support at the $158 level and is looking at the 200 DMA. You have to ask yourself if someone knew how bad the number was based on the move lower on Monday and Tuesday. Regardless, not a good sign for the broad indexes.

The¬†economic data turned back to the dark side with the durable goods numbers missing significantly in February. They fell 1.4% versus rising 0.4%. Autos and aircraft were to blame, but the core number net autos and aircraft still showed a decline of 0.4% versus rising 0.1%. A miss is a miss and this one was not good. As we discussed earlier in the week the economy is showing signs of inflation with the CPI higher than expected, but that in turn is feeding the rally in commodities. The housing data showed low inventory data which is pushing prices higher as well… inflation of another from for consumers. Rents are rising and their is not enough lower priced homes to help buyers. ¬†All of this is starting to worry investors. Add to this the strong dollar in Q1 now being projected to cut into the earnings data… all set up the sell side for markets… at least in theory.

Let the move play out today and see just how much conviction the sellers really have.

SECTOR NOTES OF INTEREST:

The early futures are pointing lower and if we follow through the next support levels come into play again. The downside risk is high, my view, it can and will feed on itself if the momentum picks up. Be prepared and have your stops in place… reentering positions is a opportunity not a mistake.

S&P 500 Index (SPY) reversed the breakout and moved below the $206 level of support and the 50 DMA. Trendline off the October low is now in play and a break would be an exit point for short term positions. $198.53 is the next support level.

NASDAQ (QQQ) fell all the way to the 50 DMA and negated the break above the $106 level. 2.3% decline on the Wednesday puts everyone on notice as the the attitude is sell growth based on earnings outlook from analyst for the first quarter. SOX index led the downside with a 4.9% decline. This is one of the key leading sector breaking lower. Biotech was the other component with heavy casualties on Wednesday losing 4.1%. If the two leaders continue to lose ground this could get ugly quick.

Russell 2000 (IWM) fell back below the $123.75 breakout move from last week. The 2.7% decline negated the move and damaged the leadership outlook for the sector. $121.25 next level to watch. A break lower would bring the trendline in play off the October low short term.

Volatility Index (VIX)¬†seems like just yesterday we were talking about the lack fear or worry in the markets currently… spoke too soon. The jump back to 15.4 on the VIX was a 13.3% move on the day. How nervous are investors? Plenty based on Wednesday’s results. VXX is the upside trade if volatility holds the move higher short term.

Transportation (IYT) Watching as indicator for the broader indexes. Plenty of damage done on Wednesday with the durable goods orders disappointing. Almost like the sector knew what the report would say. 200 DMA is the key support for now and we will watch how this unfolds going forward as a indicator for the broader market and economy.

Dollar (UUP) broke¬†support at the $25.75¬†and now $25.25 next¬†with the 50 DMA. Helping gold, oil and emerging markets with the downside move. The rally has stalled, but will return as the Fed confirms their thinking process on interest rates near term. Traders are rotating with the speculation… manage the risk if you trade effects. We already hearing the preliminary blame it on the dollar for an earnings miss.

Bonds¬†(TLT)¬†Rallied on the FOMC news… question is how much and how long does it last?¬†Stalling near the high and the $132.25 resistance. Watching the 50 DMA as¬†my exit point on any trades in the bond. Wednesday yields moved higher even with the market selling lower? Moving looks to be rotating to commodities on the inflation worries. Definitely a development to watch.

Gold (GLD) cleared the $113 resistance. Sustainability of move higher? Dollar dependent for now, but the renewed inflation talk after the CPI report is helping the upside as well near term. Watch how the dollar responds and take your cues. Gold miners are worth trading on the move with NUGT if so inclined to accept the risk. (ONLY ETF Watch List). Silver (SLV) and silver miners (SIL) are worth watching on the move as well.

Crude Oil (OIL) bounced again today and $9.80 entry point for the brave and anxious. Looking for some substance versus speculation… Wednesday the Middle East issue added to the upside. I still think it is trading positions only for now.

Semiconductors¬†(SOXX) sell growth if inflation is heating up and earnings are going see an impact from the dollar… and that is what investors did Wednesday. 4.9% decline in the sector is significant and erased the break above $96.55 break higher. This is the second false breakout and it may hold the downside move based on the inflation fears and dumping growth stocks. Hit stops on micro term trades today.

Software¬†(IGV) ‘V’ bottom and ready to break higher, but resistance is presenting a test for now. The doji candle left resulted in a move lower and that confirmed the downside¬†move for Wednesday. Sell first and ask questions later was the mode of operation today in the sector.

Networking (IGN) confirmed the downside move in motions the last month. Broke the 50 DMA and could test the 200 DMA next.

Energy (XLE) the sector has stalled again despite the move higher in oil prices.

Europe (IEV) nice follow through move last week on the upside. The stimulus from the ECB is in play… All of the global markets got a boost from the weaker dollar¬†of late. That leaves the question about the dollar on the table… higher or lower?¬†Holding the line for now, but more hope in the country than the US currently.

Scanning the country ETFs shows EWP, EPOL, EWA, EWQ & EWW are breaking from bottoming range, EWZS, EWZ starting stages of a bottom reversal, RSX attempting to gain some upside momentum short term, EWL break to new 52 week high.

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Long Term Opportunities: 

Long term positions take time to manage and patience to let them unfold. The short term can be managed with hedging or trading off the longer term positions. The goal is to build the position and manage the risk. Sometimes the short term news and events cause anxiety… the goal is to mitigate the risk and protect the downside as we allow the stock time and room to grow. If you don’t like long term holdings don’t read the data below.
  • Facebook (FB) – $73.15 entry (10/16/14) added 1000 shares back relative to the long term outlook following the choppy drop in markets. Earning remain¬†good, but the outlook showed higher costs and has kept pressure on the shares to stay in the current trading range. >¬†Added to position: 500 @ $77.50 – 1/8< ¬†TODAY:¬†¬†Gapped higher and hit new high last week.¬†¬†Continues to show strength for now…. patience with selling on Wednesday.
  • Twitter (TWTR) – ¬†(1) Added 500 shares at $42.80 (10/28/14). (2)¬†Added 500 shares at $39.20¬†on¬†1/9/15. ¬†(3)¬†Added 500 shares at $40.25 for trade Sold at $46.25 on 3/10/15. This is a long term holding, but we will trade on short term technical data if warranted. TODAY:¬† Use $45 at exit on shares added (#2 above). ¬†Rewarded on Tuesday… downgraded on Wednesday and erased the gains. Manage the risk today.¬†
  • Bank of America (BAC)¬†(1) Added Jan 2016 $17 Calls at $1.15 (avg price)/300 contracts. (2) Added 2500 shares at the $16.35 mark ¬†on 10/21/14. Banks are¬†gaining some ground on the proposed hike in interest rates and I still like our position going forward as we practice patience. TODAY:¬†¬†Not shaping up looking forward and we will look at exiting the position to find a better long term opportunity. HIT STOP and sold positions to move on to other opportunities going forward. T00 many anchors to drag along currently.
  • Whole Foods Market (WFM)¬†(1) Sold our first position for a $6.50 profit on 1000 Shares held from 11/20/14 – 3/11/15. The outlook has improved after making changes to the stores and adding new stores. The earning validated what I have been following for the last year and the company should be at the front side of a long term upside based on fundamental growth. I still like the long term outlook for the company. TODAY:¬†Broke 50 DMA and now support at the $52 mark. Selling is in place, but I still like the upside. We hit our stops, but still looking for the next opportunity as bottom or support is established.