Friday, August 31st
Initial reaction to the speech delivered by Bernanke was to sell stocks. Then after twenty-minutes the buyers stepped back in with the focus on how much attention the Fed Chairman devoted to quantitative easing in his speech. Therefore, it must be coming soon and we should buy stocks after all. As I stated in my morning notes, the response would lean towards delaying any stimulus and investors would take that as a positive as the next FOMC meeting only a couple of weeks away. Thus, buying on the day.
Economic data continues to show some signs of hope? The American consumer continues to do what they do best… spend. The August sales data was better than expected. Consumer Confidence data fell to its lowest number since November 2011, but the retail data shows a different story. Throw in the University of Michigan Consumer Sentiment which was better than expected, and you do see confidence. Factory Orders were better than expected as well. Thus, our comments that the data is not bad and that could keep the Fed at bay on the stimulus for awhile. It is always about the economy… eventually.
We will ADD to this post on Monday any changes that develop over the weekend. The Model Watch List will be updated on Monday as well. Have a great Holiday Weekend and Relax.
Sectors were volatile today intraday and closed slightly higher, we updated the data below based on the results.
1) US Equities:
S&P 500 Sectors-to-Watch – The index moved below 1400 intraday and near support at the 1395 level. This remains our first level of support to watch short term. The uptrend remains in play, thus the selling is a continued test of the uptrend off the June 4th low. As we have discussed uptrends don’t die easily as the last two weeks validates. We still have to respect the downside risk and depending on the outcome of the Bernanke speech on Friday, need to adjust our stops and look at taking profit off the table.
We have adjusted our stops, sold some positions and we are being patient to see how this plays out short term. There is plenty of news and data swirling around the world, but thus far we are holding support above 1395.
WATCH: SH – Entry – 35.15 – Stop – 34.50
Energy – Selling in the energy space on Thursday hit many of our stops, but as we see on Friday, the run may still be to the upside. XLE bounce back, OIH moved back to support/resistance at $40.40, UGA gained 1.5% back near the highs at $60, and UNG was up 1% as natural gas continues to bounce back from the selling.
WATCH: HES – Entry 51 Patience required
Financials – The sector pulled back from the move higher and tested support at $15. The move has challenged the current trend higher and we have to manage the risk short term. Any concerns with the sovereign debt issues will weigh on the sector as today with Europe.
WATCH – XLF – Entry @ 14.55 – Stop 14.95 (on the close)
Healthcare – The sector continues to trade sideways. We dropped to support at $38.40 and held. Hold positions and manage the risk. IHF moved up nicely off the lows and and back to the previous highs. XPH moved off the lows as well, but stalled near the $59 mark. Looking to add to our positions if the support holds and the upside continues.
WATCH – XLV – Entry @ 38.10. Stop $38.20 (Add to position at $39)
Biotech – The sector broke from the consolidation and was worth a trade on the upside play. The sector is helping drive the healthcare higher as well.
WATCH – Entry at $89 – Stop $87
Consumer Services – The consumer services sector has the retail stocks support relative to the trend higher. XLY and XRT are both moving higher short term. Digging in and looking for the leaders has been the best play. JC Penny’s broke above our entry point on Wednesday. Continues to consolidate and looks positive short term.
WATCH: XLY – Entry 44.50 – Stop 44.50 / JCP – Entry 25.50 – Stop 24.75
Semiconductors – The sector has been testing lower and the downside leadership has been from Intel. We added the short play on the selling on Thursday. Friday the stock bounced, of course, gaining more than 2% on the day. Watch the stop and manage the play short term.
WATCH: Short Intel (INTC) – 34.55 – Stop – 25.05
NASDAQ Index – Moved back near the 3045 support? Watch for the index to hold or a test of 3000 next. The upside momentum has been as a result of the technology stocks. However, the accelerated run higher has been slowing. The play continues up for now, but manage your risk.
WATCH: – QQQ Entry @ 65.25 Friday. Stop 67.40
Small Cap Russell 2000 Index – The upside move off the July 30th bottom was positive, but we are struggling with resistance at hte $81.75 level. The key is to protect the small gains we have and see how this plays out short term.
WATCH: IWM -Entry 79.60 – Stop – 80.30
Volatility Index – The index is establishing a short term trend higher. A move above the 16.50 mark brings VXX into play short term. The lower volatility has given way to some speculation in the broad index. Watch for ECB or the Fed to be the tie breaker for the VIX. It may be by lack of follow through versus any action taken.
WATCH: SVXY – Reversing on the volatility. VXX – $11.85 Entry hit on Thursday. – Stop – $11.10
Dollar – The dollar got thumped on the FOMC stimulus grab. The risk for the dollar has been stimulus from the Fed and the ECB. The lack of activity from the central banks has served to create volatility with the buck. We remain short the dollar, but if the upside starts to accelerate on fear we will head for the exits.
WATCH: UDN – Entry $26.40. – Stop $26.40 break-even.
3) Fixed Income:
Treasury Bonds – The bond has reversed course on the stimulus from the Fed short term. The yield has moved to 2.71% on the thirty year bond, pushing prices higher on the bond. The move to 1.58% on the ten year pushed prices higher as IEF and TLT both bounced off the lows. TLT cleared $124.40 for the entry point. IEF had big pop higher on Friday as the yield continues to fall.
WATCH: TLT $125 Entry. Stop 123.50
Crude Oil – Testing near the move higher as the fear factor steps up on the stimulus packages not materializing. The risk trades are coming off and that is impacting the commodities. Manage risk of the play and mange your stops. 1.7% bounce on Friday.
WATCH: OIL – Entry 20.75 – Stop 22.95 (stop on the close)
Gasoline – Can’t decide as it trades near the high… up or down? The upside is still in play, but watch oil prices and if they stall at resistance. Watching for a test short term on the steep move higher. Held move above the $59 level all week and bounced back to $60 on Friday.
WATCH: UGA – Entry at 52.75 – Stop 58
5) Global Markets: The global markets responded to the ECB stimulus anticipation on Tuesday. The EAFE index was attempting to hold the gains, but some the negative sentiment from no action relative to the stimulus has given in along with euro comments. We hit stops, but the opportunity is still on the upside should this all gains some direction and clarity.
WATCH: EFA – Entry 52 on above average volume!
Brazil Small Cap – channel top $37.50 with potential move higher. Solid move and follow through on the upside breakout prompted the entry at $37.60. Manage the trade and Raise Stop to $38.10 on move higher. Big follow through on Friday. Holding positions and looking to protect the gains.
WATCH: BRF – Entry 37.60 – Stop – 38.10
6) Real Estate (REITS) – The sector remains near the current highs. I like the outlook long term, but short term we continue to move sideways. Still scanning and looking for the best opportunities. Mortgage REITs (REM) bounced off the selling and headed back to a new high. The uptrend remains in play. Yield on the fund is above 11% currently.
WATCH: IYR test of support at $63.60 let the opportunity develop. Entry $65.30 – Stop $64.20
7) Global Fixed Income – The issues with sovereign debt in Europe keeps us out of the asset class currently. Emerging market bonds (EMB) tested lower and bounced off support to move higher. Passed on the opportunity due to risk/reward. International Corporate Bonds (PICB) and International High Yield Bonds (IHY) remain in a long term uptrend and moved higher on Friday. Hold positions and manage your downside risk.
We will update this data on Monday for the Trading Week ahead!
What am I watching: 1) MSFT – Break above $31 would be a break from the consolidation pattern. 2) Facebook (FB) is approaching our target of $15 currently at $18. When it was launched I stated I believed it was $15 stock. With the current activity it is worth watching.
Watch and play according to your risk tolerance. 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.