Wednesday, November 7th
That was a ringing endorsement for the winner, President Obama! The broad markets worries shifted quickly to the fiscal cliff issue and then proceeded to feed on itself. The major indexes drop 2.4 percent on the day and oil dropped 4.6 percent. I will say that investors wasted no time moving on to the next worry. The rally I expected didn’t materialize and the end result of the day was big flush below support. The downside is now fully in play and the short plays will spring eternal.
I will do more research tonight before we post further opportunities to the Watch List.
The video update tonight addresses the damage in detail and I will update further the issues and outlook.
What am I watching?
SUPPORT? Catch and bounce… OR fall and continue selling. No confidence vote today from investors on the fiscal cliff negotiations.
1) US Equities:
S&P 500 Index / Sectors-to-Watch –
The 1400 mark was broken and the index moved to our target of 1389 following the break of the 1430 support level. Do we hold here and trade sideways? More downside to come? 1372 and then 1363 and 1359. The intermediate term uptrend line is coming into play off the November 2011 low. Break of these levels opens the door for more selling. Watch for confirmation on the downside move today or the bounce and sideways move. Patience!
The Scatter Graph below starting point is 10/17 which is the current pivot point off the most recent high. The move lower turned sideways for two weeks and has not renewed the trek lower. Leadership remains the biggest challenge. We discussed the fact that industrials were leading the markets? Not good. The move today renews the downside move and negative sentiment. We need some follow through from Technology on the upside as we saw today. The downside leadership in Utilities and Telecom have accelerated thanks to the concerns over the dividend taxation. Negated the bounce from Tuesday and open the way for more selling. Watch Financials, Technology and Energy as they accelerated on the downside today.
Breaking the Sectors Down:
Financials – The index broke support at $15.80 after a positive bounce on Tuesday. This puts $15.40 in play on XLF as support. Earnings were ok for the quarter and the large banks should continue to benefit from QE3 stimulus. Nothing good to say following the 3.3 percent drop on the day.
WATCH: XLF – Watch to see if support comes into play.
Technology – Complete reversal and continuation of the downside trend.
WATCH: XLK – Entry $29.25 / Stop $28.65 (HIT STOP)
On my Watch List looking forward:
The bounce in energy, technology and basic materials were at least a positive on the day. Not ready to put money into the sector today, but they are on my watch list of opportunities short term.
NASDAQ Index – The index has been under pressure from the large cap technology stocks selling, and earnings within the sector didn’t help matters. So far the index has held the uptrend line and the 200 day moving average. The downtrend is firmly in play now. Watch and see – patience for now.
WATCH: – QQQ – Entry 65.70 / Stop 65.10 Watch the volatility. (HIT STOP)
Dollar – The dollar bounce continues as the weaker outlook in Europe is hitting the euro. The play continues on the upside short term for the buck.
WATCH: UUP – Entry – break above resistance. $22.05 – Stop $21.90
3) Fixed Income: The sector remains somewhat volatile as investors continue to look for direction from stocks. We have a small allocation to the sector overall, but continue to scan for the opportunity.
Treasury Bonds – Another attempt to make break above the downtrend line. Watch to see how this plays out short term with $120.80 support. $124.60 is resistance. Investors have not been able to decide on direction, but the fear generated today put the bonds back in play short term.
WATCH: TLT – Downtrend line off the July high. $123.60 entry? (HIT ENTRY)
Emerging Market Bonds – the reversal off the high has reached short term support at $120.75. A move below the 50 day moving average would be a negative to technically. Watch for the downside opportunity or a bounce off support as a trading opportunity.
WATCH: The bounce has started $121.80 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 – Hitting against the $167 resistance for now. Watch to see if upside can gain any momentum.
WATCH: SLV – Inside day closed lower as investors decide outlook.
WATCH: DBB – Selling gave way to hope on the hurricane speculation. Bounce trade? Sitting on support. Clear $18.2o on volume could be interesting.
WATCH: OIL – Cleared $21 entry on the bounce Tuesday. Watch for follow through… No follow through on the upside, but the selling was strong on the day. Down 4.2 percent. New low short term.
WATCH: UGA – Cleared $$56.25 entry point on Tuesday. Follow through? NO – $53.60 low in play on the downside.
WATCH: UNG – Bounced, but no real conviction on the move. I still like the Short play? KOLD
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. Broke lower, now $53 support
WATCH: EEM – Testing support at the 200 day moving average. Back to the bottom of trading range.
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? Volatile within the trading range.
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