ONE EGG Scan, December 22nd

New week of trading, but the same issues face investors. This is a holiday week and I don’t expect much in terms of news and events to drive the markets. It is likely to be quiet and drift higher to continue the pivot from last week.

Sectors Worthy of Attention: 

Energy (XLE) trend is down short term (3-9 months) as established off the June highs. Each support level or attempted bounce has met with more downside as the price of crude continues to fall. XLE has moved up 9.8% off the low. Established a pivot point with the buying on Wednesday… heading higher? Need crude to pick up some gains if this is going to be anything more than a bounce. Watch the downside risk if crude doesn’t.

Biotech – Made the move above the $315 level to continue/renew the leadership in the healthcare sector.

Small caps have been extreme in moves up and down within the 1153 – 1190 trading range. The last three days has been no different with a move above the 1190 high of the trading range to breakout. FRIDAY we are looking for the break through and possible entry point for the ETF IWM. Patience as this unfolds.

Markets are still playing the worry game, but the Fed injected some positive momentum to a market with plenty of cash to put to work. Don’t be surprised if this feeds on itself into the holidays and possibly the new year.

Running the Daily EGG Scans: 

We start the week with the Fed influence still impacting stocks as well as the time of year. The year end push is on and plenty of dynamics at work… be patient and don’t force trades.

OIL – Crude oil moved up 6% to finally pivot off the lows. Looking for follow through to the move on upside.

DGAZ – natural gas continued to break lower. The warmer weather acting as a catalyst.

XLE, OIH, IEO, etc – Energy made continuation move off the lows.

TNA – small caps lead the reversal and followed through to new high.

TMF – Treasury bonds back on upside… not a good sign from my view. one to keep watching.

Current EGG Proposed:

Markets make a pivot off the lows on Wednesday and the gap higher on Thursday confirms as the buyers are willing to step in and bid up stocks. The previous leaders were back with volume and solid moves to end the week. The power of the upside move is interesting as all three major indexes made powerful move back to the previous highs. Oversold bounce is an understatement. Taking that all into account the sector that was impressive in both the downside move and the bounce was small caps.

We looked at adding the ETF on Friday, but as it unfolded late in the trading day on Friday we waited. Today we will look to add the position assuming normal open and the ability to buy with a realistic price as posted. If we gap open give is some time and evaluate the risk accordingly. I will update the table following the open with any additional comments.