ONE EGG Scan for December 10th

Tuesday set up for the volatility index trade, but as it got closer to the open they became fully priced from my view and we passed with the gap open to $28.50 on VXX. It did test the $29 mark, but closed at $27.48. Due to the decline from the high through the close we will watch to see how this unfolds in the morning.

The broad markets as a whole opened lower and the found the buyers step in to accomplish an intraday reversal. Small caps put on the best show in for the major sector indexes gaining 1.5%, but that was a total of 2.8% off the intraday low. This puts the 1190 mark back in play as a break from the short term trading range.

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 is met with more downside as the price of crude falls near the $63 level. Some are projecting a bottom at or near the $60 level. Not much room left and the downside accelerated to start the week. Short side is still the trade of choice for now.

SOXX РSemiconductors testing the uptrend in play for the leading sector. Watching to see how it unfolds and any opportunities within the sector. Still leading and still setting the pace for the broad markets. Tested Monday down 1.4%, but still in the positive upside trend establish November 2012. Long term trend would have to break to spoil the party.

Biotech – remains a leader for the broad markets. IBB was up 1.6% on the day and XBI gained 0.6% to lead the day. The trends in place speak for themselves.

Adding Small Caps back today as they earned it with the move back near 1190 and potentially a break higher. Biotech, energy and miners were a good reason for the jump in the index. Looking for the follow through on the upside short term.

Markets are still playing the worry game as oil steps back into the limelight on Monday. Global economics with Europe and China leading the charge. Geopolitical issues still brewing with Russia as they continue struggle with weaker currency and weaker economic picture with oil prices declining. News, Events and Fundamentals are mixed and keeping a lid on the market short term.

Running the Daily EGG Scans: 

Starting the week on the downside shifts the scan results for today, but also shows where the weaker components of the market are currently.

GLD & SIL – the metals jumped from the open adding better than 3% on the upside Tuesday. The minders (GDX and SIL) added more than 4.5% on the day to bounce back from the excessive selling in the sector of late. Watch the precious metals as they remain volatile on the move.

TNA – small caps were on the upside gaining more than 1.5% on the day and reasserting some leadership short term. Growth sectors were definitely in the lead on Tuesday and that is positive and worth watching going forward.

FAS – Financials bounced back to a leadership role on Friday… followed through to start the week¬†despite all the selling around the markets.¬†Ride the upside move and keep your stops in place. (Sold early on Tuesday, bounced back off the lows to close down slightly on the day. Still looking for the upside leadership.)

ERY – Short energy is back in play and the move on Monday never looked back. Crude oil back near the $63 mark is the reason. (Bounced modestly on Tuesday, but still watching.)

SCO – Short crude oil is back as a trade with the push lower on speculation of too little demand for the increase in production. (Bounced modestly on Tuesday, gave back the gains closed flat on the day. Still watching how this unfolds.)

TMF – Long Treasury bonds as money rotates again to safety! Fear in the markets, but not sure how much upside there is in the bond rally as yields are already at 2.2% for the ten-year bond.

BIB – biotech continues to offer upside moves and the trend is higher.

VXX – VIX moved above 16 as the uncertainty towards the impact of oil hit investors again. The challenge has been weakening global data and reference to the stronger dollar not helping exports. Regardless of the banter the real issue bothering investors is oil prices and uncertainty of the impact. (See Jims Notes blog post Monday.) Worth a trade if this continues to play into Wednesday’s trading day.

EUM – short emerging markets broke through resistance on the day as EEM broke support. Downside trade has been setting up and now needs to follow through to validate. Fell again on Tuesday confirming the break lower.

DGAZ – short natural gas has been a great¬†upside trade this week. The reversal from the upside is a result of “warmer weather” now versus the cold front experienced during the Thanksgiving week. UNG broke the¬†lows of October at $18.96¬†and added to¬†the downside.¬†Oversold?¬†I would say yes, and it is attempting to work it out on two failed bumps off the low, but we are still at the low?

RUSS – short Russia remains in the forefront as lower oil prices could have a negative impact on the finances of the country. Plenty on conspiracy theories in the media the last week on this topic. This ETF has spiked higher as a result.

Current EGG Proposed:

Small caps of interest if we can clear the 1190 mark on index. IWM, TNA or SAA are alternatives depending on leverage for a upside trade if it follows through short term. We will look at how it unfolds in the AM and post accordingly.

More in the morning on this.

Tuesday AM – Volatility is still in play this morning with futures pointing lower. Uncertainty is the issue and it that remains in play again today the VIX will rise. As stated in notes $27.25 was entry point for trading opportunity and thus I want to add 1/2 and EGG positions this morning with max entry at $27.50. Don’t chase the trade and let this unfold into the trading day. I will post any additional updates to the EGG Table.

Tuesday’s trading gapped open to $28.50 and move to a high of $29 then tested back to the $27.30 level. We will watch how it unfolds in the AM And update the table prior to trading.