Volatility spiked to 30 and the uncertainty is turning the indexes to the downside. We hit short entry positions on Friday in other strategies and look to confirm the downside as we start the 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. With crude continuing below the $60 mark the shorts are still in control. ERY had big day on the move lower.
Biotech – remains a leader for the broad markets. Tested lower on Friday and watching to see if it holds support on the current downside move.
Small caps erased their gains from morning again and still has the trading range in sight, but the Friday close is setting up for the short trade in TZA. Now it is up to the sector to maintain support at the 1153 mark and find the momentum to hold… otherwise downside trade.
Markets are still playing the worry game as oil remains in the limelight on the week. 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:
We start the week with a downside bias and we have to respect the trend shift in play. That leaves the scans with a negative connotation to them and filtering the good and the bad together signals plenty of caution short term relative to risk/reward. Watch and be patient as the scans are shifting to the downside plays.
SMN – Short basic materials took on some leadership Friday and it is trading down with the commodities and the potential impact to demand in the sector.
UNG – natural gas is bottoming? Well it is attempting to move higher or at least establish a base. Worth watch if it can follow through on the upside.
ERY – Short energy is back in play and the move this ween has never looked back. Crude oil back near the $61 mark is the reason. (Bounced modestly on Tuesday, but still dropping.)
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.) Followed through on the downside Wednesday and SCO added 7.2%.
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..16% for the ten-year bond and 2.83% on the thirty-year. But they found a way to move higher again on Wednesday.
VXX – VIX moved above 20 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.
EUM – short emerging markets broke through resistance on the day as EEM broke support. Downside trade has been setting up and got the follow through to validate. Fell again on Wednesday as follow through on the break lower Tuesday. Short trade working well.
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. This has gone vertical.
Current EGG Proposed:
SDS triggered as trade on Friday in the pattern trading strategy. As you can see above the downside is the bias. I am looking at TZA and QID as options to the EGG Monday. I will post the table on Monday early to confirm which trade gives us the best opportunity short term. I want to see how futures shape up and the response in Asia. Patience is the challenge for now.