Yesterday we asked the question if the uncertainty got cleared up by the Fed? The cause of the issues was oil prices falling to $55 a barrel over the last three weeks. Oil closed at $54 on Thursday? But, the Fed did trump the oil prices the last two days as investor want to believe the Fed will maintain their social economic outlook short term. I know we are still trying to connect the Fed willingness to delay the upside in interest rates with destruction in the price of crude oil. Why ask Why? Right? When uncertainty is in play the rationale for upside or downside movements is a crap shot at best.
Sectors Worthy of Attention:
Healthcare, technology and Financials all moved lower to start the week, but now they are on the move higher and leading the market again. The significance of that is their leadership on the upside was turning down and that only serves to confirm the move by the broad markets. The reversal or pivot off the lows helped ease the pain of this issue. The moves higher in Thursday made many almost giddy over the outlook short term being on the upside. We will watch to see what unfolds.
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 7% off the low. Established a pivot point with the buying on Wednesday… heading higher as crude moves lower? Watch the downside risk if crude doesn’t flatten and give the panic sellers a reason to buy it could reverse just as easily as it ran higher.
Biotech – Tested lower on Friday and followed through to support on Monday at the $297 mark. Tuesday it broke support and tested lower. This is worth watching as another confirmation of the downside gaining traction. Holding support is important for the leader and the market. Break could open more downside. THURSDAY: Nice move on the upside Wednesday to reverse the selling and equally better move on Thursday to follow the bounce higher.
Small caps have been extreme in moves up and down within the 1153 – 1190 trading range. The last two days has been no different with move back to the 1190 high. 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 started the week with a downside bias and we have to respect the trend shift in play. The bounce or pivot off the lows shifts the scans to positive and the jump on Thursday leaves plenty to ponder as this now has more talk about an upside breakout.
CURE – healthcare back in the leadership role! The jump in the sector following some sell testing and breaking of support is now in play on the upside.
DIA, SPY, QQQ all enjoyed moves of better than 2% on the day… Heading back towards the previous highs.
BIB – biotech is bouncing back towards the highs as well taking on renewed leadership again.
TNA – small caps lead the reversal and looking for follow through to new high.
SOXX – solid bounce from a previous leader potentially returning to that role.
IBB – biotech bounced as well and is a previous leader looking to regain the role.
FAS – financials bounced back as well following a couple of tough days of selling.
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. (THURSDAY: two days of modest bounces off the lows for EEM has given some hope of a bounce. Watch as this could reverse short term.)
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 to $64 Tuesday and closed at $35.56 Thursday. Big swings on uncertainty are too much to trust.
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 spiking on the buying both days. The power of the upside move is interesting as the Dow is up 650 points, NASDAQ 200 points and the S&P 500 88 points. Oversold bounce is understatement. Taking that all into account the sector that was impressive in both the downside move and the bounce was small caps. It attempted to hold the trading range and gave up in the final hour of trading Tuesday, but did so reluctantly. It has bounced back to the top end of the previous range and is in position to breakout and move higher is this upside move is to gain further momentum. Thus, I am adding this as the EGG trade on the upside. See table for trade instructions.