ONE EGG Scan for December 9th

Short term trend is higher, but economic data, OPEC’s and the ECB are impacting the markets. The issues with crude prices falling 4% on Monday has¬†raised question marks short term for broad markets.¬†Still a traders market and still looking for something to define direction near term… sustainable longer than a day or two.

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.

Markets playing the worry game as oil steps back into the limelight. Willing to let this settle before jumping into the world of up and down day to day. Leadership is fading with the exception of the obvious and that is not a good sign for the broad indexes. We continue to look for the positive, but we also have to be aware of the potential for the downside to continue.

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.

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.

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.

SCO – Short crude oil is back as a trade with the push lower on speculation of too little demand for the increase in production.

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 14 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 Tuesday’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.

Small Caps (IWM) РRUT-X index remains in a trading range and the ups and downs are trade-able in the range, but it is high risk, high volatility.

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? Answer was yes¬†and the bounce on Friday didn’t hold up as it gave up the gains and then some on Monday.

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:

Oil takes the center stage again as the pressure from the commodity puts pressure on the broad markets. It is where the greatest challenge lies for the price of crude that leaves the uncertainty for investors. Is the impact to growth of the sector? Does that stall the economy? What changes if OPEC cuts supply? Too many questions and too few answers to give confidence to investors versus the risk going forward. Still looking for the best trade based on risk and time.

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.