ONE EGG Scan for October 30th

FOMC meeting concludes Fed shifts gears on jobs, inflation and economic picture… AND cuts QE out of the picture. Reaction… mixed at first with a selling bias, but then the bargain hunters stepped in and pushed the indexes off the lows closing down 0.3% for the day. This leaves the bias towards the buyers heading into tomorrows trading, but we will have to confirm the outlook in the morning notes.

Running the EGG Scans

Markets tested the move higher from Wednesday and then proceeded to recover most of the selling in the last hour of trading. Proceed with caution, but the bias is with the upside move micro term.

Wednesday test move higher:

Gold broke lower and we added the short trade (GLL) in the ONLY ETF Model. The real play was in the short gold miners ETF (DUST). The spike higher broke a nearly six month cup & handle pattern. More selling in the miners? Worth watching. Junior miners ETF (JDST) was up even more on the selling.

Grain Commodities (JJG) are continuing to make a nice progress on the upside. I like what is building on the chart currently. RJA is  another ETF in the same space.

Volatility jumped early, but receded following the FOMC meeting and the buying. Watch in the AM how this sets up.

Stronger dollar on Fed actions (UUP). That meant rally in short yen (FCS) and short euro (EUO). Worth watching as well on the dollar rally.

Banks (KRE & KBE) both bouncing off support and through next resistance levels. Need the sector to keep the upside moving and worth watching for a trade on the move higher.

Financials (FAS) Tested the move higher with modest gain on Wednesday. FOMC out of the way, earnings were okay, positive sentiment building in the sector… looking to add this position as the EGG position. XLF is the unleveraged ETF and needs to break through the $23.45 resistance level to add upside momentum to the move. Watching the sentiment in the AM and then we look to add this position. See the table for details. 

Still Tracking Potential Upside Moves: 

Semiconductors (SOXL) Filled the gap left on the downside move tested and move up again… We cleared the $95 resistance to move higher. How much more upside is there in the move? Only time will tell, but the upside has the bias for now. Cleared the $100 mark on Tuesday and looking positive for now. Tested Wednesday and still closed higher on the day.

Biotech (BIB) hitting new highs as the sector follows through on the upside and is setting the pace for the broad markets. Momentum is still gaining in the sector. Still a leaders following the breakout move and upside follow through. Tested Wednesday and looking for upside to return Thursday with broad indexes.

Healthcare (CURE) the upside in the sector rallied as the follow through moves back to the previous highs. This will now be the indicator for how the market will potentially respond to reaching the previous highs. Nice gain hitting $111 and above the previous highs. Upside still in play.

NASDAQ 100 index (QLD) in position to break through the next resistance level and worth a trade if it makes the move with momentum intact. Still like the upside momentum and bounce off the selling on Wednesday.

Small Caps (TNA) lead the way higher. This was the leader off the low and it is back in that role today. Break above 1120 offered renewed entry point to trade the move higher. Some give back on Wednesday, but still upside looking positive.

Midcap (MVV) following the small cap stocks higher after lagging the last week. Nice break higher and gave solid entry opportunity. Still positive outlook for the sector.

S&P 500 index (SPXL) upside struggled to keep up with the NASDAQ, but still showed positive move with the leadership spread across the board.

Industrials (XLI) solid move to regain some leadership for the broader market index. Second sector to push back to the previous highs along with healthcare. Look for them both to offer indication of where the broad markets are heading. Need upside follow through.

Moves of interest today: 

Crude oil (USO) attempting to bounce as the commodity held the $80 level of support. Nothing has changed other than speculation on price being oversold short term. Trade upside, but the better trade is likely to be shorting the rally.

Natural Gas (UNG) Short trade has been working until today! The buyers stepped in and pushed the price off the lows. Clears $19.90 it would be of interest as an upside play. Nice move on Wednesday to push higher.

Treasury bonds (TBT) bonds move lower as stocks rally and dollar remains strong. The break above $51.80 was the entry point for a short term trade. Nice follow through and we will adjust our stops and look for follow through. (Pattern Trade Model) Added this on the test Friday. Stop at even as Treasury bond rallied on the FOMC news. Watching tomorrow. TMF could trigger buy opportunity for trade if the bonds rally in response to the Fed.

Upside Trends to Watch: 

NASDAQ 100 Index (QLD) Still trending higher. Stopped out of the EGG trade on the intraday volatility in the index. The move following the FOMC needed a wider stop than willing to give at this stage of the game. Watching to trade again on the test and move tomorrow.

Homebuilders (ITB) solid bounce and move through the $22.90 level was the initial entry point for the trade. Boost from the home sales data and housing data overall. $23.80 resistance level broken on Thursday with solid move to the September high. Target is $25 for now. Tested on Wednesday, but remains positive for now.

REITs  (DRN) the REIT sector rallied on the move lower in interest rates and money rotated to safety in the sector. The follow through upside gained momentum and we are back near the previous highs from September. The EGG is IYR and settled even on the day, but still moving higher. Watching as this approaches the previous highs and we will determine what to do from there. Tested on the FOMC meeting results… watch on Thursday and protect the downside risk.

Current EGG:

Traded the IYR position for the move in REITs on Monday. See table for the post. Added nice upside last week and still upside for trade short term. Traded higher and we keep our stop in place to protect the position profits. Upside remains, but a bump in interest rates may put the sector in check again. FOMC meeting results Wednesday. (HIT STOP on the meeting follow up… watching to see how it move tomorrow.)

Normally only have one EGG, but as we did not get a full position in the IYR trade willing to add the QLD breakout as a second egg going forward. Entry $125, Stop $127. Target $129. Momentum is rising in the large cap index despite the missed earnings from Amazon and Chipotle’s warnings. Patience and discipline in managing the trade. HIT STOP on the selling follow the FOMC meeting. Too much risk to leave wider stop and thus we move forward from here.