So much for the Fed influence… on second thought, SELL! Now we are experiencing volatility similar to a market correction. I am not saying we are in the middle of one, but I am saying it is starting to act like one. The point we made last night was that earnings could be a negative catalyst to the bounce. We didn’t really get the heart of earning, nor have we heard from the financial services stocks…. If it is bad news the catalyst to the downside could get uglier. Thus, stops in place, short opportunities lined up and patience are all we need to approach next weeks trading as earnings begin. The downside is not a given either and thus the patience. One day at at time. Tomorrow is Friday and we do have JP Morgan’s earning before the open? Promises to be an interesting day for all.
Our plan was to trade the bounce and then go short the reversal. Last night I thought that may not play out, but it did. The challenge was following Wednesday’s buying with a willingness to be short today! We did play some shorts, but they were not anywhere near what we should have or would have with a different setup than Wednesday’s. The speculation pendulum swung in the other direction Thursday and we will have to be patient and see how it all pays out moving forward.
Back to our ETF view of the markets and sectors we have addressed what we see as of tonights close.
XLE – Energy holding support above the $88.50 level. Crude oil remained at the $103 level and is helping the bounce in sector stocks and commodities. Gasoline was higher on the day as well. Watch and be patient as this unfolds.
XRT – Retail broke the 200 DMA and gave short signal on the close. Watch the AM move.
XLI – Industrials moved below the 50 DMA. $51.40 support is key for the sector short term.
SOXX – Semiconductors fell 3%. $77 support with the 50 DMA just below. Needs to hold.
IWM – Small caps gave up the bounce, the $112 support and now $111 in play. Weak
IJH – Midcap sector gave up the 50 DMA again and $131 next support.
QQQ – NASDAQ 100 index tested $85 support again. Breaks… gets ugly.
IYT – Transportation back to the 50 DMA. Breaks down not good.
XLK – Technology broke the 50 DMA and 35.77 support.
XLP – Consumer Staples gave up all the gains from yesterday and today. $42.75 is support.
XLU – Utilities holding uptrend as defensive stocks lead. $41 stop.
IYR – Real Estate (REITS) Defensive sector as well holding up. Resistance at the $68.50 held and with rates dropping sector gave up 1%. Watch and use $57.30 exit.
IEV – Europe leading the EAFE index. $47.50 exit point short term.
FXI – China broke above the 200 DMA and looks positive on the break higher. Held up today.
EEM – Emerging Markets confirmed the upside mover. holding.
UCO – Crude oil broke from the triangle consolidation pattern on the upside Tuesday. holding move.
ECH – Chile broke from a consolidation top and uptrend continuation.
The upside move on Wednesday was a follow through on the bounce from oversold conditions. The selling on Thursday was a reversal of the bounce and puts the previous downside back in play. Thus far this has played out as we expected, but the volatility has been much greater relative to price swings the last two days. This is all more interesting that the original thought, but it also provides an important lesson at this stage of the game… downside get ugly fast and you have to determine well in advance where your exit points are relative to positions, regardless of time horizon. Stops are key to not letting your emotions control the situation.
On Wednesday we hit stops on some short positions that would have gotten well today. That is the discipline we use and sometime it goes against what we would like to have happened. That doesn’t negate the discipline or the strategy. Those shorts that didn’t hit stops on Wednesday, looked great today. Take the good with the bad and know in the end when we net it all out, we made money this week. Keep your patience hat on and watch for the opportunities in the volatility.