Friday was a day for the sellers. China made one move too many with a runaway market and the worries started. CPI was in line with expectation, but the word inflation in the headlines and a trigger happy Fed in the wings added to worries. By the time the bell rang investors already had their sell orders loaded. Volume was above average and there was plenty of technical damage done to the charts… The psychological damage will be seen early in the trading week. If the selling continues it could get uglier than it already is. This is where you plan your exit on the worst case and look for the opportunities on the best case. Have a strategy for what you expect and then plan the opposite. If you can approach this market without your opinions dominating the reality of the results you make better trades.
The challenge for now is keeping our emotions in check. One day of selling does not mandate a correction. Yes, it may well be the first day of a 20% collapse in the markets, but it can equally be the test before a 20% rise. No one knows… not even the talking heads on CNBC, Bloomberg, CNN or any other network. Let the week unfold. Know where the exits are in the event the downside continues. Know your strategy if the markets reverse and resume the upside. Take a deep breath, focus, have a strategy and move forward. It really is that simple. Panic and emotions create bad investment decisions… Plain and simple.
S&P 500 Index (SPY) Back below the $209 level and $206.11 next to hold. The stall proved to be a downside signal. Still in trading range and still no confirmed direction.
NASDAQ 100 Index (QQQ) cleared $106.75 resistance only to retest the $105.70 level of support on Friday. Back below the 50 DMA. No conviction in the buying as we have discussed. Monday will be key day to watch for direction. $104.50 break is short entry.
Russell 2000 Index (IWM) at resistance and near the previous highs. Cleared the $125.61 mark and hit a new high for the year. Lasted one day and then tested the $123.75 support on Friday. Held the uptrend line, but led the selling with 1.6% decline. Break support it gets very interesting short term.
Volatility Index (VIX) closed at the bottom of the range 12.75-17.10. Tested the low on Thursday and bounced to 13.8 on Friday. Mild response in volatility considering the doom-and-gloom headlines. 14.8 resistance for the index. Uncertainty yes, fear based selling… not yet.
Transportation (IYT) Transports need to move higher if the broader index is to sustain a move higher. Tested the $154 mark again on Friday! Where are the buyers? Not out of the woods yet on this indicator.
Dollar (UUP) the greenback remains a story line many are following. The strength has given way to selling and closed Friday at $25.60 support. Another test of support raises some interesting question globally and for commodities. Consolidating and watching is the motto.
SECTORS OF INTEREST:
China (FXI) ran higher on speculation, but the news relative to short selling being allowed on stocks send the index lower. Jury debate is heated over this topic and for now watch as see if it hold support at $49.50. Upside remains in play, but there is still plenty of speculation on the horizon. Hold support look for opportunity. Break support look to fill the gap left on the rise. Hit our stops at $50. Upside longer term still is positive, but going vertical is always a challenge.
Russia (RSX) has been in similar mode of late as oil prices have settled and even moved back above the 200 DMA. Test is positive for now. Looking to hold this level of support and rise. Planning trade opportunity.
Emerging Markets (EEM) cleared resistance at the $41 level and made solid advance. Tested the $42.50 support on Friday. China, Brazil and other markets have benefited from the rotation into the global markets and away from the US markets the last two weeks. Adjust stops to break even and watch this top or consolidation top to unfold.
Bonds (TLT) Rallied on the FOMC news in March… it has since stalled and developed a sideways trading range. $129.20 on downside and $132.20 on the upside. Rates fell bond rallied on Friday as the tug-o-war continues. Opportunity is the breakout higher. TBT if the yields move higher. Patience wins the race here. (I thought there was inflation worries?… wouldn’t that hit the price of bonds.)
Crude Oil (OIL) Simply put volatility within the trading range ($42.60-53.80). Cleared the upside resistance on Wednesday closing at $56.39. The inventory data showed less build up this week and crude rallies. Currently there is more speculation than logic. Still watching this speculation tug-o-war. Breakout is trade if follows through. Got the follow through and continues to show interest from the buyers.
Energy (XLE) Broke higher and stalled as the broader indexes tested lower. Next level to clear is $82.50 with confidence this week. All speculation on prices moving higher… earnings are six weeks out and we will have to wait and see who is right. Expect volatility in the sector, see Friday. Need to continue upside trend if possible.
Solar (TAN) second test of the move higher. $42.30 support, held $43.75 level and bounced back to new high. I like the upside continuation in the sector looking forward, manage the risk and let it run. Stop $46.50.
Biotech (IBB) tested 50 DMA bounced. Cleared $342.80 is level to watch on upside opportunity. Hit the breakout and buy opportunity. Cleared the $352 resistance and second entry opportunity. Let it unfold and give some room for volatility. Stop at $340.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.
Unfolding Stories in Sectors Currently:
Retail (XRT) – the consolidation at the highs showed some weakness last week and Friday it broke support. The retail sales data for March was okay, but below expectations. Money flow is drifting lower week and there are some key stocks breaking down. BBY, JWN, KR and TJX were some of note. This is a sector to watch with interest as the consumer is key to the US economic picture. Broke support at $100.25 Friday and the sellers are in control… watch the downside trade if we confirm the break lower. $98 puts June are $2.50.
Industrials (XLI) – if (and that is a big if) the global economies continue to recover and growth take root… industrial stocks should rise from the dead. CAT is a good example of an opportunity as this unfolds. This story will take time to validate, but it one worth our attention as we move forward.
Brazil (EWZ) – cleared a double bottom pattern last week and sits at $34 resistance. Looking for test and follow through on the reported improvements in the country. Let it unfold and validate the move higher. stalled, but still ready to break.
Financials (XLF) – This continues to be a laggard for the market, but if the US is going to move higher it needs some help from the sector. Looking for a leader to help. KBE (failed breakout above resistance), KRE (failed breakout above resistance), KIE (hit entry, reversed), IAI (consolidating favoring move lower) are all looking similar at this point. Failed to break higher for entry, but watching on XLF.
Healthcare (XLV) – reestablishing the previous leadership. Friday did some damage to the chart and watching to see how it unfolds this week.
Utilities (XLU) breaking down. Watching the new support levels to hold as interest level in the sector continues to be weak and the sellers may take another shot based on the interest rate hikes on the horizon. Speculation is great for creating opportunities.
Global Energy – The US is only the fourth largest oil producing country thus there are other opportunities globally relative to the recent bump higher in oil prices. The bump is still only a trading opportunity from my perspective. Don’t over stay your welcome just yet. The trend will develop, but there are too many obstacles still in the way. With that in mind ENY is a Canadian Energy Income ETF to watch. EWZ is Brazil ETF which benefits from the recovery in a oil dependent country. PBR is a key stock in that recovery. RSX is Russian ETF as they are the second largest producer of oil globally worth trading. Watching this story line unfold. (FILL, MLPX, IXC, PBD)
LONG TERM OPPORTUNITIES:
- Facebook (FB) – $73.15 entry (10/16/14) added 1000 shares back relative to the long term outlook following the choppy drop in markets. Earning remain good, but the outlook showed higher costs and has kept pressure on the shares to stay in the current trading range. > Added to position: 500 @ $77.50 – 1/8< TODAY: Testing the move lower and broke support at $81.50.
- Twitter (TWTR) – (1) Added 500 shares at $42.80 (10/28/14). (2) Added 500 shares at $39.20 on 1/9/15. Use $45 at exit on shares added (3) Added 500 shares at $40.25 for trade Sold at $46.25 on 3/10/15. This is a long term holding, but we will trade on short term technical data if warranted. TODAY: Nice break finally above resistance only to reverse on the selling on Friday. Came all the way back as the buyers have no conviction.
- Bank of America (BAC) Sold all positions as this has become a train wreck of news and write downs. Earnings are here and it may set up trade opportunity with some cheap options? TODAY: $16 calls for April as play on earnings would be interesting at five cents. (They closed at 20 cents on Tuesday for great gain on the calls. closed position before earnings Wednesday) Earnings were okay, but not enough to push the stock higher. Watching to see if downside sets up for short trade.
- Whole Foods Market (WFM) (1) Sold our first position for a $6.50 profit on 1000 Shares held from 11/20/14 – 3/11/15. The outlook has improved after making changes to the stores and adding new stores. I like the long term outlook for the company. TODAY: still looking for the next opportunity as bottom or support is established.$51.50 broke and if it continues lower may be the downside as trade. Short trade hit entry point $50. August $50 puts $3.10. They are playing out well with the drop on Friday. Closed at $3.85.