Outlook for Week of April 27th

MARKET STORIES:

NASDAQ 100 index was up 1.4% on the earnings from MSFT, SBUX, AMZN and GOOG. That puts the index at a new high and a target of 4680 on the move. The key will be a follow through for the index next week. On the opposite side Friday the Russell 2000 index closed lower and failed to hit a new high again. The uptrend remains in play and the positive sentiment is in place, but the buyers have not stepped up to the table.

The inability for the broad indexes to participate in the good news is a concern going forward. I don’t want to speculate on all that is wrong with the economy, but we have to be aware of the signs that develop in the markets as they unfold. Another warning sign and one that keeps us defensively optimistic. If April and May fail to show much in terms of improvement it could form the top for the markets short term. That is what we will watch.

Rotation to the global markets has stalled, but the moves on Friday showed some interest rising again. The issues with Greece and European Union are still nagging at investors. The economic data has improved slightly, but not to the level it is showing a rebirth in global growth. Another area of optimism flavored with concerns.

Bonds showed a move lower on the week as yields rose slightly. This is yet another area that continues to wait for the Fed to act on interest rates. That said, the Fed has built plenty of excuses for doing nothing on the rate front until next year. The uncertainty surrounding the sector has kept everything status sideways for now.

All said, we keep our bias to the upside technically… downside fundamentally and cautious overall. We continue to take one day at a time with our stops at the level of risk we are willing to accept.

S&P 500 Index (SPY) the index moved above the¬†$211.17 resistance Friday, but closed on a doji which is generally a sign of indecision by investors. . The need for leadership may well be a reason for the lack of conviction on the move higher.¬†Tech has tried, Energy stalled, Retail tested lower, Financials can’t get going, and consumer has too many question marks, but XLY did post a gain of 1.4% on Friday. Take it one day at time as this attempts to hold the move to new highs. The S&P 400 Midcap index hit a new high on Thursday, but failed to hold it on Friday… a negative from my view.

NASDAQ 100 Index (QQQ) Cleared $109 with a gap higher on Friday and closed at $110.59. The convincing follow through we asked for on Thursday, showed up on earning Friday. The index continues to lead and I added to positions on the move above $108. stop break even on those.

Russell 2000 Index (IWM) Attempted a new high, but failed to follow through. Unlike the other indexes the small caps remain in a uptrend with some volatility along the way. Held the uptrend line, and that is the direction of choice for now. $126.50 entry? Makes sense if we are going higher.

Volatility Index (VIX)¬†closed at the bottom of the range¬†12.50-17.10. Tested the low all week¬†and we closed at support.¬†Uncertainty yes, fear based selling… none yet. Watching the lack of concern by investors as the index creeps lower and stocks creep higher.

Transportation (IYT) Transports need to move higher if the broader index is to sustain a move higher. Tested the $154 mark again last week and bounced. A bottom reversal on Wednesday? The index cleared the $157.50 resistance and confirmed the move. Watch for entry if this follow through on the upside. $159.05 entry hit on Thursday.

Dollar (UUP) the greenback remains a story line many are following. The strength has given way to sideways trading with the $25.50 support in play along with the 50 DMA. MACD has turned negative short term. Consolidating and watching is the motto.

SECTORS OF INTEREST: 

Consumer Discretionary (XLY) broke higher on Friday from the trading range… need follow through and worth adding a position on the move. Look for test of the move and volume.

China (FXI) buyers continue to show up despite the press and negative views on China. Upside remains in play, but there is still plenty of speculation on the horizon. Reentered the trade at $51.50 after we resume the move higher. with $49.40 as the stop for now. Patience as the consolidation plays out.

Russia (RSX) has been in a uptrend mode of late as oil prices have settled. Test and consolidation is positive for now. Looking to hold this level of support and resume uptrend. Took trade opportunity $19.60 upside entry point. Stop $18.75. Expect volatility on any trades in the sector.

Emerging Markets (EEM) cleared resistance at the $41 level and made solid advance. Tested the $42.50 support and held. China, Brazil and other markets have benefited from the rotation into the global markets and away from the US markets. The resumption of the uptrend is a positive and for now a favorable position to hold.

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. Broke decisively lower on Wednesday from the range.¬†TBT entry hit at $42.65. stop $42.30. Let it play out as the yields are in fluctuation.

Crude Oil (OIL) broke from the trading range bottom above $53.85. The continuation of the upside remains in play for now with at test a the current high of $58. Currently  there is more speculation than logic as the rational and justifications are pontificated. Nice gain of 2.2% on Thursday and entry for OIL $12.35.

Energy (XLE) Broke higher and stalled as the broader indexes tested lower. Next level to clear is $82.50, but it has stalled. Move is value buyers stepping in and the stall is the traders moving to other places for now. Need to continue upside trend if possible. $80.50 support level in play.

Solar (TAN) test of the move higher and nice gain on Thursday. $47.75 support, held and looking for follow through to the new high. $50.50 next resistance to watch. 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 on upside opportunity. Cleared the $362.50 resistance and another entry opportunity. Let it unfold and give some room for volatility. Stop at $340. Stocks of interest: CLDX (breaking out), CRIS (breaking out), CELG (breaking downtrend line), IBIO (breaking out). Nice moves higher in CERS, MYL, LXRX, and POZN.

Semiconductors (SOXX) it is a messy chart, and the break lower on Friday on makes it worse. MXIM, CAVM, AVGO, NXPI and FSL led the downside on earnings. This puts the short side in play as break of $93.70 was held on the close. Not what we were looking for as the leadership is key for the technology sector overall. Looking at SOXS at $12 is holds the downside move.

Watching the moves in IGV (consolidation breakout higher), XLK (ABCD downtrend pattern breakout), FDN (trading range breakout and gap higher), SOCL (uptrend continuation), IBB (cup and handle pattern), XLF (trading range sideways) and KRE (ascending triangle consolidation). The leaders were established from this list last week and others need to pick up the slack short term.

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Unfolding Stories in Sectors Currently:

Retail (XRT) Рthe consolidation at the highs showed some weakness last week as it broke support ($100.25). The retail sales data for March was okay, but below expectations. Money flow is drifting lower and there are some key stocks breaking down. BBY, KSS, JWN, KR and TJX are some of note along with the specialty retailers. This is a sector to watch with interest as the consumer is key to the US economic picture. AMZN led the sector on Friday with a 15% gain. FRED and DSW added some nice gains as well.

Industrials (XLI) – if (and that is a big if) the global economies continue to recover and growth takes root… industrial stocks should rise from the dead. This story will take time to validate, but it one worth our attention as we move forward. GE, AAL, RSG, ALLE, and SNA worth tracking.

Brazil (EWZ) Рcleared a double bottom pattern last week and sits at $34 resistance. Looking for test and follow through on the reported improvements in the country. Finally got the move higher we were looking for and now we manage our gains. Entry $34.60. Stop $34.75.

Financials¬†(XLF) –¬†This sector has remained a train wreck. We have been looking for leadership, but none has developed. The sector is sluggish and for now I pass. Plenty of other opportunities.

Healthcare (XLV) Рreestablishing the previous leadership. downside did some damage to the chart and watching to see how it unfolds as it made a nice recovery this week. Small bounce and making gradual progress higher. Added to position $74.40. XPH, IHF and XBI all stalled and facing resistance. Need some upside help from one. IHI remains in solid uptrend.

Utilities (XLU) building bottom (triangle pattern). Nice gain of 1.3% on Friday back to resistance. Follow through breakout is of interest $45.50 entry. Speculation is great for creating opportunities.

Global Energy РThe US is only one of the 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. The trend will develop, but there are too many obstacles still in the way short term. 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 big gain on the week. 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: 

Long term positions take time to manage and patience to let them unfold. The short term can be managed with hedging or trading off the longer term positions. The goal is to build the position and manage the risk. Sometimes the short term news and events cause anxiety… the goal is to mitigate the risk and protect the downside as we allow the stock time and room to grow. If you don’t like long term holdings don’t read the data below.
  • 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:¬†¬†Bounced above $84, but earnings are being debated relative to increased expenses cutting into profits. Opened above $85… closed at $82.40… selling showed pressure building. Watching how today unfolds.
  • 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.¬†Sideways activity shows lack of conviction in either direction for now.¬†
  • 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:¬†¬†Earnings were okay, but not enough to push the stock higher. Watching to see if¬†downside sets up for short trade. Still looking like dead money for now.
  • 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. Short trade hit entry point $50. August¬†$50 puts $3.10. They are playing out well with the drop. Closed position Friday at at $3.60.¬†Held support and bounced hit the stop.