Outlook for Week of July 13th

MARKET OUTLOOK: 

Maybe we should get Monty Hall – “Let’s Make a Deal” to help negotiate with Greece and the EU. It is starting to take on that theme: we will trade you what is behind door number one for the next 20 years of tax revenue. Stop the insanity of this deal and move on for the good of everyone involved, not to mention those of us who have to listen to the irrational comments from both sides. This sounds more like relationship counseling than acceptance of the situation, realizing it is no one else’s fault other than your own,¬†and moving forward accepting the consequences. This is similar to those who bought homes, defaulted on the mortgages and then blamed the mortgage company for lending it to them. You negotiated the deal accept it or default. Enough said.

It¬†was one of those weeks where you felt like there really is a conspiracy theory behind the markets and manipulation by those “in the know”. The 1.5% swings the last four trading days ended the week flat. Volatility jumped to 20 on the VIX index, oil fell near the $51.75 support level, the dollar was flat, Europe struggled with Greece, China finally found a near term bottom and bounce… but, when it was all said and done, no more clarity than previous and, if the truth be told, the clarity is worse. Thus, as we start the new week of trading we do so with a very cautious outlook despite the bounce on Friday in the US markets.

As you can see below the uncertainty has cleaned out our positions and we continue to watch how this is going to unfold. No assumption, no speculation, no seat of the pants trading, just good discipline and high levels of cash as it unfolds.

Bottom line is the uncertainty remains in the market overall. As we¬†start the week I am sticking with my¬†Boolean logic theory… IF this, Then that or IF that, Then this type scenario for the markets. China is fitting into the¬†mix of variables perfectly and the variables relative to outcomes are expanding versus contracting. With that in mind we look for the opportunities to unfold on either side. It remains¬†a flip of the coin¬†with the sellers not folding their tents just yet, and the buyers are acting more on hope than conviction. We remain cautious and willing to wait patiently for it to¬†all unfold… one day at a time.

Have a great week!

FYI: I am traveling on Tuesday Night to the west coast and the updates will be limited as a result. I will be taking some time off from Thursday, July 13th – Wednesday, July 22nd to spend with my family! All of the girls are getting together I have the privilege of being invited to spend time with them ( to buy dinner of course). Thus, the updates will be limited, but the tables will all be updated daily. Thanks!

NOTE: The following are things to watch and evaluate during¬†the trading day…

  1. Financials (XLF) remains challenged by the uncertainty issues. But, the Fed is committed to hiking interest rates and the longer term view is to own the sector. You have to be willing to stomach the volatility and add to the position on weakness. Moved back above the $24.50 mark on Friday and offers again an opportunity to add to positions. $24.70 entry or test of $24.10 at the 200 DMA.
  2. Europe (IEV) the resolution to resolve the debt crisis with Greece is on the table. This is creating another trading opportunity in Europe. Entry $45.
  3. Banks moved lower and hit our stops last week. However, the upside move in the sector is still on my watch list as opportunity. KRE at the $44.20 entry would be worth adding back if it shows positive momentum. Hit entry on Friday and watching for follow through to start the week.
  4. Biotech (IBB) held the 50 DMA and looking for a bounce follow through on reversal. entry $373.50 with target move back to the $385 mark. Expect volatility with the move.
  5. Technology (XLK) is struggling to find any footing. It has lost the leadership of semiconductors (SOXX). Attempting to hold the $88.50 mark, but Friday’s move was weak… watch for follow through or the downside trade remains in play.
  6. Voltility Index (SVXY) short the index trade is setting up if the positive momentum continues to start the week. Entry $79.15 and a targetof $84.55.
  7. MLPs  have tumbled lower on interest rate fears and weakness in the energy sector. AMLP is an ETF that invests in the sector overall and has declined more than 20% since the September highs last year. That puts the yield now at 7%. I have added this to watch list as an opportunity as support or a base is established. Nice move on Tuesday and follow through would give entry opportunity. $15.75 failed to hold on watching how it unfolds.
  8. China (FXI) bounced the last two days off the lows. Why? Intervention from the government to “suggest” companies buyback stock and support the prices. I am sure based on the ruling party of China the suggestion was mild and none threatening. Either way the question of is the bottom in as “mandated”? If so, there may be upside opportunity as a trade on the follow through. YINN¬†entry $34.50 is of interest.

Below I outline the major indexes, sector¬†stories¬†and management of existing positions.¬†Stay focused, stay disciplined and don’t chase rabbits down a hole.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) testing the $204.50 support level again resulted in a bounce off support and remains one big question market as it unfolds. News remains in control and I hate to chase news… let it unfold and sort itself out.¬†Greece could offer some upside, China is in play, emerging markets are weaker, oil is weaker, and uncertainty is greater… but, the volatility index doesn’t show any panic… yet. Patience is the buzz. Must hold the 200 DMA.

NASDAQ 100 Index (QQQ) Like the other indexes, struggling with direction and weakness in the technology sector. Closed back above the $106.75 mark. Needs to move through the $108.25 mark to give me any interest. Close below $105.75 on the downside offers some interest to build a short position.

Russell 2000 Index (IWM) sold off like the rest of the leaders and major indexes. Managed to bounce on Firday back above the $123.75, but there is plenty of convincing to be done if the upside is going to resume. Willing to add a position if it moves through the $124.50 with some confidence.

Volatility Index (VIX) made it to the high I was looking for last week near 19.5 and then closed at 16.8 on Friday with the buying. Remains elevated and we will watch to see how it unfolds Monday. Move back below 15.5 would be of interest for the markets to move higher. Patience.

Transportation (IYT) remains below the $148.50 level, but managed to bounce back above the $146.50 resistance on the close Friday? First attempt at a trend reversal? The 50 DMA crossed below the 200 DMA as technical sell and it is still in play. The index is in a downtrend short term. Watching to see if the short side continues with move higher to end the week?

Dollar (UUP) The dollar sold lower on the rally in US market on Friday. $24.88 support and volatility remains on the uncertainty in the EU with Greece. Dollar index (DXY) held support above the 95.50 mark near term. Dollar has built a big consolidation wedge over the last two months and looking of how it will play out.

Crude Oil (OIL) So much for the trading range as oil drops to the next level of support at the $51.70 mark. Holding for now. There is still not a compelling reason to buy oil. Trade maybe. The bear flag is setting up a decision relative to direction near term. Patience is what we all want least, but need the most.

SECTOR STORIES: 

Technology (XLK) continues to struggle with the selling in the sector. Holding the 200 DMA¬†and reversal would open the upside trade. Added on the downside move Wednesday. TECL $34.25 was entry… Tested the move early on Thursday and gave the opportunity to take entry on the bounce. Now manage the risk of the short trade with stop at $33. Patience this week.

Energy (XLE) is attempting ¬†to¬†bounce… exited our short trade last week.

  1. Crude oil Рmoved lower in response to the global fear of Greece and the EU. short side trade? Watching to see how this does with support  at the $58 level of support. Setup for a short trade on the commodity with SCO entry at $61.50 Hit entry and stop at $58. Raise stop to $68 on balance of holding. Sold half of position on Tuesday at the $70.30 mark. Stop on balance remains same.

Treasury bond (TLT) The FOMC meeting shed some light on the Fed’s intentions to hike rates prior to year end. That puts pressure on yields to move higher and bond prices lower.¬†Fear¬†was¬†driving money back towards the bonds, but that shifted on Thursday. Upside move gave another entry opportunity on TBT… patience. $48 entry. Hit entry at $48.25. Stop at $49. Big move Friday and watching this week.

Homebuilders (ITB) double bottom consolidation pattern setting up to break higher on the momentum in the news behind the housing market (technical setup and trade). Fundamental data starting to confirm the upside move with improved numbers in sales for May. Hit¬†our¬†$27.40 entry. Stop $26.50.¬†Hitting against resistance at the $28.10 mark… watch and manage your risk. Good data, bad market… watch and manage with upside.

Healthcare (XLV) The sector has been in a consolidation pattern which we have tracked for the last five weeks. We finally hit the entry with the move above $75.50.¬†Stop $73.50. ACA news from the Supreme Court driving some upside … IHF was the benefactor as the decision confirmed government payments to the providers. Best source of income available for the providers. Tested lower with selling, held support and moved higher on Friday.

Consumer Discretionary (XLY) ¬†Held support at the $74.50 level and keeping¬†the trend moving higher… break above $77 would be of help for the trend to continue upside move. Trend fundamentally on the consumer is flat and that is keeping things in check for now. $74.50 exit point on the downside.¬†Tested the bottom end of the range on the drama, but has bounced off the lows before. Patience.

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