Outlook for Week of June 1st

MARKET STORIES:

Friday returned to the sell side for equities and the volatility remains in play just enough to show the frustration of investors. It¬†also shows the extent of the market shifting to more day trading type approach. Long term views are willing to sleep with the short term swings, but the short term traders are frustrated as those strategies are getting whipped in and out of positions. That said, the key is to define what strategy is working for you and stick with it. If you don’t like the current environment stay in cash or longer term positions. It is not mandatory to be invested, nor is it vital to revamp your strategy overall… it is key to know what is working and what is not. It is at times like these that playing golf, taking a long cruise (avoid wifi) or just relaxing¬†is a good thing to do!

The worries we have discussed are still in play and still effecting the markets day-to-day. You can refer back to my post on Thursday Ten Ideas to watch going forward for more input on this issue.

Looking forward this is going to remain the same… attempts by the sellers to push the indexes lower will remain in place. The buyers? It is a buy the dip kind of crowd currently… which may well be the traders in play… longer term buyers look to me as if they are on the sidelines. You have to let the trades unfold and refuse to speculate or force trades.

I don’t want to get into all the issues facing the markets fundamentally this weekend I want you to look at the trends… keep in perspective the trends rule until they are broken. There has to be a catalyst in place (not just speculation) that will confirm the trend is broken and allow the sellers to control the trend and then short trades will take precedence. Respect the noise, don’t get caught up in it, and trade/invest according to your disciplined strategy. Nothing more nothing less. I am not lecturing here, but I am attempting to remind you to stick to what you know and don’t get sucked into the hype surrounding the markets day-to-day. There will be plenty of opportunities as we move forward… there is no need to force anything… let the market come to you and follow the trend.

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

  1. Crude oil was the story on Friday jumping more than 3% and back above the $60 mark? IF (big if) trade through the top of the trading range sets up a trade opportunity in the commodity. Weaker dollar on Friday helped.
  2. Emerging markets breaking lower opens short trade opportunity if you are willing to take the risk. EDZ is the ETF on short side with 3 times leverage… you can adjust your trade size to account for the leverage and allow for more volatility in the trade.
  3. SOX index remains the leader and the move higher is a positive in that is held. The M&A is helping along with speculation of more on the way. Managing the risk of this trade is equally important.
  4. UUP – dollar was weaker to end the week and that put FXE in interesting bottom reversal setup to clear $108.10. Watching to start the week.
  5. FDN – tech moving and internet is part of the move higher. Breakout at 67.70. Hit entry and stop at $66.75.
  6. IYZ – telecom moved to support at the $29.70 mark. Bounce or break lower? The break lower takes out the trendline from the October low and offers a short side trade opportunity. Look for entry at $30.25 if upside continues.
  7. Healthcare (XLV) remains a positive sector overall and hitting against resistance short term. The providers (IHF) broke higher on Friday taking a leadership role. Pharma (XPH) starting to confirm the reversal off the May lows. Sector is of interest looking longer term as a hold and manage the risk.
  8. Biotech (IBB) attempting to move higher again with $366 level of resistance level to take out. Use that as level of entry for s short term trade on the break higher. Large cap ETF XBI moved above resistance on Friday at the $237 mark.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) index isn’t acting well based on the current indecision from investors. Close below the¬†$211.90 mark again and we will see how this unfolds on Monday. Keep your stop on positions at the $204.50 level. The trends are still intact on the upside.¬†Don’t rush to any conclusions on the downside yet, let it play out. Patience is ugly thing, but it is usually the right thing.

NASDAQ 100 Index (QQQ) held above the $109 support, but the selling on Friday was of interest intraday. Not convincing, but of interest as fast money is quick to lock in gains. Upside remains in place and we keep stops at $104.40 on short term positions (3-9 month horizon).

Russell 2000 Index (IWM) The index moved back above¬†the¬†$123.75 move. The¬†stop at $122.50 on trades (0-13 week)¬†holding¬†barely. October trendline not recovered and still watching. Downside below $118.80 is stop on short term¬†trades. Don’t assume anything as this unfolds… except volatility short term.

Volatility Index (VIX) Closed at 13.8 and still not showing much in terms of anxiety. However the intraday movement in stocks is showing the lack of trust or traders activity due to the indecision. Watching to see how this unfolds. Unless some news shifts the trend buyers are in control for now. SVXY is position to hold now.

Transportation (IYT) Closed below the $154 support… followed through on the selling to start the week… 50 DMA crossed below the 200 DMA as technical sell and it closed lower at $149.14 on Friday.¬†The index is in downtrend¬†short term and¬†Dow Theory says this is negative for stocks going forward… Words to watch.

Dollar (UUP) shifted gears again back to the upside as worries in Europe return over Greece. Throw in some speculation about the global economies and the bond buying program in Europe. $25.10 level cleared on upside to the dollar. Modest selling to end the week and we will watch how it unfolds in the coming week of trading.

Crude Oil (OIL)¬†Big bounce on Friday to recover from the selling down to $57.68 level on crude. The close Friday was $60.30 as the range holds and speculation remains. As I have stated this is too speculative for my taste and it lacks logic currently… pass for now.

SECTOR STORIES: 

Alibaba (BABA) upside gap on earning is testing. Still plenty of debate on the outcome, but the consolidation on the move higher gives entry for trade at $88.60. Watching how it unfolds following the volatility. Breakout and entry at $88.60.¬†Stop $90 hit on Friday.¬†Issues in Chinese markets not helping… put back on watch list if this holds support at the $88 level again.

Regional Banks (KRE) – breaking higher from the trading range short term. $41.85 entry hit¬†and I like the upside if rates hold the move higher. $40.70 is the stop… Still not a picture of¬†strength short term, but we will let it play out. Too much noise, but still place to be longer term view.

Software (IGV) leading sector for tech is testing support at the $100.50 level currently. Keeping the uptrend in play needs some help… manage positions. Selling is to be watched and stops in place at $100.¬†Friday was negative for the sector…

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. Consumer is not spending (April report lower than expected and still no clarity for the sector overall). Sentiment is declining (consumer sentiment report May). $74.50 exit point on the downside. Patience is necessary near term.

Financials (XLF) This sector is all about Fed speculation. Will they raise interest rates¬†or not. Manage the risk and look to see how this plays out near term. This is one sector in favor of higher rates.¬†If that is true, we would want to hold long term positions… wide stops and ignore the volatility based on speculation¬†from analyst. Focus on what you believe. Stop $23.80. Testing $24.50 support again.

Healthcare (XLV) РFound support at the $71.25 mark and reversed and headed towards a new high as the confidence returned to the sector. $73.50 needs to hold micro term. Short term $71.25 level to watch for support or move above the $75.25 level of resistance.

Bonds (TLT) We bounced off the $118.50 support and followed through clearing the $121.50 mark on a bottom reversal. Bonds were oversold and te bounce is playing out with a target at $124. Hit the entry for trade and stop moved to $120.35. Let this unfold and manage your stops short term.

  1. TLT bounced off the $118.50 support and now looking at the upside trade. TMF is leveraged ETF. entry $74.95 watch on Tuesday. HIT entry at $75.20 early. Put stop at $76.80 currently.

Energy (XLE) Broke¬†support at the $80.50 mark.¬†Again the negative sentiment returns to the sector. We have not added positions yet, but we will watch for the next opportunity as this unfolds. $77.70 now the support level to watch. Didn’t get any benefit from the pop higher in oil prices on Friday??? That equals disbelief that the move will stick… watching how next week unfolds.

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 is one worth our attention as we move forward.¬†Trading range and downtrend off the February high are the key issues for entry. ($56.80 level to watch.) Hit the entry point with move higher… still plenty of long term opportunity. Stop $55.20. Big negative day on Friday moving below the 50 DMA… honor the stops if the downside follows through.

Semiconductors (SOXX) this was one messy chart, but it developed into a trading range and broke higher ($96 for entry hit). The follow through to end the week was a positive and it has established itself as one of the leaders near term. Manage the risk of the volatility in the markets accordingly and raise your stop $98.85 to start the week.

  1. INTC – $33.50 entry on breakout for the stock and willing to add again for the upside move. This is one of the old leaders rising off the lows and the fundamental outlook is positive… Stop $32.50.
  2. NXPI Рnice move to break from the trading range (entry $104.50) and broke above the March high. looking for follow through and opportunity. stop $104.50. Nice follow through on the upside currently.

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