Outlook for Week of June 22nd

MARKET OUTLOOK: 

The week ended on a negative note, but the upside move following the FOMC meeting was the news of the week. Investors somehow believe the combination of the Fed’s view of the economy and the slow upside movement of interest rates is okay now. What has worried the markets for the last nine months is now okay? Just remember the simple equation… markets are irrational (because investors are emotional) short term, and logic prevails longer term. The emotions are in play from investors and the ultimately the rationale will prevail. For now we take what the market gives and manage our risk.

The emergency meeting of the EU leaders called to decide on Greece rattled the markets on Friday, but maybe this is the end. I have read enough research and blather on what will happen internationally and domestically as a result to make me ill. When it happens we will see exactly what will happen. Until then it is all speculation. Look at the chart of GREK and you can see the speculation in play.

The test on Friday may offer some entry points on positions we didn’t take on Thursday. We will post them to the tables and see how it unfolds to start the week. There are some great pattern set ups on the consolidation the last few weeks. Be patient with the entries and management of the risk.

Below I cover all the major indexes and what transpired today of interest. The leaders, the laggards and what we hold. I won’t repeat myself here in the intro, but leave it a the fact there is still plenty to do on the fundamental side of the equation and there are plenty of worries still on the horizon to be dealt with, but as it plays out¬†we will adjust and manage our risk through the minefield of worries.

 

It is imperative that we remember the overall theme of this market currently is a lack of clarity which leads to a lack of conviction. The offspring being volatility day to day driven by news. Use discipline as your friend in the management of your portfolio.

Have a great day.

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

  1. Big names (large caps) make a move finally on the upside and worth watching going forward. AMZN – breaking from trading range. GOOG – reversal off low and back above the 50 DMA. MSFT – reversal off support at the 45.33 mark and 50 DMA crossed up through the 200 DMA. CSCO – reversal off support and through the 50 DMA. FB – Pushed through the $82.50 resistance and continues the micro uptrend. This is the segment we need to see run if upside is going to sustain. QQQ up 1.4% to lead…
  2. Emerging markets (EEM) attempting to build a bottom near the $39.60 level after a 10% decline on worries about the dollar. Yes, the dollar has been declining, but the fear of the Fed hiking rates later this year is playing havoc on the outlook for the sector as the dollar would rally in response to the Fed move. Bottom reversal is what to watch for now on the oversold technical conditions in the sector. Target on bounce $42. Entry at $40.15. Stop $39.80.
  3. Treasury bond (TLT) bounced off the low and watching as it stalls at the $118.60 resistance. The FOMC meeting shed some light on the Fed’s intentions. but we have to watch how the bond responds. The reaction on Wednesday was more of it being priced in…¬†Thursday wasn’t that bad… considering the announcement. Friday showed fear of Greece with bounce back to $118.60 resistance.¬†Still in decision mode currently. I am looking for the downside trade opportunity on the bounce.
  4. Vietnam (VNM) attempting a bottom and trend reversal. The ETF cleared the $17.90 mark to end the week and held the move on Friday. Entry $18 on move higher. Stop $17.70.
  5. China (FXI) has been selling lower and broke support last week. It is now dealing with the $46.50 level. Question about the turn around in China’s economy is on the speculation table. Break of support offers a short trade (FXP)… bottom reversal would confer with the speculation and money flow would rise in the country ETF. The upside trade is worth watching as well. Patience as this unfolds and confirms based data.
  6. Natural Gas (UNG) bounced of the lows and produced nice gain on the move. Now it is stuck consolidating at resistance of $14.05. The descending triangle setup is pointing to possible continuation on the upside. Worth watching for trade on follow through higher.
  7. Consumer Staples (FXG) moved back to the top end of the trading range and is in position to break higher. A move through this resistance at the $45.45 mark would be of interest to develop on the upside.
  8. Silver (SLV) has been attempting to make move higher, but has yet to find the catalyst or momentum to do so. Watching near term to see how it unfolds could offer a short term upside trade.
  9. Homebuilders (ITB) double bottom consolidation pattern setting up to break higher on the momentum in the news behind the housing market. Nice move on Friday to break through resistance and now looking of a follow through on the upside. $27.40 entry on the move.
  10. Euro (FXE) the upside pattern is at resistance again and the break higher is a nice trade setup. $112 entry. The story is easy to track with all the news on Greece. The euro may rally on the news as response to a decision. Leveraged trade is ULE.

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) Tested and held¬†support of¬†$207.50 mark and Thursday completed the follow through of the bottom reversal and move back above the $211.90. Didn’t las as we closed at the $210.81 mark on Friday.¬†Keep your stop on positions at the $204.50 level. The lack of leadership in the index remains a challenge. Without solid leadership this up and down sideways activity will continue. Healthcare and financials are trying, but nothing to write home about yet.

NASDAQ 100 Index (QQQ) Another bounce off support and moved back to the $109.10 level to clear on the upside.¬†Our stop remains at $104.40 on short term positions (3-9 month horizon). Large cap tech was the¬†reason for the uncertainty in the index and Thursday they led it higher.¬†Watching for this to provide some leadership going forward if it fails… bad sign for the current bounce off support and resumption of the uptrend.

Russell 2000 Index (IWM) The index moved back and is holding above the $123.75 level. The stop at $122.50 on trades (0-13 week) holding. Made the move above the $126.53 level to add a position in the index. Stop $123.60. Small test on Friday, but the market likes the leadership from the sector? Watching to see if holds.

Volatility Index (VIX) Closed at 13.9 with the anxiety moving the needle higher on the Greek worries. These day to day worries have not been sustainable relative to volatility in the broader indexes the last five months. SVXY trade still on with tight stop now on the bounce to $90. We will watch how the week starts.

Transportation (IYT) Bounced off the $148.50 support again and looking for another attempt to establish the bottom near term. If you keep jumping up and down on a weak branch eventually it will break and that is the support in transports.¬†50 DMA crossed below the 200 DMA as technical sell and it is still in play.¬†The index is in a downtrend¬†short term and looking at the sub-sectors we still don’t see any leadership. This remains a challenge for the broader indexes as negative indicator.

Dollar (UUP) The¬†dollar sold lower on the FOMC announcement? Yes, this is another indication that traders don’t believe the Fed will act before year end. ¬†The $24.88 level of support¬†broke on Wednesday with $24.48 next level held for now. News is driving and not willing to trade emotions for now. Dollar index (DXY) fell below the 94.70 level of support¬†with 93.25 the key level to watch going forward.

Crude Oil (OIL) Remains in the trading range and speculation is day to day on the commodity. Until it gains some clarity not willing to put money at risk. It remains a supply/demand story and nothing more from my view.

SECTOR STORIES: 

Healthcare (XLV) The sector has been in a consolidation pattern which we have tracked for the last five weeks. We finally hit the entry Thursday with the move above $75.50. Stop $73.50. Pharma and biotech are leading. IHF is also helping on the upside. Need the leadership from this sector is we are going to maintain a upward trend in the broader indexes.

  1. Pharma (XPH) confirmed the reversal off the May lows with break higher above $126. Sector is of interest looking longer term as a hold and manage the risk. Entry $125.50. Stop $$123.50.
  2. Biotech (IBB) attempting to move higher again with $367.80 resistance level to take out. Added a small position at $366.50. Stop $355. Remains in range after brief move above resistance and willing to add on the move through resistance. Nice follow through on Thursday to confirm the upside.

Retail (XRT) moved through the top side of the current trading range. We were looking for a move above the $100.25 resistance level for entry point to trade higher which did hold on Friday despite the selling. Some stocks from scanning the sector to watch DPLO (nice continuation of the break higher on Friday), JCP (posted the reversal bar on Friday), CONN, TGT (nice break higher and follow through), BKS (hitting new high near term), MW. Manage the stops on these stocks going forward.

Semiconductors (SOXX)¬†Tested $95.15 support, bounced, tested again and holding? This is the challenge for the NASDAQ currently. Within the sector we do see¬†some leaders emerge worth watching.¬†¬†QRVO (follow through upside), SIMO (back to the previous highs), AMBA (nice follow through on the upside with test on Friday), AAOI (flag pattern). Others worth watching for bounce following the recent selling are FSL, NXPI, SWKS (positive move). Mixed bag… measure the risk and manage your stops. SOXX above $97.50 entry point. Stop at $95.

  1. FSL added $42. Stop $41. Semi stock moving from the consolidation and tested Friday.
  2. NXPI added $103.70. Stop $101.20. Semi stock moving off support and tested the move on Friday.
  3. SWKS added $107. Stop $102.90. Semi stock move off the test lower and clearing the resistance to new high.

Energy (XLE) the short side has set up and now is a good time to add to the positions on break from consolidation at the $19.20 level (ERY). Hit the entry point and watching how it unfolds. Stop $19.20. Small test last week, but still heading higher for now. The target of $20.75 short term.

Telelcom (IYZ)¬†telecom moved to support at the $29.70 mark. Bounce or break lower? The break lower takes out the trendline from the October ($28.65) low and offers a downside trade opportunity. In a four week trading range near support… watching for the opportunity if it develops. $30.40 is the level to clear on the upside to break higher. Closed at the $30.40 mark on Thursday and tested on Friday, need¬†to¬†follow through on the upside near term.

Regional Banks (KRE) Рbroke higher from the trading range short term and this time nice follow through. After a small test back towards the $41.85 entry hit and the upside was in favor of rates moving higher. $42.85 is the stop. Speculation selling this week as doubts about the Fed crept into the sector. My view is fast money rotated to faster moving sectors. This left consolidation near the highs and now looking for the upside to resume. Opportunity to add to positions or add new position $44.50 entry.

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.¬†If the sector gets a positive pushes to new highs willing to add to the position. $102.65 added on Thursday. Stop is $100. Small test on Friday.

  1. HACK – the software security stocks are running on the breach in government systems. Watching and letting it run for now. Don’t get greedy and ladder your stops on the upside move. Stop $32 adjusted higher.
  2. CYBR – added a position in the stock on the break higher $70.70 entry. Stop $67.75 to start the position.
  3. VDSI – added a position as well in the stock $31.45 entry. Stop $30.50 to start.

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. Hasn’t played out according to plan… watching the stop and looking for upside to breakout.¬†Trend fundamentally on the consumer is flat and that is keeping things in check for now. $74.50 exit point on the downside. Nice upside move on Wednesday and follow through to new high on Thursday… tested on Friday. Not an easy sector to own, need to be patient.

Financials (XLF) This sector is all about Fed speculation. Will they raise interest rates¬†or not. Jobs report puts more pressure on the Fed to hike rates soon. 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. Rattled by the FOMC meeting Wednesday, but still in play. Hit new high on Thursday¬†and sold lower on Friday… speculation at it’s best.

  1. BAC – Bank of America trade on the upside entry at $17 on confirmation of the reversal. This is one of the large cap banks and the upside opportunity is to $18.20. Stop raised to break even or $17.

Healthcare (XLV) РHeld support at the $71.25 mark and reversed and headed towards a new high, but has stalled near the $75.50 level. Short term $74 level to watch for support. Stop $73.50. Still one of the better sector long term as we move forward. Nice break to new high on Thursday to keep the upside in play.

Industrials (XLI) РThe sector hit the stops and failed to materialize on the upside opportunity. Still watching, but would have to validate the upside turn should it materialize. $56.40 is level to watch on the move higher. Trading range and downtrend off the February high are the key issues for entry. No conviction in move Thursday.

  1. Kansas City Southern (KSU) shows why the transports continue to struggle. Put in a low and¬†a reversal… looking for follow through and possible upside trade technically. bought the follow¬†through and $93.75 entry on the bounce. Stop $93.75.¬†based on activity moving our stop to break even and we will protect the capital as this unfolds near term.

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