Outlook for Week of May 11th

MARKET STORIES:

Jobs report invites the buyers to step back into the market? Yes, it was the three bears report, not too hot, not too cold, just right to make everyone happy. 223,000 new jobs and a 5.4% rate of unemployment and wages increasing just enough to keep the Fed at bay (according to analyst) and just enough to show the modest growth we have been discussing relative to the April economic data. All is good? Rally on? Not so fast! All was good on Friday, but there is still plenty of issues to deal with and plenty that needs to be settled relative to growth in the economic picture. Take what the market gives, but keep the downside protected.

I don’t want to debate the jobs report and it’s numbers, but it is a good read if you are so inclined to dig into the numbers. The number of people no in the workforce hit a new all time high. That is the key stat that keeps sticking out to me. Services jobs (restaurants) hiring 20+ people for every manufacturing job created in April. All that comes to mind is statistics don’t lie… only statisticians. There is more to the jobs report than how many jobs are being created.

Manage your stops as we start the week… you can never assume anything. The rise on Friday can just as easily turn to the downside based on the emotions and lukewarm data points. Confidence, clarity and direction are all lacking when defining the current activity in the markets. Until that changes we have to proceed with caution… plain and simple.

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

  1. Natural Gas (UNG) bottom reversal play out with the continuation move on Friday.
  2. Crude Oil (UCO) hit a high of $62.83 on Wednesday and closed at $59.39 on Friday as supply worries return. Watch the trendline off the March low and $57.85 as support.
  3. Treasury Yields (TYX) thirty-year bond jumped to 2.98% Wednesday and back to 2.9% on Friday … TLT broke the¬†downtrend line. Shorts (TBT) remain in play and managing the stops. Watching¬†to see if jobs report was a positive… rates should still rise? Manage the risk.
  4. Software (IGV) leading tech. Watch the micro term pattern setups. Breakout for the sector¬†reversed… watching to see how it unfolds going forward. Wednesday¬†tested the $98.50 support levels and bounced Friday.¬†Keeping the uptrend in play… manage positions.
  5. Semiconductors (SOXX) bounced off the low and back towards the top end of the range. Sold back to support at the $92.50 mark and bounced again. Short trade is still a consideration (SOXS). $12.20 entry. Upside SWKS, NXPI, SUNE or SOXX.
  6. Base Metals (DBB) breakout and momentum in the metals micro term (0-13 wk). Big follow through on the upside and testing the at the 200 DMA. Momentum has been solid, but keep your stops at $16.20.
  7. Biotech (IBB) sold off last week and then managed to recapture the previous support. $334 support holds worth looking at the upside trade above $350 that was hit on Friday. Look for follow through to start the week.
  8. Small caps (IWM) Broke the trendline off the October lows. The bear flag is what I am watching to start the week.
  9. Volatility index (VIX) The ability of the index to drop back to the previous lows in one day shows little conviction from the sellers or little in terms of worries from buyers.
  10. Global markets bounce along with the US… Watching as we start the week. EEM, EFA, IEV, FXI, RSX and others.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) index remains in the trading range and to this point no real damage has been done. The noise is louder than the activity for the index. All the sector traded higher on Friday and closed back above the $211 level. Patience as we star the week looking for a follow through. Short term position stops remain $204.40.

NASDAQ 100 Index (QQQ) moved to $108.60 Friday off support. $109 level to break above again to trade the upside if it resumes. Patience and stops at $104.40 on short term positions.

Russell 2000 Index (IWM) The index broke¬†below $121.20, tested for two days and is held¬†that level of support, moving higher on Friday. October trendline is broken on the downside. Watch and see how this unfolds… bounce and/or reversal could produce an opportunity… downside below $118.80 is short look. $123.75 on upside.

Volatility Index (VIX)¬†so much for the worry… dropped to 13 again on the jobs report Friday and all is good. ūüôā

Transportation (IYT) Transports need to move higher if the broader index is to sustain a move on the upside.¬†They have now established the $154 –¬†$157.50 range currently.¬†Attempted to clear upside Friday, but failed. Still like the move Friday if it can now follow through.

Dollar (UUP) is shifting gears on the downside with the break of support. Why the shift in sentiment? Speculation about the global economies looking better than the US. Sold lower through the $24.88 level and holding near that level currently.

SECTORS OF INTEREST: (IN PLAY) Manage the Risk.

Consumer Discretionary (XLY)  Need to hold support at the $74.50 level if the upside has a chance of keeping the trend moving higher. Consumer is not spending and it is showing in the retail data. Clear $77 on the upside may add to the position.

Russia (RSX) Broke higher and settled into ta modest upside pace for now. $18.75 support. $18.70 stop. Patience and what how it unfolds.

Crude Oil (OIL) moving higher with some testing near the highs. Held the $12.10 support and looking for the upside to continue. Trading positions only as the supply/demand issues remain.

Bonds¬†(TLT)¬†broke support at¬†$129.20 and triggered the exit. The downside play is still in place and the test of the low to end the week. Waiting patiently on how the data will impact the yields on bonds.¬†Fed is back in the trade.¬†TBF, TBT or TMV are now is play… Choose the level of leverage you want. Manage risk of the trade as yields are rising towards the 3% mark on the 30 year bond.

Base Metals (DBB) broke through $15.50 resistance and has followed through. Steel (SLX), Copper (JJC) and ZINC are moving higher off the recent low in March. This has set up some trading opportunities across the sector. FCX cleared $21.70 entry point as well. move stop to $16.30 on DBB.

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

Unfolding Stories in Sectors Currently:

Energy (XLE) hit stops and bounced back… above the $80.50 mark and looking for entry on break above the $82.50 level. Patience is a must.

Greece (GREK) cleared the $11.60 and tested over the last two weeks. Move above $12.60 on Friday offered another entry signal for the country ETF. Pay your bills and the stocks move higher.

Emerging Markets (EEM) Topping and broke support of $42.50 as sector gives way as selling. Attempted to reverse the selling on Friday and now stands at the $43.25 resistance level. Watch and see how it unfolds.

China (FXI)¬†Broke lower… hit stop… bounced on Friday. Topping formation and looking for continuation of the upside. Patience as the noise around the country is rising.

Retail (XRT) – the consolidation at the highs showed¬†some weakness and¬†it broke support ($100.25).¬†Data isn’t helping, revenue, earnings, you name it has not helped build confidence in the consumer.¬†Could set up reversal back to the upside or short trade on break of $96.50 level. Bounced Friday and now…. decision time.

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.)

Semiconductors (SOXX) this is still messy charts, but turning into a trading range and looking for the break higher if the trend is to resume. It would take a move below the $92.50 level to gain my interest to short the sector.

Healthcare (XLV) РFailed to reestablish the previous leadership. Found support at the $71.25 mark  and continuing to bounce around. Some negatives from all the sub-sectors as well. Biotech (IBB) did the most damage and the pharma (XPH) added to the downside as well. Letting it unfold near term for direction.