The markets ended the week positive thanks to the buyers on Thursday. Outside of that the market remains stuck… at least from my view. Having been around and in the the investment markets for more than thirty years, I hate choppy indecisive markets where the talking heads all want to remain bullish (buyers side bias) regardless of what is happening or the data indicates. Why? it is miss leading to investors simply put. It is akin to listening to the State of the Union address from the President. The only things good are from the party in control and everything else needs to shift to their way of thinking. That is how analyst are about their view of the markets. My goal has to be non-biased and data centrist. Not in terms of politics, but the market. There are things to like currently and there are things not to like. But, it is truly based on your strategy relative to the investment process. And from that view, I have a bias based on my strategy. Therefore, it is impossible to not have a bias… assuming you have a predefined strategy for investing your money. But, note that it is YOUR strategy and not someone else’s. Focus on what works for your beliefs, strategy, time horizon and risk. With that rant out of the way let’s look at the data…
Sentiment is Fed focused. If interest rates are going to rise stocks fall. If interest rate hikes are going to be delayed stocks rally. Uncertainty on the subject has created the current trading range and until this is resolved expect more of the same. On my belief window… the Fed will hike rates at some point. Thus, I should have long term positions in my portfolio with that bias built in. That would be an avoidance of interest sensitive assets and more global stocks. The short term swings are being driven on speculation of what will happen around the market more than in the market and that is the reason for the chop… tough going with short term trading positions. That is why I am trading less and focused more on what has a better long term outlook despite the short term choppy view. Energy is one of those sectors with a solid long term outlook, but will experience weeks like last week. Up and down every day with the end result being no progress. Time horizon is vital as we look forward and what we hold in our portfolio. Know what you believe and invest accordingly.
Data points continue to find ways to disappoint and the consumer sentiment on Friday was the latest. A posting at 88.6 versus 95.9 in April shows concern rising in the consumer. Jobs? YES! Interest Rates? Somewhat. Income/Raises? YES! Taxes? YES! Gasoline Prices? YES! and more… but, the consumer is worried about what impacts their pockets… and the current view is not favorable relative to the economy, employment or Washington DC.
Going forward my view is simple… 1) Trade what the market gives short term. Example, if the SOXX breaks higher through resistance and offers 2-5% upside in the come week or 13 take it. 2) Invest longer term within your beliefs or views on what will unfold economically both in the US and globally. Example, stimulus in the global markets favors stocks in the global markets. EFA offers me a diversified investment in that belief and thus owning it long term will benefit my portfolio. Don’t make this more complex than it needs to be. Invest within the knowledge, belief, and risk tolerance you have an individual and continue to gather facts to either validate or invalidate what you are invested in now.
I love the idea of investing money and growing my assets… but, it is my money and I have to believe in what I am doing if I am going to be successful at the process of investing. Please take the time to understand and believe in what you are doing with your money. After all… IT is YOUR money… Manage IT!
NOTE: The following are things to watch and evaluate during the trading day…
- Treasury Yields (TYX) thirty-year bond dropped to 2.92% Friday. This validated the belief bonds were oversold. 2.85% is the target for the move. Then we look at the short trade on the bonds again.
- Semiconductors (SOXX) bounced off the low and back towards the top end of the range. $95.50 level for entry, looking for entry to start the week if it follows through.
- EWG – in position to move higher. $30.65 entry.
- XME – metals and mining are in solid uptrend off the March low and progressing towards resistance at the $29.85 mark. Gold and silver leading the way currently, but the base metals are picking up as well.
- KRE – regional banks breaking higher from the trading range short term. $41.85 entry level. Hit entry on Tuesday and I like the upside if rates hold the move higher. Selling on the consumer data on Friday? $40.70 is the stop… watch for upside to resume.
- GDX – gold miners made move through resistance and follow through on the upside would be of interest for short term trading opportunity. Gapped above the $20.30 level Wednesday. Gapped again on Thursday, but that receded back to the $20.83 mark… Still looking for entry point on the on the move… $20.80 of interest again.
- Builders (ITB) bottom reversal setup. $27 is of interest on the upside as the concerns over higher interest rates are digested. Trade only at this point as the clarity looking forward is clouded by the Fed decision.
- Alibaba (BABA) upside gap on earning is holding. Still plenty of debate on the outcome, but the consolidation on the move higher gives entry for trade at $88.60.
- India (PIN) bottom reversal trading opportunity. The long term view is positive for the country, but the selling short term is overdone? Watch with $21.90 entry.
- Tesoro (TSO) breaking through resistance at $90.40 and upside opportunity building. Entry on test or $92 continuation upside. Stop at $88 and looking for target move of $104.
MAJOR INDEX STORIES:
S&P 500 Index (SPY) index hit new high closing at $212.44. The noise is louder than the activity for the index. The conviction level of the move is lacking. I will always take what the market gives. (Added SPY Friday as trade) But, I will equally defend the principle by managing the risk. Need to follow through on Monday!
NASDAQ 100 Index (QQQ) moved higher early bounce and managed to close at to $109.58. Need to establish a new high if the sector is to regain the leadership role. Patience and stops at $104.40 on short term positions.
Russell 2000 Index (IWM) The index closed at $123.65 and at the 50 DMA and resistance. October trendline is broken on the downside. Watching to see how this unfolds… downside below $118.80 is short trade or stop on positions. Need a follow through day for the index.
Volatility Index (VIX) so much for the worry… 12.3 on the index shows the lack of concern relative to the uncertainty in the markets. The buyers continue to be willing to put money to work at each dip. Move and close below the 12 mark makes it interesting.
Transportation (IYT) Closed at $153.42 Wednesday and bounced back to $155.65 on Friday… still not convincing for now. The sector established the $154 – $157.50 range currently. Not showing much in terms of upside opportunity and hanging on by a fingernail to support.
Dollar (UUP) is shifting gears on the downside with the break of support and modest recovery. Why the shift in sentiment? Speculation about the global economies looking better than the US. Watch as downside still micro trend. UDN entry hit at $22.45.
Crude Oil (OIL) Started lower, but moved higher above the $12.38 resistance and $12.10 support still in place. Trading positions only as the supply/demand issues remain. Moved towards the $13 mark last week, but unable to maintain the upside movement.
Natural Gas (UNG) bottom reversal cleared the $14.50 resistance level next to conquer $15.14. UGAZ is leveraged version of the trade.
Software (IGV) leading tech. Watch the micro term pattern setups as the break higher for the sector and moved above the $100 level. Keeping the uptrend in play… manage positions. Scan for the leaders they are easy to spot.
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 (April report lower than expected and still no clarity for the sector overall). Sentiment is declining (consumer sentiment report May). Thus, a trading range that if it can clear $77 on the upside may add to the position. $74.50 exit point.
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 with the uncertainty in play still. 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 vomit from analyst. Focus on what you believe. Stop $23.80. Break above $24.80 willing to add to the position short term.
Healthcare (XLV) – Found support at the $71.25 mark and continuing to bounce around. Some negatives from all the sub-sectors as well. Cleared $73.25 resistance and watching for possible addition to positions.
Russia (RSX) Broke higher and settled into to modest upside pace for now. $18.75 support. $18.70 stop. Patience. Clearing $20.75 is of interest to add to positions. $20.75 entry on Friday. (current position at $17.25.)
Bonds (TLT) broke support at $129.20 and triggered the exit. The downside play hit stops on Friday’s bounce. $121 exit point. This is what we discussed on the over sold status of the bond. Watching as the downside play will be back as the Fed has not hiked rates yet. $124 target on the bounce… then we look to Short (TBT) the bond again.
Energy (XLE) Testing support at the $80.50 mark. Long term willing to add positions at $82.50 and stop at $77.25. Refiners are moving again with VLO, TSO and others moving higher. Take the long term approach overall, but continue to dig in and look for the trading opportunities as they unfold.
Emerging Markets (EEM) Tested support at the $42.50 ish level and bounced again. The sector is digesting the move higher and dealing with the uncertainty in the US markets. Long term hold. Short term $43 trade entry on the upside.
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. Let it unfold…
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 on Thursday… still plenty of long term opportunity.
Semiconductors (SOXX) this is still messy charts, but turning into a trading range and looking for the break higher ($96 for entry) if the trend is to resume. Nice trade on Friday to hold and looking for the confirmation Monday to take the position.
Sectors that remain of interest… FXI, GLD, SLV, SLX, IGN, SOCL, IWM… Despite the volatility and renewed uncertainty facing these sectors we continue to track the activity. Need solid follow through to the gains on Thursday, Friday stalled on data. Take what the market gives, but maintain your discipline.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.