Outlook for Week of May 25th

MARKET STORIES:

As we celebrate and remember on Memorial Day the freedom we all enjoy we are reminded of the price paid. Thank You.

The markets have not changed and the diamond pattern I referenced on the S&P 500 index remains. Making an argument for either side is not hard to do at this point in time, but the reality is based in how either side responds moving forward. Neither has been willing to make an aggressive stance and thus we continue to maintain the previous uptrend and watch. As investors watching is the least favorite thing to do as it requires patience.

 

Below I address the sectors and broad market indexes as we see it now… there is plenty of global news in the making and we have to aware of what could impact the markets short term. The longer term views remain murky as the US economic picture is not exactly the picture of health as it pertains to jobs, the consumer and growth. We will remain focused one day at a time to determine how things line up short term with the longer term views.

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

  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.
  2. EWG – in position to move higher. $30.65 entry. Weakness from Greece story.
  3. 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.
  4. EUO – short trade on the euro is developing with the break higher on Friday. Worry over Greece is rising again and the Spain election will only add to the worries short term. Watch the downside trade. $25.35 entry. (max $25.70 entry)
  5. CPI spiked 0.3% on the core and it is credited to the rising cost of HEALTHCARE? What about ACA (affordable care act)? Not working… prices are only going to go higher as we move forward with the full implementation of the bill. This was the projection and no one wanted to listen… Better buy healthcare stocks if you want to afford healthcare. IHF, XPH, XLV are rising.
  6. GOOG – move above $543.40 is of in interest. (please don’t tell me the stock cost too much! a 5% on 50 shares of Google is still a 5% gain regardless of how many share you own. Math is math)
  7. SOCL – attempting to regain upside move. $20.60 breakout.
  8. FDN – tech moving and internet is part of the move higher. Breakout at 67.70.
  9. FXI – China made nice reversal move on Friday and looking for the follow through upside.
  10. Downside risk is always present and we have to be aware of what is around us. The issues geopolitically, politically, economics, jobs, consumer, Fed, etc. The wall of worry is definitely in play… proceed with caution and know where the exits are in the event of a fire.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) index is holding the to a new high and closed at $212.99.¬†The noise is louder than the activity for the index. As we stated… always take what the market gives. (Added SPY as trade on break higher) But, I will equally defend the principle by managing the risk. Need to¬†maintain upside move. New trade stop is $211.70. Older positions remain at the $204.50 level.

NASDAQ 100 Index (QQQ) held above the $109 support, but watching how this unfolds in the attempt to establish a new high if the sector is to regain the leadership role. Patience and stops at $104.40 on short term positions (3-9 month horizon). Volume divergence to the trendline over the last two weeks. Just noting.

Russell 2000 Index (IWM) The index held the move above the $123.75 move. The¬†stop at $122.50 on trades taken on that move. October trendline was¬†broken on the downside¬†and offers some resistance. Need to move through this level and regain the uptrend for the index. Downside below $118.80 is stop on previous short term¬†trades. Don’t assume anything.

Volatility Index (VIX)¬†so much for the worry… 12.1 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 $152.20¬†to end the week… that is through the bottom of the range and support. The sector established the $154 –¬†$157.50 range, but the break brings into play the Dow theory. Whether you believe it or not theories can be self-fulfilling if enough other people believe them. Just study politics and you understand theory becoming reality. ¬†Not showing much in terms of upside opportunity and the break lower is not a good sign for the broader markets. Look for bounce or the other parts may follow the downside indication. DJ US Airline¬†Index was¬†the big weakness losing more than 8% across the board on capacity expansion discussions. Watching to see how it unfolds.

Dollar (UUP) shifted gears on the downside with the break of support, but the rally in the buck over Europe is of interest as created reversal opportunity. Why the shift in sentiment? Speculation about the global economies and the bond buying program in Europe. $25.10 level cleared on upside to the dollar. Spain elections could give added strength to the dollar this week.

Crude Oil (OIL) Trading positions only as the supply/demand issues remain. Moved towards the $11.75 support level and held. I am not willing to jump on the short side of this until the dollar or supply validates the risk of owning oil short term. Sideways is the game in play in a narrow range.

SECTOR STORIES: 

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. Watching how it unfolds following the volatility. Breakout and entry at $88.60. Stop $90. Let it unfold. China is doing well and adding to the story line. FXI up 3% on Friday.

Regional Banks (KRE) – breaking higher from the trading range short term. $41.85 entry level¬†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.

Software (IGV) leading sector for 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 to keep 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 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. Maintain longer term view for sector.

Healthcare (XLV) РFound support at the $71.25 mark and cleared $73.25 resistance Heading towards new high as the confidence returns to the sector. Providers (IHF) and drugs (XPH) are the drivers for now.

Bonds¬†(TLT)¬†We bounced off the $118.50 support on Wednesday? The upside follow through on Thursday would say yes… Watch $120.50 for upside trade.

Energy (XLE) Broke support at the $80.50 mark. Recovered that level on Thursday and forfeited it on Friday? Long term willing to add positions as this unfolds. Refiners are moving again on upside. Sideways trading in oil helps. Take the long term approach overall, but continue to dig in and look for the trading opportunities as they unfold.

  1. Tesoro (TSO) breaking through resistance at $90.40 and testing the move. Entry on test or $92 continuation upside (ADDED Monday). Stop at $88 and looking for target move of $104.
  2. BP РBounced off the January low and has been working higher. I like the move above the $42 resistance and the 200 DMA. This is a long term view for growth. If we hold support near this level ($42) and moves higher I am willing to add the positions with a 18+ month outlook. 5.6% dividend payment. Nice follow through to the test and hold of support.

Retail (XRT) – Data isn’t helping, revenue, earnings, you name it has not helped build confidence in the consumer. Let it unfold… $99.60 is resistance… move back above the $100 mark gets interesting. Stock pickers sector as the earnings are hit and miss driving direction.

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.

Semiconductors (SOXX) this is still messy charts, but turning into a trading range and looking for the break higher ($96 for entry hit). Manage the risk of the volatility in the sector. Watching how it plays out out to start the week. $95 stop on noise.

  1. INTC – $33.50 is breakout for the stocks and willing to add again for the upside move.
  2. NXPI – nice move to break from the trading range (entry $104.50) and test the March high. looking for follow through and opportunity. stop $101.

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