Outlook & Research for Week of July 6th

MARKET OUTLOOK: 

This weeks story line has to start with the Greek vote to completed on Sunday. The outcome is likely impact markets at the open of trading to start the week, but the bigger question would be if it is already priced into the markets? I am of the opinion that would be yes in the US after a reaction if negative I would look for markets to focus on US data and upcoming earnings. We will see how it unfolds as it promises to be a news filled week.

Look for some delayed reaction to the economic data released on Thursday. The jobs numbers on the surface were positive. The underlying issues remain, but the markets remain focused on jobs added as an indicator for the Fed and interest rates. Positive ISM manufacturing, positive jobs, services sector holding steady and sentiment is on the positive side relative to the data. The challenge in Europe and it may see a resolution soon on Greece.

Earnings? Yes, this is a big question mark for the broad markets. The outlook is for slower growth again in the overall numbers. But, if they are better than first quarter investors are likely to react positive. This will be a catalyst for the market going forward and the news will matter overall. Watch the reaction as the data is posted.

Bottom line is the uncertainty remains in the market overall. Almost like a Boolean logic of IF this, Than that or IF that, then this type scenario. With that in mind we look at the short side opportunities as they setup and the upside opportunities if everyone returns to positive. For now it is a flip of the coin. We remain cautious and willing to wait as it all unfolds. One day at a time.

Have a great day.

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

  1. NASDAQ 100 index showing signs of weakness. QID or short NASDAQ ETF trade is setup on current selling in technology. Entry $34.80 (aggressive entry). Stop $34. Let this unfold  Monday as the Greece vote will have some impact.
  2. S&P 500 index (SPXS) short side trade if the sellers return to take control. $18.80 entry level to watch if the downside resumes following the modest bounce. It is important to note the index is only 3.2% above the 340 DMA. Long term view of the chart is weakening.
  3. Semiconductors (SOXX) hit the short entry on break below the $95.15 support. $92.60 target hit last week. Stop at $93 hit on bounce off the current lows. Bear flag setup and looking to see if downside trade establishes itself with break below the 200 DMA or bounce finds legs on upside with $93.50 entry. Patience.
  4. Treasury Bonds (TLT) big bounce on flight to safety trade against Greece news. I am more inclined to believe the downside returns for bonds after the fear subsides. TMV would be worth watching as this unfolds. $35.50 entry or better if tests the $33 level of support. Stop $33.
  5. Technology (XLK) continues to struggle with the selling in the sector. Holding the 200 DMA and a reversal would be a plus on upside trade short term. TECL $36 entry for the trade. SOCL, HACK, SOXX, FDN, IGN, IGV are the parts.
  6. MLPs  have tumbled lower on interest rate fears and weakness in the energy sector. AMLP is an ETF that invests in the sector overall and has declined more than 20% since the September highs last year. That puts the yield now at 7%. I have added this to watch list as an opportunity as support or a base is established.
  7. Banks moved lower and hit our stops last week. However, the upside move in the sector is still on my watch list as opportunity. KRE at the $44.20 entry would be worth adding back if it shows positive momentum.
  8. Utilities (XLU) bounced off the $41.50 support and still looking for a reversal in the downtrend of the sector. Like the longer term view and dividend as this unfolds near term.
  9. India – (PIN) country ETF in position to break through resistance after a major test lower. PIN entry $22. Stop $21.50. INDL is leveraged ETF choice with entry at $21.40. Stop at $19.80.
  10. Euro (FXE) downtrend in the currency is attempting to reverse, but the issues with Greece have weighed on the euro. FXE is testing the short term uptrend off the March lows. A break lower brings the short ETF EUO into play. $25.20 is level I am watching currently as this unfolds.

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) Greece pushes the index down to the 200 DMA. Keep your stop on positions at the $204.50 level. Need of leadership has been the challenge facing the markets for awhile. Still no seeing much in terms of change on that front. Negative setup for the index to start the week, but we will see how it unfolds before jumping on the short side of any trades in the sector.

NASDAQ 100 Index (QQQ) Still has a selling bias with the semiconductors leading the charge lower in the index. Greece gets credit, but the sellers have been looking for a catalyst on the downside and used the news. Our stop raised to $106.75 on short term positions (3-9 month horizon). The downside setup is reason for stop adjustment and willing to add QID if it follows through on move lower. Entry $35.45.

Russell 2000 Index (IWM) Moved below support, sold below the 50 DMA. Hit the stop $123.60. Still attempting to hold the uptrend, but not healthy. Bear flag pattern setting up? Watch as this unfolds. TZA is short side trade and $9.85 Р$10 is entry watch.

Volatility Index (VIX) bounced off the 12.2 testing the previous lows and in seven days hit a high 19.8 to close at 16.8 on Friday. Uncertainty about Europe is driving the move in the index. Negative outcome of vote in Greece look for this to move back towards the recent highs near term.

Transportation (IYT) Broke below the $148.50 support and the sector remains confused and lacks clarity. 50 DMA crossed below the 200 DMA as technical sell and it is still in play. The index is in a downtrend short term. Last week solidified the downside break and the short side in play. Bear flag pattern in place and would offer another short opportunity if clears below $144.70.

Dollar (UUP) The¬†dollar sold below the¬†$24.88 support and volatility remains on the uncertainty in the EU with Greece. Dollar index (DXY) held¬†support at the¬†93.25 key level¬†and bounced back on dollar rally… too many moving parts, but the buck did bounce higher last week¬†in response to Greece default. I still expect the dollar to move up, but the downtrend line off the March high is in play… watching.

Crude Oil (OIL) Remains in the trading range and speculation is day to day on the commodity. A break of support at the $56.50 level opens the short side of the trade, but it would be a high risk trade. It remains a supply/demand story and nothing more from my view.

SECTOR STORIES: 

Energy (XLE) is attempting  to accelerate the downside move as crude tests lower. ERY is the short side trade for the sector which broke higher. $20.40 entry point as the ETF move higher on the decline in crude impacting the stocks further. Stop at the $20.40 mark. Nice bounce withe move higher and test of the short ETF. The downside pressure still on for now.

  1. Crude oil Рmoved lower in response to the global fear of Greece and the EU. short side trade? Watching to see how this does with support  at the $58 level of support. Setup for a short trade on the commodity with SCO entry at $61.50 Hit entry and stop at $58.

Agriculture (DBA) Moved back to the top end of the base trading range. $22.80 breakout is worth trading. Target on the move would be $23.65. Added the position and now looking at the trade square in the eyes. WEAT Рbroke from the consolidation at $11 to lead the sector. Nice follow through. SOYB Рmoving higher as well with an impressive move off the low (nice follow through as well). CORN Рbroke from consolidation as well (nice follow through also). The commodities finished higher on week again.

Treasury bond (TLT) The FOMC meeting shed some light on the Fed’s intentions to hike rates prior to year end. That puts pressure on yields to move higher and bond prices lower. That is the current transition in place and the downtrend off the February high is well established currently. TBT hit entry at the $50.25 mark, stop $48.75. Yields resume rise and bonds decline benefiting the short position.

Vietnam (VNM) attempting a bottom and trend reversal. (technical setup only as the emerging markets are under selling pressure short term.)  The ETF cleared the $17.90 mark to end the week and held the move. Entry $18 on move higher. Stop $17.70. Held $18 support and bounced nicely above resistance the last three days. $19.75 target on the upside move.

Homebuilders (ITB) double bottom consolidation pattern setting up to break higher on the momentum in the news behind the housing market (technical setup and trade). Fundamental data starting to confirm the upside move with improved numbers in sales for May. Hit¬†our¬†$27.40 entry. Stop $26.50.¬†Hitting against resistance at the $28.10 mark… watch and manage your risk. Good data, bad market… watch and manage with upside still play based on the data as it will get priced in as the negative sentiment subsides.

Healthcare (XLV) The sector has been in a consolidation pattern which we have tracked for the last five weeks. We finally hit the entry with the move above $75.50.¬†Stop $73.50. ACA news from the Supreme Court driving some upside … IHF was the benefactor as the decision confirmed government payments to the providers. Best source of income available for the providers. Still holding as the support levels hold. XPH, IBB, IHF, IHI are the parts to watch for leadership.

Biotech (BIB) bounced back from the selling to end the week. Added again on the opportunity at the $90.50 entry point on a follow through on the reversal and holding the 50 DMA. Patience with the trade and stop at $87.

Regional Banks (KRE) – broke 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. $43.75 is the stop.¬†HIT stop on Thursday… Watching for reversal on support.

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. Trend fundamentally on the consumer is flat and that is keeping things in check for now. $74.50 exit point on the downside.¬†Tested the bottom end of the range on the Greece drama, but has bounced off the lows. Patience.

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