Support found to end the week as the buy on the dip crowd shows up… as I warned in Friday’s mornings notes. No! I don’t think it is prophetic, I am more leaning towards, figures. The same stocks that were thrown out all week were good on Friday. This is the typical pattern we have seen in this market since 2011. I am not going to make anything of the buying on Friday as we continue to focus on the direction. I wanted to get some clarity this week, and with the downside movement it was shaping up… then Friday put it right back where we were prior. Volatility, lack of clarity, uncertainty with the Fed, uncertainty relative to the economic picture, uncertainty fundamentally… patience is still the best word I know short term.
The big story last week was relative to the earnings story line shifts gears to the negative as more companies are missing revenue and earnings. Expenses are rising and the consumer is stalling. The cries to raise minimum wage to $12 per hour are working their way into Congress and that could cause even more havoc for company profits if it makes to the light of day. This is what all the warnings were about relative earnings growth showing negative forecasts and here they are… Question is: will anyone believe it this time? The jury is still in deliberation on that issue.
Last week the GDP data was rationalized by the Fed in the notes from the FOMC meeting with weather, port strikes and strong dollar. Taking that for what it is I am more concerned about what opportunities there are in tracking the current trend of events.
- Yields should rise if the Fed really does raise rates near term. That means TBF or TBT as a short trade on treasury bonds is worth our attention. Both gapped higher in response to the worries. 2.82% yield on the thirty-year bond showing yields up 20 bps for the week. TBT entry was $43.50. Manage your risk.
- Dollar is on the clock for holding support. Managed to bounce on Friday at support $24.88 on UUP. This week watch how it unfolds and what the ripple effect and opportunities are going forward.
Week ends with rally and we will start with economic data on the mind. ISM manufacturing numbers were less than expected. Consumer sentiment was in line with expectations. Maybe s sign of the data for April… lower again. We have yet to see a negative response to the slowing data in the economy. Watch as this unfolds in the coming week.
NOTE: The following are things to watch and evaluate during the trading day…
- Crude Oil (UCO) the upside in oil resumed last week and is now in position to take the next leg higher (double bottom pattern). Watch for the entry if we break this resistance point.
- Treasury Yields (TYX) thirty-year bond jumped to 2.82% … broke the downtrend line and could push rates even higher as a result of the news from the FOMC meeting. TMV, TBT, TBF…
- Energy (XLE) inventory data moved oil higher and the break above $82.50 on XLE is a positive. Looking to add to positions if we confirm the break higher.
- Software (IGV) leading tech. Watch the micro term pattern setups. Breakout for the sector reversed Thursday… watching to see how it unfolds going forward.
- Semiconductors (SOXX) bounced off the low and acts like it wants to now move higher. The charts are still a mess, but we have to go with the results… patience as we start the week.
- Social Media (SOCL) weakening on FB and TWTR earnings testing lower… LNKD missed as well… is there a bounce in the sector or more downside to come?
- Base Metals (DBB) breakout and momentum in the metals micro term (0-13 wk). Big follow through on Thursday on the upside gaining 2.4%.
- Retail (XRT) weakening sector… but bounced Friday? Follow through anyone?
- Biotech (IBB) sold off all week and then managed to recapture the previous support on Friday. Worth watching to see if it moves higher or returns to the selling.
- Bonds and interest rates are a topic of choice as well. The downside was in play last week… does it continue on the belief the Fed is ready to act sooner than later? TBT.
MAJOR INDEX STORIES:
S&P 500 Index (SPY) the index has took on volatility as it struggled to hit new high. Hit stop on Thursday at $209 only to watch it bounce back to the $210 mark on Friday? Love that. $211.60 would be the entry if it can break higher? That would require some upside conviction that is still lacking. Short side still watching as well. For now we will breath and watch.
NASDAQ 100 Index (QQQ) Broke the $109 support level. The index is struggling with earnings from FB, TWTR, and LNKD after-hours… Short trade? Could be a test of the next level of support type trade, but the longer term trends are still in place. Watch how this unfolds this week. Need to move back above the $109 mark if the upside is to rectify the damage.
Russell 2000 Index (IWM) The index broke down on Monday with the biotech’s leading the way lower. Testing the trendline and broke with gap lower on Thursday. Fell to the next support level of $121.24 and held Friday, but didn’t find any friends? … If it breaks here the short trade has to be looked at a trade opportunity. TZA posted on the ONLY ETF strategy.
Volatility Index (VIX) Intraday volatility is the new game in town. The close puts the index at 13.1 erasing the nerves shown the previous three days. This indicates little worry near term from investors. Not much is changing and that is good for the buyers as the sellers can’t convince anyone things are bad near term.
Transportation (IYT) Transports need to move higher if the broader index is to sustain a move higher. Broke the $154 support intraday and closed at $153.98. Still building the base, but the support level at $154 is in trouble. Patience… it paid off again with a bounce back to the $156 level. We continue to watch.
Dollar (UUP) is shifting gears on the downside with the break of support on Monday and progressive follow through. Why the shift in sentiment? Speculation about the global economies looking better than the US. Oil moving back near the $60 mark. Bounced on the $24.88 mark Friday and we watch this week.
SECTORS OF INTEREST: (IN PLAY) Manage the Risk.
Consumer Discretionary (XLY) broke higher on Friday from the trading range… needed to follow through, but gave up the gains… weakness back in the retail stocks (XRT broke lower). Need to hold support at the $74.50 level (held last week) if the upside has a chance of keep the trend moving higher. Consumer is not spending and it is showing in the retail data.
China (FXI) holding near the highs and watching to see how it unfolds. Stops should be at $49.50 currently on the reentry at $51.50. Upside remains in play, but there is still plenty of speculation on the horizon. Patience as the consolidation plays out. Modest bounce Friday to keep the upside in play.
Russia (RSX) Showing some topping currently and testing the resistance of the 200 DMA as overhead. $18.75 support. $18.70 stop. Patience.
Emerging Markets (EEM) Made solid break from base at $41 and the upside remains in play. Stalling near the highs with some selling on Wednesday and Thursday. The emerging markets have benefited from the rotation into the global markets and away from the US markets. Stops at $43 hit on Thursday. Bounced above that level again on Friday… look to see how this plays out to start the week.
Crude Oil (OIL) The break from the trading range bottom above $53.85 remains in play with oil closing at $59.30. Currently there is more speculation than logic as the rational and justifications are pontificated. The inventory data on Wednesday sparked interest in the commodity again. OIL hit entry at $12.15 Wednesday. UCO at $9.45 entry.
Energy (XLE) Broke higher and stalled as the broader indexes tested lower. Next level to clear is $82.50, managed to close above this level on Wednesday and that offers upside continuation trades. Move has been the value buyers stepping in and the stall is the lack of traders interested short term. Do they step in now… $80.50 support level and stop.
Bonds (TLT) broke support at $129.20 and triggered the exit. The testing to move back above this level failed on Wednesday with the confirmation move lower. Rates rose and bonds sold. Fed is back in the trade. TBF, TBT or TMV are now is play… (see the table for entries.) Choose the level of leverage you want. Selling is on for now. Manage risk of the trade as yields are rising towards the 3% mark on the 30 year bond.
Other sectors in the process of rotating and we will watch how Friday unfolds.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.
Unfolding Stories in Sectors Currently:
Retail (XRT) – the consolidation at the highs showed some weakness and it broke support ($100.25). The retail sales data for March was okay, but below expectations. Money flow showed less interest and some key stocks break down. BBY, KSS, JWN, KR and TJX. This is a sector to watch with interest as the consumer is key to the US economic picture. $98.50 stop hit Wednesday. Bounced Friday? Watch for how it unfolds… consumer is still showing negative signs.
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 one worth our attention as we move forward. Need to break the downtrend line off the February highs.
Semiconductors (SOXX) it is a messy chart, and the break lower only makes it worse. This puts the short side in play potentially, but it would take a move below the $92.50 level to gain my interest to short the sector. Bounce in the sector Friday gained 2.6%… leaves the mess in play as traders are not in sync.
Healthcare (XLV) – Failed to reestablish the previous leadership. Downside did some damage to the chart and watching to see how it unfolds. Friday found support at the $71.25 mark and we watch. Negatives from all 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.
Utilities (XLU) building bottom (triangle pattern). Still in trading or bottoming range… watching how it reacts to overall markets this week. Interest rate worries? Duke energy is a stock in this sector I am tracking was well.
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. $15.65 stop on original entry, $16.05 is next entry point. Hit the entry point with 2.4% gain on Thursday. Looks solid for now.