Positive Day With New Highs

Today’s Notes: 

Run for the roses? Dow and S&P 500 indexes hit new records… Small caps jump 2.5%, Asia, Europe and emerging markets all moved to the upside. Why the shift in sentiment? Some credit goes to Russia stating it wanted a peaceful separation following the vote in Ukraine to divide. Additional credit goes to the M&A activity continuing to be strong. Investors like the idea of mergers and acquisitions as it stimulated stock activity. The bigger question is will this enough to end the range bound market overall? The move today comes with lower volume and high hopes. Nothing is settled, but we will for the follow through on the move has go through the balance of the week.

We saw a drop in the negative ETFs by half, and the positive scans grew to 159 from 123 on Friday. The shift in direction continues, but the scans help determine where money is flowing short term as well. Short natural gas was the biggest winner on the day as the commodity dropped 2.2% today. It has traded lower for the last four trading days dropping 7.7%. Global markets are still leading in many respects the trend higher over the last six weeks. India (EPI) jumped 3.8% today as follow through to the advance Friday to the top end of the consolidation range. Solid moves today in some key sectors and now we just need to see investors follow through to keep the upside moving.

Chart to Note:

The S&P 500 index cleared the previous high and closes at a new high of 1896. Can it continue? Will it follow through and start a new leg on the upside. The outlook is divided among investors as have opinions on the current outlook for growth relative to stocks and the economy. The chart shows the break higher, the uptrend short term and long term are intact, the only drawback on the breakout was the volume being slightly on the low side.

SP500

Notes to Note:

  • Volatility index (VIX) fell below support at the 12.93 mark to test the previous lows a the 11.75 level. No volatility and sentiment is leaning on the positive side barely with a nice boost to start the week. The NASDAQ volatility fell below support as the upside in the index helped the broad gains overall.
  • Financials moved just above the $22.08 resistance in place the last four weeks. This is a sector under stress when it comes to regulators and lawsuits. The words sustainable growth are would have to define the outlook in order for any upside move to be any more than a trade.
  • XHB – the downgrade  and short call on the sector took a hit today with XHB gaining 2.3%. Tested a move below $30.60 support, but has now bounced back above the $31.65 resistance. Watch manage your stops if you are currently short homebuilders. A move above $31.90 gets interesting.
  • KOLD – jumped 5% as natural gas declines. $45.10 would be the resistance level for the short side.
  • EDC – gained 4.9% as the emerging markets made a solid move from the consolidation.
  • Copper (JJC) jumped 2.1% breaking from a consolidation phase and continuing the uptrend on Monday.
  • Technology (IYW) moved to a key resistance point at $91.20 on Monday. Follow through on the upside is worth watching. IGN was up 2.5%, IGV gained 2.2% and the SOXX was up 1.8% as the sector took back a leadership roll.
  • Base metals (DBB) up 2.1% as the commodities rebounded from selling the last two weeks. Still in downtrend, but could present opportunities going forward. SLX was up 3%.

The markets remain uncertain in direction, but today pushed the Dow and S&P 500 indexes to new highs and that points to positive momentum in the large cap value stocks resumes. The growth sector experienced a solid boost, but then it is oversold technically. The good news on Monday was no selling or giving up of gains intraday. We started higher, held the move higher and closed higher. Good sign for the day, now can it follow through? Until the picture clears and defines the trend we will continue to take it one day at  a time. Stay focused and remember that cash is a sector and sometimes the best trade relative to risk.