Positive Week, But Still Plenty of Questions

Friday, November 30th Notes & Research

Congratulations on another month passing and nothing being done relative to the fiscal budget. The President was campaigning in Pennsylvania today for middle-income Americans to get a tax break. He stated that longer negotiations are likely. Well, maybe if he stayed in Washington and negotiated instead of speaking at a campaign rally it would happen faster. Sorry, but I am sick of this rhetoric from both sides of the isle. Lock yourselves in a room and come to a compromise that is workable.

Economic data is better, but is it really when you dig into the data? Friday showed consumer spending unexpectedly falling and income was flat. Yes, it was all Sandy’s¬†fault¬†as the hurricane kept everyone from working and shopping. There was some impact, but really it get’s all the blame?

GDP number was revised higher to 2.7% for third quarter. However, if you break it down, the facts get interesting. Consumption fell to 1.4% from the 2% originally reported… that is not good. Business investment fell 2% which meant it accounted for just 0.1% of the 2.7% growth. That translates into no jobs, no growth and no help for the economy going forward. Government spending jumped 9.6%… and we wonder why we have a spending problem! The big boost to the growth in GDP was inventories jumping higher and it accounted for 30% of the 2.7% or 0.8%. The negative data all combined accounted for 1.5% of the rise in GDP or we really had growth of 1.2%. Now that is impressive. Needless to say, the economy is not making great strides towards growth.

Bottom line plenty to consider and deal with relative to the fiscal cliff issues and the economic data. Both will come into play again next week relative to trading. As always we will take it one day at a time and be patient with the opportunities.

1) US Equities:

S&P 500 Index / Sectors-to-Watch 

The index rallied on the hope of resolution to the fiscal cliff , but the back and forth rhetoric being thrown around Washington is keeping a lid on the upside. The Scatter Graph below has a starting point of 11/15 which¬†was the¬†pivot point for the recent uptrend. We have eliminated the downtrend chart with today’s move establishing the next pivot point as the one to play.

The leadership for the move on the 15th low has come from Consumer Services, Consumer Durable, Industrials, Technology and Basic Materials. Utilities made a move off the lows on Monday and has been positive all week. We still need some clarity going forward, thus be patient for now and take what the market gives short term. Positive bias is in play for now.

Click on link above to see the S&P 500 Mode Watch List and Model

Tracking the Indexes and Sectors of Interest:

NASDAQ Index РTested lower bounced to close above the 200 day moving average. The NASDAQ 100 index showed the same promise on the upside move. Took the entry on the QQQ move as posted here. The play is held in the Sector Rotator Model. Added some on the upside today. Manage your risk.

WATCH: QQQ – 65.10 entry (Wednesday) Stop – 64.75.

Dow Jones 30 Index РThe bounce back to the 200 day moving average is a positive, but now we need to make a move above this level short term. Patience with the entry as the index has struggled with volatility and consistency short term.

WATCH: DIA – See Sector Rotation Watch List.

S&P 400 Midcap Index – The bounce off the low has now returned to the top end of the previous trading range. A break above the 1000 mark on the index would a positive and a opportunity to trade the sector. Be patient with the entry as this unfolds.

WATCH: IJH – See Sector Rotation Watch List.

2) Currency:

Dollar РThe dollar sold lower, but held support at the $21.95 level on UUP. The dollar index (DXY) pulled back to support at 80.34 as well. Watch if this holds for a bounce or upside play.

WATCH: UUP or UDN? Up or down on the dollar short term?

Euro РFXE is poised to move above the $129 mark and challenge the $130.60 mark. Watch for the follow through on the upside to confirm the downside for the dollar. This could produce a short dollar and long euro trade opportunity for about 1.5% ROI short term.

Yen – FXY is testing support again at $119. This could bring more short plays on a break lower.

3) Fixed Income: 

Treasury Bonds РReversal short term with yields falling again on the 10 year to 1.62% and the 30 year to 2.79%. Watch for the yields to reverse if the rally in stocks are to continue. If they both travel higher together that could make things interesting.

WATCH: TLT – Gapped higher and then retraced it all. Wedge pattern setup. Watch for the directional break from the setup to give guidance on the trade. .

High Yield Bonds РBig bounce on stocks moving higher with stocks. Interesting bounce.

WATCH: HYG – 92.75 resistance? Blew through it on Thursday and Friday. $93.50 is the target for now.

4) Commodities:

 The commodity sector continues to be a challenge relative to direction short term. The volatility remains very much in play off the recent lows. The best course of action is to take the trading opportunities presented short term.

WATCH: SLV – Entry $31.50 (See ONLY ETF Model) Looking for upside momentum through resistance. Holding near $33 resistance, but need some follow through or look to lock in gain and see how it plays out.

WATCH: OIL – Cleared $21 again and pushing gradually higher on equity optimism. The entry was $21 for a upside trade and that is in play for now. Target is $22.50 and the stop would $20.85 on the trade.

WATCH: UGA – Entry $56.25 / Stop $56.25- Watch and manage the volatility. 50 day moving average is acting as overhead.

WATCH: GLD –¬†Since September 2011 Gold has not eclipsed any of it’s previous highs. GLD resistance is at $175. Volume is declining showing loss of interest over the last fifteen months.Look for a test of $161 on GLD and break is a clear short signal for the metal. Patience as this all unfolds.

5) Global Markets: 

The NASDAQ Global Market Index (NQGM) broke above the 200 day moving average and the V-bottom is still in play on the upside. The move is reflective of the positive push in the US and it is nothing more than a trade short term with tight stops to protect against any reversal short term.

WATCH: EFA – Back at the highs of $55.20 and in position to break from the trading range for a trade set up. The jump back to this level has been quick and may test before continuing higher. Be patient and see how it play to start the week.

WATCH: THD – Breaking above the downtrend line and move above $76.40 was the posted entry point.

WATCH: DXJ – Japan total dividend ETF broke higher, tested the 200 day moving average and has moved higher again. The break from the trading range is a positive with a trade entry at $33.25. Manage your risk and raise stop to $32.85.

WATCH: FXI – China is testing the gap higher and watch for the $36.65 level to hold as possible entry play short term. The economic challenges facing China moving forward are many, but investor are willing to look past that and believe in the stnly

ory. Take the trade set up, but the fundamental data is not the best. Thus, I am looking for more of a downside play as we progress forward.

WATCH: TUR – 59.20 support held and solid bounce to maintain the uptrend. Look for trade entry on test of the move near the $62.40 mark for now.

6) Real Estate (REITS):

The sector broke support tested lower and then reversed along with the broad indexes. The fear generated by the fiscal cliff issues sent the sector lower. The reversal is worth trading if the cliff issues remain at bay short term.

WATCH: IYR – moved above the 200 day moving average. Entry 63.40 (HIT ON FRIDAY)

7) Global Fixed Income:

Uncertainty about the sovereign debt issues remain. Thus, the lack of willingness to accept much in the way of risk from this sector. Greece back on the table along with Europe. Watch and protect the downside risk in the sector near term.

WATCH: Emerging market bonds (EMB) – testing and moving sideways and attempting to hold support at $121.. Broke on Friday… watch to see how it plays this week.

WATCH: International High Yield Bonds (IHY) – Testing support? Break of $25.81 exit point.

WATCH: PAFCX – bounced off support near the $11.66 mark. Held the uptrend line and held the support for now. Still looking for entry opportunity on the play at $11.74.

WATCH: PICB – International Corporate bonds are breaking above the top end of the current range. 29.15 entry point?

Watch and play according to your risk tolerance on any position taken. Everyone has different trading styles and you have to find what works for you and your personality. Don’t put yourself in positions you don’t understand or take risk you can’t tolerate. Not every trade results in a profit, but controlling your risk will limit the downside losses.