Quarter Ends on Positive Note

In the weekend update I discussed the use of the word uncertainty to define the economy and outlook short term. The markets remain confused about the future and the volatility remains in a narrow range looking for direction. Monday was certainly no different as the indexes posted solid gains on the day to start the week. This is the bounce we were looking for on Friday that started the day higher, but was unable to hold the move. The bounce in the oversold growth stocks helped stop some of the bleeding as technology was up 0.8%, healthcare up 1.2%, biotech up 2.8% and small caps up 1.7%. All said, it still didn’t clear up the uncertainty as the quarter officially comes to a close and the data reports begin in earnest tomorrow. 

The triangle pattern we discussed last week on the S&P 500 index remains in play, but now the bias is to the upside following the move on Monday. The NASDAQ completed a bounce off the lower trendline of the uptrending channel from 2012. It also held the 100 DMA as support. The Dow is pushing back towards resistance at 16,529. All posted solid moves on the day.

Moves worthy of NOTES:

Transports (IYT) were up 1.7% to lead the major sectors. Airlines, trucking and shipping all were higher on the day. The shift higher for the sector is a positive for the Dow as we saw above heading back towards the January highs.

Short VIX (SVXY) broke the micro term downtrend line showing positive momentum in the broad market index. The VIX index moved back near the bottom of the range at 13.6. The positive sentiment is returning following the short run of selling. Watch to see how this unfolds and adding a position in SVXY. Entry point today was $61 and $63 is the next level to add to the position.

Semiconductors (SOXX) were up 1.6% on Monday and pushing back towards a new high. Micron Technology was the leader in the sector gaining 7% on the day to recover from the recent selling. There were plenty of reversals in the sector and bouncing back from the previous selling. Watching to see how this unfolds going forward. 

Russell 2000 index held support at the 1146 mark on Monday and attempted to turn around the recent selling. The short set up didn’t last and the bounce is just that for now, a bounce. The move would need to have a follow through to reverse the tide near term.

Still watching the global markets relative to the US in follow up to last weeks gains. Europe (IEV) added to the upside with a gain of 0.6%, but lagged the US markets to start the week.  The EAFE index (EFA) enjoyed a positive day as well with a modest gain of 0.4%. Emerging markets (EEM) cleared resistance again at the $39.50 level providing a trading opportunity. There is plenty of challenges still facing the global sector, but the move is worth our attention and a trade opportunity. China (FXI) stalled today at the 200 DMA. China is in position for a reversal short term.

How do we adjust and/or use the current data to help currently?

Today ended the quarter and some believe the move was only window dressing. The real response will be addressed in the data from both economic data and earnings. The movement from growth to value stocks was taking place, but the bounce today came as a result of traders buying into the oversold growth stocks. The small caps, technology and biotech stocks bounced nicely and treasury bonds sold modestly on the day. Remain focused and patient as we start the dance tomorrow.

Go to the Daily Trading Notes for more details of our strategy for the trading day.