Quite day for stocks

Monday – Notes & Research

Energy was a drag on the market today dropping 0.4% and retail was off the same. The Asian markets were closed today and volume was on the low side. No real data to trade on and investors were content to lay low. The President speaks tomorrow night and that always brings the talking heads out. The story isn’t likely to be any different with the focus on the debt ceiling, taxing the rich and more spending. We will see if it plays any role at all for stocks.

Bottom line no real changes based on today’s activity! Really a boring day.

Economic data was overall positive last week, but nothing strong enough to garner the attention of investors short term. Stay focused and be disciplined in how you approach the current market environment.

Data Summary

  • Same store sales for January were exceeded the forecast of 2.8% growth reporting 4.5% gains. The news was lost in the rambling over Europe, but this will key for the consumer outlook.
  • Trade deficit was narrow than expected at $38.5 billion, down 20.7%. That was a plus considering the $48.6 billion reported the month prior.
  • Factory orders rose 1.8% in December, but remains below the 2.3% predicted by economist.
  • ISM Services was flat at 55.2%, but still shows expansion in the sector.
  • China’s CPI was up 2% year-over-year, and PPI fell 1.6% year-over-year. In line with expectations.

Plenty of correction talk still in the headlines despite the shift in the technical data to more neutral on the market looking forward. Upside remains in play and we stick with the trend for now.

1) US Equities:

Market Summary:

  • S&P 500 index stayed above resistance at 1515 today closing unchanged on the day.
  • NASDAQ index stayed above the 3190 resistance today also unchanged on the day.

The NASDAQ 100 provided the upside leadership Friday breaking above resistance. The index was unchanged today, but held the move higher. The importance of the technical move break above the resistance at 2760 was key for the upside. This put the QQQ trade back in play on the upside. The break higher held and we are looking for a test to add to positions in the sector. Large cap technology stocks remain the leaders with Apple gaining 1.2% on the day added to the move.

Leadership:

  • Energy gave back the move from Friday and we need to watch how this plays out short term.
  • Consumer Staples made solid move last week to push the broad index higher. Watch as it test the move.
  • Consumer Services struggled as the retail sector lost the Friday momentum. January sales are out on Wednesday and they will have an impact on the sector.

Laggards:

  • Technology made a nice move last week and added slightly on the upside today. Apple has been pushing higher and driving the sector short term. Still worth watching to hold the move above $29.80 on XLK.
  • Basic Materials has been struggling on the China news to start, but the European data and has added some downside pressure on the sector. Still holding above support for now. Watch the 30 DMA and the transition from the consolidation short term.

Watch List:

  • XLK – Look for test and go of the breakout on Friday. Entry = $30 (HIT TODAY)
  • XLE – Look for continuation move higher from the consolidation near the highs. Entry = $78.60
  • XLF – Look for move through the high at $17.65 to add to positions. Entry = $17.75

November 15th Pivot Point for current uptrend. Target 1550-1575 short term.

Scatter1228

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test.

SP500Scatter

VIX Index: Testing lower with close near 13.

Tracking Sectors of Interest:

Financials РXLF moved above $17.50 resistance, retraced, and back above it again. Banks (KBE) and regional banks (KRE) both made moves higher again to set the pace. Hold for now and watch the downside risk of the sector if the broad markets shift momentum.

WATCH: Entry $17.20 XLF. Stop @ $17.20

NASDAQ 100 РQQQ cleared resistance at the $67.30 level. $68.25 is the next hurdle for the sector. Watch the upside confirmation for opportunity. The post in the model is to test the break higher. None today, but the week is young..l patience as this trade develops.

WATCH: QQQ Entry – $68.25 or test of the $67.25 breakout.

2) Currency:

Sector Summary:

  • Draghi comments relative to the ECB and sovereign debt sent the euro lower on the week. Temporary or trend? That is the question of interest going forwards.
  • Japan’s Prime Minister stated the yen had over corrected on Thursday and that sent the yen higher on Friday. Watch how this plays near term. Expect a short term rally in the yen.

Tracking Currency of Interest:

US Dollar РThe close near $21.90 (UUP) is at the downtrend line? Watch to see how this plays going forward and the support now becomes $21.70 level. Watch the bounce for evidence of a continued move higher.

Euro РThe euro moved below support at $132.70 and held on Monday. Watch to see how this plays out.

WATCH: EUO – Entry $18.50

Japanese Yen¬†– Has the yen found the near term low… yet? FXY bounced of $104.70 low on Friday after the comments from Prime Minister. Downside back today as call for Japanese stocks to move higher. Watch the stocks for the upside trade on EWJ.

3) Fixed Income:

Sector Summary:

  • Yields continue to creep slightly higher. The question is if the market corrects how will it impact¬†
  • 30 Year Yield = 3.15% – basically unchanged — ¬†TLT = $117..04 down 8 cents
  • 10 Year Yield = 1.95% – unchanged — IEF = $106.17 down 11 cents

Tracking Bond Sectors of Interest:

Treasury Bonds РThe current play is short with TBT in the model currently to take advantage of the move lower in prices. The last week the fund has bottomed and started to consolidate. Watch for a reversal or upside in the bond if stocks start to trend lower.

High Yield Bonds РHYG = 6.55% yield. The fund has faced a drop in price this week and hit our stop at $93.75 (HYG). Support is at $92.75, but the risk in the bond is rising short term. We will watch to see if support holds and then make a determination on the upside play if it evolves.

Corporate Bonds РLQD = 3.8% yield. The price has found short term support ($118.90). Now watching to see if any upside opportunity exist in the bond.

Municipal Bonds РMUB = 2.8% tax-free yield. The price of the bonds continue to be volatile. Found support and bounced back, but still looking for direction. Willing to wait for the right opportunity on the bonds. Look for a test of the $111.42 mark support.

Convertible Bonds РCVRT = 2.7% yield. Price has been moving higher on the current rally in stocks. Watch for opportunity if the uptrend continues in stocks.

4) Commodities:

Sector Summary:

  • Natural gas takes a turn for the worse on the inventory data.
  • Oil supply is high reflecting demand currently. Move higher has been on speculation globally.
  • DBA broke support and headed lower as soft commodities struggle.
  • BAL tested $52.65 support and is set to break higher for a possible trade.
  • CORN is testing the next level of support at $42.80 – break opens short play opportunity.

Tracking Sectors of Interest:

GSG РHolding near the high as the overall commodity index maintains the modest uptrend in play off the November lows.

UNG РDropped 5.2% on the inventory data last week. $18.27 support for the ETF was tested intraday, but closed above that level on Monday. Volatility is back and not interested in the emotional guessing game currently for the commodity. FCG is worth watching relative to break from the trading range and attempting to move higher. Got the test today and held support. Watch to see how this plays out tomorrow.

WATCH: FCG – Entry $16.65 look for test on the entry or $16.85 highest entry point.

OIL РCrude is testedsupport at the $95 level as the chart develops a rolling top, but managed to gain 1.3% on Monday. Manage the position, but let it have some room to move as volatility picks up? Manage your stop on OIL at $22.40.

UGA РSome volatility last week from the global concerns. The upside is still in play and is likely to continue near term. Supply is short as refineries maintenance schedules kick in. The upside is still in play. Watch as we test the highs.

WATCH: UGA – SEE ONLY ETF Model.

GLD РDowntrend line still in play with support at the $160 level. Broke below $160 on Monday and put the downside in play again. Watch the uncertainty around currency and economic growth globally. The talk about the G-7 nations to avert a currency war sent the metal lower on Monday. This is all speculation once again driving price.

DBB РBase Metals need to clear the $19.70 as they attempted on Friday.  Watch for the continuation of the play higher.

WATCH: DBB – Entry $19.75 (1/2 normal position)

PALL РPalladium tested $73.60 on some selling last week. The upside is still in play as well as the uptrend. Adjust your stop accordingly and let it continue to run.

PPLT РPlatinum tested lower and is filling the gap left behind on the move to new high. Broke the support at $167 and triggered an exit short term from the metal. Watch as next level of support is $164.40.

5) Global Markets:

Sector Summary:

  • VNM continues to be one of the leaders in the emerging markets.
  • Japan breaks above $10 on EWJ today hit entry point.
  • Draghi comments place a drag on the sector overall.
  • China’s economic data was the cause of the decline in FXI. Watch how it plays out next week.
  • Japan Prime Minister decides yen has moved to low… puts stocks on notice for selling?

Tracking Sectors of Interest:

EFA РDropped 2.6% last week to test the uptrend. The support levels are key and it closed above the first level at $58.15 again today. Uptrend remains in play.

IEV РDropped 4% for the week and is testing the first level of support at $40.  The challenge is worries escalating relative to the sovereign debt in Spain. My upside target remains $45.50, but the upside may be in jeopardy. Watch to see how this plays out short term.

FXI РChina broke support at the $40.85 support of the trading range. The $39.70 support is the level to watch short term? The drop hit the stop giving the opportunity to play whatever develops short term up or down.

EEM Р$43.85 support was broken, but bounced back and sitting at that level. The downside is not accelerating and we will watch to see how this unfolds. Stopped out of our positions on the move lower and now we watch for the next opportunity.

6) Real Estate (REITS):

Sector Summary:

  • REITs continue to find buyers and push the upside trend.
  • Homebuilders finding some resistance as analyst downgrade the sector.
  • REM, NLY & SJT – all three are in a position to break higher. Struggling with resistance.

Tracking Sectors of Interest:

WATCH РIYR РEntry Р$66.15,  РStop $67

7) Global Fixed Income:

Sector Summary:

  • The sovereign debt issues are fading as the global outlook improves. Stocks moving higher prove trouble for the sector overall. We have hit stops as yields impact the price of bonds.

Tracking Sectors of Interest:

EMB РEmerging market bonds have bounced off the low and could offer some upside short term plus the dividend yield of 4.2%.

PCY РEmerging market Sovereign Debt is finding some support and attempting hold and move higher. The dividend yield is 4.7%.

IHY РInternational High Yield Bonds breaking lower similar to US high yield bonds. Watch to see if any opportunities arise in the bonds.

PICB РInternational Corporate bonds support at $29.20 and looking to move lower? Watch

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.