Research Note for July 23rd

MARKET OUTLOOK: 

Tuesday it was IBM and UTX knocking down the Dow… Wednesday it was AAPL and MSFT knocking down the NASDAQ. What’s on tap for today? Muted after hours trading with modest earnings reports and we start the day watching how investors respond to the above selling on both the Dow and NASDAQ indexes.

Running the scans didn’t turn up anything new, but I did see some key moves in gold, crude oil and emerging markets on Wednesday on the downside. Russia responded to the drop in oil and the stronger dollar. The negatives relative to the other asset classes is on interest and could have some overlap into the US indexes. We have to be patient as this all unfolds.

Back at work today and as much as I would love to say I missed it… it was good to be away for a few days. I highly recommend breaks as they let you take on a new perspective and rest the brain cells.

NOTE: The following are things to watch and evaluate during¬†the trading day…

  1. Retail (XRT) the consumer services sector (XLY) broke to new high and retail cleared the $100.25 resistance level, but tested on Friday. Watching for opportunity to buy, held off on Thursday as it hit the entry in the last hour of trading. Entry $100.25, entry on test is more attractive. Negative sales report has not turned the sector negative. Broke the $100.25 support? Tested $99 and bounced back to $100 at the close. Consumer sector still looks positive near term.  
  2. Cyber Security (HACK) Tested lower and bounced off support. The entry of $31.50 is of interest if the sector can follow through on the reversal. Added position, but watching how this unfolds. If we can clear the $31.70 mark willing to add to the position on the upside move. Tested on Tuesday and watching how this unfolds. Not much change on Wednesday unfortunately. 
  3. China (FXI) bounced off the lows hit resistance near the $43 mark and is holding. The intervention from the government to “suggest” companies buyback stock and support the prices during the sell off held the mess at bay. The debt currently held by Chinese companies could be the next shoe to drop… still looking for definitive move for the country.. up or down.¬†Holding near $42.50… need upside momentum if the bounce is to play out. Break of $42 could offer short trade with YANG.¬†
  4. Regional banks (KRE) as discussed are volatile, but offer upside going forward as the interest rates move higher. I like the sector, but understand the volatility that comes with the issues. Sold lower on Friday, bounced on Monday??? The questions surrounding the economy and earnings are swirling… watch and see how this unfolds it will present opportunity.¬†Watch how it unfolds near term. Initial move higher on Tuesday gave up the gains to close lower?¬†Earnings on Wednesday in regional banks help the upside with a 1.2% gain. Still looking for break higher. $45.20 entry point.¬†
  5. Russia (RUSS) Short trade on Russia is setting up based on the continued weakness in crude oil and stronger dollar. The move above $34.20 was breakout. If we confirm above $35.10 short term trade opportunity.
  6. Emerging Markets (EDZ) short side trade in the emerging markets showed upside momentum with move above the $35 level. Entry at $36 if the upside continues or test and hold of the $35 level would give better entry. Watching how this unfolds looking forward.
  7. India (INDL) attempting to renew the uptrend again after another mild test. $21.85 entry for the move higher. Stop at $21 to manage the risk and target at the $23.20 mark.
  8. Natural Gas (UGAZ) in position to break higher from current consolidation. $2.30 entry point on the upside move. Patience as this has bee a process for commodities to find near term strength.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) tested the $204.50 support level and resulted in a bounce off support The resistance as the previous highs is currently in place and we will watch how that unfolds this week. News remains in control, but earnings exerted some influence last week. Watching for the upside to sustain or a test lower again.  Held the 200 DMA and cleared the 50 DMA on upside move. Gapped above the $208.50 entry point with $209.75 the next logical entry point. Stop $209. Tested lower bounced and held up well thanks to the banks. Triple top? If so the downside risk grows proportionately. 

NASDAQ 100 Index (QQQ) Closed at a new high¬†to end the¬†week. Hit the entry point $109. The stop is $111 currently. Technology was the leader on the upside relative to earnings. Semiconductors still look weaker than the index itself. Practice patience and risk management with the sector as it is leading… others could pull it back.¬†Earnings push index lower. Down 1.1% and looking to hold the intraday low from Wednesday or more selling on way.¬†

Russell 2000 Index (IWM) Managed to bounce back above the $123.75, but there is plenty of convincing to be done if the upside is going to resume. Willing to¬†add a position if it moves through the $124.50 with some confidence.¬†Stop $123.70. No moving with any conviction currently.¬†Tested $123.75 early… bounced to close in positive territory? Still plenty of questions to answer in the sector.¬†¬†

Volatility Index (VIX) made it to the high at¬†19.5 and¬†then closed at 11.95 on Friday. Now that is volatility at it’s best. SVXY trade has done well… stops are must as we look for some volatility to return as earnings announcements continue this week.¬†Holding near the low and the overbought conditions are in place… watch.¬†

Transportation (IYT) Moved back to¬†the¬†$148.50 level, but can’t find any momentum above this level. If we do, it would be worth the trade on the upside move. This is the first attempt at a trend reversal for the sector?¬†The 50 DMA crossed below the 200 DMA as technical sell and it is still in play.¬†The index is in a downtrend¬†short term. Plenty of work to be done if the upside is to resume.¬†Finally broke above the resistance line at $148.50… need follow through and volume. Failed follow through… next?¬†

Dollar (UUP) The dollar sold lower, but has managed to bounce on the news around Greece and China. Dollar index (DXY) equally held support above the 95.50 mark near term. Dollar index has resumed the upside and watching how it unfolds with some settling in the global anxiety moves. Strength in the dollar remains despite small test in play. 

Crude Oil (OIL) Crude continues to move lower closing at¬†the $50.44 mark. That was a move below the¬†$51.65 support. Looking at how that unfolds this¬†week. There is still not a compelling reason to buy oil. Trade maybe. Despite all the analyst and bulls the commodity has not show upside momentum… yet.¬†Patience is what we all want least, but need the most.¬†Downside remains the move of choice? Sold below the $50 mark on Wednesday? Test of the April low a possibility.¬†

SECTOR STORIES: 

Social Networking (SOCL) Sold lower to support at $18.40 and looking at a potential bottom reversal with entry at the $19.50 level. The buying last week hit the entry point and added the positions. News driven, but trade the technical data. Stop $19.60. Still looking to clear the $20.20 mark on upside move. 

Technology (XLK) moved above the $41.90 entry point for the sector. The sector benefited from earnings last week. Semiconductors remain under pressure and building a base.. earnings will matter. Facebook (FB) broke to new high to lead the sector. Google jumped on earnings as well. Hit the entry for XLK ($42.15) positive upside move. Stop $42.70 for the position currently. Hit the stop on the selling Wednesday. Watching from here. 

  1. FDN added position at $69.75 on Thursday’s reversal test. Leader for sector. Stop $71.75 raised to protect the gains.¬†Doji left the upside move. Watching the upside fatigue?¬†

Europe (IEV) the resolution to resolve the debt crisis with Greece is on the table. This is creating another trading opportunity in Europe. Entry $45. Moved higher, hit the entry and I like the upside if things get resolved with Greece and no more surprises near term. Some testing to end the week, but we will monitor the trade this week. Stop $44.70.¬†¬†Hit the stop on Wednesday… I would expect this to bounce possible test of $44.10 support.¬†

Natural Gas (UNG) move off the near term support with a target of $15.15 if the upside can gain momentum. The entry of $13.80 is of interest if the upside is put back in play short term. BOIL is the leveraged ETF for the trading the move higher. Hit the entry and now managing the risk of the trade. Stop $13.25. Plenty of work to do to break higher. 

Financials (XLF) remains challenged by the uncertainty issues. But, the Fed is committed to hiking interest rates and the longer term view is to own the sector. You have to be willing to stomach the volatility and add to the position on weakness. Moved back above the $24.50 mark gave¬†opportunity to add to positions. $24.70 entry.¬†Still challenged… Stop $24 on the positions for now.¬†Stalled on the day.¬†

  1. Banks moved lower and hit our stops last week. However, the upside move in the sector is still on my watch list as opportunity. KRE at the $44.20 entry would be worth adding back if it shows positive momentum. Hit entry and it followed through to start the week. Stop $42.70. Made upside decision on earnings Wednesday and now look for the upside follow through on the move. 

Energy (XLE) is attempting ¬†to¬†bounce… exited our short trade last week. Building a bottom and potential reversal near term. So much for the one day of positive for the sector… sold lower again to end the week and broke the $73 support putting the downside back in play. ERY is the short ETF trade. $23.35 entry.¬†Hit entry and added to the position. Still moving lower a the price of crude continues to drop. Stop $23.35

  1. Crude oil¬†– moved lower in response to the global fear. Short side trade remains? Watching to see how this does with support ¬†at the $58 level of support (SCO). Setup for a short trade on the commodity with SCO entry at $61.50. Raise stop to $75 on balance. Sold half of position at the $70.30 mark, let the balance run. Down again on Wednesday…¬†Letting the short trade play out with the balance of the position and adjusted the stop based on the move.¬†

Treasury bond (TLT) The FOMC meeting shed some light on the Fed’s intentions to hike rates prior to year end. That puts pressure on yields to move higher and bond prices lower.¬†Fear¬†was¬†driving money back towards the bonds, but that shifted to end the week. However, the bond has rallied back to the resistance at $119 mark. Upside may give some¬†opportunities on TBT… patience. $48.90 entry. We have been trading the volatility of this move the last eight weeks.¬†Testing the resistance at $119? Broke higher on Wednesday as the nerves push money towards safety. Watching to see if it can hold or gain upside momentum. TBT is still the trade my view on the rally.¬†

Healthcare (XLV) The sector has been in a consolidation pattern which we have tracked for the last five weeks. We finally hit the entry with the move above $75.50.¬†Stop $75.50. ACA news from the Supreme Court driving some upside … IHF was the benefactor as the decision confirmed government payments to the providers. Best source of income available for the providers. Tested lower with selling, held support and moved higher. Some testing at the highs, but all is well manage the stop.¬†Holding near the high.

Consumer Discretionary (XLY) ¬†Held support at the $74.50 level and keeping¬†the trend moving higher… break above $77 would be of help for the trend to continue upside move. Trend fundamentally on the consumer is flat and that is keeping things in check for now. $77 exit point raised stop.¬†Move above $78 positive. Holding the move and testing lower on the week with nice bounce on Wednesday.¬†¬†¬†

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.