Research Notes for April 15th

MARKET STORIES:

It’s tax day! For many this is a day freedom… until next year. That aside we face another day of decision relative to earnings. Bank of America is on tap early and that will set the tone once again for the financial sector. JP Morgan was benefactor on the upside on Tuesday, but there is still plenty of news to come in the sector.

Retail sales data¬†turned positive after three months of moving lower. The consumer sector still ended the day flat and XRT fell 1% as despite the positives they fell short of expectations. The consumer remains a challenge relative to looking at the economic growth and that is keeping the market in check.¬†PPI rose 0.2% and better than expected on as the wholesale inflation data remains in balance. Business inventories were in line with expectations. The bottom line for the economy is more of the same… uncertainty looking forward based on the present data.

S&P 500 Index (SPY) cleared $209 resistance. Holding ground, but not making any upside progress currently.

NASDAQ 100 Index (QQQ) cleared $106.75 resistance. Testing lower on the day, but holding the 50 DMA.

Russell 2000 Index (IWM) at resistance and near the previous highs. Needs to clear the $125.61 mark. Stumbled with rest Tuesday and watching for the upside follow through.

Volatility Index (VIX) closed at the bottom of the range 12.75-17.10. This validates the buyers are in control currently. Attempted move higher again on Tuesday, but no conviction from the sellers. No volatility goes to the side of the buyers.

Transportation (IYT) Dow theory has been in the headlines. Transports need to move higher if the broader index is to sustain a move higher. Tested the $154 mark again on Tuesday! Held and back to the 200 DMA? Still watching for a clearance of the $157.50 mark.

Dollar (UUP) the greenback remains a story line many are following. The strength returned last week and weakness in the euro and yen were in headlines again. Tuesday the buck tumbled and remains in a sideways range for now.

SECTORS OF INTEREST: 

China (FXI) still running higher on speculation. Upside remains in play for now and we manage the stop at $50. The ETF is up 11.2% and it doesn’t hurt to lock in some gains as we saw some selling on Friday and Tuesday. Upside longer term still is positive, but going vertical is always a challenge.

Russia (RSX) has been in similar mode of late as oil prices have settled and even moved back to the top end of the range. Manage the opportunity in the country ETF relative to the volatility and news. Tuesday close put in position to break higher again.

Emerging Markets (EEM) cleared resistance at the $41 level and made solid advance. China, Brazil and other markets have benefited from the rotation into the global markets and away from the US markets the last two weeks. Adjust stops to break even and watch this top or consolidation top to unfold.

Bonds¬†(TLT)¬†Rallied on the FOMC news in March… it has since stalled and developed a sideways trading range. $129.20 on downside and $132.20 on the upside. Rates fell bond rallied on Tuesday as the tug-o-war continues. Opportunity is the breakout higher. TBT if the¬†yields move higher. Patience wins the race here.

Crude Oil (OIL)¬†Simply put volatility within the trading range ($42.60-53.80). Speculation about demand rising… but,¬†the data showed supply is rising not demand. Tuesday prices rise back to $53.60? Speculation in delay over the Iran deal and reports that US production has peaked and is declining. Still watching this speculation tug-o-war. Today is inventory data day again!

Energy (XLE) Sideways consolidation¬†got a bump last week¬†to break higher¬†with¬†move above the $78 mark. The next resistance of $80.50 broke Tuesday on the close. ¬†Next stop $82.50. All speculation on prices moving higher… earnings are six weeks out and we will have to wait and see who is right. Expect volatility in the sector, that I am sure of. The other alternative to the large caps is to track IEZ, XOP, FCG.

Housing (ITB) $28.15 break from range confirmed and trade hit the entry point. Sector has positive momentum from the data… could be ready to move higher short term.¬†Tested support at $28 and held, but interest rates are bothering investors currently. Willing to give it some room to deal with current uncertainty on rates. Uptrend still in play.

Solar (TAN) second test of the move higher. $42.30 support, held $43.75 level and bounced back to new high. I like the upside continuation in the sector looking forward, manage the risk and let it run. Stop $46.50.

Biotech (IBB) tested 50 DMA bounced. Cleared $342.80 is level to watch on upside opportunity. Hit the breakout and buy opportunity. Cleared the $352 resistance and second entry opportunity. Let it unfold and give some room for volatility. Stop at $340.

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

Unfolding Stories in Sectors Currently:

Brazil (EWZ) Рcleared a double bottom pattern last week and sits at $34 resistance. Looking for test and follow through on the reported improvements in the country. Let it unfold and validate the move higher. stalled, but still ready to break.

Financials (XLF) РThis continues to be a laggard for the market, but if the US is going to move higher it needs some help from the sector. Looking for a leader to help. KBE, KRE, KIE, IAI are all looking similar at this point. KIE as stated in update last night is breaking out. Watching for entry point.

Healthcare (XLV) Рreestablishing the previous leadership. solid move last week off the recent low. XLV, IHI, XPH, IHF are all showing improvement the last two weeks.

Retail (XRT) Рthe consumer is a key part of the economic picture and we continue to see a drift higher in the retail sector. The stall the last two weeks is a result of the economic data and rising worries. The sales reports out Tuesday missed expectation and showed some selling. Watching today for more insight and reaction to the data. Break to new high is opportunity in XRT. PEJ is the leisure ETF which made a reversal last week off the current low? $38.25 resistance and move higher would help confidence in the consumer as well. PEJ tested and downside is hanging around for now.

LONG TERM OPPORTUNITIES: 

Long term positions take time to manage and patience to let them unfold. The short term can be managed with hedging or trading off the longer term positions. The goal is to build the position and manage the risk. Sometimes the short term news and events cause anxiety… the goal is to mitigate the risk and protect the downside as we allow the stock time and room to grow. If you don’t like long term holdings don’t read the data below.
  • Facebook (FB) – $73.15 entry (10/16/14) added 1000 shares back relative to the long term outlook following the choppy drop in markets. Earning remain¬†good, but the outlook showed higher costs and has kept pressure on the shares to stay in the current trading range. >¬†Added to position: 500 @ $77.50 – 1/8< ¬†TODAY:¬†¬†Testing the move higher and bounced¬†at support $81.50.
  • Twitter (TWTR) – ¬†(1) Added 500 shares at $42.80 (10/28/14). (2)¬†Added 500 shares at $39.20¬†on¬†1/9/15. Use $45 at exit on shares added¬†(3)¬†Added 500 shares at $40.25 for trade Sold at $46.25 on 3/10/15. This is a long term holding, but we will trade on short term technical data if warranted. TODAY:¬†¬†Nice break finally above resistance and now looking for the follow through on the upside¬†as it is testing. Came all the way back as the buyers have no conviction.¬†
  • Bank of America (BAC)¬†Sold all positions as this has become a train wreck of news and write downs. Earnings are here and it may set up trade opportunity with some cheap options?¬†¬†TODAY:¬†¬†$16 calls for April as play on earnings would be interesting at five cents. (They closed at 20 cents on Tuesday for great gain on the calls. closed position) Tells you what investors think… they expect it to be bad. Earnings today!!!!
  • Whole Foods Market (WFM)¬†(1) Sold our first position for a $6.50 profit on 1000 Shares held from 11/20/14 – 3/11/15. The outlook has improved after making changes to the stores and adding new stores. I like the long term outlook for the company. TODAY:¬†still looking for the next opportunity as bottom or support is established.$51.50¬†broke¬†and if it continues lower may be the downside as trade.