Research Notes for April 17th

MARKET STORIES:

The negative start to Thursday was the economic data and lower crude oil prices, but that wore off as investors chipped away at buying. The volume was nothing special… in fact it was lethargic. Money flow this week has declined in the major indexes as the tug-o-war on direction continues. The bias is definitely to the buyers, but there is this sense of waiting for another shoe to drop. I am not speculating only thinking out loud. We will see if the index can make a move through the previous highs or do we find reason to test the previous lows? Looking at the ten sectors of the S&P 500 index nothing was ugly except Utilities (XLU) which started with a break lower from the wedge consolidation pattern, but managed to climb back, but it is now on watch for the downside retest of $43.30. We continue to tread water or is that crude oil for now.

Crude is driving? It would seem to be the case as energy sector is leading the S&P over the last two weeks. The challenge with this is multipronged and I will leave it at the fact it hurts the consumer short term. The consumer is already struggling and it could backfire on the broader indexes as we move forward.

What happened to earnings? As I stated to start the week… very rarely do earnings drive markets lower as catalyst, thus nothing has happened to earnings they have been as expected, mixed. Financials moved through the top end of the current range giving a positive indication on the upside for now… of course this needs to confirm the move and it is one sector to watch on Friday. Earning will continue to gain momentum into next week.

S&P 500 Index (SPY)¬†cleared $209 resistance. Holding ground, but not making any upside progress easily. $212 is the level to clear on the upside. Stalled Thursday, but watching…

NASDAQ 100 Index (QQQ) cleared $106.75 resistance. Regained the Tuesday loss,  and holding above the 50 DMA.

Russell 2000 Index (IWM) at resistance and near the previous highs. Cleared the $125.61 mark and hit a new high for the year. Needs to follow through on the move still.

Volatility Index (VIX) closed at the bottom of the range 12.75-17.10. This validates the buyers are in control currently. No volatility goes to the side of the buyers. Break of he 12.57 mark gets interesting.

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 at 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 has given way to three days of selling and Thursday left a mark. No true signs of weakness in the buck for now, but watching for support to hold.

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. New high again on Thursday.

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. Vertical move above the 200 DMA held and watching.

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. Climbed higher on Thursday confirming the move.

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). Cleared the upside resistance on Wednesday closing at $56.39. The inventory data showed less build up this week and crude rallies. Currently  there is more speculation than sports gambling in Vegas. Still watching this speculation tug-o-war. Breakout is trade if follows through. Got the follow through and continues to show interest from the buyers.

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 of¬†$82.50 gave way on Wednesday. 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 all of which cleared resistance as well on Wednesday. All tested on Thursday leaving doji candles? Watch for how that plays on Friday….

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. Testing the range with $27.85 support… manage stops on trades in the ETF. Interest rate concerns hurting.

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:

Retail (XRT) – the consolidation at the highs is showing some weakness. The retail sales data for March was okay, but below expectations. Money flow is drifting lower this week and there are some key stocks breaking down. BBY, JWN, KR and TJX were some of note. This is a sector to watch with interest as the consumer is key to the US economic picture. Testing support at $100.25.

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. Followed through on Wednesday with nice gain.

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 (breakout resistance), KRE (breakout resistance), KIE (hit entry), IAI (consolidating) are all looking similar at this point. KIE as stated in update last night is breaking out. (KIE confirmed entry point on Wednesday). XLF $24.55 level to clear.

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. Consolidation remains near the highs.

Utilities (XLU) breaking down. Watching the new support levels to hold as interest level in the sector continues to be weak and the sellers may take another shot based on the interest rate hikes on the horizon. speculation is great for creating opportunities.

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 before earnings Wednesday)¬†Earnings were okay, but not enough to push the stock higher. Watching to see if it changes any 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. Short trade hit entry point $50. June $50 puts $3.10.