Research Notes for April 22nd

MARKET STORIES:

Leadership remains the challenge for the broad indexes and Tuesday did nothing to change the current views. Energy gave up 1%, Utilities 0.9% and Basic Materials lost 0.7%. On the upside Telecom was up 1%, Healthcare gained 0.6% and Consumer Staples up 0.2%. S&P 500 index lost 0.1% and the NASDAQ gained 0.4%. No clarity, no well defined leadership, lethargy in the volatility index, and the economic picture remains suspect… outside of that life is good in the markets. There are plenty of comments support either side of this argument. I will let the market decide what is going to unfold.

The theme of earnings to this point has been missed revenue or top line numbers. That is the result of the weaker economic numbers. Not as much rock throwing at the dollars as I expected, but it is early yet. Dividend hikes, M&A activity and stock buybacks remain the drivers even as company sales continue to decline. The three growth factors for stocks are the accusation of a house of cards. It is a game that will not have a good ending, but the money flow into stocks remains… for now.

In addition to the above challenges the 12-17% job cuts in the energy sector are helping earnings for the likes of SLB, HAL and BHI it has a negative ripple effect to the jobs reports (see March data) and ultimately those top line sales numbers we mentioned above. April is inching towards the end of the month and I don’t expect any improvement in the economic data… it could actually decline further. Another issue facing stocks going forward.

S&P 500 Index (SPY) Held above the $209 level as the teeter-totter continues. $206.11 next to hold as support and $211.17 resistance. The stall remains just that a stall and the up and down days are alternating as they await a catalyst. Still in trading range and still no confirmed direction.

NASDAQ 100 Index (QQQ) Cleared $108 barely on Tuesday and looking for the break above $109.10 and back to new high territory. Negates the head and shoulder pattern for now. No conviction in the buying as we have discussed. Watching for a definitive direction as this unfolds.

Russell 2000 Index (IWM) Attempted a new high, but tested lower and holding in the range for now. Unlike the other indexes the small caps remain in a uptrend with some volatility along the way. Held the uptrend line, and that is the direction of choice for now. $126.50 entry? Makes sense if we are going higher.

Volatility Index (VIX)¬†closed at the bottom of the range¬†12.50-17.10. Tested the low last two days¬†and we¬†are right back at support.¬†Uncertainty yes, fear based selling… not yet. Watching the lack of concern by investors.

Transportation (IYT) Transports need to move higher if the broader index is to sustain a move higher. Tested the $154 mark again on Friday! Where are the buyers? They showed up on Monday with a 1.7% jump and ready to clear the $157.50 resistance? Watch for entry if this follow through on the upside.

Dollar (UUP) the greenback remains a story line many are following. The strength has given way to selling and closed Friday at $25.60 support which held on Monday. Another test of support raises some interesting question globally and for commodities. Consolidating and watching is the motto.

SECTORS OF INTEREST: 

China (FXI) buyers returned to start the week, and followed through on Tuesday. Upside remains in play, but there is still plenty of speculation on the horizon. Hold support look for opportunity. Break support look to fill the gap left on the rise. Hit our stops at $50. $51.50 was entry as we resume the move higher.

Russia (RSX) has been in similar mode of late as oil prices have settled and even moved back above the 200 DMA. Test is positive for now. Looking to hold this level of support and rise. Planning trade opportunity.$19.60 upside entry point.

Emerging Markets (EEM) cleared resistance at the $41 level and made solid advance. Tested the $42.50 support and holding. China, Brazil and other markets have benefited from the rotation into the global markets and away from the US markets. Now is decision time for the index on the upside move. 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. Testing the bottom end of the range currently… watch for break lower.¬†Opportunity is the breakout¬†and thus we wait and we watch for the decision.

Crude Oil (OIL) broke from the trading range bottom above $53.85. The continuation of the upside remains in play for now.¬†Currently ¬†there is more¬†speculation than logic.¬†Still watching this speculation tug-o-war. Doji candle on the close Monday? directional change… it closed lower and we watch how it unfolds today?

Energy (XLE) Broke higher and stalled as the broader indexes tested lower.¬†Next level to clear is $82.50, but it has stalled. All speculation on prices moving higher… earnings are six weeks out and we will have to wait and see who is right. Need to continue upside trend if possible. $80.50 support level in play.

Solar (TAN) second test of the move higher. $47.75 support, held and looking for follow through to the 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 on upside opportunity. Cleared the $362.50 resistance and another entry opportunity. Let it unfold and give some room for volatility. Stalled again in tight range. Stop at $340. Stocks of interest: CNDO, CLDX, CRIS, CELG, IBIO.

Semiconductors (SOXX) it is a messy chart, but holding near the 50 DMA. Looking for break back above the $96 level and hold if the upside is going to stick.

Watching the moves in IGV, XLK, FDN, SOCL, IBB, XLF and KRE.

“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 showed¬†some weakness last week and Friday it broke support. The retail sales data for March was okay, but below expectations. Money flow is drifting lower 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. Broke¬†support at $100.25 Friday and the sellers are in control… watch the downside trade if we confirm the break lower. $98 puts June are $2.50.

Industrials (XLI) – if (and that is a big if) the global economies continue to recover and growth take root… industrial stocks should rise from the dead. CAT is a good example of an opportunity as this unfolds. This story will take time to validate, but it one worth our attention as we move forward.

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 (failed breakout above resistance), KRE (failed breakout above resistance), KIE (hit entry, reversed), IAI (consolidating favoring move lower) are all looking similar at this point. Failed to break higher for entry, but watching XLF which moved lower on Tuesday.

Healthcare (XLV) Рreestablishing the previous leadership. Friday did some damage to the chart and watching to see how it unfolds this week. Small bounce on Monday, but work left to be done. Now at the next resistance point for add to position $74.40.

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. $44.80 on the upside would be an interesting development. Tuesday sold lower enough to keep everyone guessing.

Global Energy – The US is only the fourth largest oil producing country thus there are other opportunities globally relative to the recent bump higher in oil prices. The bump is still only a trading opportunity from my perspective. Don’t over stay your welcome just yet. The trend will develop, but there are too many obstacles still in the way. With that in mind ENY is a Canadian Energy Income ETF to watch. EWZ is Brazil ETF which benefits from the recovery in a oil dependent country. PBR is a key stock in that recovery. RSX is Russian ETF as they are the second largest producer of oil globally worth trading. Watching this story line unfold. (FILL, MLPX, IXC, PBD)

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¬†lower and broke support at $81.50. Bounced back above $83 and holding.
  • 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 only to reverse on the selling on Friday.¬†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¬†downside sets up for short trade.
  • 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. Short trade hit entry point $50. August¬†$50 puts $3.10. They are playing out well with the drop on Friday. Closed at $3.85. Watch support and see if we lock in profit here.