Research Notes for April 23rd

MARKET STORIES:

Some buying across the board following a negative open on Wednesday. Nothing is convincing about the current activity, but the markets continue to drift higher. The sellers have been just as unwilling to take control for the same reason as the buyers… no clarity. The news is not good, but it isn’t bad. It is easy to find yourself attempting to develop arguments for the downside. If you have to develop them they have not validated… thus, you have to remain patient and let this unfold. It is a trading or choppy market. Earnings remain mixed as seen last night with the Facebook results being dissected to death. Patience as we move forward.

NASDAQ was the early leader with technology and especially semiconductors moving higher (1.4% gain) on the day. BRCM was the upside leader on positive results. Russell 2000 index was the laggard again barely positive on the day. IF we drift to a new high, how do investors respond? Volume remains on the weak side and the overall worry remains a cloud over the broad indexes short term. We continue to add positions and take what the market gives, but we do so with and extreme prejudice of caution.

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.

S&P 500 Index (SPY) Held above the $209 level on low volume trading. $206.11 is 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 held 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 three¬† days¬†and we¬†are right back at support.¬†Uncertainty yes, fear based selling… none 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 last week and bounced. A bottom reversal on Wednesday? The index cleared the $157.50 resistance and is now looking for a confirmation. Watch for entry if this follow through on the upside. $159.05 entry.

Dollar (UUP) the greenback remains a story line many are following. The strength has given way to sideways trading with the $25.50 support in play along with the 50 DMA. MACD has turned negative short term. Consolidating and watching is the motto.

SECTORS OF INTEREST: 

China (FXI) buyers returned to start the week, and followed through closing at at a new high. Upside remains in play, but there is still plenty of speculation on the horizon. $51.50 was entry as we resume the move higher. with $49.40 as the stop for now.

Russia (RSX) has been in a uptrend mode of late as oil prices have settled. Test and consolidation is positive for now. Looking to hold this level of support and resume uptrend. 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 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… broke decisively lower on Wednesday.¬†TBT entry hit at $42.65. stop $42.30.

Crude Oil (OIL) broke from the trading range bottom above $53.85. The continuation of the upside remains in play for now with at test a the current high of $58. Currently  there is more speculation than logic as the rational and justifications are pontificated. Doji closes twice this week showing the near term indecision by buyers.

Energy (XLE) Broke higher and stalled as the broader indexes tested lower. Next level to clear is $82.50, but it has stalled. Move is value buyers stepping in and the stall is the traders moving to other places for now. Need to continue upside trend if possible. $80.50 support level in play.

Solar (TAN) 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. 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 which we got on Wednesday and now holding it if the upside is going to stick. Entry $96.20 Stop $94.50.

Watching the moves in IGV, XLK, FDN, SOCL, IBB, XLF and KRE. All made positive moves higher on Wednesday and follow through is positive for the broad markets to confirm leadership.

“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 are¬†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 and it has drifted back to the mark this week… watch the downside trade if we confirm the break lower. $98 puts June are $2.50. But, if it is going to resume the upside need some conviction. Technical data shows oversold.

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 (look at $85 entry if breaks higher). 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. Got nice move on Wednesday up 2.5% and now needs follow through on the move higher. Entry $34.60.

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 to decide the fate.

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) building bottom (triangle pattern). 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. 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:¬†¬†Bounced above $84, but earnings after hours are being debated relative to increased expenses cutting into profits. Watching how today unfolds.
  • 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.¬†Sideways activity shows lack of conviction in either direction for now.¬†
  • 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:¬†¬†Earnings were okay, but not enough to push the stock higher. Watching to see if¬†downside sets up for short trade. Still looking like dead money for now.
  • 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. Closed at $3.70. Watch support and see if we lock in profit here.