Research Notes for April 24th

MARKET STORIES:

NASDAQ hits new high on Thursday and S&P 500 index was close. Is the rally on to higher ground or is the the end of the party. That is the million dollar question actually. Unfortunately there isn’t a simple answer… I can say the market is going to do what it wants and we have to manage ourselves and our money. I am sure you would like for me to give something very prophetic, but that actually is if you think about it. Earning after hours were a hit from MSFT, GOOG, AMZN and SBUX and it will push the index higher today.

NASDAQ was the leader with technology, biotech, software and internet leading the way higher. 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 remains¬†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 did pick up on Thursday’s announcements. Dividend hikes, M&A activity and stock buybacks remain the drivers even as company sales continue to decline.

The challenge comes in accepting what the market is doing versus what you believe it should do relative to the data. The mental gymnastics is where we get in trouble. We see what the charts look like and then we read the earnings reports, revenue, sales, etc. All our understanding and education is challenged… emotions step into the picture and our fear is heightened. This is not an easy market to buy based on fundamentals and economic data. Thus, it is best to take a technical approach short term and remain disciplined relative to exit point.

New high, new expectations. Look for markets to test higher early… the big question on the day will be if it holds the move into the weekend.

S&P 500 Index (SPY) Held¬†above¬†the $209 level on low volume trading. $206.11 is support and $211.17 resistance. The stall attempted to break higher on Thursday, but sold off into the last hour of trading.¬†I hate to beat the same old drum… but, we need some leadership. Tech has tried, Energy stalled, Retail tested lower, Financials can’t get going, and consumer has too many question marks. Take it one day at time as this attempts to move to new highs. The S&P 400 Midcap index hit a new high on Thursday as well.

NASDAQ 100 Index (QQQ) Cleared $109 barely and back to new high territory. Now we have to ask for a convincing follow through for the move higher. The index continues to lead and I added to positions on the break higher.

Russell 2000 Index (IWM) Attempted a new high, but tested lower and holding at the top of 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 four¬†days¬†and we¬†are right back at support.¬†Uncertainty yes, fear based selling… none yet. Watching the lack of concern by investors as the index creeps lower and stocks creep higher.

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 confirmed the move. Watch for entry if this follow through on the upside. $159.05 entry hit on Thursday.

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. Inside day on Thursday… setup for higher move?

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. Hit the entry point on Thursday and uptrend remains in play.

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. Break higher on Thursday a positive for the trade short term. 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. Broke decisively lower on Wednesday from the range.¬†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. Nice gain of 2.2% on Thursday and entry for OIL $12.35.

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 and nice gain on Thursday. $47.75 support, held and looking for follow through to the new high. $50.50 next resistance to watch. 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 failed on Thursday, thus the volatility. 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) Рthe consolidation at the highs showed some weakness last week as it broke support ($100.25). 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. Low volume bounce back into the range and we watch.

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 needs follow through on the move higher Which Thursday provided very nicely. 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. Last week did some damage to the chart and watching to see how it unfolds this week. Small bounce and making gradual progress higher. Added 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.

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 are being debated relative to increased expenses cutting into profits. Opened above $85… closed at $82.40… selling showed pressure building. 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 $3.90. Watch support and see if we lock in profit here.