Research Notes for April 28th

MARKET STORIES:

The biotech’s took the top story on Monday as they sold lower. The rumblings about why boiled down to deals falling apart in the M&A side. That led to some profit taking and the rest is seen on the chart. It is important as the leadership continues to erode. Money is rotating out of US to global. But, that is only part of the story as the confidence level erodes. Sentiment is shifting as the economic data weakens.

This is the final week of April and we start to get reports on the economy for the month and if there are no signs of improvement following the winter excuses the sellers may well exert their authority. Patience, stops in place, read the signs and play defense on both micro and short term positions. Longer term positions have to be evaluated in light of what is unfolding and exit point determined now in the event the selling accelerates. I am not being speculative about direction only taking the precautions from what is unfolding. Easier to execute a plan that is put in place than creating one under fire.

Small caps were hit by the move in biotech and healthcare stocks. The test of the trendline and the 50 DMA are underway again and we have to proceed with caution. Stops hit on some positions in the sector, others are set if the selling continues.

Apple earning strong after-hours… response is weak… indication of buyers mood? Watch how this unfolds as well today.

XRT, IBB, XBI, XLF, KBE, XLV, SOXX are all weakening… watch how it plays out as the leader defection is growing.

S&P 500 Index (SPY) the index moved above the¬†$211.17 resistance again Monday with same results indecision or change of direction in progress?¬†The need for leadership may well be a reason for the lack of conviction on the move higher.¬†Tech has tried, Energy stalled, Retail tested lower, Financials can’t get going, and consumer has too many question marks. And Monday added Biotech to the list of discarded leaders. Take it one day at time as this attempts to hold the move to new highs or test the move again?

NASDAQ 100 Index (QQQ) Cleared $109 with a gap higher on Friday and closed at $110.59.¬†The¬†convincing follow through we asked for on Thursday, showed up on earning Friday. The index continues to lead and I added¬†to positions on the¬†move above $108. stop break even on those. Watching reaction to Apple’s earnings today.

Russell 2000 Index (IWM)¬†Not pretty as the index broke down on Monday with the biotech’s leading the way lower. A decision point with trendline and support… watch to see how today unfolds with your stops in place if you still own the sector.

Volatility Index (VIX)¬†closed at the bottom of the range¬†12.50-17.10. Uncertainty yes, fear based selling… none yet. Watching the lack of concern by investors show warnings. Bounced off the low… but still no signs of anxiety.

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. Tested again on Monday to $157.50 watch today.

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. Breaks support today it gets interesting.

SECTORS OF INTEREST: 

Consumer Discretionary (XLY) broke higher on Friday from the trading range… need follow through, but gave up the gains on Monday… weakness back in the retail stocks. Look for test of the move and volume today if upside is going to hold.

China (FXI) buyers continue to show up despite the press and negative views on China. Upside remains in play, but there is still plenty of speculation on the horizon. Reentered the trade at $51.50 after we resume the move higher. with $49.40 as the stop for now. Patience as the consolidation plays out.

Russia (RSX) Showing some topping currently and today may well test lower with the overnight trading not on the positive side. $18.75 support. Patience.

Emerging Markets (EEM) cleared resistance at the $41 level and made solid advance. Tested the $42.50 support and held. China, Brazil and other markets have benefited from the rotation into the global markets and away from the US markets. Watch for some testing today of the move. Adjust your stops accordingly.

Bonds¬†(TLT) In¬†sideways trading range… $129.20 on downside and $132.20 on the upside. Broke decisively lower from the range, bounced…¬†TBT entry hit at $42.65. stop $42.30. Let it play out as the yields are in fluctuation.

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. Watch for break above $12.15 or test lower… patience as it unfolds.

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 $47.50.

Biotech (IBB)¬†Sold off 4% on Monday and the test is on. Plenty of speculation in the sector on Monday, but it adds up as another sector selling, profit taking, rotation to?? Global is the one place money has shifted… watch for support $342.80. Short term holding stops hit on Monday.

Semiconductors (SOXX) it is a messy chart, and the break lower on Friday on makes it worse. MXIM, CAVM, AVGO, NXPI and FSL led the downside on earnings. This puts the short side in play as break of $93.70 was held on the close. Not what we were looking for as the leadership is key for the technology sector overall. Looking at SOXS at $12 is holds the downside move.

Other sectors in the process of rotating and we will watch how Tuesday unfolds.

“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, KSS, JWN, KR and TJX are some of note along with the specialty retailers. This is a sector to watch with interest as the consumer is key to the US economic picture. AMZN led the sector on Friday with a 15% gain. Selling back? Stops in place as this unfolds.

Industrials (XLI) – if (and that is a big if) the global economies continue to recover and growth takes root… industrial stocks should rise from the dead. This story will take time to validate, but it one worth our attention as we move forward. GE, AAL, RSG, ALLE, and SNA worth tracking.

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. Finally got the move higher we were looking for and now we manage our gains. Entry $34.60. Stop $34.75. Manage the risk.

Healthcare (XLV) Рreestablishing the previous leadership. downside did some damage to the chart and watching to see how it unfolds. Negatives from all sub-sectors on Monday.

Utilities (XLU) building bottom (triangle pattern). Nice gain of 1.3% on Friday back to resistance.¬†Still in range with some selling on Monday… watching how it reacts to overall markets today.

Global Energy РThe US is only one of the 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. The trend will develop, but there are too many obstacles still in the way short term. 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 big gain on the week. 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. Closed position Friday at at $3.60.¬†Held support and watching.