Research Notes for April 30th

MARKET STORIES:

As stated in last nights post the news and events are driving intraday volatility as investors can’t find traction in either direction. The latest from the economic front is GDP grew at 0.2% for the first quarter of the year. UGLY, UGLY, UGLY!

The GDP data was rationalized by the Fed in the notes from the FOMC meeting with weather, port strikes and strong dollar. Taking that for what it is I am more concerned about what opportunities there are in tracking the current trend of events.

  • Yields will rise if the Fed really does raise rates near term. That means TBF or TBT as a short trade on treasury bonds is worth our attention. Both gapped higher Wednesday in response to the worries. TBT entry was $42.50. A test of this level will offer an entry near $43.50 currently.
  • Dollar is falling again and that may help the cause for the Fed. Watch the long euro trade (FXE) if this continues and commodities will benefit as well. GLD, SLV, OIL, UGA, UNG, SLX, DBB, JCC.

Today is the final day¬†of April and we will start reports on the economy Friday with the ISM manufacturing data. Then comes all the other data for the month of April to review next week. If there are no signs of improvement following the winter excuses the sellers may well exert their authority. You should already have a plan for where the exits are should stocks sell aggressively.¬†Longer term positions have to be evaluated in light of what is unfolding and exit point determined now in the event the selling accelerates. This is not speculation, but planning in the event things don’t continue on the upside. It is far easier to execute a plan that is in place than creating one under fire.

NOTE: The following are things to watch and evaluate during¬†the trading day…

  1. Treasury Yields (TYX) thirty-year bond jumped to 2.74%¬†… follow through breaks the downtrend line and could push rates even higher as a result of¬†the news from the FOMC meeting. TMV, TBT, TBF
  2. Energy (XLE) inventory data moved oil higher and the break above $82.50 on XLE is a positive. Looking to add to positions.
  3. Gold (GLD) still looking for a sustainable move higher $116.64 resistance.
  4. Software (IGV) leading tech. Watch the micro term pattern setups. Breakout for the sector and the several stocks… CRM.
  5. Social Media (SOCL) weakening on FB and TWTR earnings testing lower…
  6. Base Metals (DBB) breakout and momentum in the metals micro term (0-13 wk)
  7. Retail (XRT) weakening sector… watching how it unfolds near term. Dropped 1.9% on Wednesday and the downside is in play micro term. Shorts are building.
  8. Utilities (XLU) setup to break higher? Trade or longer term development…
    End of the month posturing and preparing for ‘Sell in May and go away.’

MAJOR INDEX STORIES:

S&P 500 Index (SPY) the index has taken on some volatility as it attempts to break to new high. We traded this position and thus we have to manage the risk accordingly. Stops at the $209 mark currently and letting it unfold. The news above has an impact obviously and we let it unfold. Fed is back, weak economic data is back and worries from investors in play. Jury is still out on the conviction to take the index higher. $212 break on volume would be of interest for adding to or establishing new positions.

NASDAQ 100 Index (QQQ) Tested the $109 support level again with a move lower to start the day and recovered to close above the $109 mark. The index continues to lead (with some renewed volatility) and selling in the likes of Twitter are not helping matters. I added to positions on the move above $108. stop break even. Watching reaction to FOMC and earnings today.

Russell 2000 Index (IWM) The index broke down on Monday with the biotech’s leading the way lower. Testing the trendline and holding for now. Still looking for a directional decision as this week as been volatile as¬†investors are struggling with any type of commitment for now. Lost 1.1% on Wednesday. Watch to see if the upside follows through or not.

Volatility Index (VIX) Intraday volatility is the new game in town. The close shows some small moves higher, but what is taking place throughout the day shows the rotation and nerves in play.¬†Anxiety early sent the index back to 14.34… it closed at 13.41. Simply put, the lack of real concern about the downside risk is keeping the indexes near the highs and volatility at a minimum. The complacency is not a positive from my view going forward. FOMC meeting results could get play today… watching to see how it unfolds.

Transportation (IYT) Transports need to move higher if the broader index is to sustain a move higher.¬†Tested the $154 mark rose to $160 and now testing teh $154 mark again.¬†Still building the base and for now holding the key support level at $154. Patience… break below support opens the short trade with September 154 puts.

Dollar (UUP) is shifting gears on the downside with the break of support on Monday and progressive follow through. Now it gets interesting how it plays out. Creating a opportunity in Gold (GLD) and gold miners (GDX) both breaking higher Tuesday on the weaker dollar. Watching commodities as well overall for impact. Long euro trade with

SECTORS OF INTEREST: (IN PLAY) Manage the Risk.

Consumer Discretionary (XLY) broke higher on Friday from the trading range… needed to follow through, but gave up the gains on Monday and more on Tuesday… weakness back in the retail stocks (XRT broke lower).¬†Need to hold support at the $74.50 level if the upside has a chance of keep the trend moving higher.

China (FXI) holding near the highs and watching to see how it unfolds. Stops should be at $49.50 currently on the reentry at $51.50. Upside remains in play, but there is still plenty of speculation on the horizon. Patience as the consolidation plays out.

Russia (RSX) Showing some topping currently and testing the resistance of the 200 DMA as overhead. $18.75 support. $18.70 stop. Patience.

Emerging Markets (EEM) Made solid break from base at $41 and the upside remains in play. Stalling near the highs with some selling on Wednesday. The emerging markets have benefited from the rotation into the global markets and away from the US markets. Adjust your stops accordingly ($43 current). Also looking at how the dollar will impact this trade going forward?

Crude Oil (OIL) The break from the trading range bottom above $53.85 remains in play with oil closing at $58.64. Currently  there is more speculation than logic as the rational and justifications are pontificated. The inventory data on Wednesday sparked interest in the commodity again. OIL hit entry at $12.15 Wednesday. UCO at $9.45 entry.

Energy (XLE) Broke higher and stalled as the broader indexes tested lower.¬†Next level to clear is $82.50, managed to close above this level on Wednesday and that offers upside continuation trades.¬†Move has been the¬†value buyers stepping in and the stall is the lack of traders traders interested short term. Do they step in now…¬†$80.50 support level and stop.

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. Tuesday posted loss of 1.1% as well, but it did manage to bounce off the test lower at 338.60.¬†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.

Brazil (EWZ) Рcleared a double bottom pattern entry at the $34 mark. 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 as we deal with the $37.40 resistance.

Other sectors in the process of rotating and we will watch how Wednesday 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. $98.50 stop.

Bonds¬†(TLT)¬†broke support at¬†$129.20 and triggered the exit. The testing to move back above this level failed on Wednesday with the confirmation move lower. Rates rose and bonds sold. Fed is back in the trade.¬†TBF, TBT or TMV are now is play… (see the table for entries.) Choose the level of leverage you want. Selling is on for now.

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.

Semiconductors (SOXX) it is a messy chart, and the break lower only makes it worse. MXIM, CAVM, AVGO, NXPI and FSL led the downside on earnings. This puts the short side in play potentially, but it would take a move below the $92.50 level to gain my interest to short the sector. 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.

Healthcare (XLV) РFailed to reestablish the previous leadership. Downside did some damage to the chart and watching to see how it unfolds. Negatives from all sub-sectors as well. Did get slight recovery on Tuesday, but sold on Wednesday.

Utilities (XLU) building bottom (triangle pattern). Nice gains, but they sell off the following day. Still in range… watching how it reacts to overall markets today.

Base Metals (DBB) broke through $15.50 resistance and has followed through. Steel (SLX), Copper (JJC) and ZINC are moving higher off the recent low in March. This has set up some trading opportunities across the sector. FCX cleared $21.70 entry point as well. $15.65 stop on original entry, $16.05 is next entry point.

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)