Research Notes for July 15th

MARKET OUTLOOK: 

Due to travel today… posted changes in Red below.

Positive momentum despite weaker data is a concern to watch… How do we do that, with out stops. Keep them relative to the risk you are willing to accept looking forward. There is plenty to keep tabs on, but we still have to use the charts as our first line of defense. Greece is not, was not and will not be the challenge for the US markets. Don’t get pulled in by the headlines and rhetoric.

Have a great day!

FYI: I am traveling on Tuesday Night to the west coast and the updates will be limited as a result. I will be taking some time off from Thursday, July 13th – Wednesday, July 22nd to spend with my family! All of the girls are getting together I have the privilege of being invited to spend time with them ( to buy dinner of course). Thus, the updates will be limited, but the tables will all be updated daily. Thanks!

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

  1. Agriculture commodities (DBA) setting up a pennant pattern. The bias would be a continuation of the upside near term… patience is key for this to unfold for the next stage.¬†Nice bounce back to the previous highs. $23.40 entry for trade again.¬†
  2. Retail (XRT) the consumer services sector (XLY) broke to new high and retail cleared the $100.25 resistance level on Monday. Watching for opportunity to buy the pullback/test or buy it now and see how it unfolds. Entry $101.75, but entry on test is more attractive.¬†Negative sales report… watch how it unfolds today.¬†
  3. Natural Gas (UNG) move off the near term support with a target of $15.15 if the upside can gain momentum. The entry of $13.80 is of interest if the upside is put back in play short term. BOIL is the leveraged ETF for the trading the move higher.¬†No follow through on Tuesday… watching again today.¬†
  4. Europe (IEV) the resolution to resolve the debt crisis with Greece is on the table. This is creating another trading opportunity in Europe. Entry $45. Not much reaction yet in the country ETF. Moved higher, hit the entry and I like the upside if things get resolved with Greece and no more surprises near term.
  5. Technology (XLK) moved above the $41.90 entry point for the sector on Monday. Watching for test or follow through on the upside to add a position in the sector. Semiconductors remain under pressure. Internet (FDN) leading the upside move. Facebook (FB) broke to new high Monday to lead the sector. Hit the entry for XLK with positive upside move on Tuesday. FDN continues to lead the sector higher. 
  6. Semiconductors (SOXX) are building a base at support near the $88.50 level. Clear $90.50 on some volume and looking at adding a trade on the reversal.¬†Reversal follow through with entry hit… honor stop and let this unfold near term.
  7. Social Networking (SOCL) Sol lower to support at $18.40 and looking at a potential bottom reversal with entry at the $19.50 level. Nice follow through to the reversal on Tuesday. filled the gap left on the downside and hit the entry. 
  8. Cyber Security (HACK) Tested lower and bounced off support. The entry of $31.50 is of interest if the sector can follow through on the reversal.¬†Up… barely. held off on the entry and watching for volume on the buying.¬†
  9. Voltility Index (SVXY) short the index trade is setting up if the positive momentum continues to start the week. Entry $79.15 and a target of $84.55. Gap open left us without a trade… too much risk as it obtained the target on the move early.¬†Moved higher Tuesday as volatility declines back near the lows.¬†
  10. China (FXI) bounced the last two days off the lows. Why? Intervention from the government to “suggest” companies buyback stock and support the prices. I am sure based on the ruling party of China the suggestion was mild and none threatening. Either way the question of is the bottom in as “mandated”? If so, there may be upside opportunity as a trade on the follow through. YINN¬†entry $34.50 is of interest.¬†Tested Tuesday… the bounce is holding, but still needs to follow through or retest of the lows.¬†
  11. Watching the individual stocks in the regional banks (KRE). RF, KEY, ZION, and SBNY are on list of stronger regional banks to entertain on the move higher as it unfolds. No changes as banks were flat on JPM and WFC earnings. 

Below I outline the major indexes, sector¬†stories¬†and management of existing positions.¬†Stay focused, stay disciplined and don’t chase rabbits down a hole.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) testing the $204.50 support level again resulted in a bounce off support and remains one big question market, but the gap higher at the open was a good start to the move back tot he May highs. News remains in control and I hate to chase news… let it unfold and sort itself out.¬†Greece deal is done, China is in play, emerging markets are weaker but hopeful, oil is weaker, and the volatility index show the removal of panic¬†currently. Held¬†the 200 DMA and looking at the 50 DMA next. Gapped above the $208.50 entry point. $211 next resistance to watch… positive day on Tuesday.¬†

NASDAQ 100 Index (QQQ) Closed back above the $106.75 mark to end last week. Followed that with a move through the $108.25 mark and entry point. $111 is the target for the move currently. Technology was the leader on the upside Monday. Semiconductors still look weaker than the index itself. Large caps driving the move Tuesday. $111 next level of resistance to watch as the upside remains in place. 

Russell 2000 Index (IWM) Managed to bounce on Friday back above the $123.75, but there is plenty of convincing to be done if the upside is going to resume. Willing to¬†add a position if it moves through the $124.50 with some confidence. Added on Monday with the move higher… looking for the leadership role to return to the sector.¬†Nice gain in the index on Tuesday with $126.50 just overhead as resistance and then the June highs. I like the small caps leading if they will take on the role again.¬†

Volatility Index (VIX) made it to the high I was looking for last week near 19.5 and then closed at 16.8 on Friday with the buying. Moved through the 15.5 mark we posted as level to watch on Monday and closed a 14 removing the worries in the broad index. What volatility? Back to 13.1 on Tuesday and all the fear, anxiety and nerves have subsided. 

Transportation (IYT) Moved back to the $148.50 level and now needs to clear the rsistance point. If we do, it would be worth the trade on the upside move. CSX earnings after hour will show some insight to the sector. This is the first attempt at a trend reversal for the sector? The 50 DMA crossed below the 200 DMA as technical sell and it is still in play. The index is in a downtrend short term. Struggled Tuesday to clear the $148.50 level with any conviction? $149 entry if it can find some momentum to push higher. 

Dollar (UUP) The¬†dollar sold lower on Friday, but managed to bounce on the news of the Greece deal Monday.¬†$24.88 support and volatility remains on the uncertainty¬†near term. Dollar index (DXY) held¬†support above the 95.50 mark near term. Dollar index has built a big consolidation wedge over the last two months and looking of how it will play out.¬†No changes in the buck… still in downtrend off the March high.¬†

Crude Oil (OIL) Crude continues to move lower closing at¬†the $52.01 mark. Holding for now above $51.65 support. There is still not a compelling reason to buy oil. Trade maybe. The bear flag is setting up a decision relative to direction near term. Patience is what we all want least, but need the most.¬†Mixed bag of analyst opinions. Watching to see how it unfolds… logic says lower… analyst say higher? who wins… time will decide.¬†

SECTOR STORIES: 

MLPs ¬†have tumbled lower on interest rate fears and weakness in the energy sector. AMLP is an ETF that invests in the sector overall and has declined more than 20% since the September highs last year. That puts the yield now at 7%. I have added this to watch list as an opportunity as support or a base is established. Nice move on Tuesday and follow through would give entry opportunity. $15.75 is level to watching on the upside opportunity,¬†¬†watching how it unfolds. Hit the Entry Monday… Stop $15.65.¬†Positive day on Tuesday…¬†

Financials (XLF) remains challenged by the uncertainty issues. But, the Fed is committed to hiking interest rates and the longer term view is to own the sector. You have to be willing to stomach the volatility and add to the position on weakness. Moved back above the $24.50 mark on Friday and offers again an opportunity to add to positions. $24.70 entry. Too the position on Monday’s move higher.¬†Positive follow through on Tuesday.¬†

  1. Banks moved lower and hit our stops last week. However, the upside move in the sector is still on my watch list as opportunity. KRE at the $44.20 entry would be worth adding back if it shows positive momentum. Hit entry on Friday and it followed through to start the week. Stop $42.70. Watching as earnings will be the tell for the sector. 

Energy (XLE) is attempting ¬†to¬†bounce… exited our short trade last week. Building a bottom and potential reversal near term. Watch how this unfolds.¬†Up on analyst talk. $75 entry is level to watch today.¬†

  1. Crude oil¬†– moved lower in response to the global fear. Short side trade remains? Watching to see how this does with support ¬†at the $58 level of support (SCO). Setup for a short trade on the commodity with SCO entry at $61.50 Hit entry and stop at $58. Raise stop to $68 on balance of holding. Sold half of position at the $70.30 mark. Stop on balance remains same.¬†Watching as analyst post positive upside beliefs… push stop to $68.50.¬†

Treasury bond (TLT) The FOMC meeting shed some light on the Fed’s intentions to hike rates prior to year end. That puts pressure on yields to move higher and bond prices lower.¬†Fear¬†was¬†driving money back towards the bonds, but that shifted on Thursday. Upside move gave another entry opportunity on TBT… patience. $48 entry. Hit entry at $48.25. Stop at $49.50. Watching this week.¬†No changes on Tuesday, but favoring the downside for bonds.¬†

Homebuilders (ITB) double bottom consolidation pattern setting up to break higher on the momentum in the news behind the housing market (technical setup and trade). Fundamental data starting to confirm the upside move with improved numbers in sales for May. Hit¬†our¬†$27.40 entry. Stop $26.50.¬†Hitting against resistance at the $28.10 mark… watch and manage your risk. Good data, bad market… watch and manage with upside.¬†Unchanged on Tuesday.¬†

Healthcare (XLV) The sector has been in a consolidation pattern which we have tracked for the last five weeks. We finally hit the entry with the move above $75.50.¬†Stop $73.50. ACA news from the Supreme Court driving some upside … IHF was the benefactor as the decision confirmed government payments to the providers. Best source of income available for the providers. Tested lower with selling, held support and moved higher on Friday.¬†Nice upside follow through for the sector. Remains in positive uptrend.

Consumer Discretionary (XLY) ¬†Held support at the $74.50 level and keeping¬†the trend moving higher… break above $77 would be of help for the trend to continue upside move. Trend fundamentally on the consumer is flat and that is keeping things in check for now. $74.50 exit point on the downside.¬†Move above $78 positive on Monday.¬†Inched higher on Tuesday despite the news from retail sales… stops in place and let it play out.¬†

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.