Research Notes for July 17th

MARKET OUTLOOK: 

As stated… traveling this week with family and relaxing! Notes will be brief… highlighted in red what transpired.

Investors find joy in the earnings and push indexes to new highs for the NASDAQ. As the issues in Greece come to a conclusion the next catalyst we discussed needed to be earnings and they came through on Thursday. The lift from Google overnight will only add to the upside in the index. This is what some analyst had forecast… earnings were reduced to the point the upside opportunity would good for stocks. That is exactly what we have seen to this point with the large cap technology stocks.

The S&P 500 index along with the Russell 2000 index cleared key resistance and are now in position to challenge the previous highs. Unlike Wednesday’s test, the upside move on Thursday made a difference. How sustainable the move is the key question at this point.

Today will offer more insight… focus and discipline remain the key as this all unfolds short term.

Have a great day!

FYI: I am traveling for the next week and the updates will be limited as a result. I will be taking some time off from Tuesday, 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.¬†Bounce reversed on Wednesday and still looking for a upside follow through but nothing of note on Thursday.¬†¬†
  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 Tuesday has not turned the sector negative and Thursday hit the entry point for the trade. We added and will monitor the downside risk as it move forward. 
  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.¬†Hit the entry on Wednesday and now managing the risk of the trade.¬†. some selling again on Thursday… volatility in play.
  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. Moved higher, hit the entry and I like the upside if things get resolved with Greece and no more surprises near term. Nice move higher on Thursday and I still like the upside outlook for the sector. 
  5. Technology (XLK)¬†moved above the $41.90 entry point for the sector on Monday. Added¬†on the upside 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 ($42.15) positive upside move.¬†Nice gains on Thursday as follow through to the earnings and Google will add to the upside move short term. FDN added position at $69.75 on Thursday’s reversal test.¬†
  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.¬†Testing lower on Wednesday and watching if the upside evolves. Thursday moved, but still not convincing.¬†
  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. The buying Thursday hit the entry point and added the positions. News driven, but trade the technical data. 
  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. Sellers back on Wednesday… neutral on Thursday and looking for the upside follow through.¬†
  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 again on Thursday as volatility evaporates. Raise the stop and protect the move. VIX is now at 12.1 or the previous lows. Overbought? Earnings are driving… not yet from my view. ¬†
  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.¬†No changes to account for, but the selling has stopped… looking for resolution?¬†
  11. Regional banks (KRE) as discussed are volatile, but offer upside going forward as the interest rates move higher. I like the sector, but understand the volatility that comes with the issues. Nice move higher for the sector as the earnings in the banks have been solid for Q2. 

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. Cleared the¬†$211 resistance Thursday and watching how this unfolds with our stop in place for now.¬†

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. $111 next level of resistance cleared on earnings Thursday and should get another lift from the Google earnings after hours. Adjust your stops and let it run.

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.¬†Didn’t joint the breaks through resistance or the next highs…¬†still too much in the way emotionally for the sector.¬†

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?¬†Still showing positive with move lower with the buying on Thursday. All is well for now… one day at time an raise stop on SVXY trade. ¬†

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, Wednesday tested lower… Thursday not gains… not a good sign for the sector.¬†

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.¬†Modest move higher on Wednesday, but downtrend still in play… it will take something of significance to get the upside back in play for the dollar. Nice follow through on Thursday, but still work to do.¬†

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? Oil traded lower on Wednesday and Thursday? What’s next?¬†

SECTOR STORIES: 

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 upside last three days. Let it run from here.¬†

  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. Slightly positive thus far for the sector. Nice bump higher for the sector as well leading financials. 

Energy (XLE) is attempting ¬†to¬†bounce… exited our short trade last week. Building a bottom and potential reversal near term. Watch how this unfolds.¬†So much for the one day of positive for the sector… sold lower on Wednesday and testing support again.¬†Holding the $73 level on Thursday, but still not showing signs of reversal on the upside?¬†

  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. So much for positive views the selling resumed on Wednesday and flat on Thursday. ¬†¬†

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. Hit stop on Wednesday as the reversal in sentiment hit again. banked small gain and now look for the next opportunity. Yields are falling in response to Yellen and disbelief the Fed will follow through on hiking rates near term.

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.¬†Sellers step in on Wednesday… watch and mange the downside risk. Not much better on Thursday and managing our stops or exit points if this doesn’t improve.¬†

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. Holding near the highs on Thursday.¬†

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. Able to overcome the negative sales reports for June and has continued higher with a breakout move on Thursday? Take what it gives and follow the discipline of the trade. ¬†

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