Research Notes for July 2nd

MARKET OUTLOOK: 

New quarter and good news thus far from the ISM manufacturing and housing. The good news is it helped keep the markets on the upside following the three-ring-circus of Greece with the on again off again conversations on Wednesday. Today we end the week with the markets closed on Friday for the 4th of July holiday.

Some positive on Wednesday as discussed below along with some negatives, also discussed below. We have plenty of work to do and with the long weekend ahead not exactly motivated to add new positions on the day. But, we will take what the market gives and keep moving forward.

Below I cover all the major indexes and what transpired of interest from Wednesday’s trading. The leaders, the laggards and what we hold.¬†It¬†is imperative that we remember the overall theme of this market currently is a lack of clarity which leads to a lack of conviction and sometimes selling as seen on Monday. The offspring being volatility driven by news as seen in Greece. Use discipline as your friend in the management of¬†your¬†portfolio and remember that cash is a sector. It is more important to fight another today, than to die fighting the wrong battle.

Have a great day.

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

  1. Financials attempting to bounce off support and create a bottom reversal. FAS trade setup with entry at $32.80. Be patient and this validate a follow through on the reversal move from Wednesday.
  2. Technology (XLK) continues to struggle with the selling in the sector. Holding the 200 DMA and a reversal would be a plus on upside trade short term. TECL $36 entry for the trade. SOCL, HACK, SOXX, FDN, IGN, IGV are the parts.
  3. Silver (SLV) the short side of the trade has worked well since heading lower off the May highs. Holding above $110 offers some upside trade on short ETF still moving forward.
  4. Gold Miners (DUST) this has been an on again, off again trade. The short side is a trade again with the move above $18. Looking for entry on test of the move higher short term with target of $22.50.
  5. S&P 500 index (SPXS) short side trade if the sellers return to take control. $18.80 entry level to watch if the downside resumes following the modest bounce.
  6. China (FXP) short side of the country ETF is back in play with the downside confirmed on Friday. Trade in FXP or YANG. Upside continues in the short trade and stop at the $29.50 level.
  7. Semiconductors (SOXX) hit the short entry on break below the $95.15 support. $92.60 target on the downside and SOXS was the trade on the move lower. Stop at $93 if the support turns into a bounce off the current lows. Followed through and hit the target on Monday. Watch how it unfolds today and manage your stops.
  8. Treasury Bonds (TLT) big bounce on flight to safety trade against Greece news. I am more inclined to believe the downside returns for bonds after the fear subsides. TMV would be worth watching as this unfolds. $34.10 entry. Stop $33.
  9. Crude oil moved lower in response to the global fear of Greece and the EU. short side trade? Watching to see how this does with support  at the $58 level of support. Not yet with the commodity bouncing off support in the trading range. Setup for a short trade on the commodity with SCO entry at $61.50.
  10. Volatility index (VXX) jumped on the Greece news and hit the entry point Monday at the $18.55 mark. This can calm as quickly as it rises… set your stops and see how it unfolds. Put stop at $19.50 today. Hit Stop and looking at SVXY short trade if the volatility continues to drop today.

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) Greece pushes the index down 2.1% Monday closing¬†on the 200 DMA.¬†Keep your stop on positions at the $204.50 level.¬†Modest bounce on Tuesday and Wednesday, but the downside risk is still in play for the broad index. Need of leadership has been the challenge facing the markets for awhile. Consumer, healthcare and financials are looking the best currently, but they still need some upside help if we are going to recapture the upside trend. Clarity would help as well with the current outlook for stocks… Neither happening currently.

NASDAQ 100 Index (QQQ) Set the tone for the selling and semiconductors were the challenge for the index. The downside accelerated on Monday with the Greece issues and have still not bounced back. Our stop remains at $104.40 on short term positions (3-9 month horizon). Patience as this all unfolds. Holding above the $106.75 level for now and watching how it unfolds.

Russell 2000 Index (IWM) Moved below support, sold off 2.5% Monday and below the 50 DMA. Made a small move back above the 50 DMA, but the stall is due to a lack of clarity near term. The stop $123.60. Holding above the $123.75 support level and watching for now.

Volatility Index (VIX) Closed at 12.2 last Tuesday testing the previous lows, but bounced back to 14.4 on Friday and closed at 18.9 on Monday. The index dropped to 16.1 on Wednesday following some positive economic data and hope relative to Europe. That qualifies as volatility.  Looking at SVXY if the volatility resumes the trek lower again. $85 entry is level to watch today.

Transportation (IYT) Broke below the $148.50 support last week and tested moving higher. The sector is confused and the lack of clarity is still causing downside pressure despite any attempts to bounce. Got the downside confirmation. 50 DMA crossed below the 200 DMA as technical sell and it is still in play. The index is in a downtrend short term. Monday solidified the downside break losing 2%. Short side in play. Bounce attempt was not successful the last two days.

Dollar (UUP) The¬†dollar sold dollar is holding near the $24.88 support and volatility remains on the uncertainty in the EU with Greece. Dollar index (DXY) held¬†support at the¬†93.25 key level¬†and bounced back on dollar rally… too many moving parts, but the buck did bounce higher Wednesday in response to Greece default.

Crude Oil (OIL) Remains in the trading range and speculation is day to day on the commodity. Wednesday’s supply data pushed the price down 4.5% and testing the May low at the bottom of the range. It remains a supply/demand story and nothing more from my view as seen on Wednesday. $61.61 is top side of the range. Closed Friday at $59.81 and Wednesday¬†at $56.96…¬†Short trade setup if moves lower.

SECTOR STORIES: 

Energy (XLE) is attempting  to accelerate the downside move as crude tests lower. ERY is the short side trade for the sector which broke higher on Friday. $20.40 entry point as the ETF move higher on the decline in crude impacting the stocks further. Stop at the $20 mark. Modest bounce withe move higher in crude prices. downside pressure still on for now. Stop would be move above the $76 mark on XLE.

Agriculture (DBA) Moved back to the top end of the base trading range. $22.80 breakout is worth trading. Target on the move would be $23.65. Added the position and now looking at the trade square in the eyes. WEAT Рbroke from the consolidation at $11 to lead the sector. Nice follow through. SOYB Рmoving higher as well with an impressive move off the low (nice follow through as well). CORN Рbroke from consolidation as well (nice follow thorugh also). The commodities finished higher on Tuesday again.

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. That is the current transition in place and the downtrend off the February high is well established currently. TBT hit entry at the $50.25 mark, stop $48.75. Yields resume rise and bonds decline benefiting the short position.

Vietnam (VNM) attempting a bottom and trend reversal. (technical setup only as the emerging markets are under selling pressure short term.)  The ETF cleared the $17.90 mark to end the week and held the move. Entry $18 on move higher. Stop $17.70. Held $18 support and bounced nicely above resistance the last three days. $19.75 target on the upside move.

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 still play based on the data as it will get priced in as the negative sentiment subsides.

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. Down 2.4% on market news Monday… monitoring the options for what course of action to take. Still holding as the support levels hold. XPH, IBB, IHF, IHI are the parts to watch for leadership.

Biotech (BIB) bounced back from the selling on Monday. Watching for opportunity at the $90.50 entry point on a follow through on the reversal and holding the 50 DMA.

Regional Banks (KRE) – broke higher from the trading range short term and this time nice follow through.¬†After a small test back towards the $41.85 entry hit¬†and the upside was in favor of rates moving higher. $43.75 is the stop. Selling on Monday with Greece issues and bounce failed to hold on Tuesday… Wednesday provided some upside, but still plenty of work to be done.

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.¬†Tested the bottom end of the range on the Greece drama, but has bounced off the lows. Patience.

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