Research Notes for July 31st

MARKET OUTLOOK: 

Market sees the dollar move higher on the GDP data for Q2 post overall positive results. Helps the Fed’s story for moving interest rates higher. Despite that the bond rose as yields moved lower… Global money rotating into safety, at least that is the rumor. Based on what I see in China, Japan, India, emerging markets and Europe I would say there is justifiable cause for the rumor. Jobless claims fell and overall the economic data of late, with the exception of earnings, has pointed in the Fed’s direction for hiking rates. Nothing is done… until it is done.

Today we continue the search for the upside catalyst, but we¬†continue to¬†settle for the upside drift. Willing to add to the watch list the upside moves that make sense and willing to be patient and let it all unfold as well.¬†Some positive earnings reports after-hours point to potentially positive day to end the week… Remember not is for sure, let it all unfold and trade according to your disciplined habits.

NOTE: The following are things to watch and evaluate as we progress forward.

  1. Retail (XRT) was on our watch list, but it failed to hold the move and managed by week end to close at the key support levels near the $97 mark. The 200 DMA is just below at $96 and a break of these levels would bring out the short sellers for the sector. Watching how this unfolds to start the week. Break lower short trade is on. Bounce we watch to see if it can recover the upward trajectory. Broke support at the 2o0 DMA, but managed to reverse and close in positive territory.The climb above the $97.25 mark is a positive glimpse finally. If holds a move back to the $100.25 mark may offer a short term trade opportunity. $98.20 entry if you care.
  2. Financials (XLF) breaking lower as the banks continue to react negative to new regulations from the Federal Reserve on large banks and reserves. You have to love government regulations… they are good for two things… stopping growth and raising taxes. Both impact the markets. FAZ entry $10.65 if downside continues… that faded away with the move back to the upside. ¬†Got the upside follow through in financials and making progress back towards the $25.60 highs. Holding XLF below and looking at KRE again as opportunity $43.90 entry.¬†
  3. Biotech (IBB) Testing the $368 support level on the recent selling on earning guidance from BIIB. Looking for this to hold support and the upside to resume near term. $376.50 is level to watch for upside trade. Break of support would empower the short side BIS. No break, held support and put in nice upside gain on the day. Held the 50 DMA and watching how it plays out. Nice bounce on Thursday and looking at $382 entry. 
  4. Real Estate (IYR) REITs are moving off the low in June. Hit resistance at the 50 DMA and looking for the downtrend to break as well. That means catalyst to break through the resistance. Watching and looking for entry near the $74.75 level. Still need to push higher if the entry point is going to be established for the sector. Nice move on Wednesday and looking for the follow through today. 
  5. China (FXI) hit the stop on short side trade as bounce follows through on Wednesday. $41.50 entry point on FXI as possible relief bounce. Nice profit on the short trade and now we look for the next leg of this trade.¬†Sell side still a possibility… watching how it unfolds today.¬†
  6. Emerging Markets (EEM) relief bounce off the recent lows. Now we see if the upside has any strength or if this is just a dead cat bounce? Patience as this unfolds and the down trendline comes into play. stronger dollar invites the sellers back and test on the downside again. break of $36.35 entry for short trade again. EDZ leverage short. 
  7. Crude Oil (OIL) two day rally as the supply data shows bigger drop than expected. The volatility of the data of late is playing havoc on the price of crude. $9.60 entry price on possible upside trade. UCO $30.50 on leveraged trade. This is a high risk trade as the price of crude has not been able to establish any upside momentum the last month. Patience with the entry.¬†Some selling… watching how it unfolds from the bounce.¬†
  8. Energy Sector (XLE) is moving higher as the price of crude bounces again. Some ETFs to watch in conjunction to XLE is IEZ, FCG, XOP, OIL and TAN. This remains a volatile trading sector as the news is driving relative to supply and the outlook for demand.¬†Resistance $71.76. tested lower on crude moving down… watching.¬†
  9. Utilities (XLU) Not an exciting sector, but one that is paying a 3.7% dividend and offers some upside as all the noise around the dividend stocks subsides. The bounce and test off the low is now in position to offer some upside opportunities. Entry of $43.50 is attractive if the upside move continue to unfold. Hit the entry on Thursday and now we manage the risk of the move. 

MAJOR INDEX STORIES:

S&P 500 Index (SPY)¬†Stopped from positions last week and now watching how it unfolds near term. 200 DMA and $204.50 are the support levels to watch. Move back above the $208 mark is resistance. Uncertainty mixed with volatility… not good situation and it has resulted in a triple top currently on the index. Downside bias in play near term.¬†Nice bounce on Tuesday and Wednesday to keep the trading range in play. I am willing to wait this out for a direction that is tradable, too much chop for my taste currently.¬†No change on Thursday.¬†

NASDAQ 100 Index (QQQ) Negated the break to new high above the $111.12 level. In fact we closed at that level on Friday. How does this play out? Flip a coin as the lack of conviction continues to negate the upside movement and then the worries show up along with the sellers. Stops hit on positions and now watching to determine how this unfolds near term. Patience is the key. Held the¬†$109 support and on Tuesday back above $111 level… watching for the right opportunity with some follow through.¬†Held $111.10 and we took¬†a position in the index. Volume on the low side, but niece setup for the entry.¬†

Russell 2000 Index (IWM) Managed to bounce back above the $123.75, but failed to hold the move. The move on Friday confirmed the break below the $123.75 mark and now is testing the $121.25 support level. This is the next level of support and a move lower raises the short flag for investors. Hit the 200 DMA for support on Monday. Moved below it interday on Tuesday, but managed to move back above the $121.25 level as positive. Held above the $121.25 level on Thursday and eventually closed higher. Took for an upside trade to $126.50 may be in order short term. Watching how it holds up today. Stop $120.75. 

Volatility Index (VIX) made the move lower to¬†11.95 last Friday and this Friday is back to 14.6… reflecting the increased volatility in the market indexes.¬†I stated 12.8 was the upside entry for VXX and we hit that mark on Friday with an entry of $16.80. Watch the downside risk as the weekend can reverse negative momentum. Stop $17.15¬†adjusted for the move on Monday.¬†Hit stop on Tuesday.¬†Back to the lows on Wednesday benefiting the SVXY trade if you added. Quickly back to the overbought territory relative to the VIX. We will watch and see which trade offers the best side of the index.¬†

Transportation (IYT) Moved back to¬†the¬†$148.50 level, but can’t find any momentum above that level. 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. The break¬†above the resistance line at $148.50 failed to follow through on the upside and accelerated lower again to end the week at $144.34. Negative sign for the broad markets going forward.¬†All hail UPS! The beat on earnings fueled the sector to run back to the $148.50 resistance. This is a positive not just for the transports, but for the broad markets as well.¬†Solid follow through for IYT with Entry at $149.50. Keep it going transports!

Dollar (UUP) The¬†dollar technically is attempting to break from a double bottom pattern. It has stalled at the key resistance at the $$25.65 level. Euro (FXE) continues to struggle and the outlook remains weak currently… dollar strength is hurting the commodities overall.¬†Rally on the FOMC news and helped by Q2 GDP data.¬†

Crude Oil (OIL) Crude continues to move lower closing at¬†the $48 mark to end the week.¬†The break of support only added to the selling and now the next level¬†may well be the previous lows at the $43 level in March. Short side trade is still winning. We still own SCO from the trade posted several weeks ago. (see table)¬†Fell to support near the $47 mark on crude.¬†Did bounce Wednesday¬†as supply data dips more than expected. Hit stops and now looking for upside trade if it follows through.¬†Some selling Thursday… watching how it unfolds.¬†

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¬†added¬†positions. $24.70 entry.¬†Still challenged… Stop $24.70 on the positions.¬†Bounce followed through on the move Tuesday and Wednesday. Holding for now and will manage the trade.¬†

Treasury bond (TLT) The bond reversed off the low and cleared the $119 resistance and $120.50. The upside is fear driven… not enough fear to justify, but money has rotated nonetheless. I like the TBT (short trade still) play and we are watching for the entry to develop as the anxiety fades. Entry $46.60.¬†Added the trade on the move relative to the FOMC meeting and still looking for the rates to rise as we move towards the September FOMC meeting.¬†Bonds rally again… still watching with stops in place.¬†

Consumer Discretionary (XLY) ¬†Held support at the $74.50 level and keeping¬†the trend moving higher… break above $77 helped for the trend to continue upside move. Trend fundamentally on the consumer is flat and that is keeping things in check for now. $77 exit point raised stop.¬†Still plenty of work to do, but watching with suspect eye as the upside move failed to hold on Friday.¬†Recovered from the selling and moved back towards the previous highs. I like the current outlook for the sector near term.¬†Nice upside follow through on Thursday. Stop $45.50.

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