Research Notes for July 7th

MARKET OUTLOOK: 

Greek worries rock investors one more time. This continues to play out in the media with the same result… no votes, no to aide, no to keeping the euro in Greece based on what we saw today. This is putting the worry back into the global markets relative to the ripple effect to other EU based countries. Watching how it unfolds going forward, but not holding out much hope on Greece.

It’s the economy stupid? Clinton won the election on that theme… can the markets find solace in the same? Just when the rumors of the US economy picking up are almost believable for investors the global markets take the spot light sparking¬†worries that keep every thing in check. Still plenty on the docket for news relative to the US economic picture along with earnings. Taking it one day at a time for now.

Earnings? Yes, this is a big question mark for the broad markets. The outlook is for slower growth again in the overall numbers. But, if they are better than first quarter investors are likely to react positive. This will be a catalyst for the market going forward and the news will matter overall. Watch the reaction as the data is posted.

Bottom line is the uncertainty remains in the market overall. Almost like in¬†Boolean logic… IF this, Then that or IF that, Then this type scenario. With that in mind we look at the short side opportunities as they setup and the upside opportunities if everyone returns to positive. For now it is a flip of the coin¬†with the sellers winning on Monday.¬†We remain cautious and willing to wait as it all unfolds. One day at a time.

Have a great day.

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

  1. Volatility index (VXX) entry at $20.65 if the upside continues to accelerate. Watching how the volatility reacts as today unfolds. this is high risk trade and need to manage the risk of the trade.
  2. Small Cap (IWM) sitting on support and a break lower put the short trade on the table. TZA at the $9.85 mark for entry and $9.65 stop. Aggressive trade on the leverage short.
  3. Crude falling 7% on Monday was of interest as we own the position. Now looking at how this unfolds today. A bounce off the next support level will be the exit signal for the short trade and we will manage it from there.
  4. Short China (YANG) and short Russia (RUSS) both made big moves on Monday. The moves is oil adding some pressure on Russia and the economic picture is hurting China… both are hurting the global markets. Emerging markets fell 2.8% on Monday as a result. The short emerging market trade continues to work well.
  5. Semiconductors (SOXX) downside continues and the short side trade is back in play with the break of the $92.25 mark and the 200 DMA. SOXL is the leveraged short trade with entry at $31.25.
  6. 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.
  7. 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.
  8. 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.
  9. Utilities (XLU) bounced off the $41.50 support and still looking for a reversal in the downtrend of the sector. Like the longer term view and dividend as this unfolds near term. Entry $42.30 if follows through on bounce.
  10. Euro (FXE) downtrend in the currency is attempting to reverse, but the issues with Greece have weighed on the euro. FXE is testing the short term uptrend off the March lows. A break lower brings the short ETF EUO into play. $25.20 is level I am watching currently as this unfolds.

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 to¬†the 200 DMA again.¬†Keep your stop on positions at the $204.50 level. Need of leadership has been the challenge facing the markets for awhile. Negative setup for the index to start the week, but we will see how it unfolds before jumping on the short side of any trades in the sector. SPXS if we break support? Yes, would be the answer…

NASDAQ 100 Index (QQQ) Still has a selling bias with the semiconductors leading the charge lower in the index. Greece gets credit, but the sellers have been looking for a catalyst on the downside and used the news. Our stop raised to $106.75 on short term positions (3-9 month horizon). The downside setup is reason for stop adjustment and willing to add QID if it follows through on move lower. Entry $35.45.

Russell 2000 Index (IWM) Moved below support, sold below the 50 DMA. Hit the¬†stop $123.60.¬†Still attempting to hold the uptrend, but not healthy. Watch as this unfolds. TZA is short side trade and $9.85 – $10 is entry watch. Hit the entry point early and closed at the breakout of TZA… still watching the downside risk.

Volatility Index (VIX) Only made it the high of 18.25 today and now watching how it all unfolds. Uncertainty about Europe is driving the move in the index. Negative outcome of vote in Greece push the index higher on Monday, but then it was uncertain on the move? Watching.

Transportation (IYT) Broke below the $148.50 support and the sector remains confused and lacks clarity. 50 DMA crossed below the 200 DMA as technical sell and it is still in play. The index is in a downtrend short term. Last week solidified the downside break and the short side in play. Bear flag pattern in place and would offer another short opportunity if clears below $144.70. Short in play.

Dollar (UUP) The¬†dollar sold below 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 last week¬†in response to Greece default. I still expect the dollar to move up, but the downtrend line off the March high is in play… watching. Not accelerating.

Crude Oil (OIL) So much for the trading range as oil drops more than 7% on Monday. $51.75 is the level of support to watch now. Supply/demand issues with Iran deal looking likely to be approved. That will put more oil on the market with the heightened levels of supply it only adds to the worries.

SECTOR STORIES: 

India – (PIN) country ETF in position to break through resistance after a major test lower. PIN entry $22. Stop $21.50. INDL is leveraged ETF choice with entry at $21.40. Stop at $19.80. PIN entry at $22 and watching how this unfolds going forward.

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. It is important to note the index is only 3.2% above the 340 DMA. Long term view of the chart is weakening. Hit entry Monday, stop at $18.25.

NASDAQ 100 index showing signs of weakness. QID or short NASDAQ ETF trade is setup on current selling in technology. Entry $34.80 (aggressive entry). Stop $34. Let this unfold  Monday as the Greece vote will have some impact. Hit entry Monday and managing the risk as we move forward.

Energy (XLE) is attempting ¬†to accelerate the downside move as crude sells lower. ERY is the short side trade for the sector which broke higher. $20.40 entry point as the ETF move higher on the decline in crude impacting the stocks further. Stop at the $20.40 mark. Nice¬†bounce with move higher and test of the short ETF. The downside pressure still on for now. Target at $23.50… we will look at taking some profit.

  1. Crude oil Рmoved 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. 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 the selling from Monday.

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 through also). The commodities finished higher on week 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. Bonds rally as yields fall on Monday — Greece worries again.

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 $19.10. Held $18 support and bounced nicely above resistance the last four days. $19.75 target on the upside move. Raise stop and look to take some off at the target.

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. 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 to end the week. Added again on the opportunity at the $90.50 entry point on a follow through on the reversal and holding the 50 DMA. Patience with the trade and stop at $87.

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.