Research Notes for July 8th

MARKET OUTLOOK: 

Greek worries rock investors one more time. Throw in a twist from China dumping lower again and it made for the perfect morning on the downside. The buyers decided that was an opportunity stepped in and brought stocks back to the plus side by the end of the day. Just another day in a market driven by uncertainty.

As we look to a new day of trade we are looking for a follow through on the buying. If we get it the analyst will look at Tuesday as a intraday reversal or pivot point for more buyers to step in and take the markets higher. The good news is it will be just in time for the start of earnings… which could act as a catalyst on the upside for the broad markets.

Overnight all eyes were on China for more input relative to the selling. Falling more than 7% and FXI is now down more than 25% since April the correction is reaching an impact that is similar to that in the US markets after the financial crisis in 2007. Time will tell how this plays out, but for now the downside trades have worked well in YANG and/or FXP. Adjust your stops and manage the risk of the move lower. This move is starting to impact the US markets with futures off more than 1% at the posting of this update.

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 for the opportunities to unfold on either side. It remains¬†a flip of the coin¬†with the sellers winning on Monday and the buyers recovering on Tuesday.¬†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. 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. Traded up and then down… stop in play.
  2. Crude falling 7% on Monday was of interest as we own the position. Now looking at how this unfolds following the intraday reversal in the price on Tuesday. Left a doji for possible reversal and willing to see how it unfolds.
  3. Short China (YANG) jumped 12.7% and that was giving up 4% off the high. Gap up and now watch to see if the buyers are anywhere to be found. Stop $86.50 on YANG.
  4. 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 trade with entry at $31.25 if reversal holds.
  5. Technology (XLK) continues to struggle with the selling in the sector. Holding the 200 DMA and reversal would open the upside trade. Posted a doji on the close Tuesday and reversal would be positive.
  6. 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. $15.65 hold and entry.
  7. 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. Recovered some selling on Tuesday as start.
  8. 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. Nice upside and entry with stops at the $41.85 mark.
  9. 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. Hit entry, but watch the momentum efforts short term.
  10. NASDAQ 100 (QQQ) reversal above the $108.40 entry mark is worth the trade short term. Oversold, bounce off intraday low, bear flag and doji left on Tuesday… watching to see if it holds.

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 and dinged our stops at $204.50. That reversed and closed above the $208 mark. I know… why does it always seem to happen that way? Sometimes %&^* happens. $208.25 is level to clear on the reversal to be of interest on the upside. Don’t like chasing on news and willing to see how this unfolds today.

NASDAQ 100 Index (QQQ) Like the other indexes, move to the stop, $106.75 on short term positions, and bounced back to close at $107.97.  $108.50 is level to watch on the bounce for the reversal to have a chance going forward.

Russell 2000 Index (IWM) Moved below support, sold below the 50 DMA. Hit the stop $123.60 on Monday. Headed lower at the open Tuesday and reversed to close at $123.88. Watching for clues on how this will unfold.

Volatility Index (VIX) made it to the high I was looking for on Monday near 19.5, but failed to hold the anxiety and closed at 16.09 on Tuesday. Uncertainty about Europe is driving the move in the index. Buyers stepping in reversed the spike higher and for now the anxiety has dulled again.

Transportation (IYT) Broke below the $148.50 support and the sector remains confused and lacks clarity. Bear flag pattern setting up on the chart. 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. Last week solidified the downside break and the short side in play. Watching to see if the short side continues with move lower.

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 in response to Greece potential default. I still expect the dollar to move up, but the downtrend line off the March high is in play… watching. Not accelerating as resistance is in play.

Crude Oil (OIL) So much for the trading range as oil drops more than 7% on Monday. $51.75 is the level of support broken intraday on Tuesday, but managed to move higher with stocks in the afternoon closing at the $52.89 mark. 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. I am looking for a bounce back to the $57 range near term.

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. Tested the move on Tuesday… still good.

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. Reversal puts the stop in play.

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 $34.30. Let this unfold as Greece will have some impact. Hit entry Monday and managing the risk as we move forward. Tightened stop in light of the move on Tuesday afternoon.

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 $21.80 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. Took 1/2 off the table this morning at $23 and hit stop on the balance at the $21.80 mark as well.

  1. 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. 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. Sold half of position on Tuesday at the $70.30 mark (Monday’s high) on reversal of the intraday jump. Stop on balance in play.

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. Stop on 1/2 hit at the $23 mark on reversal Tuesday. Stop on balance is $22.85. Watching to see if the reversal plays out or not with tighter stops.

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.¬†Stops hit in TBT and looking at the move higher in bond as temporary.

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. Sold part at $19.10 Tuesday and looking to see how it unfolds Stop at $18.90 on balance.

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.

  1. IHF – tested support at the $138 mark on Tuesday and looking for a bounce back to the previous highs. Patience on the entry and management of the position.

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.