Research Notes for July 9th

MARKET OUTLOOK: 

NYSE closure topped the list of worries for investors on Wednesday. Let the speculation begin as to the cause of the crashed system resulting in a halt in trading. I am not going to get caught up in the debate, but will simply state it was not good for confidence, but it was not good for the selling currently in motion for the broad markets. Plenty to sort out and plenty to deal with as this all unfolds.

China has become an official distraction for the global markets tumbling anywhere from 25-50% depending on the index you are tracking. This is a full blown problem now with plenty of advise in the media on how to solve it and where to go from here. The challenge is nobody is listening and they will have to go through the strength and weaknesses of options and opportunities. The worst may not have been seen yet, but the downside trade is still the trend.

Bottom line is the uncertainty remains in the market overall. As I stated to start the week it is¬†like in¬†Boolean logic… IF this, Then that or IF that, Then this type scenario. Adding China to mix offers more variables in the outcome. 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. Wednesday tilted heavily towards the sellers and could have been enough to tip the scale short term. 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 (VIX) the index has picked up and the upside is in play. The challenge is it is pure emotions driving. China is the wildcard from my view. If it continues lower the pressure on the US markets will grow…. TVIX (aggressive trade) $10.65 entry. $10 stop.
  2. Russia (RUSS) the downside setup gapped higher on Wednesday clearing the $37.65 entry. Looking for test of the move to trade the upside in the short as oil prices continue to play havoc on Russia’s economic picture.
  3. S&P 500 index (SPXS) short side trade move through the entry point of $19.05 on Wednesday… looking for test and follow through on the move. Short setup is showing some momentum based on the activity Wednesday… perfect storm event on Wednesday.
  4. Financials (FAZ) short side of the trade setup, but reversed on Tuesday? Back on Wednesday with move above the $11.70 mark. Look for test and the downside acceleration or pass on the trade. Banks are still going to benefit from the hike in interest rates… thus, still watching for the reversal off the selling in KRE.
  5. 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. Tested support on Wednesday and no decision yet. SCO on downside trade. Entry $73.
  6. Technology (XLK) continues to struggle with the selling in the sector. Holding the 200 DMA¬†and reversal would open the upside trade. Added on the downside move Wednesday. TECL $34.25 was entry… Now watching break below the $33 mark to trade to the $30.50 mark.
  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. Nice move on Tuesday and follow through would give entry opportunity. $15.75 failed to hold on Wednesday watching how it unfolds.
  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. Held on Wednesday? $42.75 support.
  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…¬†sold back to the previous lows near $106. Break below $104.75 short trade sets up. QID $36 entry.

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) testing the $204.50 support level again as the selling resumed and erased the most of the 1.8% bounce intraday on Tuesday… It also erased any hope of the intraday reversal getting an upside follow through going as well. I feel better about the stops hit on Tuesday at the $204.50 mark with a return to that level on the day.¬†News is in control and I hate to chase news… let it unfold and sort itself out.

NASDAQ 100 Index (QQQ) Like the other indexes, move to the stop, $106.75 on short term positions. $105.75 level of support is in sight and what I am watching today. Downside is getting the upper hand… Manage the risk and look at the downside trade opportunity short term.

Russell 2000 Index (IWM) Moved below support, sold below the 50 DMA and hit the¬†stop $123.60 on Monday. $121.25 is next in line for support. Broke the short term up trendline… sellers are gaining control.

Volatility Index (VIX) made it to the high I was looking for on Monday near 19.5 and held today. NYSE was the catalyst, but the question we are left with is how does everything work today? Move above the 20 mark gets very interesting on the day. VXX is the trade.

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. Answer… yes thus far.

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. Tested lower on Wednesday and watching how it unfolds balance of the week.

Crude Oil (OIL)¬†So much for the trading range as oil drops more than 7% on Monday. $51.75 is the level of support and we closed¬†at the $51.82 mark testing the support level again. 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.¬†Technical data shows oversold… of interest going forward.

SECTOR STORIES: 

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. Tested on Wednesday.

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 moves Monday. Stop $29.75. Big move on Wednesday lower adjusted the stop.

China (YANG) Short China jumped 12.7% Tuesday entry at $87.25 watching with tight stop at $84 Tuesday. Gap up again and now watch to see if the buyers are anywhere to be found. Stop $96 on Wednesday move higher.

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. Hit entry and managing the risk of the trade.

India Р(PIN) country ETF in position to break through resistance after a major test lower. Hit stops and watching for recovery on the trend.

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. Nice move on Wednesday helps the short side trade.

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. Nice move higher on Wednesday.

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 Tuesday. Sell resumed on Wednesday… of course. Watch break of $72.50 as sign of trouble for the sector.

  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 remains same.

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 is driving money back towards the bonds and the upside is benefiting. Not a believer yet? Upside move give another entry opportunity on TBT… patience. $48 entry.

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. Stops hit and wee what unfolds now?

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.

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. Stops hit.

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 drama, but has bounced off the lows before. Patience.

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