Research Notes for June 23rd

MARKET OUTLOOK: 

The question from my view is, why get excited over a rumored deal with Greece and the EU? This has happened before, right? And nothing has been resolved yet. Why the hype? The issues that are keeping the agreement from being signed are Pensions and VAT tax. Based on the news today it didn’t sound as close as the headlines would want us to believe. Only time will tell and unfortunately for Greece time is coming to an end based on the ability to pay their bills. Today should shed more light on this topic, but I am not quite as optimistic as the media.

The test on Friday, turned higher Monday on the news around Greece. I was looking for an opportunity to buy on the test of the move higher, but there was little room for any entries based on the gap higher. Still watching and looking for the right opportunities.

Below I cover all the major indexes and what transpired of interest. 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. The offspring being volatility day to day driven by news. Use discipline as your friend in the management of your portfolio.

Have a great day.

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

  1. Big names (large caps) make a move finally on the upside and worth watching going forward.¬†The results of Friday and Monday have been let’s see how this unfolds in the coming days and what opportunities are presented.
  2. Emerging markets (EEM) attempting to build a bottom near the $39.60 level after a 10% decline on worries about the dollar. Yes, the dollar has been declining, but the fear of the Fed hiking rates later this year is playing havoc on the outlook for the sector as the dollar would rally in response to the Fed move. Bottom reversal is what to watch for now on the oversold technical conditions in the sector. Target on bounce $42. Entry at $40.15. Stop $39.80. Nice upside follow through on Monday.
  3. Treasury bond (TLT) bounced off the low and watching as it stalls at the $118.60 resistance. The FOMC meeting shed some light on the Fed’s intentions. but we have to watch how the bond responds. The reaction on Wednesday was more of it being priced in…¬†Thursday wasn’t that bad… considering the announcement. Friday showed fear of Greece with bounce back to $118.60 resistance.¬†Still in decision mode currently. Dumped on Monday as the confidence in the Fed returned to push the rates higher and bond prices lower. TBT hit entry at the $50.25 mark, stop $48.75.
  4. Vietnam (VNM) attempting a bottom and trend reversal. The ETF cleared the $17.90 mark to end the week and held the move on Friday. Entry $18 on move higher. Stop $17.70. Nice follow through on Monday.
  5. China (FXI) has been selling lower and broke support last week. It is now dealing with the $46.50 level. Question about the turn around in China’s economy is on the speculation table. Break of support could offer a short trade (FXP)… however, bottom reversal would confer with the speculation and money flow would rise in the country ETF if money flow shifts.¬†$48 entry is next level to watch on FXI.
  6. Consumer Staples (FXG) moved back to the top end of the trading range and is in position to break higher. A move through this resistance at the $45.45 mark would be of interest to develop on the upside. Hit entry $45.50, stop $44.90.
  7. Silver (SLV) has been attempting to make move higher, but has yet to find the catalyst or momentum to do so. Watching near term to see how it unfolds could offer a short term upside trade. $15.55 entry, stop $15.10.
  8. Euro (FXE) the upside pattern is at resistance again and the break higher is a nice trade setup. $112 entry. The story is easy to track with all the news on Greece. The euro may rally on the news as response to a decision. Leveraged trade is ULE.

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) Tested and held support of $207.50 mark and Thursday completed the follow through of the bottom reversal and move back above the $211.90. Managed to close almost exactly on that dollar amount.. Keep your stop on positions at the $204.50 level. The lack of leadership in the index remains a challenge. Without solid leadership this up and down sideways activity will continue. Healthcare and financials are trying, but nothing to write home about yet.

NASDAQ 100 Index (QQQ) Another bounce off support and moved back to the $109.10 level to clear on the upside.¬†Our stop remains at $104.40 on short term positions (3-9 month horizon). Large cap tech was the¬†reason for the uncertainty in the index and lately¬†they led it higher.¬†Watching for this to provide some leadership going forward if it fails… bad sign for the current bounce off support and resumption of the uptrend.

Russell 2000 Index (IWM) The index moved back and is holding above the $123.75 level. The stop at $122.50 on trades (0-13 week) holding. Made the move above the $126.53 level to add a position in the index. Stop $123.60. Small test on Friday, but the market likes the leadership from the sector? Watching to see if holds.

Volatility Index (VIX) Closed at 12.7 with the anxiety absent from view. There are still the day to day worries, but nothing sustainable from the group. SVXY trade still on with tight stop now on the bounce to $94.90. Stop moved to $93.

Transportation (IYT) Bounced off the $148.50 support again and looking for another attempt to establish the bottom near term. 50 DMA crossed below the 200 DMA as technical sell and it is still in play.¬†The index is in a downtrend¬†short term and looking at the sub-sectors we still don’t see any leadership. This remains a challenge for the broader indexes as negative indicator.

Dollar (UUP) The¬†dollar sold lower on the FOMC announcement? Yes, this is another indication that traders don’t believe the Fed will act before year end. ¬†The $24.88 level of support¬†broke on Wednesday with $24.48 next level held for now. News is driving and not willing to trade emotions for now. Dollar index (DXY) fell below the 94.70 level of support¬†with 93.25 the key level to watch going forward.

Crude Oil (OIL) Remains in the trading range and speculation is day to day on the commodity. Until it gains some clarity not willing to put money at risk. It remains a supply/demand story and nothing more from my view.

SECTOR STORIES: 

Homebuilders (ITB) double bottom consolidation pattern setting up to break higher on the momentum in the news behind the housing market. Nice move on Friday to break through resistance and hitting our $27.40 entry on the move. Stop $$26.50.

Healthcare (XLV) The sector has been in a consolidation pattern which we have tracked for the last five weeks. We finally hit the entry last week with the move above $75.50. Stop $73.50. Pharma and biotech are leading. IHF is also helping on the upside. Need the leadership from this sector is we are going to maintain a upward trend in the broader indexes.

  1. Pharma (XPH) confirmed the reversal off the May lows with break higher above $126. Sector is of interest looking longer term as a hold and manage the risk. Entry $125.50. Stop $$125.50.
  2. Biotech (IBB) attempting to move higher again with $367.80 resistance level to take out. Added a small position at $366.50. Stop $366.50. Nice follow through on the upside and breaking higher.

Retail (XRT) moved through the top side of the current trading range. We were looking for a move above the $100.25 resistance level for entry point to trade higher which did hold on Friday despite the selling. Stop $99.50 on trade. Some stocks from scanning the sector to watch DPLO (nice continuation of the break higher), JCP (posted the reversal bar and follow through), CONN (break higher and follow through), TGT (nice break higher and follow through), BKS (hitting new high near term), MW (upside continuation and follow through). Manage the stops on these stocks going forward.

Semiconductors (SOXX)¬†Tested $95.15 support, bounced, tested again and holding? This is the challenge for the NASDAQ currently. Within the sector we do see¬†some leaders emerge worth watching.¬†¬†QRVO (follow through upside), SIMO (back to the previous highs), AAOI (flag pattern). Others worth watching for bounce following the recent selling are FSL, NXPI, SWKS (positive move). Mixed bag… measure the risk and manage your stops. SOXX above $97.50 entry point. Stop at $95.

  1. FSL added $42. Stop $41. Semi stock moving from the consolidation and tested Friday.
  2. NXPI added $103.70. Stop $101.20. Semi stock moving off support and tested the move on Friday.
  3. SWKS added $107. Stop $106 (raise stop). Semi stock move off the test lower and clearing the resistance to new high.

Energy (XLE) the short side has set up and now is a good time to add to the positions on break from consolidation at the $19.20 level (ERY). Hit the entry point and watching how it unfolds. Stop $19.20. Small test last week, but still heading higher for now. The target of $20.75 short term. Sold on the bounce in the energy sector Monday.

Telelcom (IYZ)¬†telecom moved to support at the $29.70 mark. Bounce or break lower? The break lower takes out the trendline from the October ($28.65) low and offers a downside trade opportunity. In a four week trading range near support… watching for the opportunity if it develops. $30.40 is the level to clear on the upside to break higher. Closed above¬†the $30.40¬†entry. Stop $29.70.¬†Manage the risk accordingly.

Regional Banks (KRE) Рbroke 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. $42.85 is the stop. Speculation selling last week as doubts about the Fed crept into the sector. My view is fast money rotated to faster moving sectors. This left consolidation near the highs and now looking for the upside to resume. Monday validated that belief for now.

Software (IGV) leading sector for tech is testing support at the $100.50 level currently. Keeping the uptrend in play needs some help… manage positions. Selling is to be watched and stops in place at $100.¬†If the sector gets a positive pushes to new highs willing to add to the position. $102.65 added. Stop is $100. Small test on Friday.

  1. HACK – the software security stocks are running on the breach in government systems. Watching and letting it run for now. Don’t get greedy and ladder your stops on the upside move. Stop $32 adjusted higher.
  2. CYBR – added a position in the stock on the break higher $70.70 entry. Stop $67.75 to start the position.
  3. VDSI – added a position as well in the stock $31.45 entry. Stop $31.45.

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. Hasn’t played out according to plan… watching the stop and looking for upside to breakout.¬†Trend fundamentally on the consumer is flat and that is keeping things in check for now. $74.50 exit point on the downside. Nice upside move on Wednesday and follow through to new high on Thursday… tested on Friday. Not an easy sector to own, need to be patient even with the move higher.

Financials (XLF) This sector is all about Fed speculation. Will they raise interest rates¬†or not. Jobs report puts more pressure on the Fed to hike rates soon. This is one sector in favor of higher rates.¬†If that is true, we would want to hold long term positions… wide stops and ignore the volatility based on speculation¬†from analyst. Focus on what you believe. Stop $23.80. Rattled by the FOMC meeting, but still in play. Hit new high on Thursday¬†and sold lower on Friday… speculation at it’s best… up on Monday.

  1. BAC – Bank of America trade on the upside entry at $17 on confirmation of the reversal. This is one of the large cap banks and the upside opportunity is to $18.20. Stop raised to break even or $17.

Industrials (XLI) – The sector hit the stops and failed to materialize on the upside opportunity. Still watching, but would have to validate the upside turn should it materialize. $56.40 is level to watch on the move higher. Trading range and downtrend off the February high are the key issues for entry.

  1. Kansas City Southern (KSU) shows why the transports continue to struggle. Put in a low and¬†a reversal… looking for follow through and possible upside trade technically. bought the follow¬†through and $93.75 entry on the bounce. Stop $93.75.¬†based on activity moving our stop to break even and we will protect the capital as this unfolds near term.

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