Research Notes for June 24th

MARKET OUTLOOK: 

As I stated in the last couple of posts the Greece deal was rumor not done. The IMF released today they disagreed with Greece’s proposal on the corporate tax, VAT and pensions. With that list I am not sure there was anything left to agree upon. I am not going to say I told you so, but the relationship between the parties involved is anything but congenial. It doesn’t help that the IMF gave plenty of leeway to the Ukraine loans as they don’t want Russia to take over the country. But, they are willing to let Russia loan Greece money? Needless to say this is getting ugly and the default word for Greece looms larger each day. This could play into the market today.

Housing is picking up again as the data shows better strength and that is lifting the homebuilders (XHB) and other sectors related. The consumer isn’t dead yet as sales rise 2.2% in May!

Treasury bonds are rising in front of the Fed with the 10-year bond now above 2.4%. If the Fed sticks with the hikes before year end (confirmed that was the goal again Tuesday.) we could see the yields rise close to 2.7% on the hikes. TBT has been playing out nicely again this week.

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. 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 and Tuesday as it move back to the 200 DMA.
  2. Crude oil is a wedge pattern on UWTI. $3.80 entry is attractive at this point. This would validate the break in crude prices to new high. There are supply and demand issues to deal with relative to the US production and Iran coming back on line from the lifted sanctions.
  3. Japan (EWJ) bouncing back to the top side of the trading range as a upside trade could develop. $13.35 entry. Be patient.
  4. India (INDL) Bottom reversal followed through and at the $21.25 resistance. Break higher offers upside trade on a breakout move.
  5. Regional Banks (KRE) breaking to new high and remains a positive for the financials sector overall.
  6. Energy (XLE) is attempting a bottom reversal again as crude finds a way to the upside? Be patient and let this unfold.
  7. NetFlix (NFLX) announced 7 for 1 stock split and it has positive influence on the stock. The upside could continue for the stock based on the bottom line story.

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 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. Financials, healthcare, consumer discretionary and Telecom are leading currently and keeping the upside opportunity open near term.

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) Made the move above the $126.53 level to add a position in the index. The index moved above the $123.75 level to hold support and the uptrend. Stop $123.60. The market likes the leadership from this sector. Watching to see if gains momentum on the move.

Volatility Index (VIX) Closed at 12.2 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.¬†Base has develop in the current range and still needs to find some help to clear the $153.25 mark and then it is of interest to trade short term.

Dollar (UUP) The¬†dollar sold lower on the FOMC announcement, but bounced today on the data and confidence in the Fed. The $24.88 level of support¬†broke on Wednesday with $24.48 next level held, with the bounce back above the $24.88 mark. News is driving and not willing to trade emotions for now. Dollar index (DXY) held¬†support at the¬†93.25 key level¬†and bounced back to the 95.37 mark on Tuesday… dollar rallies.

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. $61.61 is top side of the range.

SECTOR STORIES: 

Treasury bond (TLT) bounced off the low, stalled at the $118.60 resistance, and now reversed back to test the previous lows at $115.50. The FOMC meeting shed some light on the Fed’s intentions to hike rates prior to year end. This has been a delayed reaction to the Fed on the renewed selling, but it is selling lower nonetheless.¬†TBT hit entry at the $50.25 mark, stop $48.75.

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.

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.

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. Hit the entry level on Tuesday.

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 as the M&A activity was higher. 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 and moving higher. 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.

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 and Tuesday 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 over the last week. 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 and sold lower¬†next day… speculation at it’s best… upside slowly in play.

  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.