Research Notes for June 25th

MARKET OUTLOOK: 

Greece remains the scapegoat for profit taking on Wednesday. When the fast money sees an opportunity to lock in gains they are not hesitant to do so… but, they do need a reason for doing it. After all, we wouldn’t want to believe that traders are controlling volatility and swings short term.

Lennar (LEN) kept the housing sectors momentum on the rise beating earning.¬†The results lifted the¬†homebuilders (XHB) early, but they ended the day near the break even as the selling widened on the Greece speculation. The consumer isn’t dead yet as sales rise 2.2% in May!

Overall negative day on Wednesday. Some damage done in the interest sensitive, large cap, small cap and software sectors. Watching to see how this unfolds today relative to the change is sentiment… does it turn negative or are we going to continue the optimism on the upside near term. This brings back the primary issue from my view… clarity. It is tough to maintain confidence or optimism when the news swings the indexes back and forth based on the direction of the wind.

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. 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. Hit some resistance at the $41 mark and need to follow through on the  upside.
  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. Faded on Wednesday, but still watching.
  3. Japan (EWJ) bouncing back to the top side of the trading range as a upside trade could develop. $13.35 entry. Be patient. Tested lower on Wednesday.
  4. India (INDL) Bottom reversal followed through and at the $21.25 resistance. Break higher offers upside trade on a breakout move. Tested on Wednesday.
  5. Energy (XLE) is attempting a bottom reversal again as crude finds a way to the upside? Be patient and let this unfold. tested lower on Wednesday.
  6. 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. Rallied big early on Wednesday, by the close was flat on the day… still looking at the split as opportunity.
  7. Google (GOOG) $337 support in play. Lower will test the previous support. Upside is the $543 level to break above. Either side could play out based on how the technology sector unfolds.
  8. REITs (IYR) the interest sensitive story has unfolded and the ETF fell 11.1 since the March highs. Time for a bounce? Interest rates have played havoc on the sector overall. I am looking for some indications of a low being established and a bounce to ensue. Patience as this unfolds.
  9. MLPs (AMLP) the sector has been hit by the declines in the oil and gas business as well as the interest sensitive sector hurting rising rates. Another sector to watch if support holds and some upside can sustain.
  10. MUB, XLU, PGX, HYG, LQD, BND, etc. all interest sensitive sectors that have experienced the downside and if the Fed acts and clarity is gained around this space… there will be opportunities going forward.

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) the move higher continues to be challenged by news. The move above the $211 mark give way again and we test the range. 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, but they have to follow through with more buyers. Still not a definitive direction for the broader index.

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. $109.10 back in play on the selling on Wednesday.

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.¬†Failed to keep the upside momentum on Wednesday… watching to see how this unfold today.

Volatility Index (VIX) Closed at 12.2 Tuesday testing the previous lows, but bounced back to 13.1 on Wednesday. I am not expecting much in terms of volatility based on where we are, what we believe and what is taking place currently. SVXY trade still on with tight stop now on the bounce. Stop moved to $95.03

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.¬†Base has develop in the current range and still needs to find some help to clear the $153.25 mark. Didn’t get any on Wednesday dropping 2.1% back to the bottom of the current trading range. A break puts the short terms back on the table. Rails and Trucking led the downside move.

Dollar (UUP) The¬†dollar sold lower on the FOMC announcement, but bounced on the data and confidence in the Fed. The $24.88 level of support¬†broke with $24.48 next level held. The bounce back above the $24.88 mark was prompted by the Greece issues. 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 on dollar rally… too many moving parts.

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. Closed down 1.2% on Wednesday at $60.26.

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.¬†Tested lower on Wednesday…

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. Tested lower on Wednesday.

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 and testing move.

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. Gave up the big gains from Lennar on Wednesday, but still positive upside in motion.

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. Testing on Wednesday. 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 $374. Nice follow through on the upside, but tested Wednesday.

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. Stop $99.50 on trade. Some stocks from scanning the sector to watch, JCP (posted the reversal bar and follow through), CONN (break higher and follow through), TGT (nice break higher and follow through), FTD (breaking from bottoming pattern), AN (in wedge consolidation pattern and attempting to push higher). 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. Negative move below the $97.5o mark on Wednesday.

  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. Test lower on Wednesday.

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 Wednesday.

  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. Negative downgrades in the sector pushing the stocks off their highs.
  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.

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