Research Notes for June 30th


The second quarter is coming to an end with a big bang from Greece and the EU. As stated last night the challenge that Greece presents to the markets is more uncertainty. Obviously we were already teetering on the brink and it push the volatility button to climb 37% on Monday. When you have events that investors cannot see clearly how it will play out speculation jumps in the drivers seat and off the market runs to downside. That was the case and point on Monday and now we have to see if it continues to sell lower or we find buyers to step into the infamous dip opportunity? Raising cash is more my focus versus speculating what will rise from the news.

Below I cover all the major indexes and what transpired of interest from Monday’s trading. 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. Throw in side order of Greece default and you have some excessive selling. The offspring being volatility driven by news. Use discipline as your friend in the management of¬†your¬†portfolio and remember that cash is a sector.

Have a great day.

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

  1. China (FXP) short side of the country ETF is back in play with the downside confirmed on Friday. FXI is holding at the $46.60 support level currently and a break would offer a trade in FXP or YANG. Continued lower on Monday and short trade panned out well.
  2. Agriculture (DBA) Moved back to the top end of the base trading range. $22.80 breakout is worth looking at going forward. Target on the move would be $23.65. WEAT – broke from the consolidation at $11 to lead the sector. SOYB – moving higher as well with an impressive move off the low. CORN – broke from consolidation as well. MOO – started to move in response, but still testing and looking for validation of the move higher in the sector. The commodities finished higher on Monday.
  3. Semiconductors (SOXX) hit the short entry on break below the $95.15 support. $92.60 target on the downside and SOXS is the trade on the move lower. Look for entry point… bounce in sector is the best action for adding the position on the short side. Followed through and hit the target on Monday. Watch how it unfolds today and manage your stops.
  4. REITs (DRV) short side of the trade is still in play and a continuation of the move is a move above $27.90. IYR continues to be under pressure from the rise in interest rates. The dividend assets are getting pushed down on the expectation of the Fed hiking rates near term. Continued lower on Monday, Adjust your stops.
  5. Treasury Bonds (TLT) big bounce on flight to safety trade against Greece news. I am more inclined to believe the downside returns for bonds after the fear subsides. TMV would be worth watching as this unfolds.
  6. 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.
  7. Energy (XLE) is attempting  to accelerate the downside move as crude tests lower. ERY is the short side trade for the sector which broke higher on Friday. $20.40 entry point as the ETF move higher on the decline in crude impacting the stocks further. Stop at the $20 mark.
  8. Volatility index (VXX) jumped on the Greece news and hit the entry point today at the $18.55 mark. This can calm as quickly as it rises… set your stops and see how it unfolds today.
  9. Dow Jones Average (DIA) the drop below the $17.700 mark on Monday left the downside in play. The break fo the 200 DMA and support opens a short opportunity for the index. DOG is the short ETF. $22.85 was entry point on the move. Trade only at this point driven by Greece and fear.
  10. Russia (RUSS) the short Russia trade is back. We discussed this last week, and now it has followed through with the drop in crude and worries in Greece. Trade only and manage the risk of the move.

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.


S&P 500 Index (SPY) Greece pushes the index down 2.1% Monday and closed on the 200 DMA. Keep your stop on positions at the $204.50 level. The lack of leadership in the index remains a challenge. But, more importantly the outside the US events are causing havoc with investors psyche and giving the sellers a reason to sell.

NASDAQ 100 Index (QQQ) Set the tone for the selling on Friday. Semiconductors were the challenge for the index, but that was compounded on Monday with the Greece issues. Our stop remains at $104.40 on short term positions (3-9 month horizon). Patience as this all unfolds.

Russell 2000 Index (IWM) Moved below support, sold off 2.5% and below the 50 DMA.¬†So much for the leadership… at least for the day.¬†The stop $123.60. We will see how it unfolds going forward.

Volatility Index (VIX) Closed at 12.2 last Tuesday testing the previous lows, but bounced back to 14.4 on Friday and closed at 18.9 on Monday. Now that is volatility.  We hit the post on the trade with VXX if moves above $17.95. We would now make that the stop if the move reverses today.

Transportation (IYT) Broke below the¬†$148.50 support on Thursday… tested it on Friday? The sector is confused and the lack of clarity is still causing downside pressure despite the move on Friday. Looking for downside confirmation. 50 DMA crossed below the 200 DMA as technical sell and it is still in play.¬†The index is in a downtrend¬†short term. Monday solidified the downside break losing 2%. Short side in play.

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 back in play on the move lower Monday. The dollar rallied last week on the Greece worries, but sells today on the Greece news? Go figure.¬†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 Friday at $59.81 and Monday at $58.26… going lower not higher near term.


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. TBT hit entry at the $50.25 mark, stop $48.75. Rally in the bond as yields fall on fear of Greece default. watching the outcome today.

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 on Friday. Entry $18 on move higher. Stop $17.70. Holding $18 support on Friday and bounced nicely on Monday.

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 on Monday, bad market… watch and manage with upside still play based on the data.

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 this week… IHF was the benefactor as the decision confirmed government payments to the providers. Best source of income available for the providers. Down 2.4% on market news Monday… monitoring the options for what course of action to take. Subsectors to watch:

  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 $123. ¬†dumped 2.2% Friday… watching the move lower. HIT STOPS

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.¬†Scan the sector and trade the parts… they offer better upside potential than the whole. Consumer sentiment positive on Friday with bump higher in May from the consumer. HIT STOP on Monday.

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. Hit new high and sold lower¬†next day… speculation at it’s best… More selling¬†and testing in the sector overall. Watch manage the risk. Willing to add on test of the $24.50 level of support. Hit Stop 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. Hit stop Monday.

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. $43.75 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. Selling on Monday with Greece issues.

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. Nice upside over the last week, but starting a smaller and tighter trading range at the new high? ¬†Now back at the bottom of the range with news from Greece? Still watching.

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