Research Notes for June 4th

MARKET STORIES:

Small caps rise 1%, oil falls 3%, interest on the 10-year bond rises to 2.36%, utilities fall 1.5%, and VIX index recedes to 13.6. I would conclude that the market remains mixed and remains in a state of confusion. The headlines however, sound optimistic. There are times when you just have to sit back and let it all unfold one day at a time as the trend presents itself. The EAFE index (EFA) rose along with Europe (IEV) leading the way as Draghi and the ECB leave rates unchanged and boast of the turn around in Europe. The negotiations with the ECB and Greece continue to be on going with a promise each day of a settlement. None yet by the way. Still issues to be dealt with and challenges on the horizon.

I am looking for the clarity that will give investors some conviction as it pertains to the buy side. Even if it is the sell side the need to determine what the data means and how it will unfold going forward will give investors some peace of mind. Stay focused and disciplined in how you approach this market environment.

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

  1. Regional Banks (KBE) nice break higher finally and looking for a follow through on the move. I would dig into the ETF to find stock opportunities with the leaders.
  2. Small Cap (IWM) nice move back to the previous highs and follow through is worth looking to add a position… again.
  3. 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.
  4. Greece (GREK) at resistance and in position to break higher. How the negotiations play out with the ECB will have a baring on the move to break higher or test lower. Patience for now.
  5. Retail (XRT) moved above $99.75 resistance and offers some upside possibilities with a follow through.
  6. China (FXI) is back in the headlines relative to the US. The banter over nothing continues, but there is plenty of speculation… the outlook for further stimulus on the way has all eyes are on the buy side?¬†Still testing support at this point and looking for direction on direction.
  7. Japan (EWJ) has established a technical wedge of consolidation near the highs. The break higher would be a positive short term for the country ETF. Watching how this unfolds short term.
  8. Kansas City Southern (KSU) shows why the transports continue to struggle. Put in a low on Friday with a reversal¬†Monday… looking for follow through and possible upside trade technically. Tuesday follow through and $93.75 entry was hit as opportunity in the bounce.
  9. Dow (DIA) remains under pressure from the sellers. A break below the 50 DMA would be the point to watch for a downside trade setup for the index. SDOW is the leveraged short ETF and would offer a higher risk offering. Watching to see how it unfolds.
  10. Healthcare (XLV) remains a positive sector overall and hitting against resistance short term. The providers (IHF) broke higher on Friday and testing the move this week. Pharma (XPH) starting to confirm the reversal off the May lows. Sector is of interest looking longer term as a hold and manage the risk.
  11. Biotech (IBB) attempting to move higher again with $366 level of resistance level to take out. Use that as level of entry for s short term trade on the break higher. Large cap ETF XBI moved above resistance on Friday at the $237 mark and held on Monday. Watch the upside trade on the follow through. Large cap leading the sector.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) index isn’t acting well based on the current indecision from investors. The 10 DMA has formed a resistance over the index the last five days. Closed at the¬†$211.90 mark again as we continue to watch¬†how this unfolds near term. Keep your stop on positions at the $204.50 level. The trends are still intact on the upside.¬†Don’t rush to any conclusions on the downside yet, let it play out. Patience is ugly thing, but it is usually the right thing.

NASDAQ 100 Index (QQQ) held above the $109 support, but the downside risk is being tested intraday. Uptrend is being tested off the March low, but remains in place and we keep stops at $104.40 on short term positions (3-9 month horizon). Trust the trend until it breaks for now.

Russell 2000 Index (IWM) The index moved back above¬†the¬†$123.75 move. The¬†stop at $122.50 on trades (0-13 week)¬†holding. Nice gain on Wednesday to push back towards the previous high. October trendline not recovered and still watching. Don’t assume anything as this unfolds… expect volatility short term.

Volatility Index (VIX) Closed at 13.6 with buyers stepping in and holding the index down throughout the day. No anxiety in play for now, however the intraday movement in stocks is showing the lack of trust or traders activity due to the indecision. Watching to see how this unfolds.

Transportation (IYT) Broke support and continued¬†lower last week.¬†The bounce on Monday brought the question of a reversal on the selling… and for now that is unfolding with a solid gain on Wednesday. 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¬†Dow Theory says this is negative for stocks going forward… Words to watch.

Dollar (UUP) Oops… the dollar gets a thump in the head again as things a looking good in Europe… according the ECB. The $24.88 level is next for support to hold. The rumor of Greece working out a deal again helped the euro on the day. I am still not convinced the deal is done. Watching the dollar as this unfolds on the downside.

Crude Oil (OIL)¬†Big bounce on Friday to recover from the selling and closed at a new near term high of¬†$61.26. The upside didn’t last long as we have now receded to the $59.64 mark and still trading in the previous range.

SECTOR STORIES: 

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 low and offers a short side trade opportunity. Took the entry near $30.20 on move through resistance.

Internet (FDN) tech moving and internet is part of the move higher. Breakout at 67.70. Hit entry and stop at $66.75. Following through short term on the upside for the sector.

Emerging markets¬†(EEM) breaking lower opens short trade opportunity if you are willing to take the risk. EDZ is the ETF on short side with 3 times leverage… you can adjust your trade size to account for the leverage and allow for more volatility in the trade. Entry hit at $29.60. sector found some support on Tuesday and stop should be $28.90.

Regional Banks (KRE) – breaking higher from the trading range short term again. After a small test back towards the $41.85 entry hit¬†and the upside was in favor of rates moving higher… questions answered for now on upside direction.¬†$40.70 is the stop… Still not a picture of¬†strength short term, but we will let it play out. Too much noise, but still place to be longer term view. Nice bounce on Tuesday and Wednesday back to the previous highs.

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. Nice bounce for the day… Watching the near term opportunity.

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. That happened on Wednesday and looking for follow through today. May report showed slight move higher, but nothing great. Trend fundamentally on the consumer is flat and that is keeping things in check for now. $74.50 exit point on the downside.

Financials (XLF) This sector is all about Fed speculation. Will they raise interest rates¬†or not. Manage the risk and look to see how this plays out near term. 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. Testing $24.50 support again. Nice bounce on Wednesday.

Healthcare (XLV) РFound support at the $71.25 mark and reversed and headed towards a new high as the confidence returned to the sector. Short term $74 level to watch for support or move above the $75.25 level of resistance. Stop $73.50.

Industrials (XLI) – if (and that is a big if) the global economies continue to recover and growth takes root… industrial stocks should rise from the dead. This story will take time to validate, but it is one worth our attention as we move forward.¬†Trading range and downtrend off the February high are the key issues for entry. ($56.80 level to watch.) Hit the entry point with move higher… still plenty of long term opportunity. Stop $55.20. Big negative day on Friday moving below the 50 DMA… honor the stops if the downside follows through.

Semiconductors (SOXX) this was one messy chart, but it developed into a trading range and broke higher ($96 for entry hit). The follow through last week was a positive and it has established itself as one of the leaders near term. That said, the last two days have tested lower and the stop is $98.85 currently and we will honor that level if hit. Manage the risk of the volatility in the markets accordingly.

  1. INTC – $33.50 entry on breakout for the stock and willing to add again for the upside move. This is one of the old leaders rising off the lows and the fundamental outlook is positive… Stop $32.50. Acquisition of Altera (ALTR) sent the stock lower… watching.
  2. NXPI Рnice move to break from the trading range (entry $104.50) and broke above the March high. looking for follow through and opportunity. stop $107.50. Tested on Wednesday and watching.

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