Research Notes for June 9th

MARKET OUTLOOK: 

We start the week on a negative note with the major indexes testing lower again. The Dow breaks support along with the NASDAQ showing some signs of the sellers gaining control. The S&P 500 index is holding up okay along with the Russell 2000 small cap index. Sentiment is shifting little by little to the downside, but there is still plenty of work to be done near term to decide on the direction going forward.

No changes in the Greece vs the EU fight over lending… Greece exits the EU is the odds on favorite. This will have some impact if or when it happens.

Federal Reserve is feeling the pressure to raise interest rates on the October timeline and bonds are pricing in the event. Interest sensitive assets remain under pressure short term. IYR, TLT, BND, TLT and XLU are being watched as this unfolds near term.

Dollar dropped as the consensus is the buck is overvalued on speculation. Still have to watch how it plays out going forward.

News and headlines continue to be the driving factor for stocks and the balance of the investment markets. Caution is the word of the day and know where your exits are is the pending action item we have to follow.

If you trade or invest in these events approach them with a defined strategy and risk management process. Don’t assume anything and always understand where you stand relative to an exit plan… See you next tomorrow!

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

  1. Semiconductors (SOXX) have managed to give back all the gains from the break above the $97.50 mark. They proceeded to move below that level on Monday with $95.15 the next level of support to watch.
  2. Small Cap (IWM) the index is holding up well to this point and it is the one sector that offers a glimpse of hope on the upside short term.¬†Holding the trend for now. Watch….
  3. Retail (XRT) moved lower and holding above key support levels offers some upside possibilities with a follow through. $100.25 entry point for trade higher.
  4. 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 ($48.70) and looking for direction on direction.
  5. Japan (EWJ) has established a trading range of consolidation and is moving back near the lows of the range. Watching how this unfolds short term. EWV at 47.05 entry? Hit the entry over the weekend.
  6. Healthcare (XLV) remains a sector in a trading range, but the parts are interesting.
    1. 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. Entry $125.50.
    2. 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, added Friday $366.50. Stop $355.
  7. Transportation (IYT) is attempting a bottom reversal and scanning the index shows stocks like JBHT, MATX, FDX, JBLU and LSTR leading the move. Watching for opportunity to unfold in sector or stocks. Selling was back on Monday and looking at options in the sector.
  8. Banks are moving higher and we own KRE as position… the individual stocks are moving obviously and Bank of America hit an entry on break above $17 on Friday. Watching this to see what opportunities is produces short term. Scanning the ETF gives you more opportunities to look at as well.
  9.  China (FXI) testing support, but individual stocks are moving again. WUBA, SFUN, JD, SOHU, etc. digging for the opportunities within the country.
  10. Gold miners (GDX) they broke lower on the price of gold drifting lower. DUST cleared the $15.20 entry and watching today to see how it unfolds.

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) index isn’t acting well based on the current indecision from investors. The break of the 50 DMA confirms in trading Monday. The next level of support near the $207.50 mark.¬†Keep your stop on positions at the $204.50 level. The trends are still intact on the upside, but they are being tested near term.¬†Don’t rush to any conclusions on the downside yet, let it play out.

NASDAQ 100 Index (QQQ) broke¬†the $109 support¬†and the April trendline short term.¬†Our stop remains at $104.40 on short term positions (3-9 month horizon).¬†The SOX was the weak link along with technology overall. XLK moved¬†to the $42.40 support on Monday… watching to see how it plays out.

Russell 2000 Index (IWM) The index moved back above¬†the¬†$123.75 level. The¬†stop at $122.50 on trades (0-13 week)¬†holding. Nice gain on Friday as index bucks the selling in other indexes. Don’t assume anything as this unfolds… expect volatility short term. Monday held the short term¬†support and looking for the upside to continue.

Volatility Index (VIX) Closed at 15.2 with divergence between the volatility lower and the index higher? That is truly a great picture of what is going on the broader markets. Sellers fighting it out with buyers on direction, but the VIX shows no anxiety in the process even when the index moves lower on the day. Watching to see how this unfolds. Close above the 15.3 mark would be of interest relative to the downside in stocks.

Transportation (IYT) Broke support but has created a potential bottom reversal the last week. Oops… that failed with a test of the low again on Monday. 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. Trucking is leading the bounce and one sector to watch.

Dollar (UUP) Oops… the dollar gets a thump in the head again as things were turning normal. The $24.88 level is next for support to hold. News is driving and not willing to trade emotions for now.

Crude Oil (OIL) Tested support again at $56.75 and bounced. The close of $58.26 is positive with holding above bottom of the range. News driven on OPEC, supply, demand, rig counts, etc. etc. It is a moving target and not one worth aiming at currently. Energy stocks broke support and are in position to test the March lows. This shows investors sentiment towards the price of crude near term.

SECTOR STORIES: 

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 $18.80.

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 downside trade opportunity. In a four week trading range near support… watching for the opportunity if it develops.

Internet (FDN)¬†tech moving and internet is part of the move higher. Breakout at 67.70. Hit entry and the stop is at $66.75 and 50 DMA.¬†Tested lower with tech selling on Monday… watch how this starts trading on Tuesday.

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. The stop should be $30.57 on move higher in EDZ.

Regional Banks (KRE) – breaking 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… questions answered for now on upside direction.¬†$41.75 is the stop. Manage the move accordingly.

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. Watching the near term opportunity.

  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 $30.60.

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¬†Thursday, didn’t happen, test lower for now. 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. 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. Tested $24.50 support again, but bounced on Friday with banks leading he way.

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) – The sector hit the stop on Monday and failed to materialize on the upside opportunity. Still watching, but would have to validate the upside turn should it materialize. Trading range and downtrend off the February high are the key issues for entry. $55.50 exit point hit on Monday.

  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 $90.40.

Dow Jones Industrial Average (DIA) selling returned to the index and broke $179.75 support offering trade on the short side with SDOW. $18.60 entry on the leveraged ETF and stop at $18.80 Adjust and locks in a profit on the trade. Aggressive short trade, but the set up was the way I like to see when adding a short play.

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