Research Notes for May 12th

MARKET STORIES:

Markets drift lower on Monday as the uncertainty about the outlook returns. Higher interest rates are sparking renewed concerns about growth overall in the economy. Without clarity in direction and forecasts it permits speculation and news to drive the course from a micro and day-to-day perspective. Dig for the real opportunities and stay out the speculation business.

The reversal from Friday held on for the day, but the futures aren’t looking optimistic as I post this on Tuesday… Patience as this two month sideways hell continues. The indexes have made another run at the previous highs and stalled at least for now. Even if it breaks higher the follow through will be equally important. Markets will do what they want despite our thoughts… thus, follow the trends and take what it offers.

Some sector patterns in position to break higher. SOXX, IWM, IGV, IBB, XLF, KRE. If they break free with some conviction/volume it will add strength to the overall market moves.

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

  1. Natural Gas (UNG) bottom reversal still in play with $14.50 next resistance level to face. UGAZ is leveraged version of the trade.
  2. Crude Oil (UCO) hit a high of $62.83 last week and closed at $59.17 today as investors continue to question upside versus supply worries. Watch the trendline off the March low and $57.85 as support.
  3. Treasury Yields (TYX) thirty-year bond jumped to 3.03% Monday to start the week. Shorts (TBT) remain in play and managing the stops. The belief is on relative to the Fed hiking interest rates before year end.
  4. Software (IGV) leading tech. Watch the micro term pattern setups. Breakout for the sector tested and now looking to hold the move above the $100 level.¬†Keeping the uptrend in play… manage positions.
  5. Semiconductors (SOXX) bounced off the low and back towards the top end of the range. $95.50 level for entry, but need to see some buyers show up first. SOXL leveraged upside trade.
  6. Base Metals (DBB) Hit stops. But, worth watching short term to see where support sets up camp. Watching SCHN, AKS, and FCX, SID testing the moves higher.
  7. NFLX broke above resistance and was the leaders for the NASDAQ 100 index on Monday… watch for test and opportunity.
  8. SRS – short real estate (REITs) bounced off $12 support and moving higher as interest rate spike on the upside again. $12.70 trade entry.
  9. XME – metals and mining are in solid uptrend off the March low and progressing towards resistance at the $29.85 mark.
  10. KRE – regional banks on the verge of breaking higher from the trading range short term. $41.85 entry level.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) index¬†remains in the trading range and to this point no real damage has been done.¬†The noise is louder than the activity for the index. All the sectors traded higher tested again on Monday with no follow through upside breakout…¬†Patience as we continue to look¬†for a follow through. Short term position stops remain $204.40.

NASDAQ 100 Index (QQQ) stays below the $109 level and fails to find the break through momentum. Patience and stops at $104.40 on short term positions.

Russell 2000 Index (IWM) The index broke¬†below $121.20, tested and fails to make any advance. October trendline is broken on the downside. Watch and see how this unfolds… bounce and/or reversal could produce an opportunity… downside below $118.80 is short look. $123.75 on upside.

Volatility Index (VIX)¬†so much for the worry… dropped to 13 again on the jobs report Friday and all is good. ūüôā Monday bounced to 13.8… but, still little worries for now. Move back above the 15 mark makes it interesting.

Transportation (IYT) Transports need to move higher if the broader index is to sustain a move on the upside.¬†They have now established the $154 –¬†$157.50 range currently.¬†At the top end of the range for now? Break higher would be of interest.

Dollar (UUP) is shifting gears on the downside with the break of support and modest recovery. Why the shift in sentiment? Speculation about the global economies looking better than the US. Watch as downside still micro trend.

Crude Oil (OIL) moving higher with some testing near the highs. Held the $12.10 support and looking for the upside to continue. Trading positions only as the supply/demand issues remain.

SECTORS OF INTEREST: (IN PLAY) Manage the Risk.

Consumer Discretionary (XLY)  Need to hold support at the $74.50 level if the upside has a chance of keeping the trend moving higher. Consumer is not spending and it is showing in the retail data (April report is out on Wednesday and will help the clarity near term). Clear $77 on the upside may add to the position.

Financials (XLF) interest rates are climbing and that offers some interest in the sector. Manage the risk and look to add to the positions going forward. $27.80 level of interest for entry. FAS is leveraged ETF.

Healthcare (XLV) РFound support at the $71.25 mark and continuing to bounce around. Some negatives from all the sub-sectors as well. Cleared $73.25 resistance and watching for possible addition to positions.

Russia (RSX) Broke higher and settled into to modest upside pace for now. $18.75 support. $18.70 stop. Patience and what how it unfolds.

Bonds¬†(TLT)¬†broke support at¬†$129.20 and triggered the exit. The downside play is still in place and the test of the low on Monday. Fed is back in the trade.¬†TBF, TBT or TMV are now is play… Choose the level of leverage you want. Manage risk of the trade as yields are rising above¬†the 3% mark on the 30 year bond.

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

Unfolding Stories in Sectors Currently:

Energy (XLE) hit stops and bounced back… sold off… confusion and speculation at its best. Broke the $80.50 mark¬†on downside again? Let the direction define itself.

Emerging Markets (EEM) Topping and broke support of $42.50 as sector gives way as selling. Attempted to reverse the selling on Friday and now stands at the $42.50 support again? Watch and see how it unfolds.

Retail (XRT) – the consolidation at the highs showed¬†some weakness and¬†it broke support ($100.25).¬†Data isn’t helping, revenue, earnings, you name it has not helped build confidence in the consumer.¬†Could set up reversal back to the upside or short trade on break of $96.50 level. Bounced Friday and now…. decision time.

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.) Trading near that level currently.

Semiconductors (SOXX) this is still messy charts, but turning into a trading range and looking for the break higher if the trend is to resume. It would take a move below the $92.50 level to gain my interest to short the sector.

Sectors that remain of interest… FXI, DBB, GLD, IWM… Despite the volatility and renewed uncertainty facing these sectors we continue to track the activity.