Research Notes for May 14th

MARKET STORIES:

Another¬†session of testing the move higher from last Friday. ¬†The positive start on Wednesday was erased by the sellers slowly taking money off the table. You have to wonder if the hedge funds are willing to unload their stock to those willing to buy the dips. Just saying/speculating? Either way the day was another one that accomplished little in terms of the chart and with technology and industrials leading in the green. Telecom gave back some of Tuesday’s gains, but it all settled out as a wash in the end.

The biggest issues this week¬†remains¬†the bond market. The higher yields rate of climb has pushed on the nerves causing worry in stocks. Rising rates is one thing the speed at which they move is another. I would love to see a test or pullback in the yields near term allowing some confidence to return to stocks. Volume acceleration in the short treasury bond ETFs is indicative of fast money rotating and jumping on the bandwagon… we have tightened our stops on the acceleration in short interest with TBT.

This is a market that needs some direction. Since the February rally off the 2000 level on the S&P 500 index the market has remained in a sideways trek and 70 point trading range. As they say… something has to give eventually. The longer this consolidates and the narrower the range the advantage goes to the sellers. They are not exactly the strength of direction either, but that may be more waiting than lack of speculating.

Some sector patterns remain 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. Futures are pointing higher as follow through to the bounce off the lows on Tuesday… Take what the market gives.

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 resistance level next to conquer. UGAZ is leveraged version of the trade.
  2. Crude Oil (UCO) hit a high of $62.83 last week and closed at $60.12 on Wednesday as investors continue to question upside versus supply worries. Watch the trendline off the March low and $57.85 as support. break above $62 keeps it interesting.
  3. Treasury Yields (TYX) thirty-year bond jumped to 3.071% Wednesday which rattled stocks as the yields reversed higher intraday. Shorts (TBT) remain in play and managing the stops as some attempt at bottoming may be in play. The belief/opinion is now that the Fed is 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. Scan for the leaders they are easy to spot.
  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. Moved higher early Wednesday, but not volume and close at $94.76 on the day. Scanning the sector for bottom reversals on the test shows some interesting stocks in nice patterns.
  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. Steel and copper leading.
  7. XME – metals and mining are in solid uptrend off the March low and progressing towards resistance at the $29.85 mark. Gold and silver leading the way currently, but the base metals are picking up as well.
  8. KRE – regional banks on the verge of breaking higher from the trading range short term. $41.85 entry level. Hit entry on Tuesday and I like the upside if rates hold the move higher. RF, KEY and HBAN look good.
  9. XRT – retail sales data out and below expectations. Watching how it impacts the sector. $95.60 key support level to hold and move back above the $100.25 level would be a plus. Not much reaction on Wednesday.
  10. GDX – gold miners made move through resistance and follow through on the upside would be of interest for short term trading opportunity. $20.30 level of entry¬†needs to hold. Gapped higher on Wednesday and held with GLD moving to top end of the range and adding 1.7% on the day. Looking for entry point on the on the move… $20.80 of interest.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) index¬†remains in the trading range and to this point no real damage has been done as a result.¬†The noise is louder than the activity for the index. Industrials and technology led the upside on Wednesday… what upside there was after the gains faded.¬†Short term position stops remain $204.40.

NASDAQ 100 Index (QQQ) moved higher early bounce and managed to close at  to $108. That defined it all short term another day of indecision with the higher start fading. Patience and stops at $104.40 on short term positions.

Russell 2000 Index (IWM) The index broke above $123¬†early and closed at $122.49. October trendline is broken on the downside. Watching to see how this unfolds… downside below $118.80 is short look. $123.75 on upside.

Volatility Index (VIX)¬†so much for the worry… started day at 13 and climed to 13.7 as the buyers continue to be willing to put money to work at each dip. Move and close¬†above the 15 mark makes it interesting.

Transportation (IYT) Closed at $153.42 and below the bottom end of the range. The sector established the $154 –¬†$157.50 range currently. Break higher would be of interest, lower would be a negative for the broader indexes in general. Watch today as a close below $153 would be negative overall.

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. UDN entry hit on Wednesday at $22.45.

Crude Oil (OIL) moving higher above the $12.38 resistance and the $12.10 support. Trading positions only as the supply/demand issues remain. Moved towards the $13 mark, but closed at $12.54 as they buyers gave up the gains.

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 lower than expected and still no clarity for the sector overall). Clear $77 on the upside may add to the position. $74.50 exit point.

Financials (XLF) interest rates are climbing and that offers some interest in the sector. Manage the risk and look to see how this plays out with the uncertainty in play still. Will the Fed hike rates or will they not is the primary concern for the sector. This is one sector in favor of higher rates.

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. Clearing $20.75 would be of interest to add to positions.

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. Question… IS $118.60 support?

“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… 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 with the April sales data out¬†and it missed estimates??? Watching today.

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 ($95.50) 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, SLV, IWM… Despite the volatility and renewed uncertainty facing these sectors we continue to track the activity. GLD and SLV pushed higher and looking for them to hold gains.