Research Notes for May 15th

MARKET STORIES:

As I stated last night… let the party begin with the S&P 500 index hitting new high after all this ups and downs over the last three months. It didn’t settle anything, but it did look good on the chart. Now comes the issue the index has faced since the beginning of the year… following through and maintaining the upside momentum. That is no small feat based on the current sentiment and outlook for the economy and growth. Thus, we will take it in stride and look for a follow through on the upside today.

I stated yesterday 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. Thursday offered breakouts in IGV, but the volume was so-so, yet worth trading. SOXX moved back to the top end of the range and needs upside follow through, IWM back to resistance at the $123.75 level, IBB good move, but not enough to keep my attention, XLF lackluster move to the next resistance at $24.80, and KRE hit new high but was missing something on the conviction side. Overall heading the right direction, but still has work to do today.

The move on Thursday was the delayed follow through to last Friday and today could the icing on the cake so to speak. I liked the upside move we have positions working we added a few, lost some to stops, but we will watch to add more today if the market gives the opportunity. Be patient and continue to take what the market offers.

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

  1. Natural Gas (UNG) bottom reversal cleared the $14.50 resistance level next to conquer $15.14. UGAZ is leveraged version of the trade.
  2. Crude Oil (UCO) hit a high of $62.83 last week and closed at $59.67 on Thursday 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 closed at 3.07% Thursday which remains a challenge for stocks. Some stalling currently. 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¬†as the break higher¬†for the sector and¬†moved 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 Thursday to close at $95.89 on the day. Scanning the sector for bottom reversals on the test shows some interesting stocks in nice patterns.
  6. EWG – in position to move higher and joins EWI, EWU, EWP and other European country ETFs on the upside.
  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 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. Got the reaction on Thursday with the move lower, but held above support… watching.
  10. GDX – gold miners made move through resistance and follow through on the upside would be of interest for short term trading opportunity. Gapped above the $20.30 level Wednesday. Gapped again on Thursday, but that receded back to the $20.83 mark… Still looking for entry point on the on the move… $20.80 of interest again.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) index hit new high closing at $221.21. The noise is louder than the activity for the index. Technology, Consumer Staples and Healthcare led the upside on Thursday…¬†Need some leadership as we have discussed… thus, need to follow through on the upside today.

NASDAQ 100 Index (QQQ) moved higher early bounce and managed to close at  to $109.58. Need to establish a new high if the sector is to regain the leadership role. Patience and stops at $104.40 on short term positions.

Russell 2000 Index (IWM) The index broke above $123¬†early and closed at $123.79 and at the 50 DMA and resistance. October trendline is broken on the downside. Watching to see how this unfolds… downside below $118.80 is short look.¬†Need a follow through day for the index.

Volatility Index (VIX)¬†so much for the worry… 12.7 on the index shows the lack of concern relative to the uncertainty in the markets.¬†¬†The buyers continue to be willing to put money to work at each dip. Move and close below the 12¬†mark makes it interesting.

Transportation (IYT) Closed at $153.42 and bounced back to $154.23 on Thursday… still not convincing for now. The sector established the $154 –¬†$157.50 range currently.¬†Not showing much in terms of upside opportunity and hanging on by a fingernail to support.

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 unable to maintain the upside movement.

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. Non-convincing move in the sector on Thursday…

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. $73.75 entry on Thursday.

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. April sales data out¬†and it missed estimates??? Fell on Thursday in positive market… watching the downside opportunity.

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 on Thursday… still plenty of long term opportunity.

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. Watching for the follow through move to Thursday…

Sectors that remain of interest… FXI, GLD, SLV, SLX, IGN, SOCL, IWM… Despite the volatility and renewed uncertainty facing these sectors we continue to track the activity.¬†Need solid follow through to the gains on Thursday. Take what the market gives, but maintain your discipline.