Mixed day with the dollar weaker and impacting the commodities, but equities traded in place for the majority of the day. Financials and healthcare led the day with XLF breaking above the $24.80 resistance and showing some promise as a leader for the broader index. Healthcare cleared the $74.75 resistance and now takes aim at a new high near term. Energy (XLE) and Telecom (IYZ) both off more than 1.4% on the day led the downside. Energy broke support at the $80 level and tested the 50 day moving average. Crude was down more than 3.5% on the day and didn’t help the situation at all. Plenty to watch as we start the day of trading.
The dollar was up on the day as worries over Europe QE hit the euro. The jump in the dollar hit the price of oil and the price of gold. Other commodities were weak across the board. This is an area of concern as we start the day and see how this unfolds. The bump in yields on US Treasury bonds didn’t help matters either as the downside for the bond resumes. Both are back on the worry list.
The view looking forward doesn’t change… it only takes on more variables that can cause change. The trends are still on the upside… the move on the upside break higher is still valid and we have to let it play out before making any hasty decisions on the process we take near term. Adjust your stops and let it unfold. Our favorite word is back… PATIENCE.
NOTE: The following are things to watch and evaluate during the trading day…
- Treasury Yields higher… bonds lower. TLT breaks $119 and the downside will accelerate again… Set up for short entry in TBT or TMV… follow through today worth the trade short term.
- Semiconductors (SOXX) hit the $96.50 level for entry on Monday if missed last week at $95.50. SWKS, INTC, ALTR, ATML and XLNX are leading. Looking for follow through today on move higher or may take the exit as quickly as we added it.
- EWG – in position to move higher. $30.65 entry.
- SLV – Silver made a strong move higher and as we stated it looked extended. Test lower could offer another opportunity to add the position to portfolio. $16.40 test level (hit on Tuesday) would be of interest. Looking for how it unfolds today.
- Builders (ITB) bottom reversal setup. $27 is of interest (hit entry on Monday) on the upside as the concerns over higher interest rates are digested. Trade only at this point as the new housing starts sparked move higher on Tuesday.
- Alibaba (BABA) upside gap on earning is holding. Still plenty of debate on the outcome, but the consolidation on the move higher gives entry for trade at $88.60. Watching how it unfolds following the volatility on Tuesday.
- India (PIN) bottom reversal trading opportunity. The long term view is positive for the country, but the selling short term is overdone? Watch with $21.90 entry.
- Dollar (UUP)) will upside continue today? The ripple effect in the commodities is of interest on the downside if the buck move back towards the previous highs.
- Europe (HEDJ) the hedged equity fund moving higher if #8 continues. The buck will influence the outcome of the fund short term… at the 50 DMA.
- Healthcare (CURE) hit new high and looking for follow through and continuation of the move.
MAJOR INDEX STORIES:
S&P 500 Index (SPY) index hit new high closing at $213.10 Monday and held for the most part on Tuesday. The noise is louder than the activity for the index. As we state… always take what the market gives. (Added SPY Friday as trade) But, I will equally defend the principle by managing the risk. Need to maintain upside move. New trade stop is $211.70. Older positions remain a the $204.50 level.
NASDAQ 100 Index (QQQ) held above the $109 support, but watching how this unfolds. 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 held the move above the $123.75 resistance. Monday the move through that level triggered the entry on the index and stop at $122.50. October trendline was broken on the downside and offers some resistance. Need to move through this level and regain the uptrend for the index. Downside below $118.80 is stop on the trade. Need a follow through day for the index.
Volatility Index (VIX) so much for the worry… 12.8 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. Tuesday’s news didn’t impact the volatility at all.
Transportation (IYT) Closed at $155.62 … 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, but the rally in the buck over Europe is of interest and equally important is to see if it goes higher? Why the shift in sentiment? Speculation about the global economies and the bond buying program in Europe. $25.10 level to clear on upside to the dollar. UDN entry hit at $22.45. Hit $22.30 stop on UDN.
Crude Oil (OIL) Trading positions only as the supply/demand issues remain. Tuesday reintroduced the upside risk of the dollar. Moved towards the $11.75 support level and now we watch the downside? I am not will to jump on the short side of this until the dollar or supply validates the risk of owning oil short term.
Regional Banks (KRE) – 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. Finding it’s way higher near term. $40.70 is the stop…
Natural Gas (UNG) bottom reversal cleared the $14.50 resistance level next to conquer $15.14. UGAZ is leveraged version of the trade. Reversed on Tuesday with the other commodities and $14.50 stop is in place.
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.
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 (April report lower than expected and still no clarity for the sector overall). Sentiment is declining (consumer sentiment report May). Thus, a trading range that if it can clear $77 on the upside may add to the position. $74.50 exit point.
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 with the uncertainty in play still. 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. Break above $24.80 willing to add to the position short term. Added on Monday. Nice follow through on Tuesday.
Healthcare (XLV) – Found support at the $71.25 mark and cleared $73.25 resistance and watching for possible addition to positions. Entry $74.75 added to holdings. Heading towards new high as the confidence returns to the sector.
Russia (RSX) Modest selling at resistance on Monday… more on Tuesday. Still in the uptrend and watching how this plays out… oil prices are have an impact. $19.85 support. $19.75 stop. Patience. (current position entry at $17.25.)
Bonds (TLT) broke support at $129.20 and triggered the exit. The downside play hit stops on Friday’s bounce. $121 exit point. The bounce was short lived with the sellers back in action on Tuesday. The break of $118.50 is entry for short trade in TBT or TMV.
Energy (XLE) Broke support at the $80.50 mark. Long term willing to add positions now as this unfolds. Refiners are moving again with VLO, TSO and others moving higher. Take the long term approach overall, but continue to dig in and look for the trading opportunities as they unfold.
- Tesoro (TSO) breaking through resistance at $90.40 and upside opportunity building. Entry on test or $92 continuation upside (ADDED Monday). Stop at $88 and looking for target move of $104.
- Short Energy (ERY or DUG) if break support and holds look for entry on the downside trade of the energy sector.
- BP – Bounced off the January low and has been working higher. I like the move above the $42 resistance and the 200 DMA. This is a long term view for growth. If we hold support near this level ($42) and moves higher I am willing to add the positions with a 18+ month outlook. 5.6% dividend payment.
Emerging Markets (EEM) Tested support at the $42.50 ish level and bounced again. The sector is digesting the move higher and dealing with the uncertainty in the US markets. Long term hold. Short term $43 trade entry on the upside.
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. Let it unfold… $99.60 is resistance… move back above the $100 mark gets interesting. Stock pickers sector as the earnings are hit and miss driving direction.
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 last week… 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 ($96 for entry/hit Monday) if the trend is to resume. Manage the risk of the volatility in the sector. Moved higher on Tuesday only to retreat. Watching how it plays out today. $95 stop on noise.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.