Research Notes for May 21st

MARKET STORIES:

Crazy day given the minutes from the FOMC meeting were released. The bottom line is very slim chance the Fed hikes in the June meeting. Despite the “FEW” who believe the economy will improve enough to justify a hike. There are “MOST” who believe it will not improve in time to make the hike in rates. I stated last night that the media had a field day with the discussion… we are looking for no hike, bonds to settle near current levels and stocks to rise modestly as a result. Short and sweet… how it unfolds is the rest of the story and we will have to be patient to let the results validate the winners and the losers as a result of this activity.

The challenge in the Fed comments came from, “some indicators suggest that valuations remained stretched for some asset classes.” That stalled the rally on the report as the panel of economist turned stock analyst. This is a growing trait of the Fed and one that rattles investors each time the analysis is offered. It like the scene in the ‘Wizard of Oz’… “The great and wonderful Oz has spoken!” Maybe someone needs to pull back the curtain and expose the shallowness of the comments.

Commodities continue to struggle with the dollar holding the move higher on European concerns with QE. Gold and oil held support, soft commodities tumbled lower, natural gas moved lower and tennis match broke out in the equity markets. No clear winners or losers on the day… it was just one of those days where everything stood still.

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 remains… PATIENCE.

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

  1. 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.
  2. 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.
  3. EWG – in position to move higher. $30.65 entry.
  4. SLV РSilver 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. Utilities (XLU) rallies back to the top of the range? Break higher gets interesting.
  10. Energy (XLE) held near the 50 DMA? Testing support? or posturing for more downside? Watching oil and sector… sentiment is on the upside? Divergence?

MAJOR INDEX STORIES:

S&P 500 Index (SPY) index is holding the new high closing at $212.88.¬†The noise is louder than the activity for the index. As we stated… 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 at 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. Doji on the close Wednesday… watching that at the open.

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. Doji on the close Wednesday.

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 $152.53 … that is through the bottom of the range and support. The sector established the $154 –¬†$157.50 range currently.¬†Not showing much in terms of upside opportunity and the break lower is not a good sign for the broader markets. Look for bounce or the other parts may follow the downside indication. DJ US Airline¬†Index was¬†the big weakness losing more than 8% across the board on capacity expansion discussions. Watching to see how it unfolds.

Dollar (UUP) is shifted gears on the downside with the break of support, but the rally in the buck over Europe is of interest as it offers a reversal opportunity. 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.

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 held for now. I am not willing to jump on the short side of this until the dollar or supply validates the risk of owning oil short term.

SECTOR STORIES: 

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. Breakout and entry at $88.60.

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… Test on Wednesday is on my watch list.

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. HIT STOP

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. Gave back Tuesday’s gains.

Healthcare (XLV) РFound 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. HIT STOP. (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.

  1. 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.
  2. BP РBounced 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.