Research Notes for May 5th

MARKET STORIES:

Positive start to the day, but it faded as the day progressed with better than half of the gains evaporating before the close. The bounced that started late in the trading day on Thursday continued to follow through today. Plenty of work still to be done, but there is a lack of conviction on both sides of the trade and it is a time to be patient and let this all unfold. The buyers stepped in again as the values seemed enticing, but the sellers are not gone. As I stated over the weekend I am more than willing to let this all unfold and then take the side of the trend.

Some rotation to the value side of the equation as well as the large cap stocks. The Russell small cap index forfeited the leadership last week and growth sectors like technology have struggled on earnings coming up short in the internet, social media and internet¬†stocks. It is still undecided what the outcome will be and thus… let it unfold and take what the market gives.

Economic data was rationalized by the Fed in the notes from the FOMC meeting as needing to give more time and room before hiking rates. Bonds however, are not falling for the words as interest rates have continued to move higher with the price of the bonds declining over the last three weeks. TBT or TBF have been tradees against the decline  bond prices. Watching as this unfolds near term.

The dollar is attempting to bounce off support again, but at best has just stemmed the selling short term. The new currency wars are a rate to devalue currency as form of stimulating the economic picture. Never has worked, not likely it will start now as a sound strategy.

Week of economic data and plenty of impact if the data bad and the jobs number could be bad news if it improves more than expected. This remains a news driven market and investors remain nervous as this all unfolds.

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

  1. Crude Oil (UCO) the upside in oil resumed last week¬†and is now in position to take the next leg higher (double bottom pattern). Watch for the entry if we break this resistance point. Stalled Monday on China’s news about consumption of oil being slower than expected.
  2. Treasury Yields (TYX) thirty-year bond jumped to 2.87%¬†… broke the¬†downtrend line and could push rates even higher as a result of¬†the news from the FOMC meeting. TMV, TBT, TBF…
  3. Energy (XLE) needs to break above $82.50 on XLE is a positive. Looking to add to positions if we confirm the break higher.
  4. Software (IGV) leading tech. Watch the micro term pattern setups. Breakout for the sector¬†reversed Thursday… watching to see how it unfolds going forward.
  5. Semiconductors (SOXX) bounced off the low and acts like it wants to now move higher. The charts are still a mess, but we have to go with the results… patience¬†going forward.
  6. Social Media (SOCL) weakening on FB and TWTR earnings testing lower… LNKD missed as well… is there a bounce in the sector or more downside to come? holding on Monday.
  7. Base Metals (DBB) breakout and momentum in the metals micro term (0-13 wk). Big follow through on Thursday on the upside gaining 2.4% and holding to start the week.
  8. Retail (XRT) weakening sector… but bounced Friday? Follow through anyone? Small, but yes for now.
  9. Biotech (IBB) sold off all week and then managed to recapture the previous support on Friday. Worth watching to see if it moves higher or returns to the selling. Rally early, forfeited it by the close.
  10. Small caps (IWM) looking for bounce back into the trend. Need to clear $123.75.

MAJOR INDEX STORIES:

S&P 500 Index (SPY) the index has took on volatility as it struggled to hit new high. Hit stop on Thursday at $209 only to watch it bounce back to the $210 mark on Friday? Held above the $211.60 mark on Monday and offered a entry point for the brave at heart. It will require some upside conviction that is still lacking to get the investors interest. Short side still watching as well. For now we will breath and watch.

NASDAQ 100 Index (QQQ) Broke back above the $109 level again? The index is struggling with earnings from FB, TWTR, and LNKD short term selling? Could be a test of the next level of support type trade, but the longer term trends are still in place. Watch how this unfolds this week. Need to move back above the $109 mark if the upside is to rectify the damage. Gave up the convincing gains before close. Watch and let it unfold.

Russell 2000 Index (IWM) The index broke down¬†week and bounced on Friday and early attempt to continue higher on Monday before giving up most of the gains.¬†Testing the trendline and broke below it last week and remains below it now.¬†Fell to the next support level of $121.24 ¬†and held, but didn’t find any friends? Give it room to unfold for now.

Volatility Index (VIX) Intraday volatility is the new game in town. The close puts the index at 12.9 erasing the nerves shown the previous three days. This indicates little worry near term from investors. Not much is changing and that is good for the buyers as the sellers can’t convince anyone things are bad near term.

Transportation (IYT) Transports need to move higher if the broader index is to sustain a move higher. They moved back above the $157.50 mark early, but failed to hold on closing at $156.72. Still hanging in, but acting like the broader index and not showing any direction or conviction.

Dollar (UUP) is shifting gears on the downside with the break of support. Why the shift in sentiment? Speculation about the global economies looking better than the US. Oil moving back near the $60 mark. Bounced on the $24.88 mark Friday and held to start the week.

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

Consumer Discretionary (XLY) attempted to break higher, but remains in the trading range for now. Some leadership in the sector would go a long way to helping the broad indexes. Need to hold support at the $74.50 level (held last week) if the upside has a chance of keep the trend moving higher. Consumer is not spending and it is showing in the retail data. Clear $77 on the upside.

China (FXI) holding near the highs and watching to see how it unfolds. Stops should be at $49.50 currently on the reentry at $51.50. Upside remains in play, but there is still plenty of speculation on the horizon. Patience as the consolidation plays out. Modest bounce Friday to keep the upside in play.

Russia (RSX) Showing some topping currently and testing the resistance of the 200 DMA as overhead. $18.75 support. $18.70 stop. Patience.

Emerging Markets (EEM) Made solid break from base at $41 and the upside remains in play. Stalling near the highs with some selling on Wednesday and Thursday. The emerging markets have¬†benefited from the rotation into the global markets and away from the US markets. Stops at¬†$43 hit on Thursday. Bounced above that level again on Friday… look to see how this plays out to start the week. $43.50 willing to add back on the upside.

Crude Oil (OIL) The break from the trading range bottom above $53.85 remains in play with oil closing at $59.30. Currently  there is more speculation than logic as the rational and justifications are pontificated. The inventory data on Wednesday sparked interest in the commodity again. OIL hit entry at $12.15 Wednesday. UCO at $9.45 entry.

Energy (XLE) Broke higher and stalled as the broader indexes tested lower.¬†Next level to clear is $82.50, managed to close above this level on Wednesday and that offers upside continuation trades.¬†Move has been the¬†value buyers stepping in and the stall is the lack of traders interested short term. Do they step in now…¬†$80.50 support level and stop.

Bonds¬†(TLT)¬†broke support at¬†$129.20 and triggered the exit. The testing to move back above this level failed on Wednesday with the confirmation move lower. Rates rose and bonds sold. Fed is back in the trade.¬†TBF, TBT or TMV are now is play… (see the table for entries.) Choose the level of leverage you want. Selling is on for now. Manage risk of the trade as yields are rising towards the 3% mark on the 30 year bond.

Base Metals (DBB) broke through $15.50 resistance and has followed through. Steel (SLX), Copper (JJC) and ZINC are moving higher off the recent low in March. This has set up some trading opportunities across the sector. FCX cleared $21.70 entry point as well. $15.65 stop on original entry, $16.05 is next entry point. Hit the entry point with 2.4% gain on Thursday. Looks solid for now. Cleared the 200 DMA and holding.

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

Unfolding Stories in Sectors Currently:

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. Bounce off the low is in motions and $100.25 is level to clear for the short term.

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 one worth our attention as we move forward.¬†Need to break the downtrend line off the February highs. Attempted on Monday, but failed to hold.

Semiconductors (SOXX) it is a messy chart, and the break lower only¬†makes it worse. This puts the short side in play potentially, but it would take a move below the $92.50 level to gain my interest to short the sector. Bounce in the sector Friday gained 2.6%… leaves the mess in play as traders are not in sync.

Healthcare (XLV) РFailed to reestablish the previous leadership. Downside did some damage to the chart and watching to see how it unfolds. Friday found support at the $71.25 mark  and we watch. Negatives from all sub-sectors as well. Biotech (IBB) did the most damage and the pharma (XPH) added to the downside as well. Letting it unfold near term for direction. Monday showed some buyers and watching for the positives get upside grove back.

Utilities (XLU) building bottom (triangle pattern). Still in trading or bottoming range… watching how it reacts to overall markets this week. Interest rate worries? Duke energy is a stock in this sector I am tracking was well. Nice bounce Monday, but could keep it going… watching for break from the range.