Review, Reflect and Prepare for Next Week

Friday was the perfect end to a week that was… mixed. No leaders emerged and no clarity in direction defined. The following are some thoughts as we start a long weekend and prepare for next week…

1) ¬†S&P 500 index hit a new high, but has stalled near that high. I don’t like when the index makes a move higher and then stalls as it tends show a lack of effort¬†from the buyers. It also tends to test lower before resuming the move higher. That could be bad news for next week. I am not attempting to predict anything, but it is a sign of caution. The top is a small diamond pattern which tends to be ‘bearish’ (downside) in direction. Watching for a test of support near the 2080 level.

2) ¬†Gold (GLD) broke higher to end last week and this week has progressively given back the majority of the gains. Not even the higher than expected CPI data on Friday could help the metal resume the upside. This is not going to make the gold bugs happy near term. The trend off the March low is still on the upside and thus the buyers have the momentum. Don’t assume anything and manage your positions accordingly.

3)  Crude oil (OIL) moving sideways and established a consolidation pattern. This is a sector under duress as Saudi Arabia and OPEC remain in price destruction mode. The move back above the $60 mark was seen as positive, but the price destruction remains in play short term.

4) ¬†Economic data continues to dazzle the markets. New home sales for April fell 3.3%? What happened to the positive news about the housing starts? They are building more and selling less? Continue to watch, but the mindset for now is bad is good… keeps the Fed from acting to hike rates now. We will see.

5)  Healthcare (XLV) and biotech (IBB) are both in position to break higher and resume the leadership for the broader indexes. Patience may be required near term, but the positives are all in place. Double bottom patterns on both charts and break would confirm the upside.

6)  Commodities reversed course as the dollar bounced and the buyers went elsewhere. Oil, gold, base metals, and soft commodities all tumbled farther along with the emerging markets.

7) ¬†China jumped on Friday from the consolidation pattern to resume the upside… for now. The news around and in the country has rattled investors enough to take money off the table. Watch to see if this follow through on Monday.

8)  Semiconductors continue the trek higher after reversing off the lows in early May. The resumption of the upside leadership adds another key player for the overall market to move higher.

9) ¬† Inflation rose more than expected on Friday showing the core up 0.3%… housing and healthcare were the reason for the rise. Both have a negative impact on the consumer as it attacks free cash flow. Less spending from the consumer leads to lower growth in business. Bond yields rose in response with the ten year up 3 basis points. The jump in yields has stalled, but this could add fuel to the fire.

10) ¬†The dollar resumed it’s upward trek and that had a ripple effect in commodities and the emerging markets. This is an issue to be addressed next week in trading.

The list could go on, but we will leave it at this to ponder and review as we start a new week of trading. Relax.. enjoy the extra day off and remember those who did their part to keep our freedom.