Rumors & Some Selling Raises Concerns

Rumors of a reporter known to have the inside scoop on the Fed was hinting at some changes in the Fed policy on Quantitative easing. Rumors… selling… must be true? Wow, talk about a void in the markets if that is all it takes to move stocks lower on the day. The tally stood at seven sector of the S&P 500 index ending the day lower and three higher. There is a very slight shift in confidence the last two days. Some of it has come from the defensive sectors move lower after leading the broad indexes higher. The VIX index is showing some movement intraday again as the “worry” gains some traction. Nothing major to worry about, but we still have to be alert to any issues being created to justify a round of selling. Let’s look at some sectors on the move…

Utilities are selling and it isn’t getting any better. The sector (XLU) was off 1.5% on Thursday and has dropped more than 4% since Monday. Not the kind of move you want to see from a previous leader. The chart of the ETF shows a break of the down trendline and a close on support at $39.65. What does this mean looking forward? Technically the damage is being done short term and created exit signals barring a bounce off support. Volume was more than twice the average on the ETF. Watch to see how it trades today and if the downside continues or we get some bounce back to the upside.

The Transports fell 1.1% on Thursday, and that caught my attention as the sector is not know for its volatility. After a solid five day move to the upside it could be taking a break, some profit taking or any other rational reason, but it is one to watch going forward. If it bounces back without further pressure on the downside, no harm, no foul. If however, this continues lower it could be a leading indicator for a pullback or correction in stocks overall. The transports are always on my watch list, I am just paying closer attention to the future developments.

Oil remains on the, what is going to happen next, list. Crude has been pushing higher, my opinion, on speculation of higher growth in the US and European economies gaining traction. It closed at $96.32 after all was said and done, which didn’t clarify anything at this point. The downside is still the view with all the overhead in front of crude to move higher. The direction will be achieved by the side that has the most convincing speculation to trade on. Watch for an opportunity or trade short term.

Natural Gas has been struggling to hold support at the $21.15 level (UNG). After posting a 35% gain from February low to the peak in April we have retraced 10.6% off the high. Is the move over and the downside in play? I wouldn’t believe that to be true, but we do need to watch how this plays out near support. Supply data shows much better conditions than last year at this time. Thus, I would expect prices to stabilize near the current levels. Natural Gas stocks (FCG) has stalled at resistance at well near the $16.52 mark. Both are on my watch and see what happens list.

The markets are technically overbought, but those conditions can last for extended periods of time. The short term views dominate the market outlook currently and the risk of that mindset has to managed relative to your time horizon and objectives. Manage your positions accordingly and maintain your discipline.