As an addendum to our weekend notes on the Research post on Friday today I am combining the notes for Tusday morning with an additional update as we head towards a new month and week of trading. Below are six things we are watching going forward:
1) Does the market suffer from a Bernanke hangover? Friday the Fed Chairman said nothing new, but the markets responded with a positive move higher. The focus was not on what he said, as much as it was on the next opportunity for the Fed to act. The September FOMC meeting is only two weeks away and there is basically the hope of some action at the meeting. Thus, we watch to see how the market reacts to the lack of, or hope for… stimulus. TLT and IEF both rallied as the yield on both the ten and thirty year bond continued lower of the stimulus hope. We hit the entry point of TLT last week and continue to watch the outcome relative to the Fed actions.
2) The week will be busy with plenty of economic data. As I stated last week, I would rather see a rally based on solid and improving economic data than QE3. We will get the ISM Services and Manufacturing numbers, and it would be nice to see an improvement in the manufacturing numbers for August. The Jobs Report is on Friday and we will see if anything has improved over July. I don’t’ have high hopes, but the estimates are for 130K new jobs added, and that is well below the numbers needed to give the economy a strong outlook near term. The numbers will matter to investors looking forward.
3) Watch where the money is going. The benefactors of the Fed rumors has been Treasury bonds (TLT), Gold (GLD), Silver (SLV), Crude (OIL), Gasoline (UGA) and Euro (FXE). Stocks have continued to move higher with leadership from Technology (XLK), Energy (XLE), Healthcare (XLV) and Financials (XLF). Some recent moves to watch have come from Real Estate (IYR), Pharmaceuticals (XPH) and Small Cap (IWM) all making a move back towards the high of their respective trading ranges. Watch the rotation if it continues this week we will look for the new leadership.
4) Gaming stocks (BJK) are showing some signs of life. The index ETF is trading sideways and is at the top end of the range, but moves in LVS, Las Vegas Sands and WYNN, Wynn Casinos, which are consolidating near their respective highs are worth watching this week for a break to the upside.
5) Banks (KBE) made a test of support last week, held, and bounced on Friday. This is s sector that is a love/hate relationship currently, but too much opportunity to ignore if the upside kicks in. $22.60 is the level to move above short term for the ETF. Looking at stocks like BAC, Bank of America and C, Citigroup offer some trading opportunities, while WFC, Wells Fargo and BBT, BB&T Bank Corp offer a continued upside trend. JPM, JP Morgan and GS, Goldman Sachs are attempting to join the upside as well, but this is a sector that can cut both directions. Take what it offers as the risk/reward is worthy of the effort to find the winners short term.
6) Transportation (IYT) has been lagging and tested support near the $89 level last week. The old rule is the market cannot rally without the transportation stocks being a part of the move. A move back above the 200 day moving average ($91.40) would be a good start of a shift in direction for the sector. Watching to see if we get any additional movement to the upside this week.
Overall the challenges for investors remain as the battle over stimulus or growth to provide leadership. I am on the side of growth from the economy versus stimulus from the Fed to drive the broad markets higher. This will be an enlightening week as we get plenty of August data to show exactly what is happening in the economy looking back and going forward. The key is to be patient and let the upside validate itself with a clear move above the previous highs and resistance on the major indexes. Take one day at a time and one trade at a time this week.