Slow Low Volume Momentum Continues

Thursday, August 9th

The market continues to play out on low volume. Maybe this is the way it goes until the next action by the Fed or the ECB? It so, it will be a boring six weeks at least on the Fed front. Rumors are the ECB is ready to announce some action in the coming weeks. For now investors are not anxious to buy or sell. Be patient and manage your risk day to day. Boring day without much to report.

Sectors below are updated based today’s activity. Energy remains the primary mover on the day.

1)  US Equities:

S&P 500 Sectors-to-Watch – The S&P 500 index continues to hold above at the 1400 level. The attempts to move to the previous highs near the 1420 mark are still in play, but there is room for a pause. The volume has been dragging all week and the chart looks tired. That doesn’t mean the move higher is done, just at a resting point. Watch how this unfolds short term. Watch 1420 on the S&P 500 and the newly broken 1390 level below or 1375 as support.

I still believe we will need a correction in the broad indexes to justify the Fed stepping into the markets with any type of aggressive stimulus. Europe on the other hand will have to act soon to keep the wolves at bay, after all Draghi promised to do everything possible! By the way that means some action versus just talk.

The leadership currently is coming from the energy, technology and consumer services sectors. Financials have attempted to put in a push higher, but they have struggled to follow through. The volatility has been subdued and the sentiment has shifted to the upside near term. The following sectors are showing worthy actions to trade or invest.

Telecom – The sector accelerated higher off the test lower at $22.10 on IYZ. Watch $23.60 support short term. The uptrend remains in play of the June 4th low, and there is a pennant pattern forming over the last week. Watch for a break higher from the pattern as you manage your stops.

WATCH: IYZ – Entry – 22.40 – Hold and keep your stops at 23.40

Energy – holding the move higher and uptrend remains in play. Hold and manage the risk to see how this plays out short term. Oil services (OIH) remains in an uptrend leading the sector higher. Production and exploration (XOP) are breaking from consolidation and crude held above $92.30 resistance per barrel. All remains positive for now.

WATCH: XLE – Entry @ 69.25. Stop 70.40 (raise stop)

Financials – Holding above $14.80 move on Monday. Four days of sideways activity as the volatility dies for now. Hitting against resistance at $15 with lower volume. Watch for follow through and acceleration on the upside if we are going higher. Raised stop to break even on the trade.

WATCH – XLF – Entry @ 14.55 – Stop 14.60

Healthcare – Volatility remains in play more than usual. Hold positions and manage the risk. 50 day moving average is a good stop for now. The healthcare providers are struggling on news and pharma on earnings. Still hitting against the resistance at the $38.90 mark.

WATCH – XLV – Entry @ 38.10. Stop 50 DMA

Consumer Staples – The sector has been leading to the upside for the broad index. Uptrend in play and looking for a steady move higher for now.

WATCH – XLP – Entry 35.31 – Stop 34.90

Consumer Services – The consumer has been spending less, but the retail data showed growth last week. This is still a stock picking sector overall. The leaders remain WMT, TGT, KSS, etc. XRT.

WATCH: XLY – Entry 44.50 – Stop 43.90

NASDAQ Index – Broke through the 3000 mark on Tuesday and holding. The upside momentum has been as a result of the technology stocks. The NASDAQ 100 index broke above resistance at the 2660 mark and found the upside move easy. The play continues to pan out for now – manage your risk.

WATCH: – QQQ Entry @ 65.25 Friday. Stop 65.20 (raised stop)

Small Cap Russell 2000 Index – Attempting to hold the move off the July 30 low. The selling as given way to buying again and the upside is building some short term momentum. Got the move above $79.20 and through the downtrend line for the entry Tuesday.

WATCH: IWM -Entry 79.60 – Stop – 78.30

Volatility Index – The index below 16 testing the lows again today. With the calm in Europe and the willingness of investor to push money into stocks, there is little to no fear facing stocks. Unless some news shifts short term the trend should be higher for stocks currently.

WATCH: SVXY – Watch for re-entry on pullback test.

2)  Currency:

Dollar – The dollar found support at the $22.55 mark on UUP. The risk for the dollar has been stimulus from the Fed and the ECB. Thus far no big changes, but volatility has picked up short term. Watch the downside play opportunity in the dollar if the strength in the euro moves higher.

WATCH: UDN – watch for confirm of break above $26.40. Entry. (retreated, but still watching)

3)  Fixed Income:

Treasury Bonds – The bond is moving lower as the yields start to rise. The move  is back to 2.75% on the thirty year bond. TLT has moved lower with support at $124.60 (Broke intraday on Thursday). The short play on bonds is working currently. The ten year bond yield rose to 1.68%. We took a short position against the bond this week and it has been volatile, but working.

WATCH: TBT – $14.80 entry. Stop $14.80 (stop on the close) Manage stop short term relative to volatility.

4)  Commodities: Topping formations and a cautionary tone for the asset class short term.

Agriculture – Still consolidating near the highs. Soft commodities (DBA) are getting soft? 29.30 is support near term and good spot for a stop if you own a position.

Crude Oil – Moved higher and now at the resistance of $23. Manage risk of the play and let it run.

WATCH: OIL – Entry 20.75 – Stop 21.90 (stop on the close)

Gasoline – Solid move off the test the last two weeks. The upside still in play, but watch oil prices. If you want to afford to buy gasoline… you need to own the commodity. Watching for a test short term on the steep move higher.

WATCH: UGA – Entry at 52.75 – Stop 56.10 (raise stop)

Natural Gas –  Up 5% in early trading on Thursday, but gave it all back and then some. Supply data showed a bigger build up in supply than anticipated. Analyst have turned negative on the commodity the last week. Volume jumped today in the short ETF KOLD. This is where we look now.

WATCH: KOLD – Entry 26.70 watch and be patient.

5)  Global Markets: The global markets continue to respond to the ECB and Draghi’s promises to save the EU. The EAFE index has moved higher on the tough talk and lack of action by the ECB. Watch and manage any opportunities short term.

WATCH: EFA – Entry $50.50 – Stop $50.50.

China -Breaking above resistance and in position to make a solid upside move short term. I expect volatility along the way as China decides to push stimulus at the economic picture.

WATCH: FXI – Entry $34.20 – Stop $34.20

Mexico – Moved against resistance again and still looking for a break out move on the index. Watch the volatility and manage the position.

WATCH: EWW – Entry $62.25 Friday. Stop $60.30

Singapore – moving back above the high at $13. I still like the country looking forward.  Need a follow through to new high. Manage the risk of the trade short term.

WATCH: EWS – Entry $12.70, Stop $13.10

6)  Real Eestate (REITS) – The sector remains near the near term highs. Double top (IYR) set up on the downside short term. I like the outlook long term, but short term we remain on hold. Still scanning and looking for the best opportunities.

7)  Global Fixed Income – The issues with sovereign debt in Europe keeps us out of the asset class currently. Emerging market bonds (EMB) are overbought and we have put this on a wait and see list short term.

FRIDAY:

Basic Materials (XLB) breaking above $35.75 resistance to continue the uptrend off the June bottom. (From Wednesday Watch Notes) Followed through in Trading on Thursday with a entry at $22.10. Watch use stop at $21.80 on reversal.

Resources and Commodities Strategy (BCX) breaking above resistance to continue higher at $13.92. Test and entry at $13.95 on Thursday. Stop at $13.65 for now on reversal.

Refreshed the List for Friday – 1)  Brazil Small Cap (BRF) channel $37.50. 2)  Latin America 40 index (ILF) confirmed break above $42.50 with follow through move. 3)  Short 20+ Year Treasury Bond (TBT) cleared the $15.35 resistance on the upside. 4)  Silver Miners (SIL) attempting to break above $19.50 resistance. 5)  Homebuilders (XHB) broke above $22 resistance and March highs. 6)  Semiconductors (SMH) holding break above $32.75 double bottom move.  7)  GDXJ – Junior Gold Minders ETF breaking above the $20.25 resistance… look for upside follow through trade.  8)  KOL – Market Vectors Coal ETF broke above the $24.90 resistance and looking for entry point near the close on Thrusady. 9)  Russia (RSX) Break above $22.30 holding and testing the move. 10)  High Yield Bonds (HYG) attempting to take out the high at $92.

If the market continues higher watch for these 10 ETFs to extend their gains on the upside.

XME – miners starting to pick up some short term momentum.

ITB – Builders back on the upswing with positive news in the housing sector.

FCG – Natural gas stocks moving higher

FCX – copper miner picking up some short term momentum.

Correction worries remain in the headlines and the concern I have is the self-fulfilling prophecy syndrome. Watch the downside risk short term. 1375 on the S&P 500 index is the initial target if some profit taking steps up.

Watch and play according to your risk tolerance. Everyone has different trading styles and you have to find what works for you and your personality. Don’t put yourself in positions you don’t understand or take risk you can’t tolerate. Not every trade results in a profit, but controlling your downside risk determines your long term results. Trade smart.