Friday, August 10th
If all else fails blame China’s trade data. The market spent the entire week drifting sideways on no volume to speak of. The wait and see is still in play relative to stimulus. The ECB has been deafeningly quite. Thus, we head into the weekend waiting for what if anything is going to take place in Europe relative to sovereign debt.
The market made an attempt to quietly head into the weekend giving analyst and investors time to rethink the outlook for stocks. We continue to take the move for what it is and look for the sectors that continue to push higher.
Sectors below are updated based today’s activity.
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 pushed higher and hit a new high on Friday. Watch for a break higher to continue 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 near the $92.30 per barrel resistance after move above it on Thursday. All remains positive for now, but watch the consolidation.
WATCH: XLE – Entry @ 69.25. Stop 70.40 (raise stop)
Financials – Holding above $14.80 move for the week. Five days of sideways activity as the volatility dies for now. The sector hit 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 disappeared this week as the sector traded sideways. 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 testing the move higher and spends the week moving sideways. 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
Basic Materials – 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. Watch and manage the trade short term.
WATCH: XLB – Entry 35.80 – Stop 35.10
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 66.10 (raised stop)
Small Cap Russell 2000 Index – Attempting to hold the move off the July 30 low. The upside move was positive, but we have now spent the last week trading sideways. Too the entry on the move above $79.20 and through the downtrend line.
WATCH: IWM -Entry 79.60 – Stop – 78.30
Volatility Index – The index 15 and closed near the lows on Friday. 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 no change is likely. Watch for ECB or the Fed to be the tie breaker for the VIX.
WATCH: SVXY – Watch for re-entry on pullback test.
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 2.73% on the thirty year bond. TLT has moved lower with support at $124.60 intraday but has moved higher on the shift Friday. The short play on bonds is working currently. The ten year bond yield rose to 1.64%. 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 to resistance at $23 and testing on Friday. 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 – Down more on Friday as the data showed a bigger build up in supply than anticipated. Analyst have turned negative on the commodity this week as well keeping the downside in play. Volume jumped today in the short ETF KOLD. Took the short ETF play on Friday in response to the negative selling.
WATCH: KOLD – Entry 26.70 watch and be patient. Hit gap up entry Friday at $27.15.
Coal – The rotation has benefited from the selling in natural gas. The move above $25 is positive and worth a trade on the upside if the commodity continues higher.
WATCH: KOL – Entry $25.20
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.
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. Disappointing trade data with the US and impacting the outlook short term. Manage the stops.
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, but the near term weakness isn’t a positive. Manage the risk of the trade short term.
WATCH: EWS – Entry $12.70, Stop $13.10
Brazil Small Cap (BRF) channel top $37.50 with potential move higher. Posted on Wednesday for the opportunity in the global markets moving higher. The entry was hit at $37.60. Manage the trade and set stop at $36.80.
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 as the bonds have pulled back to support at $118 short term. Watching for the opportunity.
What I am watching to start the week. 1) The miners (XME) are attempting to pick up some momentum on the bump higher in gold. Worth watching for a move through resistance. 2) Financials poised to break above resistance at $15 on XLF. If you want to maximize return with leverage on the move FAS is the play. 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. Testing the move higher and worth a trade if it follows through on Monday. 6) 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 $25.25 mark. 9) S&P Growth Index is hitting a new highe and worth playing on the break above 76.20 on IVW. 10) High Yield Bonds (HYG) attempting to take out the high at $92.
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.