Some Positive Sector, But Flat Overall

Monday, November 5th

Started the week off with some selling early and then a small bounce to close basically flat on the day. Some shift back to the upside for sectors like semiconductors (SMH) gaining 1.75 percent after dropping on Friday. The bounce is still a possibility depending on how investors feel relative to the election results. The headlines want us to believe it is all about the election. The reality is it will be an event, but the longer term outlook still comes down to economic growth regardless of who is in the White House.

The election has brought out more predictions than voters on Wall Street. The outcome needs to be decisive or the markets will react to a delayed decision. Clarity is what is important in the short term regardless of who wins. The House and Senate votes are equally important relative to the markets direction. I will wait for the outcome tomorrow night or Wednesday morning before making any adjustments to portfolios.

I don’t want to waste time covering issues that don’t move the markets legitimately. The polls will open early tomorrow and the day will be dominated by who wins and what happens. The reality will be business as usual and who will help the economic picture regain its strength. The answer to that will be over time not overnight.

What am I watching?

The number one thing I am watching is the broad market indexes. Both the S&P 500 and NASDAQ indexes need to hold support if the upside has a chance of staying in play. The test of the move on Friday was a challenge, but not insurmountable. What is the directional outcome of all the chatter and movement… maybe tomorrow will give some clues.

Volatility bounced early then retreated. Watch the 200 day moving average on VXX overhead.

Watch heathcare support at $40 on XLV? Hold and bounce higher or break and sell lower?

S&P 500 index (SPY) versus S&P 600 Small Cap Index. Is the appetite for risk coming back? Is the summer selling over? These are two indexes to watch for a shift in risk and momentum. IJR was looking good on Thursday, but the selling on Friday puts the index back near support of $75.50. Still potential upside if the bounce gains support.

Fed speculation on the jobs report Friday was not reality. Gold, Silver and other metals sold off. The dollar rallied sending oil lower. All because we created 50,000 more jobs than the estimates? Not exactly… it is the trend that is expected to shift to the upside. That sent everything moving. Watch the reversal and opportunity in the insanity. The Fed isn’t going to the stop the cash madness any time soon.

WATCH LIST will be updated by Sunday Evening for next weeks trading!

1) US Equities:

S&P 500 Index / Sectors-to-Watch –

Another day of churning as we move to election day!Ā TheĀ gain of 2 points on the day did nothing to change ourĀ outlook or theĀ technical data for the index. The directional issues remains a challenge for the broad market overall as investors attempt to determine the impact of the election moving forward.

The Scatter Graph below has a starting point on 10/17 which is the current pivot point off the recent high. The move lower has turned sideways with the blip higher last Thursday. Leadership is the biggest challenge we see reflected in the chart. Industrials have become the leader???? Not exactly what will impact the market long term. Consumer services and Financials are hanging tough for now, but we nee some follow through from Technology on the upside.Ā The downside leadership was from Utilities and Telecom today. Basic Materials and Energy bounced off Friday’s lows. Patience as this all plays out.


Breaking the Sectors Down:

Financials – The index held support at $15.80 after an early test. Earnings were ok for the quarter and the large banks should continue to benefit from QE3 stimulus. Currently the cloud is the government lawsuits for banks. Watch and be patient with the sector as we still like the upside play.

WATCH: XLF – Entry $16.10 (patience with the entry)

Technology – After selling lower we have been looking for the bounce play in the sector. We finally saw some money flow on Thursday with all four sub-sectors posting solid gains. The selling on Friday wasn’t pretty for tech. Gave up the gains from Thursday. Held support at $28.80 for now

WATCH: XLK – Entry $29.25 / Stop $28.65

Utilities – Three days of selling and the bottom falls out. Down 1.65 percent today and break support and the 200 day moving average. Short play is looking better.

On my Watch List looking forward:

The bounce in energy, technology and basic materials were at least a positive on the day. Not ready to put money into the sector today, but they are on my watch list of opportunities short term.

NASDAQ Index – The index has been under pressure from the large cap technology stocks selling, and earnings within the sector didn’t help matters. So far the index has held the uptrend line and the 200 day moving average. The downtrend is still in play, watch for follow through on the upside bounce or the short play to develop again.

WATCH: – QQQ – Entry 65.70 / Stop 65.10 Watch the volatility. (Sector Rotation Model)

Small Cap Index – Made a bounce off support on Wednesday to set up the entry on UWM (Russell 2000 Index). The downtrend is still in play, but this is a bounce trade as we discussed starting the trading week. Watch the near term resistance as exit point on the trade.

WATCH: IWM – $82 if the upside is the play. Downside? Short $80.50.

2) Currency:

Dollar – The dollar bounce continues as the weaker outlook in Europe is hitting the euro. The economic data has some believing the Fed QE3 will be shortened relative to the improved jobs report? Whatever it takes to bring strength to the dollar I say. Watch the bounce on the buck as it broke higher through resistance.

WATCH: UUP – Entry – break above resistance. $22.05 – Stop $21.90

The Chines Yuan (CYB) has been in a steady uptrend since September. This move has been similar to the move in Chinese stocks as well (GXC).

3) Fixed Income: The sector remains somewhat volatile as investors continue to look for direction from stocks. We have a small allocation to the sector overall, but continue to scan for the opportunity.

Treasury Bonds – Another attempt to make break above the downtrend line. Watch to see how this plays out short term with $120.80 support. $124.60 is resistance. Investors still can’t decide the direction, but the upside is looking better currently.

WATCH: TLT – Downtrend line off the July high. $123.60 entry?

Emerging Market Bonds – the reversal off the high has reached short term support at $121.25. A move below the 50 day moving average would be a negative to technically. Watch for the downside opportunity or a bounce off support as a trading opportunity.

4) Commodities: Tough sector to own currently with the rise in volatility across the sub-sectors. The downside shift is in control and the break below the 200 day moving average on DBC is not a good sign overall. Remains a mixed bag of volatility based on the data and speculation.

WATCH: GLD – $167 support broke and short play emerged. GLL breakout. (ETF ONLY MODEL) Still in play. Watch the 200 day moving average as support?

WATCH: SLV – Broke lower took out support and open the short play. ZSL breakout. (ETF ONLY MODEL) Watch the 200 day and $29.80 for support?

WATCH: DBB – Selling gave way to hope on the hurricane speculation. Bounce trade? Sitting on support.

WATCH: OIL – The short play in crude has been the play. The broke support at $87.50 and is testing the next level of support at $83.50. Bounce on Monday, but still not looking confident.

WATCH: UGA – Watch and be patient. Tested low again on Friday and bounced today.

WATCH: UNG – Support $21.50 was broken on Friday. Short play? KOLD

5) Global Markets: The global markets are starting to trade in sympathy with the US markets. Watch and let this play out short term. If you have not set your stops it is key to do so.

WATCH: EFA – Testing support at the 50 day moving average. Entry trade at $54.15 and target of $55.25?

WATCH: EEM – Testing support at the 200 day moving average. Entry trade at $41.75 and target of $42.35?

6) Real Estate (REITS) – The sector tested the recent high and support at $64 (IYR). The sector broke support last week and bounced back this week. The downside is still the play to watch.

WATCH: IYRĀ  – Attempting to break lower through support? Volatile within the trading range.

WATCH: REM – Downside back in play after the short term bounce. Held $14.45 support. Testing break above $14.70?

WATCH – NLY – Downside back in play after the short term bounce. Held $15.70 support. Failed move above $16.20?

7) Global Fixed Income – Uncertainty about the sovereign debt issues remain. Thus, the lack of willingness to accept much in the way of risk from this sector.

WATCH: PIMCO Global Advantage Strategy Bond (PAFCX) is hitting new highs and worth watching as a opportunity if we move above the $11.80 which it hit today for an entry. $11.81 Entry – Stop $11.74 (Watch for the stop tomorrow)

WATCH: Emerging market bonds (EMB) – testing the move higher with a pullback.

WATCH: International Corporate Bonds (PICB) – Testing near the highs, watch how it plays out short term.

Watch: International High Yield Bonds (IHY) – Testing and pulling back near the breakout point.

Watch and play according to your risk tolerance on any position taken. 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!