Still in Process of Rotating Leadership

Some resistance on the upside as buyers seem willing to take a break. The sellers never emerged as a threat on the day, but you can be assured they are still in the weeds waiting for an opportunity. The volatility continues to come out of the market short term as the VIX index drops to 14 intraday, but holds the 14.5 level overall. The ‘V’ bottom pattern is in position to break higher if the buyers are willing to exert themselves going forward. The S&P 500 index would need to clear the 1849 mark of the previous high and resume the previous uptrend. The NASDAQ has already pushed back near the previous high of 4243, but it still has work to do as well. Now is where it pays to be patient, raise your stops and manage the outcome. If you are focused longer term the last couple of weeks have been a test of your anxiety level, but that comes with long term time horizons. It is a matter of being the tortoise or the hare when it come to your positions or portfolio overall.

Interest rates rising is still of interest to me relative to the comments from the Fed Chair. The ten year bond yield is up to 2.76% or 16 basis points off the turn two weeks ago. The uptrend in yield remains in play and if this current move continues to gain momentum the downside risk to bonds will continue to rise. Don’t make any assumptions, plan your entry and exits according to a defined strategy, but this is worth our attention moving forward.

Utilities (XLU) have seen a solid bounce off the low in early January. As the worries rise in the market towards growth stocks the money rotates to safer vehicles and one of those has been utility stocks. They are bumping against a key resistance level of $39.50. Unless there is money willing to make it’s way into the sector we could see a near term test of the move. This of course assumes the upside in stocks will continue. Today was the first sign of some consolidation in the broader indexes and if that theme plays out watch any short term positions is utility stocks. If fear returns, the upside will break through the resistance on utilities and head back towards the April 2013 high. Either way this remains a sector to watch and protect gains in near term.

REITs (IYR) likewise have been a benefactor of the rotation towards safety. The resistance is at $67.50, but there is also an intermediate downtrend line in play off the July high. Watch how the sector responds to these resistance points and equally important is the longer term outlook for the sector relative to opportunity. Trading around your longer term position could offer some unique opportunities in the short term and something we will address in the updates going forward.

From my perspective the big question looming short term is the ability to hold the reversal off the lows. A test is likely in the coming days, but it must establish, worst case, a higher low and a continuation of the uptrend. Technology, healthcare and financials will play a key role in that progress as we discussed last night. Semiconductors are doing their part up another 0.9% today and breaking above $74 resistance on SOXX. Networking, internet and software held their own today and are in position to help lead technology. Healthcare tested the move to new high today. Pharma, medical devices and biotech are helping, but the providers continue to struggle. Financials are still not in gear from my view. They have made a good attempt to move higher, but the banks are not helping to the degree they should be if the sector is going to provide the needed leadership. Watch all of this to see how it comes together short term to determine the direction going forward. Up or down… it is still a flip of the coin from a short term outlook. See tonight video update for more detail on this outlook.