Still Looking for Leadership

As a follow up to the move in the broad markets on Wednesday I wanted to review any relevant trends or changes. You can read any financial publication and see the one change is the positive talk about the markets in general. Apple earnings get the credit for a boost in near term sentiment. There numbers made most media analyst giddy with optimism, but that aside let’s look at some opportunities building short term.

Let’s start with where the problems of late began… Europe. IEV, iShares Europe 350 index ETF has a three week sideways consolidation pattern after pulling back from the highs near $38.40. Technically worth watching as the price is at the top end of the current range. The issues in Europe aren’t over and the elections in France may rock the boat further. Political issues are hitting their stride along with renewed pressure on the Euro? With all the challenges facing these countries both politically and economically, (UK re-entered are recession level relative growth) why is the ETF trading at the top end of the range? Bounced in unison with the US markets plain and simple. Thus, watch the downside opportunity (EPV) more than the upside on this move higher.

The agriculture space bounced nicely off the key support levels on Tuesday with a solid follow through on Wednesday. The fertilizer stocks are showing some solid data to help the outlook short term. MOO, Market Vectors Agribusiness ETF closed above the 50 DMA on Wednesday after gaining 2.3% on the day. Scanning the stocks in the fund you find some key bounces off the recent lows to lead the sector higher. There are some strong consolidation patterns showing up in the scan and with a follow through on the upside would offer some breakout opportunities. This is a sector worth adding to your watch list as well as scanning the parts for the leadership.

Homebuilders continue to surprise many as the uptrend continues to hold. The data points have been positive along with the speculation that it will not last into the summer. The current consolidation in XHB, SPDR S&P Homebuilders ETF is of interest. A strong move back above $21.80 would make it interesting short term. Digging into the ETF there is sound leadership and the fundamentals are still improving. Thursday provides more data as the pending home sales are announced. The new home sales were in line with expectations on Monday as well. Don’t be surprised to see this consolidation break to the upside and the trend continue higher.

The energy sector continues to interest me relative to the downtrend in play of the March high. Crude has remained above the $100 level, but the stocks have declined more than 13% off the high. On Wednesday they followed through on the bounce off lows. Credit to Apple for the bounce? I wouldn’t rule it out, but XLE, SPDR Energy Sector ETF moved back to the top of the base trading range on solid volume. XOP, SPDR S&P Gas & Oil Exploration & Production ETF bounced 3.1% to show a positive move in the sector. This is a sector to keep on your watch list for a possible reversal on the trend.

Biotech has bounced once again off support and is moving back towards the previous highs within an established trading range. The volatility in the sector has been very trade-able between $74 and $82 on IBB, SPDR S&P Biotech ETF. Watch as the fund approaches the previous highs. Will it have enough momentum to breakout and renew the uptrend or does it reverse within the existing range and retest the bottom? I like this sector and it has been a good trading sector to follow.

REITs have been moving quietly higher. The dividend craze has been driving the move as both Wall Street and investors look for better yields in a zero percent interest rate environment. RWR, SPDR Dow Jones REIT ETF broke from a ten week trading range to the upside on Wednesday. Technically the move is worth playing with a confirmation to the move. It is interesting to note that the yield has declined to 2.4% on the move higher, but that has not dampened the money flow into the sector.

There are plenty of consolidation patterns to watch following the last three plus weeks of a market that has been trading sideways to down. The lack of clarity and direction has kept investors sidelined. The leadership is still lacking. Technology pushed higher on the Apple news on Wednesday, Financials are still lagging relative to the near term and the consumer sectors are consolidating as well. Patience is the best course of action, but there are some opportunities developing worthy of tracking.